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Sovereign
wealth funds were left nursing multi-billion losses
Richard
Wray
The Guardian
22 Mar
08
http://www.guardian.co.uk/business/2008/mar/22/banking.investmentfunds
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Investments in banking stock rapidly go sour
- Singapore
group pours £9bn into leaking coffers
The
financial crisis enveloping the world banking sector has left
the sovereign wealth funds, controlled by governments from
Singapore and China to Abu Dhabi and Kuwait, nursing
multibillion-dollar losses after helping to bail out major
western banks.
In recent months, banks including
Citigroup, Morgan Stanley and UBS have turned to investment
funds, including the Government of Singapore Investment Corp
(GIC), its sister fund, Temasek, and China Investment Corp, for
funding that western investors were unwilling to give as stock
markets plunged.
But the dramatic fire sale of the US
investment bank Bear Stearns and subsequent stockmarket run on
HBOS this week have depressed banking stocks further and
deepened the climate of fear in the world's stock
markets.
Singapore's GIC, for example, which with funds
of more than $330bn (£166bn) is one of the world's largest
sovereign wealth funds, spent more than £5.5bn on a 9%
stake in UBS last year. Shares in the Swiss bank are down 46% so
far this year. It spent a further $6.88bn in January as part of
a $14.5bn funding round for the embattled US bank
Citigroup.
Two months before, the Abu Dhabi Investment
Authority (ADIA), which with assets estimated at up to $900bn is
reckoned to be the world's largest sovereign wealth fund,
invested $7.5bn in Citigroup bonds that will convert to shares
in 2010 and 2011 at prices from $31 to $37.
But since
then Citigroup has become one of the most high-profile
casualties of the sub-prime mortgage crisis in the US, and its
share price has plunged as low as $20 - nearly 40% lower than
when the ADIA made its investment.
The pain shows no sign
of letting up. Two months ago, Citigroup announced it had
plunged into the red over the past three months of 2007 and
sliced its dividend almost in half as it wiped more than $18bn
off the value of its assets because of exposure to sub-prime
mortgages. But Wall Street analysts reckon the firm could record
a further $15bn write-down for this financial quarter.
China
Investment Corporation's investment in Morgan Stanley, made just
before Christmas, is also facing a significant loss. The
securities it picked up for $5bn will convert to stock at $48 to
$57 a share in two years' time. At present, however, Morgan
Stanley's share price is closer to $42.
Another
Beijing-backed money manager, China Development Bank, has also
suffered as the stake in Barclays it bought in July has plunged
in value. When it acquired the 3.1% shareholding, the bank's
shares were trading at about 680p each. On Thursday, they were
at 429p.
The Singaporean fund Temasek is also nursing
losses on the 2.1% Barclays stake it bought last year, although
its investment in the London-listed bank Standard Chartered has
fared better. The bank, which has little involvement in the US
sub-prime crisis, has weathered the storm better than many of
its peers.
The losses sustained by sovereign wealth funds
are relatively insignificant when compared with the $3.2tr they
are believed to have at their control. Morgan Stanley reckons
that with the price of commodities such as oil set to remain
high, this amount will balloon to $12tr by 2015. But the losses
may dampen their appetite for further involvement in bailing out
western banks.
Western politicians are increasingly
concerned about the power of sovereign wealth funds in their
markets. Earlier this week the US government agreed voluntary
principles with ADIA and Singapore's GIC to regulate their
investments.
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