Hooboy. China's Investments Getting Messy


The China Investment Corporation (CIC) is responsible for managing
part of China's foreign exchange reserves. This sovereign wealth fund
began operations officially on Saturday, September 29, 2007.
http://en.wikipedia.org/wiki/China_Investment_Corporation )

PPP: I remember a recent financial news commentary that CIC (in its
earlier guise before being formally established as CIC) isn't doing
too well as none of the investments made have made any money and in
fact had lost value. The commentator added that these firms were
losing money which was why they were so willing to sell chunks of
themselves to China and China was sucker enough to bite. China's
reply was that she takes a long term view and does not expect an
immediate return. The investments are more for learning about western
investment and management techniques.

(Start of Quote:)
http://english.cri.cn/3130/2007/12/12/1601@xxxxxxxxxx
China's Sovereignty Wealth Fund to Make Prudent Investment
2007-12-12 16:08:16 Xinhua

China's sovereignty wealth fund will maintain prudent investment and
respect the laws in recipient countries, Finance Minister Xie Xuren
said here Wednesday.

Speaking during a break in the two-day China-U.S. Strategic Economic
Dialogue, Xie said that the fund would pursue long-term investment
instead of short-term speculation, and would achieve a balance between
security and profitability.

"So, the sovereignty wealth fund is an important force in helping
stabilize global growth and address global economic imbalance," he
said.

The fund, or China Investment Corp. (CIC), was set up in September
this year, with an initial capital of 200 billion U.S. dollars from
the country's massive foreign exchange reserves.

One-third of the capital would be used to purchase Huijin Investment
Co. that now controls major state-owned commercial banks. Another
third would be injected into state-owned banks for shareholding
reforms, CIC chairman Lou Jiwei said earlier this week.

The remaining 70 billion U.S. dollars was earmarked for overseas
investment in a wide range of portfolios but would not seek control,
said Lou.

"CIC attaches great importance to dialogue and cooperation with
international organizations, foreign regulatory bodies and
counterparts," said Xie.

It would be effectively supervised and operate in accordance with
international rules and local laws in recipient countries.

(end quote.)

PPP: Today's story in the Guardian has Barclays suing Bear Stearns
over shady practices. CIC had invested in both Barclays and Bear
Sterns. And Blackstone (CIC investment) advised CIC on the Barclays'
investment. Blackstone itself is losing money in scads. The thought
is mind boggling. It may well turn out that all three are taking
China's CIC for a very expensive ride (USD 30 billions? out of $70
earmarked. ) If (Last fall, China Construction Bank raised a
head-turning $9 billion-plus in a highly subscribed global initial
public offering in Hong Kong.) is impressive enough to turn heads then
the sight of $30 billion disappearing into thin air should send heads
spinning if not already rolling on the ground !

PPP: Who knows what other horrors will turn up. Its time for CIC to
take a deep breath and wait things out before buying into any more
once much vaunted financial houses and financial houses in Wall
Street and London. They're all crooks hiding under false ledgers.
2008 will be a bloodbath. Then maybe China will be able pick up the
same at bankruptcy prices and have management control as well.

++++++++++++++++++++++++++++++++++++++++++
Today's Story (1)

Barclays sues over sub-prime losses
· Wall Street firm is accused of fraud and deception
· British bank says hedge fund losses were hidden
"
"
o Andrew Clark in New York
o The Guardian,
o Thursday December 20 2007
o
http://www.guardian.co.uk/business/2007/dec/20/barclaysbusiness.subprimecrisis
Barclays' exposure to America's sub-prime mortgage fiasco took a
dramatic turn last night as the bank sued the Wall Street firm Bear
Stearns for fraud and deception over the loss of hundreds of millions
of dollars in an ill-fated hedge fund.

In a lawsuit filed in New York, Barclays accused Bear Stearns of
systematically hiding losses in a fund which swallowed $400m (£200m)
of the British bank's money. The fund had to be bailed out in June
after reaching the brink of collapse following a disastrous series of
investments in mortgage-backed securities.

