"How sovereign wealth funds were left nursing multibillion losses"

A nice recap in the Guardian of how far underwater the various sovereign wealth funds are on their investments in large Western financial institutions. The tally is not pretty.

It isn’t simply that the losses are large in percentage terms, but the falls came fast, making the buyers look like chumps. And these were high profile deals by funds that are very visible in their home countries.

Thus, even if the fund managers can be persuaded that further investment in damaged financial firms would be a winner, the domestic politics make it a non-starter. It’s highly unlikely they will make another high profile deal (save perhaps those funds that have not yet been burned) until a bottom has clearly been reached. But by then, the urgent need for capital will also have passed.

From the Guardian:

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 stockmarkets 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 stockmarkets.

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


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  1. eh

    My first thought was China’s investment in Blackstone, but in the snippet you post it is not even mentioned; hasn’t that also been, to date, a loser?

  2. Yves Smith

    Good catch. China bought Blackstone at its IPO price; I don’t follow its stock but an article in the FT a few weeks ago said Blackstone’s price had fallen by 50%.

    And that’s in dollar terms…..

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