Union Bank of Singapore

Some commentators have been rather critical about the Government of Singapore Investment Corporation or GIC for coming to the rescue of UBS of Switzerland. GIC will inject US$9.8 billion for a 9% stake in the Swiss banking giant to help it cope with the US sub-prime crisis.

The concerns are fair as it is the biggest single deal for GIC -- the guardian of Singapore's foreign reserves.

But critics are missing the big picture.

According to guest writer Hercules Morse, it's a great deal for GIC and Singapore.

"It's a great way to invest the nation's reserves in a first-class global institution, rather than spend it all on pointless projects," Hercules said.

Hercules Morse reckons that it's a great financial deal for GIC as there is very little premium priced into the conversion price compared to UBS' current market price. This means GIC is being paid 9% coupon on notes before conversion as an implied discount.

More importantly, the UBS deal will help promote confidence in Singapore as the new private banking capital of the world.

Sophie's World agrees. Singapore's two government investment arms -- GIC and Temasek Holdings -- are building up a formidable portfolio of banking assets.

Apart from GIC's stake in UBS, Singapore, through Temasek, has interests in major banking assets such as Standard Chartered (13%). ICICI Bank (7%), China Construction Bank (6%), Bank of China (5%), and homegrown DBS Bank (28%).

Temasek acquired the Stanchart stake in March 2006 from the family of the late Singapore-based Malaysian tycoon Khoo Teck Puat.

Since then, Stanchart has stepped up its plan in Singapore. In May this year, Stanchart made Singapore its global private banking HQ. And Stanchart early this year agreed to take up more than half a million square feet of space at the new Marina Bay Financial Centre -- Singapore's new downtown. Incidentally, DBS, which has been rumoured to be a merger partner of Stanchart, agreed to take up 700,000 square feet of space in the same neighbourhood this week.

It doesn't really matter whether DBS and Stanchart will tie the knot.

What's more important is Singapore's efforts to build a world-class financial centre by hosting the big banking players in Singapore, and by taking direct stakes in them like the UBS deal. By doing so, their fates are intertwined and entrenched.

UBS will, one day, be better known as Union Bank of Singapore!


Additional reading: Behind GIC's buy into UBS (15 Dec 2007)