Barclays described the fund's demise as "one of the most high profile
and shocking hedge fund failures in the last decade". The suit alleges
that up to the last days before the bail-out, Bear Stearns executives
engaged in a cover-up to hide the slump in its value.

In addition to Bear Stearns, the suit targets the Wall Street firm's
senior managing director for asset management, Matthew Tannin. A third
defendant, fund manager, Ralph Cioffi, is already under investigation
by US federal prosecutors for withdrawing his own money from the hedge
fund while assuring investors not to worry.

"The defendants entered intentionally into a relationship in which
Barclays placed trust and confidence in them," the suit says. It
describes Bear Stearns' conduct as "wilful, malicious, reckless and
without regard to Barclays' rights and interests".

Barclays has been under pressure over its exposure to the credit
crunch, which has frequently depressed its shares. The bank announced
last month that it had written off $1.7bn in loans and mortgages.
Its involvement in Bear Stearns' hedge fund first became public over
the summer. The British bank is understood to have lent $400m to a
complex vehicle linked to the fund which was used by Bear Stearns to
leverage returns for its clients. Little of the money has been
recovered.

According to Barclays, Bear Stearns frequently diverged from agreed
guidelines on the type of investments to be made by the fund. Between
75% and 100% of the fund's portfolio was supposed to go into assets
with top-notch credit ratings of between AAA and AA minus.

The suit says Bear Stearns and Cioffi "hatched a plan to make more
money for themselves" by creating an unauthorised new investment
vehicle which they planned to float. Barclays details a series of
lunch meetings in New York at which its staff were assured that the
fund was going well. But it says detailed updates of performance
tended to be provided late and incomplete. Throughout the spring of
2007, it says, Tannin repeatedly used the word "great" to describe
progress.

Barclays is not alone in suing Bear Stearns over the debacle. A New
York securities lawyer, Jake Zamansky, has mounted a lawsuit on behalf
of clients who lost money in the fund, brought under the name of a
73-year-old American investor who lost his retirement savings of
$500,000.

Criminal prosecutors are examining whether Cioffi, who managed the
fund, improperly withdrew $2m of his own money while providing bullish
updates to clients about the fund's performance - a move characterised
as a hedge fund manager "hedging himself". Cioffi recently left the
firm, although Bear Stearns has not disclosed the circumstances of his
departure.

A Bear Stearns spokeswoman said the firm denied any wrongdoing and
said Barclays was a "highly sophisticated financial institution" which
ought to be able to calculate investment risk.

"While we do not like to see investors or counterparties lose money,
we believe this lawsuit is an attempt by Barclays to avoid taking
responsibility for its own actions," the spokeswoman said. "We are not
responsible for Barclays' losses and intend to defend vigorously
against Barclays' claims."

Bear Stearns has faced intense heat of its own over the funds' failure
which led to the departure of its chief operating officer, Warren
Spector.

In financial results due today, Bear Stearns will reveal the extent of
the damage to its balance *** arising from the credit crunch. Its
chairman, Jimmy Cayne, and fellow executives are likely to forgo their
annual bonuses as a result of the havoc.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++=

Story 2

China buys stake in Barclays in ABN twist

By Richard Fletcher, Deputy City Editor
Last Updated: 1:10am BST 24/07/2007
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/23/bcnchinese12.xml



The deal with Barclays was arranged by Blackstone, which
recently sold a £1.5bn stake in itself to the Chinese state.

The heated battle for Dutch bank ABN Amro has taken an unexpected
twist today after Barclays raised its offer thanks to a €13.4bn (£9bn)
investment from the governments of China and Singapore.

In a deal that will see the China Developement Bank become a major
shareholder in Barclays, the British bank has raised its offer to
€67.5bn, with €24.8bn coming in cash.

