Friday, November 23, 2007

DUBAI POISED TO ACQUIRE LARGE STAKES IN A NY BANKS

The Dubai government, whose purchase of six American ports sparked a political furor, is poised to acquire substantial stakes in Citigroup and other New York-based banks mired in subprime mortgage debt.

Omar bin Sulaiman, the governor of the Dubai government's investment arm, DIFC Investments, is currently on a spending spree, spurred by the bargains that have resulted from the low value of the dollar and the sinking of the stock markets caused by the subprime mortgage crisis. Last year, Dubai caused a political storm in America when its Dubai Ports World company acquired six major American ports as part of its purchase of the British company P&O. Opposition to ownership by an Arab country of such sensitive properties at a time when America is waging a war against Islamist terrorists obliged Dubai to sell the port management companies to the American insurance company AIG amid anxieties about port security.

Dubai, a tiny country in the Persian Gulf with a matching small population, which is part of the United Arab Emirates, is cash-rich because of its vast natural reserves of oil.

Under its ruler, Sheik Mohammed bin Rashid al-Maktoum, Dubai has aggressively begun to diversify its investments into tourism, construction, and finance and has concentrated upon acquiring blue-chip companies around the world. The sheik's aim is to make Dubai home to two of the world's 10 largest financial institutions within the next eight years.

The turmoil in the markets and the subprime mortgage mess has made large American financial institutions and banks vulnerable.

"There are good assets in the U.S., good opportunities for acquisitions to be identified," Mr. bin Sulaiman told reporters at the World Financial Centers Summit conference in Dubai. He said he was hoping to buy into American oil and gas interests, as well as telecommunications companies and real estate while the prices were right.

He is also eyeing the troubled American banking sector, where four major financial institutions have had to write off billions of dollars of bad debt stemming from their involvement in risky subprime mortgages.

Earlier this year, the Dubai government took a 2.2% stake in Deutsche Bank for $1.97 billion, making it the fifth-largest shareholder of Germany's flagship bank. Other state-owned Dubai investment groups have in the past year bought substantial stakes in HSBC Holdings and Standard Chartered.

Istithmar, the Dubai government-funded investment house that bought into Standard Chartered, said in September that it was interested in investing in two American companies hit by subprime bad debts.

Mr. bin Sulaiman refused to be drawn on whether he was focusing his attention on Citicorp, America's largest bank, Merrill Lynch, the world's largest brokerage, Bear Sterns, or Morgan Stanley.

Three chief executives of banks have been fired because of their firms' exposure in the subprime mortgage market which has caused a total write down of $45 billion so far in bad debts. Merrill Lynch marked down $8.4 billion in assets during the third quarter; Citigroup has written down at least $13 billion.

Chief executives are not the only ones to lose their jobs. According to Bloomberg, Bank of America, JPMorgan Chase, Bear Stearns, Citigroup, Lehman Brothers, and Morgan Stanley have announced more than 24,000 job cuts in the first 10 months of 2007.

"Without mentioning names, we have a track record of taking stakes in major banks, with the right partners for management," Mr. bin Sulaiman told Reuters. He thought that, notwithstanding the sharp reduction in the share prices of the four, he would bide his time as they were likely to slip further. "The challenge is how low do we look," he said. "The price has to be right, and you need to understand the strategy of the organization and, if that aligns with our strategy, the decision is easier."

Other Dubai investment agencies are also circling American financial institutions. "What's happening in the States is going to create a lot of opportunities," Mohammed Shaibani, chief executive officer of the Investment Corporation of Dubai, told reporters yesterday. "In financial services, we are evaluating the situation."

Mr. Shaibani said he was waiting until the shares of companies like Merrill Lynch, which have dropped 42% since June 1, sank even lower. He said he thought at their price yesterday, they were "still expensive."