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GIC sells part of UBS stake at loss

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Sovereign wealth fund pares major 2008 investment in Swiss bank

Singapore sovereign wealth fund GIC has pared its stake in Swiss private bank UBS at a loss, partly because of changes in the bank's strategy and business.

GIC sold a 2.4 per cent stake in UBS, leaving it with a 2.7 per cent holding, worth about US$1.7 billion (S$2.37 billion) at yesterday's prices.

"... conditions have changed fundamentally since GIC invested in UBS in February 2008, as have UBS' strategy and business," said GIC chief executive Lim Chow Kiat yesterday.

"It makes sense now for GIC to reduce its ownership of UBS and to redeploy these resources elsewhere."

The Swiss giant has in recent years refocused its attention on its core wealth management business.

GIC declined to disclose the size of its loss from UBS, but a back-of-the-envelope calculation puts it at more than US$3.5 billion.

UBS was one of two major investments GIC made in the financial sector in the early stages of the 2008 global financial crisis. The other was an investment in Citigroup.

The investment in Citigroup made a realised profit of US$1.6 billion when GIC reduced its stake earlier. Plus, GIC is sitting on paper profits from that investment through the stakes it still holds and has also earned dividends from it.

The profits from Citigroup outweigh its losses on UBS, it indicated.

Harking back to the time it invested in the two banking giants, GIC noted that these had offered a rare chance to take major stakes in the international banking sector.

GIC added that while it does its best to ensure that each individual investment performs, it must accept a degree of risk.

A GIC spokesman also said "we remain a significant shareholder and are confident in the UBS management".

Separately, UBS said GIC's divested stake of about 93 million shares will be offered to institutional investors.

CIMB Private Bank economist Song Seng Wun noted that UBS had recently reported healthy results in line with other banking players.

It became the first wealth manager in the region to grow its assets under management beyond 300 billion Swiss francs (S$424 billion).

"So this could explain why GIC decided to sell the stake now. Global banking stocks have rallied strongly as the latest earnings reports from banks have been the best in a while," he said.

"There are enough carrots on the table to attract potential buyers, which makes it an opportune time for GIC to offload an investment that has not performed well."

With the global economy recovering, it is also a good time for GIC to redeploy its capital into other investments, Mr Song added.

GIC measures its performance on an overall portfolio basis, based on long-term rather than annual returns.

According to its latest annual report, the GIC portfolio averaged 4 per cent real returns a year over the 20-year period from 1996 to last year.