May 16, 2017 / 8:48 AM / 5 months ago

GIC’s humbling retreat from UBS makes sense

HONG KONG (Reuters Breakingviews) - GIC has admitted defeat on its investment in UBS. The Singapore state’s money manager is taking a loss by selling a chunk of shares in the Swiss bank that it helped rescue nearly a decade ago. It’s not the only sovereign investor that was seduced by Western bank stocks during the financial crisis. A bounce in global financial stocks could tempt others, such as peer Temasek, to sift the wheat from the chaff.

the logo of Swiss bank UBS is seen in Zurich, Switzerland November 10, 2016. REUTERS/Arnd Wiegmann - RTST9SH

GIC said on Monday that its stake in UBS was cut to 2.7 percent from 5.1 percent. The initial 11 billion Swiss franc investment was meant to last 30 years, Singapore’s former leader and ex-GIC chairman Lee Kuan Yew said in 2008. Still, the wealth manager is hardly being overhasty.

While Thomson Reuters Global Banks Index is down by a third since the end of 2007, the Swiss bank’s shares are down nearly twice as much. GIC has sat on its stake while three UBS chief executives have worked to restructure the bank in the face of regulatory and market challenges. Its patience has finally run out, and about time.

Granted, other sovereign investors have also made mistakes. Chinese fund CIC, for instance, made heavy losses on its Morgan Stanley pre-crisis foray and the Abu Dhabi Investment Authority lost money by buying shares in Citi. Temasek has a 16 percent stake in Standard Chartered, which is probably worth less now than when the shares were bought.

It’s some consolation that the $6.88 billion which GIC invested in Citi has been profitable. The fund says its portfolio averaged nominal returns of 5.7 percent between 1996 and 2016. Yet these are hardly rich pickings, especially for sovereign wealth funds, whose goal is enrich their countries. If global bank stocks extend the 28 percent gains they have made in the past 12 months, GIC’s peers could also start thinking of losing some dead weight in their portfolios. 

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