Wednesday, December 19, 2007
The second news is frankly very surprising to me. China Investment Corps, which invests 200 billion of China's foreign exchange reserve, decided to plop down 5 billion to bail out Morgan Stanley. Here, I offer a few possible explanations, although I personally would like to know the full story.
1. Granted MS has a long history with China as it was the first foreign investment bank to start an investment bank joint-venture with China. This is also important because the head of CICC (the joint venture child) is now Zhu Yunlai (Levin), the son of former premier Zhu Rongji. Of course, Zhu the elder is known for his caution when it comes to the forex reserve. If through the Zhu Yunlai connection, MS is able to persuade elder Zhu to not oppose the deal, it would have made the deal sail through more easily.
2. I don't think in this case the main lobbying force came from Lou Jiwei, who is already in enough trouble from the Blackstone deal, which has thus far resulted in hundreds of millions of book loss for CIC. He would have wanted some safety guarantee from someone higher up. My guess--and this is a pure guess-- is that Wu Yi also stepped up to lobby for MS, and Premier Wen, who tends to be pretty cautious, decided to give her "face" by approving the deal. We can see this as a retirement present for Wu Yi. I don't think this deal involved any of the new vice premier candidates like Wang Qishan or Zhang Dejiang. Although Wang also has connection with MS as the former head of CICC, he wouldn't have wanted to take such a big risk early in his stint as vice premier (well, even before he becomes one actually).
Anyway, the above is pure speculations. I urge my esteemed colleagues in the reporting business to find out the real story. I think whatever it is, it is bound to be very interesting.
The Straits Times December 19, 2007 Wednesday, by Chua Chin Hon
Xi Jinping consolidates his position at the top;
Sixth-ranked Chinese leader takes over elite party school
BEIJING - CHINA'S sixth-ranked leader Xi Jinping has taken over leadership of the elite Central Party School (CPS), consolidating his position as the front runner for the country's top leadership in 2012, sources say. Equally significant, his appointment quashes speculation that President Hu President Hu -Search using:
Jintao's top protege Li Keqiang would get the job at the CPS - a development that would have injected unpredictability into the leadership race.
Both Mr Xi, 54, and Mr Li, 52, were catapulted into the ruling Chinese Communist Party's (CCP) top decision-making body in late October following a major leadership reshuffle.
Mr Li became China's seventh-ranked leader.
While Mr Xi is seen as the front runner for the top job, political observers say his position as the heir apparent cannot be considered secure until he successfully acquires three coveted appointments. The presidency of the CPS is one such appointment. The school trains future leaders and is seen as an influential place to build connections with promising provincial officials and younger military commanders. The two other coveted appointments are those of the state vice-presidency and the vice-chairmanship of the powerful Central Military Commission - the Chinese military's top decision-making body.
Mr Xi's position as the front runner would come under doubt if he loses any of the three appointments to Mr Li, who has a close personal relationship with Mr Hu going back to the 1980s. Thus far, Beijing has not officially announced Mr Xi's appointment at the CPS though the news has been indirectly confirmed by state media reports this week. The official Xinhua news agency said that the rising star presided over a major symposium at the school on Monday, during which Mr Hu delivered a keynote address.
Conspicuously missing from the event was outgoing Vice-President Zeng Qinghong, who has been the CPS president since late 2002. The influential Mr Zeng, 68, will officially retire in March next year and all eyes are on whether Mr Xi would replace him as the next vice-president. Traditionally, the vice- presidency has little real clout in China. But this portfolio has become important in recent years as it allows those aspiring to top leadership to gain foreign policy-related experience.
In this regard, Mr Xi appears to have a slight edge over Mr Li yet again. Since their concurrent elevation to the CCP's elite inner-circle, Mr Xi has been the first to receive visiting foreign dignitaries. He has met foreign guests, including Singapore's Minister Mentor Lee Kuan Yew, senior leaders from Japan's ruling Liberal Democratic Party as well as former United States president Jimmy Carter.
In contrast, Mr Li has so far, according to state media reports, met only one foreign guest in Beijing - European Commission president Jose Manuel Barroso, who was in town for the recent China-EU Summit.
Morgan Stanley secures $5bn from China
By Philip Aldrick, Banking Editor
Last Updated: 3:50pm GMT 19/12/2007
Morgan Stanley has become the latest global investment bank to resort to a foreign state bail-out after the Wall Street giant revealed its sub-prime related losses had ballooned to $9.4bn.
In a further sign of the shift in power to the Far East and Middle East, China's sovereign wealth fund - China Investment Corp (CIC) - is injecting $5bn to shore up the Wall Street giant's capital position in return for equity units that will convert into as much as 9.9pc of Morgan Stanley stock.
Morgan Stanley joins a growing list of banks that have sought help from cash-rich developing economies to stem their escalating sub-prime problems.
Abu Dhabi's sovereign wealth fund invested $7.5bn in Citigroup last month while last week GIC, an investment arm of the Singapore government, and an undisclosed Middle Eastern investor injected Sfr13bn (£5.6bn) into Swiss bank UBS.
Earlier this year China Development Bank and Temasek, another Singapore state investment fund, became major investors in Barclays as part of a deal that would have seen them put up large amounts of cash had the British bank succeeded with its takeover for Dutch rival ABN Amro.
CIC, which has roughly $200bn in assets, also took a 3pc stake in Blackstone as part of the US private equity group's initial public offering in July.
Morgan Stanley's worsening sub-prime position caused it to post a $3.59bn net fourth quarter loss. Its mortgage related writedowns have shot up from the $3.7bn announced last month and include $7.8bn in sub-prime related writedowns.
John Mack, chairman and chief executive, said accountability rests with him and that he will forego his 2007 bonus. He added: "The writedown Morgan Stanley took this quarter is deeply disappointing -to me, to our colleagues, to our board and to our shareholders.
"Across the firm, we have moved aggressively to make the necessary changes, and these isolated losses by a small trading team in one part of the firm should not overshadow the momentum we see in virtually all of our other businesses."
The increase in the level of sub-prime writedowns comes after UBS more than tripled its provision to $14.4bn earlier this month. Analysts expect Merrill Lynch and Citigroup to follow suit and reveal deeper losses than those already revealed.