Kuwait Sovereign Wealth Fund Considering Bigger Citigroup and Merrill Stakes
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Struggling U.S. financials Citigroup Inc. (C) and Merrill Lynch & Co. Inc. (MER) may get another equity injection from state-owned Kuwait Investment Authority (KIA), the fund’s managing director told Reuters.
Their valuations would make it tempting - as both firms are trading near their 52-week lows - but Bader al-Saad said it’s more about the companies’ plans for recovery.
“In Citi or Merrill, if there is good opportunity, we will look into it. Do we increase our stake? It all depends on the performance and strategy,” Saad said when asked whether KIA might raise its stakes in both troubled U.S. banks.
In January, the $250 billion Kuwaiti fund agreed to invest $3 billion in Citigroup and $2 billion in Merrill. Back in 2006, the KIA invested more than $700 million in the Industrial & Commercial Bank of China, making it the bank’s No. 1 investor at the time.
In March later, KIA invested an undisclosed amount in Visa Inc.’s (V) historic initial public offering.
Should KIA - the world’s oldest sovereign wealth fund - follow through with its intentions, its contributions would rank near the top in the list of Citigroup’s lifesavers. In addition to the $3 billion Citigroup already received from KIA, the beleaguered Citigroup has received a $7.5 billion cash infusion from Abu Dhabi Investment Authority and nearly $7 billion from Singapore Investment Corp. Pte. since last fall.
And in addition to the previous $2 billion from KIA, Merrill said in late December it would receive a $6.2 billion cash infusion, with up to $5 billion of that coming from Singapore’s state-run Temasek Holdings.
Lehman Looking for Capital
With its stock down more than 16% this week and more than 53% on the year, Lehman Brothers Holdings Inc. (LEH) has begun looking overseas for more capital, The Wall Street Journal reported.
The Wall Street firm has already spoken with one investor in South Korea, where it is well-connected through its vice chairman Kunho Cho, the newspaper reported.
Bailouts Across the Board
State-run sovereign wealth funds currently control $3 trillion - a figure experts expect will soar to $12 trillion by 2015. For perspective, the estimated U.S. gross domestic product (GDP) for 2006 was slightly more than $13 trillion. Some forecasts say that they will control $20 trillion by the middle of the next decade.
The richest sovereign funds include the Abu Dhabi Investment Authority, or AIDA ($875 billion), the Government of Singapore Investment Corp. ($330 billion), and Norway’s Government Pension Fund Global, or GPFG ($322 billion), although several others could be even larger.
And with such a fat wallet, many of these “Global Cash Barons” have been on a spending spree bailing out financials or investing in emerging market upstarts.
For an in-depth look at sovereign wealth funds, their motives and how to profit from them, check out Money Morning’s Investment Report: Three Ways to Profit From Sovereign Wealth Funds - the “Next Wall Street”
Source: Kuwait Sovereign Wealth Fund Considering Bigger Citigroup and Merrill Stakes
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Tags: AIDA, Cash Infusion, Citigroup, Commercial Bank of China, Gdp, International, KIA, Kuwait Investment Authority, LEH, Lehman Brothers, MER, Merrill Lynch, VisaAbout the Author
Mike Caggeso is an Associate Editor Money Morning.
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