Another day, another sovereign investment fund check to an investment bank. How the mighty are fallen.
The story in the Telegraph makes clear the proposed Qatar Investment Authority acquisition of 5% of Credit Suisse, worth roughly $3 billiion, is not a done deal but seems likely to go through. And the article goes to some pains to stress that unlike previous recipients of foreign largesse, Credit Suisse has a solid balance sheet and no pressing need for capital. The article indicates that the Qataris are buying a secondary market position.
While this may be a clever move, given that Credit Suisse, despite its unimpaired status, is doubtless taking a stock price haircut due to industry woes, who knows what lies ahead. SocGen looked like a great institution a mere week ago.
From the Telegraph:
Powerful funds backed by the Qatari government are considering assembling a significant stake in Credit Suisse, one of Europe’s largest banks, The Sunday Telegraph has learned.
Investment entities believed to be affiliated to the Qatar Investment Authority, which is closely linked to the emirate’s royal family and has tabled unsuccessful bids for J Sainsbury and Thames Water, are understood to be considering building a 5 per cent stake in the Zurich-based bank…..
Sovereign wealth funds from Abu Dhabi, China, Dubai and Singapore have snapped up large stakes in banks such as Citigroup, Merrill Lynch, Morgan Stanley and UBS as they wilted under the weight of huge losses related to the implosion of the American sub-prime mortgage industry.
Any investment in Credit Suisse by the QIA or another sovereign investor would, however, be seen differently. Other than a $1.9bn writedown related to the sub-prime crisis announced in November, the bank has so far emerged comparatively unscathed from the credit crunch and has avoided the need to seek recourse to cash-rich foreign governments in order to recapitalise its balance sheet.
Credit Suisse boasts a strong capital position, with tier 1 capital of about 12 per cent, according to the latest figures, and any move by Qatar to invest in the Swiss group would not dilute its existing capital structure.
The acquisition of 5 per cent of Credit Suisse would represent an outlay of just over $3bn at Friday’s closing share price of 59.95 Swiss francs.
People close to the situation said last night that the Qataris might already have been buying shares in the open market but that it was unclear whether they planned to become long-term investors.
The Swiss stock exchange requires shareholdings of more than 3 per cent to be disclosed, implying that the Qataris had not yet crossed that threshold.
One person cautioned this weekend that the Qataris’ plans had not been finalised and that they could end up taking a stake larger or smaller than 5 per cent, or pursuing the investment through an alternative vehicle.
It was unclear last night whether the prospective Qatari investors had held discussions about any investment with Credit Suisse’s management, which is led by Brady Dougan, its chief executive.
“This is not about shoring up an ailing balance sheet,” one source said. “This would not dilute Credit Suisse’s capital structure or signal anything like the message that other banks’ huge writedowns and their need to attract large foreign investments have sent out.”
Credit Suisse’s existing major shareholders include Olyan Group, a Saudi investment firm, and Axa, the French insurer.
The growing influence wielded by sovereign wealth funds was one of the talking points at last week’s World Economic Forum in Davos.
Larry Summers, the former US treasury secretary, called for a code of conduct for such investors and questioned their ability to remain passive shareholders in the event of a bank’s collapse.
Summers said: “Is there any country in the world that can assert confidently that, when there are billions of dollars on the line, their head of state and their foreign minister are not going to become involved in the negotiation of that transaction?”
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“Then why raise funds at a time when prevailing prices in the industry are depressed?“
The article explicitly stated that this is not about raising funds, but aquiring a part of the existing capital base of Credit Suisse. Credit Suisse is simply seen as a bargain by the Qatar Investment Authority.
Qatar is most probably in negotiations with a capital-impaired third party on buying a big chunk of Credit Suisse at a discount to the market price. This is to prevent further collapse of market valuations by a forced liquidation.
Oof, I didn’t read the story closely, I was on the phone when putting it up. The perils of multitasking. Thanks for the catch.
I find it funny that authorities in the US are complaining about sovereign wealth funds.
For decades companies from western countries and in particular the US have ‘imposed’ themselves on other countries. ‘Free market capitalism’ has been pushed by the US and the world bank into all areas in third world countries.
Yet suddenly, when the US is now worried about foreigners owning small slices of their companies. This is hypocrisy at its best.
Whether it is about possession of nuclear weapons, human rights or finance the US is the master of hypocrisy.