US Treasury Secretary Timothy Geithner spoke here Tuesday of aggressive efforts that were helping arrest the global economic crisis, but he backed off when asked for his response to Saudi Arabia's biggest financial crisis since the global economic meltdown – involving a huge bad debt problem of two Saudi conglomerates because of the credit crunch. “The force of the global recession is now receding,” Geithner said after outlining to Saudi businesspeople at the Jeddah Chamber of Commerce the Obama administration's moves to confront the crisis. “For the first time in several quarters, the IMF and a range of private analysts are starting to revise up their forecasts for growth in the second half of this year and the next,” the Treasury Secretary said. “Global trade is starting to expand again.” The International Monetary Fund has recently upgraded its global forecast, predicting 2.5% growth for 2010, Geithner said, though cautioned at the same time that the “process of repair and recovery is going to take considerably more time.” The collective challenge globally, he said, “is to make sure we provide a steady, forceful and sustained level of support for recovery, until we are confident we have established conditions for durable growth, led by private investment and spending.” The “conditions for durable growth” was precisely the concern of Saudi businessman Hussein Shobokshi who, in a short Q&A session after Geithner's speech, raised the issue of the two privately owned Saudi conglomerates, Ahmad Hamad Algosaibi and Brothers (AHAB) and the Saad Group, which have not publicly disclosed the size of their debt defaults. However, according to financial and banking sources, nearly 88 banks and companies have exposure of around SR27.86 billion ($7.42 billion) in syndicated loans to the two entities. “The credit crunch has hit Saudi Arabia and we have some regional conglomerates falling,” Shobokshi said, framing his question, “and we have a huge case in the Eastern Province between two companies.” Pointing out talk of irregularities in the case, he asked, “I am wondering whether this topic will be of interest to you as a policy maker, particularly since there is some serious involvement with international banks, and whether will this be discussed with the Saudi monetary authorities today.” Geithner refused to comment on the specific case and said he doubted “that there will be a specific subject of our conversations today.” But he went on to say that the United States and Saudi Arabia “have a common economic interest, a common national security interest of reducing the ability of not just extremist groups but of countries that present a common threat to us by taking advantange of our financial systems to finance their activities.” “We have been having very effective, very cooperative relations with the Kingdom and with many other countries in the region toward that objective. And that broad area of cooperation is something that we will spend some time on today,” the Treasury Secretary added. Shobokshi, speaking to the Saudi Gazette afterwards, said he was “not at all satisfied” with Geithner's response. “He gave me a very broad, noncommittal answer to a serious global problem,” Shobokshi said. “We have to understand the health of the financial transaction, show some leadership, some transparency and to state clearly some ideas to put on the table for discussion.” Mohamed Salem Al-Hindi, vice president of AHAB, told Al-Hayat newspaper in a statement published Monday that Saudi Arabia has formed a special panel in connection with the restructuring of the conglomerate, whose accounts remain frozen. The precise role of the panel was not immediately clear, Reuters reported. “The government committee that was formed is continuing its works and it summons the interested (parties) whenever the need arises,” Al-Hindi told Al-Hayat. “The situation remains as it was,” he said, when asked whether the Saudi central bank had done anything to end the freeze on AHAB's accounts. Hindi also told the newspaper all of the businesses of family-owned AHAB were profitable except the banking business, but that the consolidated debt of the group had yet to be determined. “The size of the group's (AHAB) overall debt is until now not known,” Hindi said. Loans owed by AHAB's non-banking units did not exceed 30 million riyals ($8 million), he said. Al-Hayat said AHAB held a meeting on Sunday with Saudi lenders. The newspaper further said the group had asked the banks to defer repayments by at least three months, but it did not cite a source. Hindi declined to comment on this, Al-Hayat said. According to Shobokshi, more than 128 local, regional and international institutions are involved in the debt crisis that “will have an impact on local banking sector and also secondary repercussions on local businesses that may find credit hard to find as a result.” “There is a lot of concern over this in the Saudi business community, and I believe the problem is very serious and not being taken care of as it should be,” Shobokshi said, expressing worry over published reports that “Bahrain is investigating a charge of fraud and financial irregularities involving one of the two.” “We need much more transparency on the steps to be taken on all fronts – corporate governance, need to be out in the open,” Shobokshi said. “The Treasury Secretary's response was just a capsule for comfort.” Analysts say family-run businesses in the region lack transparency and disclosure criteria and Gulf banks are to blame as they generally make a mistake in lending just on the basis of reputation. The Saudi British Bank (Saab) was recently quoted in a report as saying that “The risks which businesses have undertaken and which have become publicly exposed heighten the level of concern. Lack of corporate transparency exaggerates the unknown.” “The need for additional efforts towards improved corporate transparency is paramount. There are two important and inter-related issues here. Firstly, the bank-wide exposure to these business groups, as lending is carried out on a name basis; secondly, the level of exposure, risk and ratings which banks experience in the event of system-wide difficulties,” the report said. International lenders reportedly hold SR18.3 billion ($4.88billion) of the total debt held by AHAB and Saad. The rest is held by Gulf and Middle East firms, mostly banks but holding companies are also reportedly affected. Geithner, who arrived in Saudi Arabia overnight from London, was aiming to reassure Gulf Arab states that the United States wants their investments and that their US dollar assets are safe. He travels to Abu Dhabi in the United Arab Emirates on Wednesday and will also make a stop in Paris on Thursday.
