Well, it is all the rage.
And the bearded one is currently hobnobbing alongside prime minister Gordon Brown on a business-led visit to China, which must surely throw him into the path of some wealthy eastern types, or perhaps those who hold the purse strings to China’s $200bn sovereign wealth fund.
Meanwhile, the prime minister has been promising that the UK door to Chinese investment, including from its SWF, will remain open.
Alas, the official line is that Richard Branson, whose presence on the trip some have found perplexing, will not be discussing Virgin’s bid for the Rock whilst in China – either with the PM or the Chinese. The country’s SWF, one of many investors thought to have been approached by Goldman Sachs in seeking financing, apparently shows little interest of riding to the hapless bank’s rescue.
But surely it would be remiss if Branson didn’t put a little of that much-heralded charisma and likeability to good use on the two-day swing through Beijing and Shanghai. He could pop by Singapore and Korea on the way home – and round it off with a whistle-stop tour of the Middle East.
The trouble is that while the SWFs of the globe may be willing to put some money in the largest of the world’s banks in distress – a domestic lender from Newcastle that got itself in a pickle has rather more limited appeal.
Morgan Stanley’s Huw van Steenis has again been updating his numbers on the march of the sovereign wealth funds.
His contention you may remember is that a three-pronged sweet spot for SWF investments: best-in-class cash generative players with exposure to Asia and emerging markets, a strong securities business, or modern asset management.
N Rock need not apply on that basis.
Van Steenis also notes that with about 93 per cent of the investment to date emanating from just fives states (Singapore, China, Abu Dhabi, KIA and Dubai), banks may need to start looking for other “self-help solutions.” He tips private equity’s role in picking up cheap FIG assets this year to grow materially.
Private equity though may prefer to wait and watch – with funding pressure still severe and the shift and realignment of the banks’ capital markets operations only just beginning.
The Option Armageddon blog takes issue with the idea that capital infusions signal a vote of confidence or a bottom in a bank’s fortunes. History of the past six months in any case pretty much discounts that theory.
But he notes, with a hat tip to Mish, that the latest batch of SWF capital comes with “ratchet provisions,” giving the new holders of banks’ securities the right to obtain better terms in the future should they be on offer to others. Specifically, if the banks’ issue more convertible equity at a lower conversion price, those signing deals this week will get the new price established.
Not only does this make it more difficult for the likes of Citi to raise more capital down the road, it suggests that the funds can’t be confident they’re buying in at the right time.
Northern Rock on the other hand is more hatchet than ratchet.