The Kuwait Investment Authority, Saudi Arabian Prince Alwaleed bin Talal, and the China Development Bank stepped in to the breach yesterday, as two US banks attempted to raise around $12 billion between them.
Merrill Lynch is after $4 billion, and Citigroup between $8bn and $10bn. And the money seems set to come from the Middle East and China again, as sovereign funds rush in once more to shore up holes in western banks’ balance sheets.
According to the FT, The Kuwait Investment Authority is set to be one of the main contributors to the Merrill fundraising. It has already stumped-up $2bn to $3bn into Citigroup too, so, as the FT put it, it is “emerging as a large source of rescue finance on Wall Street.”
Meanwhile, Citibank is planning its second round of fundraising in as many months. Less than two months ago, in addition to the money raised from the Kuwait Investment Authority, it was on the receiving end of $7.5 billion invested by the Abu Dhabi Investment Authority. This time, it looks like Saudi Arabian Prince Alwaleed bin Talal and the China Development Bank will be providing much of the required funds.
It’s big bucks, but in the scheme of things still small fry. Even so, it does seem to us that a dramatic change is occurring right now. It has long been argued that the US and UK balance of payment deficits do not matter, as they are easily covered by flows of money.
In fact, until recently, the UK and US have been borrowing money from abroad, paying out low interest payments and reinvesting some of the money into deals paying out more-handsome returns. No wonder the balance of payment deficits didn’t seem to be a problem.
But it does seem that this is now changing. Foreign investors are securing much better deals for their money - and in the long term this could completely change the make-up of international capital flow.
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