SWFs Wising Up: Temasek Rebuffed Bear Stearns

♠ Posted by Emmanuel in , at 6/06/2008 01:15:00 AM
The Federal Reserve-arranged purchase of Bear Stearns by the House of Morgan is still being vigorously debated, and it is unlikely that a satisfactory consensus will be reached on the matter in the near future. Was it a massive case of "moral hazard" legitimating the "too big to fail" mentality of financiers flirting with disaster through financial securitization, or a necessary step in preserving the American or even the world financial system from meltdown? Go figure. In a recent article, the Financial Times notes that Bear Stearns approached the Singaporean sovereign wealth fund Temasek with its over $100B stash prior to the Fed-JP Morgan arrangement. To Temasek's credit, it turned down Bear Stearns' proposition that it be the investment bank's "white knight."

The issues faced by Temasek are well-known: Western governments were/are becoming leery of foreign ownership by "unaccountable" foreign governments pursuing "strategic" instead of "investment" opportunities and all that. Worse, SWFs that invested in Wall Street banks reeling from the mortgage crisis in late 2007 subsequently discovered that these concerns' stock valuations still had room to fall:

Bear Stearns sought rescue financing from Temasek of Singapore in the days before its sale to JPMorgan Chase but was rebuffed, underscoring the growing reluctance of sovereign wealth funds to make high-profile investments.

Temasek received the request for money late in the day Singapore time on March 14, the Friday of the weekend when the deal to sell Bear was brokered by the Federal Reserve and other US regulators, people familiar with the matter say. Temasek, which is considered one of the few sovereign funds with the internal capability to vet complex transactions, declined for practical and political reasons.

Bear’s advisers at Lazard Freres told Temasek it needed to respond before Monday morning in New York, which would have made it hard to do any real due diligence. Temasek also feared that an investment in Bear could generate controversy given “how American” the bank was.

Temasek’s response to the Bear deal was mirrored by the response of sovereign wealth funds from the Middle East and Asia that were asked to provide capital for Wachovia – another US bank with a strong domestic orientation – but refused. Wachovia declined to comment.

People familiar with sovereign wealth funds say they are growing reluctant because they worry about being seen as “dumb money” and because they fear triggering a political backlash. Kuwait Investment Authority executives have asked companies that seek money from it to “clear our name with politicians before you talk to us”, says a top fund executive. This reluctance could become more significant if the credit crisis forces banks to raise fresh capital. Lehman Brothers is considering such a step, people familiar with the matter say.

“The availability of money from sovereign wealth funds was exceptionally helpful to a limited number of US and other financial institutions around the world but since the spotlight has been put on them, they have pulled back dramatically,” Stephen Schwarzman, founder and head of Blackstone, said this week in a video interview with the Financial Times. “They don’t want to be members of a club that doesn’t want them as members. They’ve pretty much withdrawn.”