Daily Management Review

Global Banking Chiefs Strike A Sombre Tone As The Israel-Hamas Conflict Rages


Global Banking Chiefs Strike A Sombre Tone As The Israel-Hamas Conflict Rages
At a landmark meeting in Saudi Arabia intended to facilitate deals, Wall Street's leading bankers expressed a dismal outlook for the world economy while a bloody conflict between Hamas and Israel that has claimed thousands of lives continues.
Drawn by the potential of agreements as the kingdom strives to wean itself off oil, delegates usually utilise the annual event to cultivate relationships with some of Saudi Arabia's largest corporations and its $778-billion sovereign wealth fund.
However, the event, which was called "Davos in the Desert" in reference to the yearly meeting of global leaders and business executives in the Swiss Alps, was overshadowed by an escalation of hostilities between Israel and the Islamist group Hamas into a wider confrontation.
Jamie Dimon, the chief executive of JPMorgan Chase, urged Saudi Arabia to persist with a US-led endeavour to forge formal diplomatic ties with Israel.
"Despite what happened in Israel, I urge you all to keep up that effort," Dimon told the Future Investment Initiative (FII) in Riyadh. "It is the only way to get there with some leadership from Saudi Arabia, for the folks of the Middle East."
Saudi Arabia is quickly reevaluating its foreign policy, according to two people familiar with Riyadh's thinking, and is postponing efforts to normalise relations with Israel that the United States has supported.
According to World Bank President Ajay Banga, the greatest threat to the global economy is geopolitical tensions exacerbated by the Middle East conflict.
"There is so much going on in the world and geopolitics in the wars that you're seeing and what just happened recently in Israel and Gaza. At the end of the day, when you put all this together, I think the impact on economic development is even more serious," Banga said.
Even though the world's leading financiers spoke mostly about artificial intelligence and other subjects other than the battle, the economic aftermath of war and record debts created a depressing atmosphere.
"There’s no question if these things are not resolved, it probably means more global terrorism, which means more insecurity, which means society is going to be fearful ... and ... we see contractions in our economies," BlackRock Chairman and CEO Laurence Fink said.
At FII, bank CEOs such as Dimon of JPMorgan, Solomon of Goldman Sachs, and Fraser of Citi joined Fink on a panel. In addition to discussing women in the workforce, they also discussed the effects of rising interest rates.
The founder of the hedge fund Bridgewater Associates, Ray Dalio, expressed his pessimism.
"If you take the time horizon, the monetary policies that we’re going to see and so on, will have greater effects on the world," Dalio said. "And you look at the world gaps, so it’s difficult to be optimistic on that."
Noel Quinn, CEO of HSBC Group, also issued a warning regarding the dangers of high public debt. "I’m concerned about a tipping point on fiscal deficits," he stated. "When it comes, it will come fast and I think there are a number of economies in the world where there could be a tipping point and it will hit hard."
The comments were made as the Israeli military declared that it was getting ready for "unrelenting attacks" aimed at taking down Hamas. President Barack Obama of the United States once issued a warning, saying that "any Israeli military strategy that ignores the human costs could ultimately backfire."
Just as Saudi Arabia, a regional powerhouse, is investing hundreds of billions of dollars in a massive economic transformation plan, the conflict has the potential to destabilise the Middle East.
However, the finance chiefs' primary concern was business.
Saudi Arabia has spent billions on businesses in the last year, spanning across sports, gaming, and aviation. This year, Telefonica in Spain saw a nearly 10% investment from Saudi Telecom Corp.
"While today's world seems uncertain, we continue with our mandate to inspire ... the future of business and future-proof our societies to create a more stable and resilient world order," Yasser al-Rumayyan, governor of Saudi Arabia's sovereign Public Investment Fund, told the conference.
Solomon of Goldman Sachs talked about the possibility of more deals.
"Over time, scale matters enormously in the competitive nature of global businesses," he said.
Co-founder, chairman, and CEO of the Blackstone Group Stephen Schwarzman warned investors about the risk associated with investing in office buildings, which are currently frequently empty due to the pandemic.
"Say you have 30% unused space in office buildings, that means those office buildings are not survivable as economic entities. So that's going to have a very bad ending," Schwarzman said.
Just a small number of the over 5,000 individuals who registered to attend this year's Future Investment Initiative withdrew because of current affairs.
Amid tensions with U.S. President Joe Biden's administration, Saudi Crown Prince Mohammed bin Salman has attempted to elevate the kingdom's prominence in order to gain trade and investment ties. He has also pursued communication with old adversaries in the area and shifted his focus to Eastern partners.
The purpose of this year's forum is to illustrate that eastward shift. Richard Attias, CEO of the FII Institute, announced that there will be 70 speakers from Asia, 40 of them will be Chinese.
Saudi Arabia is halfway through its ambitious Vision 2030 economic reform plan, which aims to attract talent and finance from abroad, create jobs for residents, and wean the country off of oil.
A portion of FII's goal is to draw funding for this, which is a difficult assignment given that overall foreign investment flows decreased in the second quarter of this year.