Temasek, the investment arm of the Singaporean government, has agreed
to put in €1.4bn and may invest a further €2.2bn.

Barclays shares responded positively to the news, rising 17.5p to 731p
in morning trading.

Barclays chief executive John Varley has been under pressure to
eclipse the €71bn offered by a trio of banks led by Royal Bank of
Scotland. Last week the heavyweight consortium officially tabled its
offer for ABN.

Barclays' revised bid now values each ABN share at €35.73 each, which
still trails the €38.40 on offer from RBS and its partners, Fortis and
Santander.

ABN Amro's stock climbed 24 euro cents to €36.87, while shares in RBS
were little changed at 609.5p.

Mr Varley said this morning: "Through the introduction of two highly
respected shareholders, from whom we will derive support and advice,
we will be able to drive our future development in the rapidly growing
Asian markets."

If Barclays fails to buy ABN the newly formed Chinese investment
authority and Temasek would take smaller stakes in the British bank.
The Chinese state has $1.2 trillion dollars of foreign exchange
reserves to invest, much of which has recently been placed in US
Treasuries or government bonds.

But China recently signalled it would be taking a more imaginative and
aggressive approach to how it invests hundreds of millions of dollars,
including buying significant holding in overseas companies.

Governor Chen of China Development Bank said it supports "Barclays
strategy of building a leading diversified full service bank and
supports Barclays management in pursuit of its global strategy."
After four months of twists, turns and legal hi-jinks, the bid battle
for ABN Amro has finally entered the home straight with a key court
ruling and an increased offer from RBS and its consortium.

Institutional shareholders with significant holdings in both Barclays
and Royal Bank of Scotland - including Standard Life and Scottish
Widows -now "hold the key" to the bid battle for ABN and will be the
principal kingmakers.

Mr Varley risks alienating some of his major shareholders by raising
his bid.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++
Story 3

Finance
By Brian Bremner

Untangling the Bear Stearns China Buy-in

APRIL 18, 2006
http://www.businessweek.com/globalbiz/content/apr2006/gb20060418_875360.htm

U.S. brokers are known for buying equity in Middle Kingdom banks. With
China Construction's move on Bear Stearns, have the tables turned?


The Buy China syndrome is alive and well among the world's biggest
global banks desperate for a piece of the Middle Kingdom's growth
story. A whole caravan of Western players including Bank of America
(BAC), Citigroup (C), HSBC, Goldman Sachs (GS), and American Express
(AXP) have ponied up more than $20 billion in all to buy equity stakes
in Chinese banks over the past couple of years. Last fall, China
Construction Bank raised a head-turning $9 billion-plus in a highly
subscribed global initial public offering in Hong Kong. And other big
mainland lenders such as Bank of China and Industrial & Commercial
Bank of China (ICBC), are planning similarly big offerings this year
as well.

That's why a report in the Wall Street Journal that China Construction
may invest anywhere from $2 billion to $4 billion for a sizable equity
stake (perhaps as much as 20%) in Wall Street broker Bear Stearns
(BSC) seems so surprising. China Construction lacks the kind of
balance *** -- and the competitive muscle in lending and equity
underwriting -- to go against the big boys in U.S. investment banking.
A deal, if it comes, is really about helping the Chinese lender
strengthen its position at home.

So why pay for a strategic partnership with Bear Stearns when so many
other Western lenders have forked over serious cash for the privilege
of linking up with a big Chinese lender?

PLAYING CATCH UP. From China Construction's point of view, the
investment might make sense if it enhances its reputation as an up and
coming quality Chinese bank that has sealed partnerships with the
biggest names in global banking and brokering. Bank of America last
year paid $3 billion for a 9% stake in China Construction, the
mainland's third biggest bank, with about $521 billion in assets and a
$293 billion loan portfolio that includes some of China's biggest
companies.

