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Arabian Money: Gulf sovereign wealth funds dump bank stocks

with 2 comments

barclaysQatar is following Abu Dhabi in downsizing its stake in the British bank Barclays, only acquired less than a year ago to help the bank survive the global financial crisis without state aid. It seems the sovereign wealth funds of the Gulf are going cool on banks.

You can hardly blame Qatar for choosing to cash in some of its chips. The gas-rich Gulf state will make a $1 billion profit on the deal and still retain more than seven per cent of Barclays stock as the bank’s largest shareholder.

Abu Dhabi exit

Abu Dhabi also made a quick profit of around $2.5 billion when it dumped Barclay shares in June. But for every good trade there is a deal best forgotten. Abu Dhabi’s $7.5 billion investment in Citi just before the crisis struck might recover but is currently showing a horrendous loss.

Indeed, the sovereign wealth funds might just have learned a lesson from recent history, and be cashing out of Barclays in a bear market rally. A profit is always a profit and sticking around for a downturn in financial stocks might be disastrous in the short term at least.

How long term are the sovereign wealth funds or are they acting like opportunistic hedge funds? In the case of Barclays they are acting like the latter. Yet this is not their supposed mandate.

Only yesterday Abu Dhabi sovereign wealth fund Mubadala executive director Matthew Hurn told Bloomberg: ‘We are long-term, patient developers and deployers of capital’. Mubadala has stakes in the Carlyle Group and Ferrari but invests mainly in oil and gas assets outside the UAE, and had $22 billion under its management at the end of last year.

Crisis impact

Of course Gulf sovereign wealth funds have been big net losers in the global financial crisis even if, as the sale of Barclays stock shows, they have now begun to claw those losses back.

The funds were recently annoyed by a report from the United Nations claiming they had lost a total of $1.1 trillion in the crash. The report said Abu Dhabi lost $183 billion and had $329 billion in its funds at the end of last year. However, all the funds benefited from a bumper year for energy prices in 2008 which greatly offset their losses.

Therefore, while the Gulf sovereign wealth funds might be leery of bank stocks they remain a major force in global financial markets, all the more so now that hedge funds are smaller and have less leverage to command. If shares go into correction mode they will be big buyers again.

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Written by Peter Cooper

October 21, 2009 at 10:13 am

2 Responses

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  1. Citi is going to take a beating some time soon and the US has been looking for the right time just to unload their shares in Citi so I highly doubt that their investment in Citi will make them any money in the near term but in the long term things could change (That is if Citi doesn’t go under by then).

    http://www.benzinga.com/eric-mancini/2009/9/15/u-s-government-looking-to-sell-citigroup-c-stake

    Andy

    October 21, 2009 at 3:42 pm

  2. Is “dump”, and all variations thereof, the correct term for the exercise of warrants, as was the case with Qatar Holding and Barclays?

    I have always regarded warrants as the cream on top of the milk, a bonus!

    Ed Note: It is a simplification of a more complex position but the net effect is the same. Abu Dhabi certainly did dump its stake.

    Rupert Neil Bumfrey

    October 21, 2009 at 12:45 pm


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