SINGAPORE (AFP) — The Government of Singapore Investment Corp (GIC) on Monday reiterated its long-term faith in the massive investments it made in troubled banking giants UBS and Citigroup.
"We regard our investments in UBS and Citicorp as long-term investments which will give us good returns when markets stabilise and economic conditions return to normal levels," GIC deputy chairman and executive director Tony Tan said.
GIC in December announced it would inject 11 billion Swiss francs (10.8 billion US dollars) into UBS. A month later it said it would pump 6.88 billion US dollars into Citigroup.
Both UBS and Citigroup have revealed multi-billion-dollar writedowns related to a crisis in the US subprime, or higher-risk, mortgage sector that began in August. The crisis has wreaked havoc in financial markets and led to a credit squeeze that is stifling growth in the global economy.
Tan, speaking at the opening of GIC's inaugural staff conference, warned that the global economy could sink into its worst recession in 30 years.
"The economic downturn can be mitigated if decisive and timely actions are taken by policy makers in the United States and elsewhere," Tan said.
"However, if such actions by the authorities are not taken within the next three to four months, it will be left to the market forces of supply and demand to stabilise the US housing market before we can see the light at the end of the tunnel," he said.
"What is clear is that the financial and investment markets will be extremely nervous and volatile over the next one to two years," Tan added, warning his staff to brace "for trying and difficult times".
GIC is a sovereign wealth fund, a form of government-created investment vehicle which has emerged as a potent force in global financial markets.
Citigroup, the US bank hardest hit by the subprime troubles, on Friday reported a 5.1 billion dollar net loss during the first quarter.
Earlier this month UBS revealed an additional 19 billion US dollars in writedowns, making the Swiss-based bank the worst-hit by the subprime crisis.
UBS said it was seeking to raise 15 billion Swiss francs through a rights issue, and some analysts said they would not be surprised if GIC provided another capital infusion for UBS.
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