On January 15, two US giants, Citigroup and Merrill Lynch, battered by huge losses from the subprime crisis, were provided with massive capital injections in excess of $21bn and, as losses at other giants are announced, the increasing role of the sovereign funds is emerging.
For Citi, the $9.9bn fourth quarter net loss as a result of $18.1bn in write-downs and credit costs on subprime-related direct exposures has led to an unprecedented capital raising exercise. Following a $7.5bn injection by the Abu Dhabi Investment Authority in November, Citi announced in January that it was getting a further $14.5bn from investors, including the governments of Singapore (GIC with $6.9bn) and Kuwait (Kuwait Investment Authority with $3bn), former chairman Sandy Weill and Saudi Prince Alwaleed bin Talal.
Merrill is receiving $6.6bn from a group led by Tokyo-based Mizuho Financial Group, the Kuwait Investment Authority ($2bn) and the Korea Investment Corporation ($2bn) following its dramatic $10.3bn fourth quarter loss, the worst in the company’s 94-year history.
UBS announced in December that the government of Singapore and an undisclosed Middle East investor would invest $11.5bn in the firm, following a further $10bn in write-downs on subprime mortgage-related holdings.
And in late December, China Investment Corporation, China’s new state-owned investment vehicle, agreed to invest $5bn in US investment bank Morgan Stanley following the latter’s larger than expected fourth quarter loss due to $9.4bn in subprime write-downs.
Although this flurry of deals, largely from sovereign wealth funds (SWFs) that are providing $45bn in new capital to four of the world’s largest institutions, is expected to be followed by many others, the range of SWFs is relatively narrow, coming from just five sources. They are Abu Dhabi, China, Korea, Kuwait and Singapore.
Also, as new losses emerge, the SWFs are gaining increasingly good terms on their investments, especially in convertible preferred securities.
UBS fails in India bid
UBS, Switzerland’s biggest bank, which has suffered losses due to the subprime market crash, has experienced another setback after India’s central bank rejected its attempt to enter the mutual fund business in the country. UBS planned to acquire the Indian fund management arm of Standard Chartered for SFr147m ($130m).
Société Générale is poised to buy a Ukrainian bank specialising in consumer credit, La Tribune reported. The French bank said it planned to merge the new acquisition (which it did not name) with the ProstoFinance subsidiary that it set up in Ukraine two years ago.
Intesa Sanpaolo, Italy’s second largest bank by Tier 1 capital, has announced that it is bidding in the privatisation of Libya’s largest retail bank, Wahda Bank. Intesa Sanpaolo said it was close to finishing the due diligence on Wahda.
British boutique advisory firm Cenkos Securities and Iceland’s Landsbanki have resumed talks to buy investment bank Close Brothers after their initial approach was unsuccessful two months ago. In November 2007, Close refused to enter discussions after it was offered $9.50 per share, describing the bid as “wholly inadequate”. Cenkos said it was interested in Close Brother’s corporate finance and asset management units while lender Landsbanki’s eyes were on the banking division.
Vietnam’s state-owned Industrial and Commercial Bank, one of the country’s big four state lenders, has announced it intends to proceed with its partial privatisation in March by selling a 25% stake to the public. If plans are approved by the authorities, the bank would become the second largest state-owned lender to auction shares to the public, after Vietcombank raised $652 in December last year.
South Korean president-elect Lee Myung-back’s transition team has announced it is working on a plan to combine the state-run Korea Development Bank (KDB) with Daewoo Securities for a possible $21bn sale. A spokesperson said he believed it would be able to raise about 20,000bn Won ($21.24bn) from the sale. KDB has been at the centre of the country’s industrial policy through its financing role and owns 39% of Daewoo Securities, South Korea’s second-most valuable brokerage.
Saudi Pak Industrial and Agricultural Investment has announced plans to sell a 68% stake worth $160m in its unit Saudi Pak Commercial Bank (SPCB) to Bank Muscat, Nomura European Investment and an arm of the World Bank. The consortium planned to buy an additional 17% stake for about $40m from the open market, a SPCB official said.
Russian state-controlled bank OAO VTB has received the go-ahead from Chinese authorities to open an affiliate in China, according to Russian news agency Interfax. VTB is the first Russian lender to obtain such a licence. The bank already operates in Austria, France, Germany, the UK and several former Soviet republics.
Khazanah Nasional, the Malaysian government’s investment arm, plans to merge with Lippo Bank and Bank Niaga in Indonesia to comply with competition regulations aimed at streamlining the industry.
