A Prince with Divided Loyalties

Even though Saudi Arabian multibillionaire Alwaleed has a huge stake in the West, he questions U.S. policy

Saudi Arabia's Prince Alwaleed bin Talal bin Abdulaziz Alsaud reacted to the September 11 terrorist attacks as most sane people did: with shock and outrage. As the horror unfolded on eight television monitors in his office in Riyadh, Alwaleed rushed to reach New York friends and associates, including Citigroup Chairman Sanford Weill.

Days later, after his emotions calmed, Alwaleed began devising an investment strategy for a world that began sliding into recession almost immediately after the attacks. He's seeking buying opportunities. "I'm not panicking, and I'm not scared," says the 43-year-old nephew of the Saudi King. "I've been through the Gulf War, the Asia crisis, and the Russian crisis."

But the response to the attacks -- a U.S.-led global war on terrorism, particularly fundamentalist Islamic terrorism -- has far more implications for the Saudi royals than those situations. In many respects, Alwaleed is emblematic of his country's sometimes ambiguous relationship with the West.


  A world-class financier, he built his fortune by taking stakes in top U.S. companies when they faltered, reaping huge rewards as they recovered. Before the attacks, he valued the portfolio of his company, Kingdom Holding, at $20 billion. As such, his economic interests are tied to the U.S.

He's also a devout Muslim committed to Islamic and Arab causes -- and a generous philanthropist in a region where terrorist groups have tapped a tradition of charitable donations. Alwaleed says he's confident that none of his money ends up in nefarious hands, but he acknowledges that other donors may be less fastidious.

Since September 11, swooning share prices have hit Alwaleed's portfolio hard. Some of his top investments -- Apple (AAPL ), Compaq (CPQ ), Motorola (MOT ), and Euro Disney -- look pretty frayed. As of Oct. 2, his 3% stake in Citigroup (C ), the fruit of a $590 million investment in its predecessor, Citicorp, in 1992 -- was down just 0.5%. But his holdings are well below last year's highs. Alwaleed estimates his portfolio fell 10% between Sept. 17, when U.S. markets reopened, and Oct. 1.


  Yet paper losses aren't his main concern. "We're getting hurt, but I'm a long-term investor," says Alwaleed. More perturbing, he suggests, is the world view reflected in President George W. Bush's declaration that those "who aren't with us are against us" in the fight against terrorism. Nothing in the Middle East -- even for a U.S. ally like Saudi Arabia -- is so black-and-white. "Yes, the Saudi relationship with the U.S. is very strategic," Alwaleed says. "But this incident will create tensions in the relationship."

It's hard for Americans to realize how deeply Saudis like Alwaleed feel about Islamic and Arab causes. That means funding projects that boost regional economies. One example: Alwaleed is the main investor in a $100 million Four Seasons hotel in Damascus.

It also means more controversial investments. Like many Saudis, including Osama bin Laden, Alwaleed was attracted by the cause of the mujahideen who fought the Soviets in Afghanistan. Alwaleed became a contributor to the mujahideen in the early 1980's when, he notes, Washington supported them. He even secretly traveled to training camps in Peshawar, Pakistan, in 1981. Alwaleed says that when Afghanistan descended into civil war after Soviet troops retreated in early 1989, he stopped supporting them. He made his last sizable donation to the mujahideen -- $5.4 million -- in April, 1990.


  "There are entities that are giving money now to the Afghans, but I am not involved," he insists. Alwaleed acknowledges that bin Laden's Al Qaeda network and other allied terrorist groups may benefit from the charitable funds collected in the Arab world. "Clearly, there have been loose ends," he says.

One of the five pillars of Islam is zakat -- giving 2.5% of one's savings each year to charity. In Saudi Arabia, where there is no income tax, people give generously. Alwaleed donated $100 million last year. Most went to poor Saudi families. But he also gave $6 million to Palestinians thrown out of work by the intifada, and he helped reconstruct Lebanese power plants destroyed by the Israeli air force.

For all Alwaleed's American style -- his relaxed demeanor, his U.S. business practices, and his American slang -- his loyalties are clear. What does the most pro-American of Saudi princes want to come out of this tragedy? "America has to understand the roots of resentment in the Arab world and the Muslim world," he says. "And we need to have high-level discussions to focus on this." If someone like Alwaleed feels this way, winning Middle East support may be even harder than America realizes.

By John Rossant in Paris

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