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Saturday 20 September 2008
CIC dashes talk of Morgan Stanley stake deal
China Investment Corp yesterday dampened speculation that the sovereign wealth fund could be ready to increase its stake in United States investment bank Morgan Stanley. More in comments...
China Investment Corp yesterday dampened speculation that the sovereign wealth fund could be ready to increase its stake in United States investment bank Morgan Stanley.
CIC bought 9.9 per cent of Morgan Stanley in December last year and was in talks to raise its holding to as high as 49 per cent, sources said.
A senior CIC official, quoted by Xinhua, acknowledged that rumours were swirling, but said Wall Street’s two remaining stand-alone investment banks, Morgan Stanley and Goldman Sachs, were capable of tackling their problems on their own.
“CIC will stick to its cautious attitude when it comes to overseas investments. Morgan Stanley and Goldman Sachs have fairly good capital adequacy ratios at present, and they can solve the problems they face independently,” Xinhua’s Chinese-language dispatch paraphrased the official as saying.
Any foreign investor seeking to buy into a US financial institution would face serious political obstacles in the US, the official said.
He pointed to systemic risks in the US financial markets, which he said were characterised by spreading panic.
In the absence of US government action, a capital infusion from a single overseas financial institution would not address the current liquidity shortage, he said.
An earlier English-language Xinhua article quoted an unidentified CIC official as making similar points. It was not clear if the two reports were based on the same source.
“Even if the CIC intended to buy a stake, it could be very hard now as the purchase of a stake, even one smaller than 10 per cent, could be subject to the US government foreign investment review,” the official was quoted as saying in the English article.
Morgan Stanley is also in merger talks with Wachovia Corp and other banks as it seeks fresh capital to ride out an unprecedented financial storm sweeping Wall Street.
CIC was founded a year ago to generate higher returns on US$200 billion of the mainland’s official foreign reserves. The central bank separately manages an additional US$1.8 trillion in reserves.
A banker who spoke this week to CIC said the fund, along with other Chinese state-owned financial firms, was keen to put money to work in beaten-down US financial stocks.
At the same time, the banker said, Chinese institutions were nervous about taking the plunge because of steep losses that CIC had suffered after buying into Morgan Stanley and US private-equity house Blackstone Group last year.
China Development Bank’s 3.1 per cent stake in British bank Barclays is also deep under water, as is an investment by Ping An Insurance in Belgian-Dutch financial firm Fortis.
“In view of the global financial turmoil, Chinese financial institutions are likely to adopt a more cautious approach towards overseas investments,” Jing Ulrich, the chairman of China equities at JP Morgan, said in a research note on Thursday.
If CIC were to raise its stake in Morgan Stanley, the fund could trigger a backlash at home as well as in the US.
Opinions on the internet of CIC’s overseas investments have been mostly hostile, with many bloggers questioning why China is spending its wealth abroad and not at home.
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CIC dashes talk of Morgan Stanley stake deal
Reuters in Beijing
20 September 2008
China Investment Corp yesterday dampened speculation that the sovereign wealth fund could be ready to increase its stake in United States investment bank Morgan Stanley.
CIC bought 9.9 per cent of Morgan Stanley in December last year and was in talks to raise its holding to as high as 49 per cent, sources said.
A senior CIC official, quoted by Xinhua, acknowledged that rumours were swirling, but said Wall Street’s two remaining stand-alone investment banks, Morgan Stanley and Goldman Sachs, were capable of tackling their problems on their own.
“CIC will stick to its cautious attitude when it comes to overseas investments. Morgan Stanley and Goldman Sachs have fairly good capital adequacy ratios at present, and they can solve the problems they face independently,” Xinhua’s Chinese-language dispatch paraphrased the official as saying.
Any foreign investor seeking to buy into a US financial institution would face serious political obstacles in the US, the official said.
He pointed to systemic risks in the US financial markets, which he said were characterised by spreading panic.
In the absence of US government action, a capital infusion from a single overseas financial institution would not address the current liquidity shortage, he said.
An earlier English-language Xinhua article quoted an unidentified CIC official as making similar points. It was not clear if the two reports were based on the same source.
“Even if the CIC intended to buy a stake, it could be very hard now as the purchase of a stake, even one smaller than 10 per cent, could be subject to the US government foreign investment review,” the official was quoted as saying in the English article.
Morgan Stanley is also in merger talks with Wachovia Corp and other banks as it seeks fresh capital to ride out an unprecedented financial storm sweeping Wall Street.
CIC was founded a year ago to generate higher returns on US$200 billion of the mainland’s official foreign reserves. The central bank separately manages an additional US$1.8 trillion in reserves.
A banker who spoke this week to CIC said the fund, along with other Chinese state-owned financial firms, was keen to put money to work in beaten-down US financial stocks.
At the same time, the banker said, Chinese institutions were nervous about taking the plunge because of steep losses that CIC had suffered after buying into Morgan Stanley and US private-equity house Blackstone Group last year.
China Development Bank’s 3.1 per cent stake in British bank Barclays is also deep under water, as is an investment by Ping An Insurance in Belgian-Dutch financial firm Fortis.
“In view of the global financial turmoil, Chinese financial institutions are likely to adopt a more cautious approach towards overseas investments,” Jing Ulrich, the chairman of China equities at JP Morgan, said in a research note on Thursday.
If CIC were to raise its stake in Morgan Stanley, the fund could trigger a backlash at home as well as in the US.
Opinions on the internet of CIC’s overseas investments have been mostly hostile, with many bloggers questioning why China is spending its wealth abroad and not at home.
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