Since November, Asian and Middle Eastern Sovereign Wealth Funds or SWFs, have made numerous investments in mostly American and European banks. Over $30 billion has been invested this month alone as banks struggle to boost their capital base amid the worst credit crunch in decades. The biggest recipients thus far include Union Bank of Switzerland, Morgan Stanley, Citigroup, Barclays plc and this morning, even goliath Merrill Lynch.
Thus far, Western governments have yet to oppose Asian and Pan-Arabian investments.
The fear among global investors hoping for a global “White Knight” to save plunging bank stock-market capitalization is a concerted attack on SWFs to explicitly detail their long-term intentions in these huge entities; will these SWFs demand a seat on the board in the future, becoming more vocal? Will SWFs turn hostile like private equity and demand greater shareholder return on equity? So far, the SWFs appear quite placid and most aren’t even demanding a seat on any board.
The reality of the crisis, however, is that Western governments are now at the mercy of SWFs, especially in the United States and Europe.
In America and Europe, there is a major shortage of capital, which explains why the big banks and brokers are looking for saviours, especially from overseas. International SWFs are not vulture investors looking to take a target company apart, dump management and assert their own corporate agendas. I think that’s why the major banks and brokers are very relieved to have SWFs as investors.
In the future, the United States and other countries might start special committees to investigate SWF investor intentions. This whole process might turn into a major political scandal, especially if countries like Saudi Arabia, already targeted by some officials as an OPEC king-ping refusing to boost supplies, increasingly becomes a major investor in several American or British banks.
Warren Buffett, chairman of Berkshire Hathaway, would be ideal as an American investor taking a major stake in a distressed Western bank; but unlike SWFs, he’s far more active in corporate management and would certainly demand a board seat among other criteria.
This century belongs to Asia and SWFs. Western banks have no choice but to open their doors because many other lending crises and derivative-based fiascos lie ahead over the next decade and beyond. Welcome to the New World.
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