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KAI RYSSDAL: Just three short days ago Citigroup, JP Morgan and Bank of America swore their subprime rescue plan was still gonna happen. It had come to be called a Super-SIV — or structured investment vehicle. Essentially, a way for Wall Street to put off the pain of dealing with some of the shaky investments it made. Problem was nobody was willing chip in the billions of dollars needed to backstop the off-the-books debt. Most banks have decided instead to rip the Band-Aid right off. Citigroup’s the best example. Last week it took 49 billion dollars of subprime-related debt and added it to its own books.
Another way Wall Street’s trying to move past subprimes is by looking overseas. We’ve mentioned sovereign wealth funds a couple of times now. Morgan Stanley and Citigroup have tapped sovereign funds for operating cash. Today’s participant is Merrill Lynch. The bank’s thinking about a $5 billion deal with Singapore. It’s not just Wall Street. The Swiss bank UBS has sold a slice of itself to Singapore as well. And also to Saudi Arabia. Marketplace’s Jill Barshay has more.
JILL BARSHAY: UBS shareholders in Europe are kicking up big a fuss about the Saudi investment. Todd Malan is the president of the Organization for International Investment. He says there’s not much opposition to these foreign government investments in the U.S. He says Wall Street banks need the money. And besides, he says, these funds aren’t buying the banks out completely.
Todd Malan: They are getting different terms than you would be able to get just buying on the New York Stock Exchange, but, on the other hand, they’re not getting control. They’re not getting a board seat.
Foreign funds are grabbing stakes for about the same price that an American vulture fund might get for rescuing a troubled company.
Ryan Lentell is a banking analyst at Morningstar. He says when these big funds buy into the banks, the slices held by existing shareholders get smaller. UBS Investors aren’t too happy about that, he says, but they’re happy to see their stock price stop falling.
Ryan Lentell: I think the investor backlash that we’ve seen will be more about the losses. So I don’t really see investor backlash from foreign capital flowing into the U.S. and European institutions.
Lentell says investors see a silver lining to these bailouts. They give the banks important allies in China and the Gulf States. And that could help these banks expand into some of the world’s most profitable markets.
In New York, I’m Jill Barshay for Marketplace.
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