Following on from Swiss bank UBS’s big losses last week, Wall Street giant Morgan Stanley said on Wednesday that it has been forced to write down $9.4bn from its sub-prime mortgage investments. And it’s turned to China to re-fill its piggy bank: the China Investment Corporation, one of the state funds set up to invest the country’s huge cash pile, is ploughing in $5bn in exchange for a stake of about 10%.
It’s the second huge investment by CIC this year – it also spent $3bn buying a stake in private equity group Blackstone – and the latest example of the big banks looking east to bolster their balance sheet in the wake of the credit crunch. Citigroup sold a $7.5bn stake to the Abu Dhabi state fund, Bear Stearns agreed a deal with Chinese brokerage Citic that led to a £1bn cash injection, and last week Singaporean state fund GIC and an unnamed Middle Eastern investor poured £5.6bn into UBS. Barclays also brought China Development Bank and Temasek on board as strategic investors earlier this year.
Morgan Stanley’s fourth quarter numbers were shocking: its sub-prime losses ballooned by a further $5.7bn to $9.4bn; revenues were down from $7.85bn last year to minus $450m this year; and its $1.54bn profit in 2006 became a whopping $3.59bn loss this time round.