NEW YORK (TheStreet) -- If Middle East sovereign financiers try to exit their investments in the U.S. financial sector any time soon, it won't be because of chaos in the streets of Cairo and Tripoli.
It will be because the investments weren't such a great idea after all.
Large U.S. banks went to sovereign wealth funds with hat in hand during the crisis. From 2007 to 2009, Wall Street sought tens of billions of dollars from Saudi Arabia, Abu Dhabi and Kuwait - as well as China and South Korea - hoping to shore up their balance sheets with those cash infusions.
But the investments have not yet yielded a profit and probably won't for some time.For instance, Saudi Prince Al-Waleed bin Talal started investing in Citigroup (C) when it was first at the brink of bankruptcy in 1991. He invested more money into Citi in late-2008, boosting his stake to 5%, as the firm's stock price plunged from $35 to below $6 in less than a year. Of course Al-Waleed's Kingdom Holding investment firm has reaped lots of dividend income through the years, and he doesn't seem eager to sell immediately. Yet Kingdom's stake was massively diluted after Citi converted $58 billion worth of preferred stock from the U.S. government and private investors into common shares last year. And since early 2009, Citi shares have failed to stay above $5 for more than a few days at a time. In a less friendly situation, the Abu Dhabi Investment Authority filed an arbitration claim against Citi in 2009 alleging "fraudulent misrepresentations." ADIA had made a $7.5 billion investment two years earlier when the bank's subprime-related losses first came to light. The sovereign wealth fund received equity units that could be swapped into common stock at $31.83 to $37.24 a share - levels not likely to be reached any time soon. Citi has denied ADIA's allegations and pledged to defend itself. Sovereign wealth funds in China and South Korea that bought into Blackstone (BX) and Morgan Stanley (MS) haven't fared much better than their Middle Eastern counterparts: Blackstone is down 31% from the I.P.O. price on which the China Investment Corp.'s stake was based and Morgan Stanley, trading below $30, is far from the $50 level that CIC would need to make its $6.8 billion investment worthwhile.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV