Singapore sovereign wealth fund GIC has pared its stake in Swiss private bank UBS at a loss, partly because of changes in the bank's strategy and business.
GIC has sold a 2.4 per cent stake in UBS, leaving it with a 2.7 per cent holding - worth about US$1.7 billion (S$2.4 billion) at yesterday's prices.
"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," GIC chief executive Lim Chow Kiat said in a statement yesterday. "It makes sense now for GIC to reduce its ownership of UBS and to redeploy these resources elsewhere."
The Swiss giant, which employs more than 2,000 staff here, has in recent years refocused its attention on its core wealth management business, while its investment banking business has taken a backseat.
GIC declined to disclose the size of its loss, but a back-of-the-envelope calculation puts it at between US$3.5 billion and US$4.5 billion.
UBS was one of two major investments GIC made in the financial sector in the early stages of the 2008 global financial crisis. The other was an investment in Citigroup.
The investment in Citigroup made a realised profit of US$1.6 billion when GIC reduced its stake earlier. In addition, GIC is sitting on paper profits from that investment through the stakes it still holds, and has also earned dividends from it.
The profits from Citigroup outweigh its losses on UBS, it indicated. "The combined return on the UBS and Citigroup investments has been positive in mark-to-market terms," GIC said.
GIC'S STAKE IN UBS
2.7% After selling a 2.4% stake.
US$1.7b How much the remaining stake is worth.
Harking back to the time it invested in the two banking giants, GIC noted that these had offered a rare chance to take major stakes in the international banking sector. "The sector was then under considerable stress, and there were opportunities as well as risks in making such major investments," it said.
GIC added 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.
A GIC spokesman also said that "we remain a significant shareholder and are confident in the UBS management".
UBS said in a separate statement that GIC's divested stake of about 93 million shares will be offered to institutional investors.
CIMB Private Bank economist Song Seng Wun noted that UBS had recently reported healthy results in line with other banking players.
It became the first wealth manager in the region to grow its assets under management beyond 300 billion Swiss francs (S$420.6 billion).
"So this could explain why GIC decided to sell the stake now. Global banking stocks have rallied strongly as latest earnings reports from banks have been the best in a while," he said.
"There are enough carrots on the table to attract potential buyers, which makes it an opportune time for GIC to offload an investment that has not performed well."
With the global economy recovering, it is also a good time for GIC to redeploy its capital into other investments, Mr Song added.
GIC measures its performance on an overall portfolio basis, based on long-term rather than annual returns. According to its latest annual report, the GIC portfolio averaged 4 per cent real returns a year over the 20-year period from 1996 to 2016.