Yesterday nervousness again in the financial markets around the world - worries aplenty. Besides the recession, there is this perpetual worry of bank nationalisation and the shock of watching Citibank stock drop 20% or 30% a day, has a way of shaking confidence.
I was watching this video of Roubini [Link] and there is this thing he said that is quite surprising. Citibank & Bank of America's stock has fallen so much that if both these components of the DOW are completely wiped out by nationalisation, it will only take 50points off the DOW - that is less than 0.8%. One thing they can do is remove these from the index and replace them with other stocks.
Nationalisation is actually becoming no big deal except for the overly optimistic shareholders who keep clinging on to these stocks as they fall. But these stocks are simply going to just fall until there is no choice but for the US govt to takeover clean them up and release them to the market. Even if they don't do that, the US govt has to inject cash and dilute existing shareholders. There are many problems with Citi and BoA, just yesterday the BoA released an SEC statement to say that its loan portforlio is overvalued by US$44B[Link] (i.e. it is worth $44B less than carried in the books) - the capitalisation of BoA is only US$19B!
GIC should get out of these stocks. They are too risky for Singaporeans' hardearned money and the risk of a complete wipeout is not insignificant. It would have been simpler if they had simply admitted that it was a mistake investing in these bad banks and proceeded to correct those mistakes. Instead they insisted that they had made no mistakes and these are long term investments that are to be kept for 20 or 30 years. If these banks go down, they will lose credibility....why should we ever trust them with our money?!