Thursday, January 17, 2008

GIC invest in Citigroup

After injecting money for a bailout for Swiss bank UBS last month, Singapore's GIC is at it again. Last week Citigroup announced that they are raising $20 billion in capital from investors and sovereign wealth funds (aka another bailout) and GIC one of the investors.

Considering that 3/4 of Singapore's trade goes to the U.S, I applaud GIC for doing their national duty...but I think we can all agree that this is a risky investment. Citigroup has a write-off of nearly US$18 billion dollars due to the (big surprise here) US subprime mortgage crisis, but that's not the big problem. The big problem is that the worst is not yet over. Citigroup openly admit that their problems will not be fixed in the short term. They believe that the U.S mortgage crisis will continue till at least till 2009. That's 2 years!

And that is just the business side of it. Already some U.S politicians are expressing unhappiness at the thought of foreign government (or their investment funds) owning a part of major Wall Street banks. Outside Citigroup, Morgan Stanley (another major U.S financial giant) sold a $5-billion stake to China Investment Corp last month. All this is making politicians in America very anxious.

The talk in America is about how deep the oncoming U.S recession will be, not if there will be a recession. Considering all this, investing in the troubled Citigroup might not be the wisest thing to do at this time.

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