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What should a Wall Street firm do when it loses billions on risky bets in the mortgage securities market? Have its CEO call the Chinese government for a capital infusion of course. Bear Stearns did it back in October. Yesterday, Morgan Stanley announced a USD $5 billion equity investment from China Investment Corp. after writing down USD $9.4 billion of its mortgage securities portfolio, ouch! China Investment Corp. is the USD $200 billion sovereign wealth fund that the Chinese government has setup to invest its massive foreign currency hoard, estimated at roughly USD $1.4 trillion.
News of Beijing’s involvement sent Morgan Stanley’s stock flying, even in the face of an abysmal quarterly earnings report. However, shareholders may not want to cheer just yet. So far, having the Chinese government as a major investor hasn’t proved to be a winning formula. A "kiss of death” is more like it. Of the three overseas investment China has made in 2007, The Blackstone Group, Barclay Plc., and Bear Stearns, all are down about 20 percent. Admittedly the poor performances have nothing to do with China. But for those looking to China as the proverbial “silver bullet”, or even just a lucky charm, may want to reconsider their position.
Photo from Canadian Veggie.
Jay Sheng is Shanghaiist's Business Editor. Email tips, news and gossip about business in Shanghai and China to biz at shanghaiist.com.
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Read this entry twice and I still can't figure out the point you're trying to get at. It’s really hard for the readers to make sense of self-contradicting statements such as:
"So far, having the Chinese government as a major investor hasn’t proved to be a winning formula. A "kiss of death” is more like it. Of the three overseas investment China has made in 2007, The Blackstone Group, Barclay Plc., and Bear Stearns, all are down about 20 percent. Admittedly the poor performances have nothing to do with China. "
“Kiss of Death”? Give me a break! Is China to blame for Blackstone, Barclay and Bear Sterns down 20%? The answer is NO since the investment wasn’t for controlling stakes. So why bother writing about it? Are you just filling in words to beef up the paragraph?
The sub-prime mortgage crisis took a toll on all the Wall St. financial firms. The new equity investment deal is nothing more than a much needed injection of capital. China needs places to park its excess foreign reserves before it causes more inflation and Morgan Stanley needs a new cash injection because the credit crunch is in essence a liquidity problem in the market. It's simply a deal of convenience.
It is what it is and it isn’t what it isn’t. If you insist on analyzing a business deal, I suggest going to business school first.
In reading the entry twice and even quoting the paragraph, you still didn't see the part about
"Admittedly the poor performances have nothing to do with China. "
My point is China so far hasn't proved itself to be a good investor, and other shareholders shouldn't view China's participation as a sign that better times are ahead.
So, relax, take a deep breath, put down the crack pipe and get off that ledge.
I don't think the point is that China is not a good investor, Beijing is trying to find ways to buy up US hard assets for better returns, and especially to gain control over US infrastructure (the US financial markets are a part of the national infrastructure).
Bear and others are probably relying on the US gov't to slam the door on Beijing's hands if it actually tries to run these firms.
9.9% equity is Morgan Stanley is a great investment by CIC and it will yield both short and long term results. Not only is this seen as “bail-out” for Morgan Stanley amidst $9.4 billion write-downs last quarter and calming worried investors, this relationship is also going to help MS obtain licenses and grow its existing business in China. Maybe MS wants to one day underwrite IPOs or trade local stocks in China. Maybe being able to do those things will be beneficial to the company's performance. Maybe a better performing company will yield good returns for their investors. Maybe…just maybe?
No use saving it man, your credibility tanked when you clicked on the submit button and published this article. Judging by the way you’re valuing investments and deals, it’s no surprise that you packed up and headed back to China after catching the “Day-trading craze”, which we all know is just another term for “couldn’t find a job on Wall St.”
By the way, chill with the “crackpipe” insults. You’re 30 something, be more mature about things.
chill Howie!
I went back and read both of you's posts and I am not sure who's the immauture one here.
All Jay did was pointing out a fact about Chinese government's investment track record.
Even if what he wrote was a speculation, which it wasn't, he's still entilted to his opinion.
You, on the other hand, went on and on with your speculation - yeah maybe Warren Buffet and Bill Gates will decide to buy out Morgan Stanley too!
You rant reminds me of a typical day-trader who took huge gambles and refuse to hear anything contrary to what he wants to believe.
Keep dreaming - hope your out of money calls works out for u, and I sincerely hope u r at least smart enough to NOT write puts on this.
I hope CIC's investment strategy is longer term than just a few months. Assuming that's true, the fact that their earlier investments are slightly down should make little difference. I guess it's easy to think like the talking heads on The Squawk Box.
Thanks for your concern alertipo, but I’m chill…
China spent $29.2 billion in foreign investments this year. Excluding the most recent MS equity purchase, there were 4 other overseas investments, not 3. The investment Jay failed to remember just happens to be the largest investment out of all of them. So your buddy Jay’s “facts” were no facts at all. Which brings about one question: If he couldn't even get the facts right, how good are his opinions and speculations? Maybe if your lips weren’t pressed so tightly against his ass you’d see the real picture.
Speculations are what the markets run on, I hope where you’re from people don't just sit around and wait to see what actually happens before making moves. Good luck with that. But in the real world, speculations are pretty darn important, especially if they're coming from the "business editor" of a popular website.
I’m not a day-trader who's only concerned with the short term and place huge bets on the market with limited or no quality information. As you can see, my analysis pays attention to long term effects as well. But it's ironic that you mentioned it. Ask around the Street and you’ll get the same answer: 10 out of 10 day-traders lose their money in the long run. Don’t believe me? Ask Jay.
I’m actually very open to new ideas and viewpoints, but only the quality ones. The ill-conceived ones are a waste of everyone’s time.
And one more thing, Bill Gates and Warren Buffet are probably not going to buy up Morgan Stanley. There are no bases for that assumption, at least not yet.
PS
I'm an asshole, I know that. But when it comes down to it, I'm the one who's right and that's all that matters. Cheers!
howie, u r really cracking me up, to be honest.
first of all, i am so glad u got my joke - Bill Gates and Warren Buffett are NOT buying MS - duh!
second, if u got logic/fact/reason on ur side, there is no need to get personal. Judging by ur post...well, i guess u gotta make up for ur shortcomings somehow.
I've seen ur type all too often - let me guess, you tend to blame the messenger and the world when a position you take goes the opposite way?
If you can't stand the heat, get the hell out of the kitchen! Trust me, the road to bankruptcy is paved with emotionally unstable traders who believe they are unique and are right.
hmm... that looks like a good description of someone we know...
Alertipo, I'm glad I can be both educational and entertaining. Maybe you can become a fan of my writing too.
First of all, I knew you were just joking about Bill Gates and Warren Buffett, so was I. But you have to admit, bring them up was a bad analogy since there actually are bases supporting my analysis of MS expanding their businesses in China. So that's settled.
Second, everything I have said are based on facts and logic. Even if you consider some of them to be “personal attacks”. But one’s thing’s for sure, I don’t own any crack pipes. Looking back now, who’s the one that didn’t base their statements on facts and logic? You tell me.
My type? Nah…I don’t think you know my type at all because I don’t think we’re in the same industry. I’m not a trader, I’m with M&A. I don’t take positions and I don’t trade. Instead I research, analyze, model and project. No one should “blame the messenger” unless the messenger is making up his own message. I think you’d agree with me on that.
I appreciate you well wishes and I too, wish you the best of luck in building you financial future.