Breaking a Bank Barrier

Leaders of the oil-producing nations, particularly the Arabs, are greatly confused about whether their investment money is really welcome in the U.S. Though many American businessmen say that they want and need to earn back the petrodollars, the Arabs often find that their attempts to invest in U.S. business are blocked. This is particularly the case in banking. Within the past three weeks, adverse local reaction has forced two Arab businessmen to abandon unrelated attempts to gain control of banks in San Jose, Calif., and Pontiac, Mich. (TIME, Feb. 3).* Now, however, a wealthy and well-connected Saudi Arabian entrepreneur, Ghaith Pharaon, 34, seems to have cracked the banking barrier. For an estimated $10 million, Pharaon has bought a controlling one-third interest in Detroit's ailing Bank of the Commonwealth (assets: $1 billion), which is the sixth biggest in Michigan.

Commonwealth had been taken over by Chase Manhattan in 1971, after it was forced into a corner by a combination of bad loans and poor investments in real estate and low-paying municipal bonds. Unable to stanch a steady decline in deposits, Chase negotiated a loan from the Federal Deposit Insurance Corp. to keep the bank afloat, then in 1972 sold its interest to a large Detroit mortgage company owned by James T. Barnes and his son James Jr. When Commonwealth's losses hit $3.2 million last year, the Barneses in turn agreed to sell 40% of the bank's common stock and 32% of its preferred to Pharaon.

Pharaon is the son of a former Saudi diplomat and Cabinet Minister who is now one of King Faisal's top political advisers. Young Ghaith (the name means "abundant rain") was raised in France and educated at Stanford (class of 1963) and the Harvard Business School. Armed with an impressive list of U.S. business contacts, he returned to the Middle East in 1966, invested in land and built a personal fortune. He is chairman of ten companies involved in investments, insurance and construction, primarily in Saudi Arabia. An Italian executive with business interests in the Middle East says that Pharaon is "very much in the American mold, the kind of person you might expect to be a young partner in an investment bank if he were an American."

Grand Plans. In the Commonwealth deal, Pharaon's adviser was Roger Tamraz, a Lebanese dealmaker. Pharaon has his own grand, if vaguely defined plans for using Commonwealth as a "vehicle" to promote the export of Detroit's industrial technology to the Middle East while encouraging Arab countries to deposit petrodollars in the U.S.

"Investment by Middle Easterners in this part of the world should be welcome," Pharaon says. "The Americans believe somebody's going to come and buy everything in sight. I don't know why anyone should be concerned." He adds that he "would like American companies to set up manufacturing plants" in the Arab world and aims to use Commonwealth to encourage them to do so. If the FDIC approves his purchase as expected, Pharaon plans to begin a series of unspecified "project studies." These, he says, will lead in six to eight months to serious bargaining, presumably about joint manufacturing ventures, between businessmen in the Middle East and the American Midwest.

*In a similar form of discrimination, more than a dozen European investment banking houses owned by Jews have been blacklisted from financial transactions recently. Kuwait banks, under pressure from Arab governments, have sought with some success to exclude N.M. Rothschild & Sons, S.G. Warburg & Co., Lazard Freres and others from international deals involving European as well as Arab funds.

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