The fifth biggest U.S. brokerage, Bear Stearns, may not be as well
known as Goldman Sachs, Morgan Stanley, or Merrill Lynch outside of
the U.S., but it enjoys a lucrative franchise in Europe and is a huge
prime broker to global hedge funds. It desperately needs to play catch
up in China -- and a friendly shareholder with a 20% stake could
prevent the brokerage from becoming takeover bait for bigger global
players looking to expand.

Bear Stearns' know-how in wealth management, fixed income, and
equities could come in handy for China Construction. "You are going to
be buying into expertise in different sectors," says Shaun Rein,
founder and managing director of the Shanghai-based China Market
Research Group."It is showing the world that Chinese banks are ready."

CASH ON HAND. Bear Stearns, of course, would get access to what is
sure to become one of the 21st century's most lucrative financial
markets. China is sitting atop roughly $2 trillion in household
savings and boasts a savings rate of close to 50%. Its hyper growth
economy, which clocked more than 10% growth in the first quarter, is
generating even more wealth and deposits flowing into the banking
system.

In fact, now that China Construction is listed, and awash in deposits
and IPO proceeds, it may be looking for a safe place to park some of
that cash and earn a decent return, suggests May Yan, vice-president
and a senior analyst with Moody's Investors Service in Hong Kong.
Deposit growth has been in the 16% to 17% range, and now China
Construction "is trying to lower its risk profile." Investing some
excess cash in Bear Stearns' convertible bonds, as suggested in news
reports, may make sense as an investment, she thinks.

EXTREME MAKEOVER. Whether a deal ever comes to pass is far from
certain. China Construction spokesman Yu Baoyue told BusinessWeek
Online that to his knowledge "the bank does not have such a plan" for
an equity investment in Bear Stearns, and the Wall Street firm is also
refusing to comment on the report. (Still, investors took the report
seriously: Bear Stearns shot up 3.3% to record levels in New York
trading on Apr. 17.) China Construction is still majority-owned by the
government, and Beijing would have to sign off on any high-profile
foreign investment.

Another issue is just how Bank of America, the largest retail bank in
the U.S., would react to a China Construction alliance with Bear
Stearns. Bank of America is a minority shareholder with only one board
seat, but it is key to China Construction chairman Guo Shuqing's
strategy of refashioning the mainland lender from a lumbering
state-owned financial player into a competitive full-service outfit.

Bank of America gave up the right to make strategic investments in
other major mainland lenders -- and has promised to dispatch 50-odd
executives to help China Construction upgrade its operations. A
falling-out with Bank of America would be a setback for China
Construction -- and likely would hit the bank's stellar post-IPO stock
performance. Its shares traded in Hong Kong have vaulted about 50%
since early November.

LOAN IMPROVEMENT. A lot is riding on a successful transformation of
China Construction and other big lenders into viable businesses. Since
the late 1990s, the Chinese government has pumped $259 billion into
China Construction and three other big state-owned banks: Bank of
China, ICBC, and the Agricultural Bank of China.

China Construction has one of the strongest balance sheets in mainland
banking, but still needs help improving its lending practices and loan
collection efforts. About 25% of its loan portfolio is tied to the
highly volatile residential and property development markets at a time
when many worry about a painful real estate bust in overheated cities
such as Shanghai.

In an interview with BusinessWeek last fall, Guo insisted China
Construction "was well-positioned to capitalize on the growth in
China." That is probably true, but it will need a lot of help from
Western players. So far, Guo has let others pay for the privilege.
Now, he may be willing to whip out the checkbook to bag the right
partners and secure the bank's future prosperity.
Brian Bremner is BusinessWeek's Asia Regional Editor based in Hong
Kong

+++++++++++++++++++++++++++++++++++++++++++++

Story 4

China buys $3bn Blackstone stake
21 May, 2007 http://news.bbc.co.uk/1/hi/business/6675453.stm

Analysts say the deal will aid Blackstone's investment in China
The Chinese government has agreed to pay $3bn (£1.5bn) for a 10% stake
in US private equity company Blackstone.
It will give Blackstone a head start in Chinese takeover deals and
allow China's government to tap into the global private equity boom.

