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

  • Sale said to raise $1.5 billion, shares priced at 16.10 francs
  • GIC’s UBS stake drops to 2.7 percent from 5.1 percent

Singapore’s sovereign wealth fund GIC Pte ceased being the biggest shareholder in UBS Group AG after cutting its ownership by almost half, saying it was “disappointed” that it lost money during nearly a decade in which it was invested in the Swiss bank.

GIC sold a stake of about 2.4 percent at 16.10 francs ($16.20) a share, according to people familiar with the matter, for total proceeds of about $1.5 billion. The fund’s stake fell to 2.7 percent.

“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.”

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.

The shares were bought by about 140 investors, and the top 10 took about half of the deal, according to a person with knowledge of the transaction. UBS shares fell as much as 2.5 percent in early Zurich trading and were down 1.9 percent at 16.30 francs as of 9:34 a.m.

‘Rare Chance’

GIC’s shift from UBS comes after the investor 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.

To read Andy Mukherjee’s take on GIC’s stake sale, click here.

GIC was among a number sovereign funds to pour money into struggling banks during the financial crisis, underestimating the severity of the downturn and betting that the industry would recover quickly. Instead, new regulations forced banks to scale back risk-taking with their own money. Many lenders, particularly in Europe, are still trading below their peaks reached before the crisis.

“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.

To read more on GIC’s investment thesis, click here.

"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 have climbed 2.2 percent this year, though they’re still well below where they 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 of notes, the stock had lost about two-thirds of its value, though the unrealized loss was partly offset by interest payments.

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