Monday, December 10, 2007

The 9% Singapore sling

The giant Swiss Bank, UBS, has found itself in a Singapore sling.

UBS Gains Two New Investors, Writes Down $10 Billion By ANITA GREIL
UBS AG Monday said that two strategic foreign investors committed to inject capital worth 13 billion Swiss francs ($11.5 billion) as part of a broader move to strengthen capital as the Swiss bank announced a further $10 billion in write-downs on subprime holdings.

UBS, based in Zurich, also revised its outlook, saying it now expects to post a net loss attributable to shareholders in the fourth quarter, after having said earlier that it expects a profit overall. The bank said it was now possible that it will record a net loss for the full year.

UBS said that the Government of Singapore Investment Corp., or GIC, is investing 11 billion francs, while an undisclosed strategic investor in the Middle East is contributing two billion francs. Market participants speculated that this second investor could be Abu Dhabi Investment Authority, which had also invested in Citigroup Inc., or the government of Oman.

GIC will own around 9% of UBS following its investment, GIC Deputy Chairman Tony Tan said at a news conference in Singapore.

A very little history on this in Guambat's last post: see, UBS boggles - $10bn of writedowns, $17bn in emergency capital.


FOLLOW-UP:
BusinessWeek adds this to the story:

SWFs Quadruple Investment in the West

With most financial institutions still licking their wounds from the credit crunch, UBS may have had little option but to turn to government-backed funds to bail it out. Rival Citigroup (C), for example, made a similar move on Nov. 26 in a $7.5 billion agreement (BusinessWeek.com, 11/27/07) with the Abu Dhabi Investment Authority.

Research from Morgan Stanley (MS) shows sovereign wealth funds (SWFs) have already invested $37.6 billion in Western financial assets this year, compared with $9.2 billion in 2006, as SWFs look to snap up underweight stocks (BusinessWeek.com, 11/1/07) that have been hard hit by the credit crunch.

By bringing in wealthy investors, UBS hopes both to reduce its exposure to subprime holdings and to reassure investors who remain jittery after several bearish months in the financial markets.

Guambat, for reasons not particularly clear to him, has flashbacks to The Godfather movies when considering all that. What will be the cost of this extended favour? And when will it be called?

And, it should be noted, Singapore, Inc. is not intentionally hoarding its purchases. Singapore Power International is "temporarily" stuck with its Australian gas and electric transmission investments after a deal to sell them fell through. See,
$11 billion of deals collapse:
From Singapore, SPI chief financial officer Yap Chee Keong said management of the former Alinta assets would continue under the present arrangements backed by the Singapore company's expertise.

Singapore Power was a long-term holder of the Australian assets and bringing them on to its balance sheet would not be harmful to the parent company.

SPI would refinance debt assumed through the Alinta purchase, possibly selling bonds in the Singapore domestic market.

Mr Yap said there was no time frame in which to consider the former Alinta assets' future.

"Hopefully there will be a calming on the global debt market in future months," Mr Yap said.

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