Sovereign funds steer clear of Wall Street

By Michael Flaherty - Analysis

HONG KONG (Reuters) - One group conspicuously absent from a last-minute deal to scoop up Bear Stearns BSC.N on the cheap were the sovereign wealth funds that have recently spent billions of dollars on Wall Street.

Given the hundreds of billions of dollars these state-backed funds control, that is bad news for Western firms or any other company hit by the credit crunch that is tightening its grip on the United States and Europe.

The funds look to have steered clear of the deal to rescue the fifth-largest U.S. investment bank, which JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research, Stock Buzz) agreed to buy for just $2 a share on Sunday -- or one-fifteenth of Bear's stock price on Friday.

With no money coming from the Middle East or Asia in the latest deal for a struggling Wall Street bank, analysts said on Monday that sovereign funds are likely to keep away from U.S. financial assets for now.

"We are digesting all the information that is pouring out of the U.S.," said Chairman Sultan bin Sulayem, whose state-owned Dubai World owns 6.6 percent of casino operator MGM Mirage (MGM.N: Quote, Profile, Research, Stock Buzz). Asked if he would invest in the United States now, he said: "I don't know."

Qatar's prime minister, who heads the country's $60 billion sovereign wealth fund, told Reuters last month he would rather invest in European over U.S. lenders because U.S. bank stocks were likely to fall further on subprime-mortgage writedowns.

Dubai International Capital, an investment agency owned by the ruler of Dubai, made similar noises about avoiding the United States for the moment, adding that it was going to take a "lot more money" than the minimum $5 billion the Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal agreed to invest in Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) to rescue the ailing lender.

And it's not just the big funds shying away from Wall Street.