Reuters reports on China’s recent bailout of U.S. investment bank Morgan Stanley:
China has agreed to pump $5 billion into Morgan Stanley as the U.S. investment bank reported a stunning fourth-quarter loss fueled by $9.4 billion of losses in subprime mortgages and other assets.
China’s investment, which could translate into as much as a 9.9 percent stake in Morgan Stanley, marks the latest capital infusion by a sovereign wealth fund into a major investment bank hurt by this year’s credit crunch. [Full text]
While Forbes offers an analysis of the deal:
The Chinese government is assuming a dual relationship with Morgan: It will be the second-largest shareholder after State Street while remaining one of its largest customers, which could pose a conflict of interest for Morgan in its future dealings with China.
The structure of the Chinese investment in Morgan appears aimed to stave off that concern. CIC will not gain a seat on Morgan’s board, content to be a passive shareholder, earning a rich annual interest rate of 9% on bonds that will be convertible into stock in 2010. [Full text]
See also “US bank’s China hope” from the Melbourne Herald Sun.