The UAE invests in banks that invest in the UAE

In the latest deal the government-owned Abu Dhabi Investment Authority (ADIA) has bought Equity Units for $7.5bn. The convertible stock, yielding 11 per cent, can be converted into ordinary shares at a price of between $31.83 and $37.24 between March 2010 and September 2010.

Citi said ADIA's conversion will total no more than 4.9 per cent of Citi's total shares, but this still makes it the biggest single shareholder, ahead of the current number one, Prince Alwaleed bin Talal of Saudi Arabia. Citigroup has recently seen its share dip below $30 for the first time in five years.

However, while ADIA is clearly making an opportunistic and low-cost investment in the world's second largest banking group, this can also be seen as a reward to Citi for its ongoing investment in the UAE, where the bank has more than doubled its headcount in the past couple of years, replacing Bahrain as its regional headquarters.

Dubai's stakes

It has been the same story for Dubai, where government agencies have bought smaller stakes in HSBC, Standard Chartered and Deutsche Bank - partly it appears to help secure them as leading participants in the new Dubai International Financial Centre.

Will it now be the case that as the global credit crunch unwinds over the next year or so we see more UAE stakes in the global banks? It looks inevitable, and the list of possible candidates for a cash injection could be a long one.

But if past precedent is anything to go by then priority will go to those institutions that are making a commitment to the future of the UAE. And that might not just be a matter of scaling up operations but also a reflection of a real commitment to Emiratisation of banking jobs.

Emiratisation

Expect to see the big banks flaunting their commitment to recruiting local talent, although this is a major challenge as the pool of people available is limited by the speed of human reproduction and even the richest banks can do little about that.

Actually there is the making of a virtuous investment circle. The UAE invests in the global banks to help them over their need for new capital while the big banks create a new industry in the UAE, and fill up the many office towers now under construction in the DIFC, Business Bay and Reem Island.

The banks themselves are already profiting from their recent investments in the UAE. Consider Deutsche Bank's rapid growth to more than 300 staff in the DIFC from almost a standing start a few years ago; the bank has just been lead manager on the $5bn DP World IPO and those fees will surely have more than covered its entire start-up costs.

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