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.