Sovereign wealth funds are going cap in hand…to themselves.
The Gulf International Bank (GIB) is raising $1 billion (Rs3,990 crore) to offset losses related to US subprime. Yet, unlike the Western banks that have had suffered heavily, GIB didn’t have to go far.
The Bahrain-based lender is jointly owned by the six governments of the Gulf Cooperation Council, most of which have already spent billions bailing out Western banks.
GIB reported a $757 million net loss in 2007, after a net profit of $225 million in the previous year. The results were affected by provisions related to structured investment vehicles and collateralized debt obligations.
The Gulf home rescue, in which the bank is more than doubling its capital base to $2.5 billion, shows that Gulf banks are not immune to the US credit debacle.
Qatar, Kuwait, Saudi Arabia and the United Arab Emirates have already spent an estimated $16 billion on providing capital to Western banks.
Of GIB’s shareholders, only Oman and Bahrain have not participated. Now even they have been brought into the subprime rescuers’ club.
GIB’s woes, plus two rounds of capital contributions for Citigroup Inc. and company, have not been enough to suppress all of the sovereign funds’ appetite for the sector. Qatar is rumoured to be interested in buying shares in Royal Bank of Scotland Group Plc. on the open market, pushing the UK bank’s shares up 7%.
Still, sovereign funds may not be willing to repeatedly prop up troubled Western lenders.
Until now they can argue that they’re getting a bargain, buying in where shares are down. If there is a next time, they will be buying on their own costly losses.
In effect, rescuing themselves. Just like at the GIB.