Sovereign funds upbeat on growth of financials

Investment funds from the Middle East and Asia have invested an estimated $37bn in shares of western financial companies this year in a sign the funds are taking a more optimistic view than other investors of the growth prospects for banks, exchanges and asset managers.

Shares in banks around the world rose on Tuesday as investors reacted to news that Abu Dhabi Investment Authority had injected $7.5bn into Citigroup in the form of convertible shares. Analysts said the ADIA investment was a possible template for other banks hit by the US subprime mortgage crisis, such as UBS, to shore up their capital base.

According to analysts at Morgan Stanley, the investment in financials by sovereign wealth funds far outstrips the amount they have committed to other sectors. Bankers say there is a big appetite among wealth funds for further investment in financial assets hit by the credit market turmoil.

Citi shares closed up 1.7 per cent, with observers pointing out ADIA was prepared to put $7.5bn into a company without a permanent chief executive.

Citi is searching for a replacement for Chuck Prince, who stepped down as chairman and chief executive three weeks ago.

Names that have been discussed in the search process include Sir Fred Goodwin, chief executive of Royal Bank of Scotland, and Dick Kovacevich, chairman of Wells Fargo.

However, neither is thought likely. The serious contenders for chief executive include Vikram Pandit, head of Citi’s institutional businesses, and Bob Willumstad, chairman of AIG. Robert Rubin might stay on as chairman.

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