Kuwait SWF set to make move on Wall Street

The Kuwait Investment Authority, a sovereign wealth fund, may be about to invest billions in Merrill Lynch and Citigroup, two of the biggest casualties of the subprime crisis.

On Monday, The Financial Times, a newspaper, reported that the Kuwait Investment Authority would be a major investor in a new $4 billion capital raising by Merrill Lynch, which the investment bank could announce this week. The authority could also invest up to $3 billion in Citigroup, the world's largest bank.

The Kuwait Investment Authority was expected to follow funds in Abu Dhabi, China and Singapore in buying into banks hit by the turmoil after comments made by Bader Al-Sa'ad, the head of the fund, at the beginning of the month. Al-Sa'ad indicated that the fund was likely to make its move soon, saying on 2 January: "Perhaps we are at the eye of the storm now and close to the peak of the problem. We don't see prices dropping much more."

The news comes on the back of reports that the two banks are set to announce larger-than-expected writedowns this week, exacerbating the need for fresh capital injections.

Chuck Prince, the former chairman and chief executive of Citigroup sacked as a result of the subprime debacle, said in October that the bank could make $8 billion- to $11 billion-worth of subprime writedowns. However, media reports now suggest the bank could writedown as much as $20 billion. Merrill is expected to writedown between $10 billion and $20 billion.