GIC pares stake in UBS at a loss; combined strategy with Citigroup sees positive return

Swiss bank UBS in Zurich, Switzerland on April 24, 2017.
Swiss bank UBS in Zurich, Switzerland on April 24, 2017.PHOTO: REUTERS

SINGAPORE - GIC, Singapore's sovereign wealth fund, which invested in UBS to support it during the 2008/09 global financial crisis, said it has cut its stake in the bank at a loss, partly because of changes in the lender's strategy and business.

GIC sold a 2.4 per cent stake in the Swiss bank, paring its holding to 2.7 per cent from 5.1 per cent.

"GIC made the UBS sale despite the loss because conditions have changed fundamentally since GIC invested in UBS in February 2008, as have UBS' strategy and business," Lim Chow Kiat, chief executive of GIC, said in a statement released on Tuesday (May 16). "It makes sense now for GIC to reduce its ownership of UBS and to redeploy these resources elsewhere."

While saying that it was "disappointed" that its UBS investment resulted in a loss, GIC noted in its statement that its investment in US bank Citigroup, also made at the height of the global financial crisis, was in the black and that combined returns for UBS and Citi were positive in "mark-to-market terms."

"We remain a shareholder of Citibank," a GIC spokeswoman said in an email to Reuters on Tuesday (May 16). "As with all our investments, we continue to manage our position based on our assessment of the fair value of Citigroup and other investment opportunities."

GIC reduced its stake in Citi to under 5 per cent in 2009 from over 9 per cent but didn't disclose subsequent holdings, said Reuters.

In its Tuesday's statement GIC said that "while it does its best to ensure that each individual investment performs, it must accept a degree of risk in order to pursue promising opportunities and optimise overall portfolio returns."

The fund measures its performance on an overall portfolio basis, based on long term rather than annual returns. GIC also noted on Tuesday that its portfolio averaged 4 per year per year real returns over the 20-year period from 1996 to 2016. This period included the Global Financial Crisis and the UBS and Citigroup investments.

UBS, the world's biggest wealth manager, said on Monday that GIC intended to place up to 93 million existing shares in UBS through a sale to institutional investors.

Shares of the Swiss bank closed 1.3 per cent lower at 16.61 Swiss francs after the news, which unusually came during trading hours.

At the closing price, 93 million shares would be worth 1.54 billion Swiss francs (US$1.55 billion).

GIC was one of the first sovereign funds to pump billions into Western banks, which were rocked by the financial crisis and suffered deep losses.

Singapore took a 9 per cent stake in UBS in 2007 via an emergency capital injection when UBS unveiled US$10 billion worth of subprime write downs, Reuters reported. UBS said at that time that GIC would invest 11 billion francs.

The sovereign fund converted its 11 billion franc investment in UBS notes into shares in 2010.