Morgan Stanley bailed out by Beijing

Morgan Stanley yesterday announced $9.4billion of write downs predominantly from mortgage related exposure. The loss of $9.4bn in the first quarter is the first in the bank’s 73 year old history. The write down took the bank to a $3.5bn dollar fourth quarter loss and was so severe that the bank was forced to agree a $5billion cash injection from the Chinese Government to prop up its capital base.
In exchange for $5bn from China Investment Corp (CIC), China’s sovereign wealth fund, CIC will get, says Tom Stevenson in The Telegraph, "a 9% coupon on convertible shares that will give it a 10% stake in the bank within three years." So in other words, in exchange for $5bn now, Morgan Stanley will pay China $450m a year for the next three years, after which the Chinese government will own one-tenth of the bank. Morgan Stanley’s market cap this morning was around $53bn, even after the shares have fallen more than 25% since the start of this year, So that doesn’t look a bad deal at all for the Chinese.
So as China and the Arab states diversify their Dollar holdings we have seen over the past months Banks in particular receiving huge cash injections as the credit crunch continues more of these institutions will have no other method of attracting this money and at times may be forced to go cap in hand. Who said America was not for sale?

Below are some institutions who have received foreign investment. I have named the banks,investors, amount invested and stake in the bank as a percentage.

Morgan Stanley- China Investment Corp $5bn 9.9% stake
Barclays- China Dev Bank $4.4bn 5.2% stake
Blackstone- China Investment Corp $3bn 9.4% stake
Fortis- Ping An Insurance $2.6bn 4.18%stake
UBS- Singapore Invest Corp $11.2bn 11.5%stake
Citigroup- Abu Dhabi Invest Auth $7.5bn 4.9%stake
Standard Chart -Temasek Holdings $4bn+ 15.3%stake
Carlyle Group- Mubadala (Abu Dhabi) $1.35bn 7.5%stake
Standard Chart- Istithmar (Dubai) $1bn 2.7%stake
HSBC- Dubai International "Substantial stake"

Should we be worried about foreign governments buying our companies?
This does all raise a difficult question though. How important is it that foreign governments are gaining increasing control of key assets across the world?
It’s easy to get sidetracked on this topic - on the one hand, we pride ourselves on our free and open markets. On the other, should we be worried about foreigners controlling our companies and the jobs that result from them?But really, it’s not that difficult. As other commentators have pointed out, we learned through a long and painful process in this country that governments are not great at running anything. It’s something that some people are still learning – most notably anyone who still supports the idea that the government should be allowed to build a national ID database. If we don’t trust our own government to run companies efficiently, then it’s unlikely that your average foreign government is going to run things any better. And more to the point, while we can kick our own government out (eventually), we have no control over the make-up or in general, the actions of a foreign power. This isn’t meant to be scaremongering jingoism. The point is that through our ill-considered economic policy of "spend yourself rich", the US and the UK in particular now find ourselves in no position to negotiate when wealthy foreign governments want to cherry-pick our assets. As thousands of homeowners are about to find out, it’s never a good idea to be a forced seller. You place yourself at the mercy of the buyer, which is never a good position to be in, regardless of how benign the buyer’s motivations are. At best, you’ll get a low-ball offer - at worst you’ll get completely shafted.Let’s hope that China and all the other sovereign wealth funds are feeling benevolent when they start running the slide-rules over the rest of the West’s family silver.

Credit Crunch Still Biting:
Citigroup have failed to secure $10billion in financing for Vladimir Potanin, the Russian oligarch, because of turmoil in the credit markets. Also Liverpool FC have had to cutback on more ambitious plans for their new development in Stanley Park the problems in securing £300million for the new stadium have forced the owners Hicks and Gillette to scale back plans.

Sterling due for correction:
The Bank of England have signalled that they will cut interest rates next month due to better than expected inflation figures. As the economy slows and the Credit crunch bites the already fragile housing and retail sector hope that lower rates will kick start the flagging economy but with forecasts showing 45,000 homes to be repossessed next year home owners are hoping for some sort of relief. Sterling will go lower based on the BOE’s intention for the first time in three months it dipped below $2.00 and was trading at approx 1.9869 expect it to fall lower.