Troubled banks turn to sovereign funds
An investment company set up by the government of Singapore has bought a nearly $10 billion stake in the Swiss bank UBS, which is reeling from the subprime mess. Other sovereign funds are on a bit of a shopping spree for Western banks as well. Amy Scott reports.
The UBS logo hangs outside of a bank branch in Geneva, Switzerland. (Fabrice Coffrini/AFP/Getty Images)
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KAI RYSSDAL: The more the accountants look, the worse the news gets. Last quarter the Swiss bank UBS announced it was $2.5 billion dollars poorer because of the U.S. subprime mess. Today it added another ten billion to the total. But with clouds do come the occasional silver linings. For somebody. Marketplace's Amy Scott reports from New York an investment company set up by the goverment of Singapore has bought a nearly $10 billion stake in UBS.
AMY SCOTT: Sovereign wealth funds like Singapore's are on a bit of a shopping spree for Western banks. Last month the Abu Dhabi Investment Authority bought a nearly 5 percent stake in Citigroup. China recently took a stake in Barclay's, Dubai in Deutsche Bank. Kenneth Rogoff teaches economics at Harvard. He says the mortgage crisis has left U.S. and European banks short on cash.
KENNETH ROGOFF: And these banks in the Middle East and Asia have tons of money. And they're swooping in and buying up stock.
And they're getting it cheap. Financial stocks have tumbled in the last six months. Analyst Jeffrey Harte of Sandler O'Neil says a global slowdown could drive share prices lower. But he sees the sovereign funds' investments in banks as a vote of confidence.
JEFFREY HARTE: When you have large investors who really can choose from any industry or any asset class, and when they actually single out an industry that's usually a good sign that valuations have bottomed.
It's not just banks. Last month Abu Dhabi bought an 8 percent stake in U.S. chip maker AMD. Law professor Henry Hu of the University of Texas worries foreign governments could wield too much influence over U.S. companies.
HENRY HU: Present intentions can change. And current friendly relations between one country and another may not necessarily stay that way.
Hu adds sovereign wealth funds have bought large amounts of U.S. treasury bonds. That's kept interest rates low for consumers. If they decide to buy other investments instead, Hu says we could all end up paying more to borrow money.
In New York, I'm Amy Scott for Marketplace.
