ESTIMATE – Sovereign Funds Experienced $16.6 Billion in Net Losses from GFC Bank Bailouts

Was it worth it? For a select group of sovereign funds the consensus answer is clearly “no” from a financial standpoint regarding tens of billions spent on bailing out financial institutions during the global financial crisis (GFC). Many of these institutional investors incurred losses from these lifeline investments.

SWFI estimates that US$ 56.48 billion was directly invested by sovereign funds during the global financial crisis regarding the subprime bailouts. At May 2017, SWFI estimates that in total, these wealth funds combined have experienced a net loss of US$ 16.58 billion. SWFI believes the net loss range could be as high as US$ 20 billion to as low as US$ 12.5 billion.

In early 2007, sovereign wealth funds started getting “real attention” from the financial press. By 2008, financial pundits had referred to sovereign funds as a new financial superpower and that caught the attention of bank CEOs and policymakers. Once banks started to panic in the early stages of the crisis, wealth funds were looked at as a potential alternative to domestic government money. Banks such as UBS, Merrill Lynch, Barclays and Citigroup had received capital lifelines from sovereign funds. For example, Singapore’s GIC Private Limited backed UBS, believing in the franchise value of its investment banking business. Years later, UBS pivoted toward wealth management and in May 2016, GIC had further sold down its ownership in the Swiss banking giant. In fact, GIC had sold some 93 million current common shares of UBS, an equivalent of 2.4% of the outstanding shares and voting rights.

At May 2017, SWFI estimates that in total, these wealth funds combined have experienced a net loss of US$ 16.58 billion based on internal calculations.

Years after the crisis, the sovereign investors involved in these deals were less hopeful in getting their money back, as the banks they had bailed out faced greater regulatory burdens from new laws enacted and a string of expensive lawsuits stemming from the subprime mortgage debacle. This was not the case for all sovereign fund subprime bailout investments, some wealth funds actually made a profit.

Subprime Bank Bailout Breakout – Net Loss

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]



Contact the writer or creator of this article or page.
Questions or comments: support(at)swfinstitute(dot)org
Follow on Twitter at @swfinstitute and @sovereignfunds
Learn, Attend and Network: Institutional Investor Events and Summits
Go Back: HOME: Sovereign Wealth Fund Institute


 
institutional investor investment mandates