The Senate is ordering a probe into sovereign wealth funds controlled by foreign governments, just as Citigroup and Merrill Lynch negotiate a new wave of overseas capital injections weeks after getting a first round of multibillion-dollar infusions.
The Government Accountability Office this week began an investigation into how much money the funds control, where they have been invested and how those investments have been treated.
The GAO is also examining what information these opaque funds, which are generally run by Asian and Middle Eastern governments, are required to disclose about their investments and what action can be taken to discipline them if they misuse their power.
“The sovereign wealth funds did not initially cause too much of a stir in Washington,” said David Walker, the comptroller general who heads the GAO. “But as the number of these kind of transactions rises, Congress is becoming interested.”
The review, which was ordered by the Senate Committee on Banking, Housing and Urban Affairs, comes as sovereign wealth funds in recent weeks have invested about $35 billion in Merrill, Citi, Bear Stearns and Morgan Stanley, among others.
Although the first round of investments raised some concerns in Washington and on Wall Street, it was largely welcomed because the banks desperately needed capital after suffering multibillion-dollar losses on mortgage-related investments.
But now there’s word that Citi is seeking as much as $10 billion more from sovereign wealth funds in Asia and the Middle East – not long after the Abu Dhabi government paid $7.5 billion for a 4.9 percent stake.
Further, Merrill is seeking an additional $3 billion to $4 billion from a Middle Eastern sovereign wealth fund, less than three weeks after selling a 10 percent stake to the Singapore government for about $5 billion.
Both deals have fueled concerns that the funds may use their stakes in the banks for political gain.
While these funds’ stakes aren’t expected to exceed 10 percent, a big fear is that two or more funds could join forces and coordinate their influence over a big Wall Street firm.
Times of London