Taking the Wall St bypass

February 19, 2009

THAILAND APECRemember early last year and the year before, when the U.S. financial system won huge investments from Asian sovereign wealth funds? Those investments seemed so rich at the time, offering conversions into shares at deep discounts and the kind of interest rates banks had demanded from subprime borrowers. The biggest fear anyone on Wall Street had was some vague sense that foreign ownership of U.S. financial institutions might be somehow un-American or a threat to national security.

Nobody talks about those days much anymore. Merrill Lynch, the recipient of billions of expensive sovereign wealth fund support, was swallowed up by Bank of America. Talk of nationalization swirls around Citigroup, another sovereign wealth fund investment target throughout the stunning collapse in its share price.

Our correspondent George Chen reports China’s $200 billion sovereign wealth fund, China Investment Corp, is shifting to natural resources, fixed income and real estate after taking big haircuts on the U.S. financial sector. The fund, headed by former Vice Finance Minister Lou Jiwei, “has drawn criticism at home over large paper losses on its combined $8.6 billion investments in U.S. private equity giant Blackstone Group and Wall Street bank Morgan Stanley,” Chen says, citing people familiar with the matter.

Sources of sovereign wealth from Singapore, Abu Dhabi and South Korea have all been burned by bad bets on a recovery in the U.S. finance sector.

Lou is in Washington and New York this week and is scheduled to meet top executives of Wall Street firms including Blackstone, Morgan Stanley and Carlyle Group, all of which are keen to attract CIC investments. But Chinese government and financial sources familiar with Lou’s thinking tell Chen that chances of fresh bailout investments are slim, at least for 2009.

Other Deals News

* Thai broker BFIT Securities said it received a merger proposal from a Thai unit of Singapore’s UOB Kay Hian Holdings.

* Swiss drugmaker Roche sold a record $16 billion in debt to help finance a $42 billion hostile offer for Genentech, drawing strong demand from investors hungry for high-quality bonds.

* Spanish construction and energy group Acciona is still in talks with Enel over the sale of its 25 percent stake in Endesa to the Italian utility, an Acciona spokesman said.

* South Korea’s No. 2 beer maker Oriental Brewery has drawn interest from Japan’s Asahi Breweries and Kirin Holdings and local firm Lotte Group, in a deal worth about $700 million, a newspaper reported.

* Malaysian financial group BIMB Holdings is not in talks to merge its sharia banking subsidiary Bank Islam with Maybank, BIMB said.

* Brazil’s central bank said it approved a planned merger between Itau, one of the country’s largest private banks, and smaller rival Unibanco.

(PHOTO: Luo Jiwei, then China’s Vice Minister, Ministry of Finance, poses for a group photo at the 10th Asia-Pacific Economic Cooperation (APEC) finance ministers forum in Phuket, Thailand on September 5, 2003. REUTERS/Adrees Latif)

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