The global financial crisis has badly hit the sovereign wealth funds (SWFs) investments made in the US and European banks.
According to a Guardian newspaper report, the financial crisis has left the Abu Dhabi, Kuwait and Singapore sovereign funds nursing multibillion-dollar losses after helping to bail out major western banks. Singapore’s Government Investment Corporation (GIC), for example, which with funds of more than $330 billion (Dh1.2trn), spent more than $5.5bn on a nine per cent stake in UBS last year.
The Swiss bank shares have dropped 46 per cent 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 per cent lower than when the Adia made its investment.
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 per cent shareholding, the bank’s shares were trading at about 680p each. The Singaporean fund Temasek is also nursing losses on the 2.1 per cent 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 to the $3.2trn 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 $12trn by 2015.
But the losses may dampen their appetite for further involvement in bailing out western banks.
$5.5bn The amount paid out by GIC for a nine per cent stake in UBS
46% The drop in UBS share price this year
$3.2trn The total value of assets held by the world’s SWFs
Wealth funds suffer as credit crisis hits banks