Due to the sub-prime crisis, a Chinese state-owned fund, China Investment Corp., now owns almost 10% of Wall Street bank Morgan Stanley.
With no management role CIC hopes to avoid controversy or political attention. But, the head of the US Senate banking committee said he wants more details of the deal to see if a national security related review is needed.
There may be more opportunities for foreign government to invest in major banks as many US sub-prime mortgages will reset next year to higher rates meaning further defaults by home owners and more bank write-offs – an estimated 120 billion dollars worth.
Morgan Stanley said the Chinese capital injection is a strategic move rather than a desperate one and it joins Citigroup, Bear Stearns and UBS of Switzerland, in seeking foreign investors to prop them up. Which has led black humour on trading floors – one joke doing the rounds goes: “It’s Shanghai, Dubai, Mumbai or goodbye.”