Register for our free newsletter

Latest News

Thanks, but no thanks

Thanks, but no thanks

Lehman came to Abu Dhabi, cup in hand. So why didn’t the emirate rescue the failing bank?

September 17, 2008 10:59 by

Scott MacMillan

In recent days, Kipp has tweaked the noses of Gulf investors for going after investments that seem glamorous but risky – football teams, then movies – while others have cited Abu Dhabi’s interest in so-called “trophy properties” like Manhattan’s Chrysler Building as evidence of the sin of pride.

Portfolio went so far as to say that Gulf investors’ eagerness to snap up high-profile buildings during the American real estate slump was a sign that a peak in the oil boom was near.

“Buying trophy properties can be a bad omen,” the New York-based business magazine posited. “In the 1980s, amid fears that Japan would overtake the United States as the leading economic power, Japanese investors bought properties like the Pebble Beach golf course, the Sony movies studio, and Rockefeller Center. It was the pride before the fall.”

Linking the investment habits of cash-rich investors to fluctuations in the supply and demand of energy requires strange logic. Then again, that was written in June, as oil was edging toward $150 a barrel. It has fallen below $100 since then.

Enter Lehman Brothers – now the biggest bankruptcy in corporate history.

Before it went belly up, the investment bank travelled the world, according to the New York Times, looking for somebody to bail it out. Representatives are known to have visited Abu Dhabi, as the emirate’s investment authority sits on one of the biggest piles of cash known to mankind.

Yet the world’s largest sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA), apparently said it had better things to do than risk a fortune on buying a failing bank – even Lehman Brothers, once known as one of the world’s most reputable banking brands.

Buying the Chrysler Building? That’s not a bad omen. Buying the Chrysler Building, Manchester City football club, sinking a billion dollars into Hollywood movies, yet passing on Lehman Brothers – now that’s a bad omen.

Who’s next? The International Herald Tribune spoke to one senior executive from a major financial institution who’d been visiting all the major sovereign wealth funds. As the newspaper described it, “his voice was worn from hours spent … trying to explain to clients why Lehman failed and who might be next.”

His voice was also worn, no doubt, from trying to convince Abu Dhabi authorities to come to the rescue of another failing bank.

There could be a number of reasons Abu Dhabi took a pass on Lehman. The most obvious is that this bank, and US banks in general, are a bad bet, financially.

But there’s another consideration. Sovereign wealth funds (SWFs) have been coming under intense scrutiny in the US for over a year now, and with the American economy in the doldrums and protectionist instincts rearing their head, these funds and the governments behind them are increasing weighing political considerations in addition to purely financial ones.

Jan Randolph, the head of sovereign risk at Global Insight, told the UK’s Independent, “The more regulatory pressure there is and the brighter the spotlight shone on the SWFs, the more they will move their money into hedge funds and private equity and the like, where transparency issues are not so significant because all three are just unlisted pots of money.”

Being known as a white knight is one thing. It’s just as likely Americans would see sinister motives in what would surely be painted as an Arab takeover of Wall Street. Financial considerations aside, it is unlikely Abu Dhabi would want to bear the brunt of a political backlash on Main Street, USA.

Tags: , , , , , , , ,

Leave a Comment