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GIC invests $14 billion in Swiss bank UBS

THE Government of Singapore Investment Corporation (GIC) has made its single largest investment ever - a massive 11 billion Swiss francs (S$14 billion) - to buy a major stake in a Swiss bank.
Gabriel Chen

Tue, Dec 11, 2007
The Straits Times

THE Government of Singapore Investment Corporation (GIC) has made its single largest investment ever - a massive 11 billion Swiss francs (S$14 billion) - to buy a major stake in a Swiss bank.

GIC, which manages Singapore's foreign reserves, is taking a stake of up to 9 per cent in troubled Swiss banking giant UBS.

The deal could make GIC the largest UBS shareholder, said GIC deputy chairman and executive director Tony Tan yesterday.

An unnamed investor in the Middle East is also injecting an additional two billion Swiss francs into the bank, UBS said yesterday.

The announcement of GIC's investment came on the same day that UBS said it had been hit by a fresh US$10 billion (S$14 billion) in losses from the sub-prime mortgage crisis in the United States, arising from risky loans to people with poor credit histories.

The deal mirrors actions taken by US-based Citigroup. Citi expects to write off between US$8 billion and US$11 billion in the fourth quarter and has secured funding from the Abu Dhabi Investment Authority.

'There must be a suspicion that it (UBS) feels a strong capital base is necessary just in case there is need for further write-downs,' Helvea analyst Peter Thorne told Reuters.

UBS chairman Marcel Ospel told the media that the investment should not be viewed as a rescue as the bank's losses could have been absorbed by its earnings and capital base.

UBS said the latest write-down was sparked by growing defaults on risky US home loans, but mainly 'fuelled by worsening market expectations of future developments'.

The bank, the world's largest wealth manager, is said to be among the worst hit by the sub-prime mortgage mess.

It had already unveiled four billion Swiss francs in similar losses, ejecting senior managers and slashing jobs.

But, speaking at a news conference, Dr Tan, who is also Singapore Press Holdings' chairman, said GIC has confidence in UBS' wealth management business - which mainly serves global wealthy figures.

He said GIC believes in the long-term prospects of the Swiss bank.

Dr Tan added that GIC is very satisfied that UBS, which had asked GIC to subscribe to the issue of new capital, has taken a 'very conservative view' of its investments exposed to US sub-prime problems. GIC has no direct exposure to investment products packaged from risky US mortgages.

Analysts have given the thumbs-up to GIC's move, saying that, based on market conditions, it could be a timely investment at a good price.

'I think it's a very sound investment,' said chief investment officer of Fortis Private Banking Singapore, Mr Lim Kok Boon.

In terms of value, the deal comes as many key financial firms are closer to the bottom than the top, he said.

'There's definitely franchise value,' he added. 'You cannot just build a global bank overnight, with a reputation and client reach. It's going to take a very long time.'

Dr Tan said it was premature to say whether GIC will have a seat on the UBS board, although it expects an offer.

'We take a long view. This is not an investment (for) which we have any fixed time frame. Of course, we'll review it from time to time. Our intention is to remain responsible, supportive investors... hopefully for the long-term.'

GIC managing director Ng Kok Song said the move marked a departure for GIC, whose practice has been to take relatively small public equity stakes for portfolio diversification.

GIC's investment takes the form of subscribing to 'convertible notes' which pay an annual return of 9 per cent.

These notes can be converted to UBS stock, which must happen within two years of the date of issue. GIC's stake in UBS could be 9 per cent, making it UBS' No. 1 shareholder.

Industry watchers say the UBS deal is arguably the highest profile investment since GIC, together with Temasek Holdings, invested close to $1 billion in New Zealand-based Brierley Investments and its British subsidiary Mount Charlotte Investments in the 1990s.

gabrielc@sph.com.sg

STATE-OWNED FUNDS CAN DO GOOD FOR FINANCIAL MARKETS, MONEY

 
 
 
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