The news, which is likely to create some political opposition in the
US, comes just days before Chinese Vice Premier Wu Yi visits the
United States.

China is buying the stake through its newly formed state investment
fund.

Share sale

Blackstone has also given details of its planned share sale.

The second largest US private equity firm plans to raise between
$3.87bn (£1.97bn) and $4.13bn (£2.10bn) in its initial public offering
later this year.

Shareholders will own a stake in the management company rather than
the portfolio of companies in which it has invested.

They will have only limited voting rights and no right to elect the
general partner or directors.

Blackstone will list on the New York Stock Exchange with the symbol
BX.

'Enhancing access'

Together with the investment from China, Blackstone could raise up to
$7.75bn.

When the Chinese are buying into private equity, every investor in
the world should take note

BBC Business Editor Robert Peston


Why the deal matters

"For both China and Blackstone, it's about enhancing access and
developing deeper relationships," said analyst Monte Brem, chief
executive of advisory firm Leucadia Capital Partners.

"The Chinese government wants to increase its access and role in the
global private equity market; Blackstone wants to increase its access
and role in China."

For Blackstone, the deal will bring an inevitable advantage when
investing in China, where foreign companies often struggle to gain
support from Beijing when trying to buy Chinese companies.

But the deal will raise eyebrows among some US politicians wary of
China's growing economic clout.

Political problems?

In 2005, China's plans to buy US energy giant Unocal fell through in
the face of political opposition in Washington.

The new fund will be trying to avoid any political problems with its
overseas investments, according to Jesse Wang, chairman of the
government-owned Jianyin Investment, which represented Beijing in the
deal with Blackstone.

"The fund is sizable and people may worry that it's from China and a
state investment vehicle," he said.

"I think they are going to have mostly commercial kinds of
investments, not involving sensitive investments."


+++++++++++++++++++++++++++++

PPP: CIC is following the investment strategy of Singapore's Tamesek
Holding's, the Sing government assets investment arm. It will be
interesting to find out how Singapore made out. I remember another
report that the UBS deal pays interest (6%?) for two years after which
they can be converted to shares. This sounds an excellent way to
place money to earn guaranteed interest first. By two year the
picture will be clearer as to whether to convert them to shares. If
the bank goes south by then, it would seem that Singapore can still
take back its money. Jumping right away into an equity stake seems
pretty foolhardy now.

Singapore's Temasek Raises Stake In U.K. Bank Standard Chartered
By Marietta Cauchi
August 22, 2007
http://online.wsj.com/article/SB118772183859504235.html?mod=googlenews_wsj

LONDON -- Singapore investment firm Temasek Holdings Pte. Ltd. has
increased its stake in U.K. bank Standard Chartered PLC to 15.29%,
according to a regulatory filing.

Temasek has been the largest single shareholder in Standard Chartered
since buying an initial 11.53% stake in July 2006 from the late
Singapore tycoon Khoo Teck Puat.

Temasek is ... (subscriber access)


ZURICH (AFP) - December 11, 2007
http://uk.news.yahoo.com/afp/20071211/tbs-switzerland-banking-company-markets-5268574_1.html

UBS said Tuesday that the decision by Singapore's state investment arm
to inject nearly 10 billion dollars in fresh capital is just the
"first step" in a major reorganisation of the Swiss bank's activities.

UBS turned to the Government of Singapore Investment Corporation (GIC)
to plug a 10-billion-dollar (6.8-billion-euro) hole caused by losses
in the US mortgage crisis.

These losses, coming on top of a 4.2-billion-Swiss franc
(3.7-billion-dollar, 2.5-billion-euro) writedown announced in October,
are the result of "a small group of people in investment banking," UBS
chairman Marcel Ospel told an investor day in London.

UBS will now move to "reposition its fixed revenue activities," Ospel
said.
(....more)
.