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Disappointed With UBS Loss, Singapore's GIC Fund Cuts Stake

  • GIC bought into Swiss bank during the financial crisis
  • Became the largest shareholder in 2010 after converting bonds 
  •  UBS Group AG’s largest shareholder, Singapore’s sovereign fund GIC Pte, is slashing its ownership in the Swiss bank by offering a 2.4 percent stake worth about $1.6 billion.
    “Conditions have changed fundamentally since GIC invested in UBS in February 2008, as have UBS’ strategy and business,” GIC Chief Executive Officer Lim Chow Kiat said early Tuesday in a statement. “It makes sense now for GIC to reduce its ownership of UBS and to redeploy these resources elsewhere,” Lim said. GIC is “disappointed” that it lost money on the investment, according to the statement.

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    UBS is managing the sale, the Zurich-based bank said in an earlier statement. GIC said it previously owned 5.1 percent of the Swiss bank’s shares and that it will now own 2.7 percent. GIC is selling 93 million shares through an accelerated bookbuilding to institutional investors.
    GIC invested in Switzerland’s biggest bank early in the financial crisis, purchasing debt that converted into stock when UBS needed capital to cover losses on subprime mortgage bonds. In 2010, the Singapore wealth fund became the bank’s largest investor after the securities were converted into stock. UBS has since given up its ambitions to become a top global investment bank, focusing instead on the more predictable business of wealth management.

    ‘Rare Chance’

    GIC’s shift from UBS comes as the investor has warned that it is bracing for lower returns amid elevated market volatility and persistently low interest rates. The sovereign fund, which invests Singapore’s foreign reserves, said in July that a key measure of returns fell to 4 percent in the 20-year period ended March 31, 2016. In the past year, GIC has embarked on a series of leadership changes and elevated many investment managers to key roles.
    The 2008 crisis “offered a rare chance to take major stakes in the international banking sector,” GIC said in its statement. The fund made a profitable investment in New York-based Citigroup Inc.
    “The combined return on the UBS and Citigroup investments has been positive in mark-to-market terms,” GIC added in a later statement.
    “GIC lost a lot of money on its UBS stake, so looking at both investments in totality is a way of softening the blow of that loss,”said Song Seng Wun, a regional economist at CIMB Private Bank in Singapore. “It is a sensible thing to try to get the money back by shifting into other opportunities as there are certainly plenty.”
    Jeffrey Jaensubhakij, GIC’s new chief investment officer, has said technology and health care may offer promising investment opportunities over the next decade, as muted global growth weighs on returns from traditional assets.

    "Maybe GIC just found better ways to invest their money, maybe they had enough of banking,” said Peter Casanova, a Kepler Cheuvreux analyst. 
    UBS shares fell 1.3 percent to 16.61 francs in Zurich, erasing earlier gains. The stock has climbed 4.1 percent this year, though it’s still well below where it traded in December 2007, when GIC first announced its investment.
    UBS at the time was raising capital amid a $10 billion writedown on subprime mortgage investments. The infusion wasn’t enough to avoid a bailout the following year, when UBS’s toxic investments were moved to a fund backed by the country’s central bank.
    By the time GIC completed the conversion of its 11 billion Swiss francs ($11 billion) of notes, the stock had lost about two-thirds of its value, though the unrealized loss was partly offset by interest payments.
    (Updates with GIC’s returns in fifth paragraph.)

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