China has turned off the spigot.
SHANGHAI (Dow Jones)–China’s Cabinet has rejected a proposal by China Development Bank to increase its investment in subprime-hit Barclays PLC (BCS) by up to GBP136 million, Caijing Magazine reported Wednesday, citing unnamed sources.
Barclays is, of course, hoping to raise £4.5bn through the issue of new shares. CDB already owns 3.1 per cent of the beleaguered bank.
In the first few months of the credit crisis, forget not, it was sovereign wealth funds which rode to the rescue of many undercapitalised Western financial institutions. Since when, we’ve seen rights issues, asset sales, and, of course, straight government intervention to pump cash into the system.
The US and UK governments only have so much cash to slop around. The same goes for nervous domestic investors. So there has remained a tacit assumption among the big players that if push comes to shove, cash will come, once more, from abroad.
Having bought into banks in late 2007, however, and been stung by writedown after writedown since, foreign buyers are understandably cautious. If not downright angry. China bought into Bear Stearns when shares in the former bank were still worth north of $100. Now consider, the latest hiccough: the fact that foreign governments like China are the main buyers of Fannie and Freddie packaged debt.
If you are Chinese, capitalism isn’t really looking great right now.
Beijing’s veto on investment for Barclays may just be a shrewd decision to avoid putting money at this point into one of the world’s most poorly capitalised investment banks. It may also, though, be indicative of a broader pullback from investment in Western financials - if not big-name Western institutions, period. A big chock pulled from under the US and European economies.
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Update 12.00: A dramatic reversal of circumstance! Capitalism is safe! The Communists are going to invest in Barclays afterall. The latest intel indicates the money is already sitting in a JPM transfer account in Hong Kong.
