17 May, 2017
Singapore sovereign wealth fund GIC has pared its stake in Swiss private bank UBS at a loss, partly because of changes in the bank's strategy and business.
UBS shares fell more than 1 percent after the news before paring losses to 0.7 percent.
UBS is managing the sale, according to an emailed statement from the bank.
"GIC made the UBS sale despite the loss because conditions have changed fundamentally since GIC invested in UBS in February 2008, as have UBS' strategy and business", GIC head Lim Chow Kiat said in a statement.
The fund said, however, that its investment in USA bank Citigroup Inc, also made at the height of the global financial crisis, was in the black and that combined returns for UBS and Citi were positive in "mark-to-market terms".
It later added to this stake by subscribing to Sfr16 billion rights issue launched by the bank in May 2008, which left it holding more than a 9% stake in the lender.
"The UBS stake has been one of the big weights around GIC's leg". UBS said at that time that GIC would invest 11 billion francs. In 2010 it became its largest investor after the securities were converted into shares. GIC said it previously owned 5.1 percent of the Swiss bank's shares and that it will now own 2.7 percent. It reduced its holding to 196 million prior to Monday's sale, which would have raised 1.1 billion Swiss francs only if it was sold at the maximum share price during the intervening period.
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"While GIC does its best to ensure that each individual investment performs, it must accept a degree of risk in order to pursue promising opportunities and optimise overall portfolio returns", GIC said.
The secretive wealth fund was also bound to have been embarrassed as scandals - now largely resolved - including rigging of Libor precious metals prices and foreign exchange rates piled up at UBS. GIC still owns a small stake in Citigroup.
It noted the combined return on its UBS and Citigroup investments has been positive.
GIC received an additional 2 billion Swiss francs in interest payments in the two years it held the MCNs. That equates to a current loss of 4.1 billion Swiss francs from its investment, according to IFR calculations.
Following the investment, former Singapore Prime Minister and GIC Chairman Lee Kuan Yew conceded in an interview in 2009 that GIC was "too early" in buying banks.
Many investors who went in early, such as GIC in UBS, have lost money. Yet these are hardly rich pickings, especially for sovereign wealth funds, whose goal is enrich their countries.