Wednesday, February 18, 2009

Why Temasek & GIC should start cutting losses in banks....

MORE UPDATE: Analysts say nationalisation probably inevitable for BoA and Citigroup :[Link].
.
UPDATE: Citigroup & Bank Of America stocks keep sinking. Although our govt tells us they are "long term investments", these banks are known by the market now as "zombie banks" [Read Report :The Top 12 U.S. Banks: From Zombies to Hidden Gems]. Leaving taxpayers' money in zombie banks whose value will be wiped out is an irresponsible act. US mutual fund managers and pension funds exited these investments once they got below $5[link]. Not only did they risk our money in bad investments, they now refuse to take it out telling us they are long term investments when all the facts show otherwise. If they leave our money in these banks and the money gets wiped out, it is not an honest mistake....

Revelations in the past few days indicate that there is a good chance that major banks in US will be nationalised. Based on a number of reports the idea to split the banks into good and bad - a solution that will retain some value for stock holders - is probably dead because it cost the tax payers too much and when Obama pushed the stimulus plan he was unable to get a bipartisan deal ....without Republican support a solution that involves trillions will never be passed. It seems that Geithner went public with the half-baked plan a few days ago because his team realised that the "good bank bad bank" idea was a no-go. He replaced it with an idea that involve private sector investors but couldn't get all the details sorted out - like how to get private money on board[Read the story here]. Both solutions the Geithner plan and nationalisation will wipe out or badly dilute existing shareholders including preference shareholders.

The PAP govt insists that our investment in banks are long term investments and despite the heavy losses we will recover our money in 10, 20, 30 years. Putting money in those banks was extremely unwise....and not taking the money out after making a loss may turn out to be a bigger mistake. They have hundreds of people in GIC and Temasek whom they claim are worth their salt .....but if none of them dare to stand up and ask their bosses to cut the losses and save our taxpayers' money...I don't think they are worth anything. To lose billions more because they don't want to admit that those earlier investments were mistakes is unforgiveable. If they don't save what is left of those investments with the facts emerging that it may all be lost, we should never trust these people again with our blood and sweat money.

-----------------
By Edward Luce and Krishna Guha Published: February 17 2009 19:44 Last updated: February 18 2009 01:07
Long regarded in the US as a folly of Europeans, nationalisation is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalising banks are Republicans. Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be “on the table”. EDITOR’S CHOICE In depth: Obama’s first 100 days - Jan-28Obama acts to cut risk of foreclosures - Feb-17US homebuilder confidence remains near low - Feb-17Californian dream turns into nightmare - Feb-17Mr Graham says that people across the US accept his argument that it is untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received. “You should not get caught up on a word [nationalisation],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant. It doesn’t matter what you call it, but we can’t keep on funding these zombie banks [without gaining public control]. That’s what the Japanese did.” Barack Obama, the president, who has tried to avoid panicking lawmakers and markets by entertaining the idea, has moved more towards what he calls the “Swedish model” – an approach backed strongly by Mr Graham. In the early 1990s Sweden nationalised its banking sector then auctioned banks having cleaned up balance sheets. “In limited circumstances the Swedish model makes sense for the US,” says Mr Graham. Mr Obama last weekend made clear he was leaning more towards the Swedish model than to the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading. “They [the Japanese] sort of papered things over,” Mr Obama said. “They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time.” Administration officials acknowledge that the rescue plan unveiled by Tim Geithner, Treasury secretary, last week could result in the temporary nationalisation of some weak banks. The plan sets out a framework for revealing the extent of the likely credit losses facing banks. Most private sector analysts believe the exercise will reveal that some banks have large capital shortfalls. Policymakers acknowledge that if this is indeed the case, it will be difficult for those with the largest shortfalls to raise the required equity from the markets, in which case the government would probably have to take temporary control. Moreover, while nationalisation remains taboo in some political circles it is increasingly openly discussed among past and present economic policymakers of all leanings. “In this country nationalisation of some banks – not the whole banking sector – should be a last resort, but it should definitely now be on the table,” said David Walker, head of the pro-free market Peterson Institute and a former senior official in the George W. Bush administration. The time for biting the bullet may also be fast approaching. In early April, big institutions will publish their first-quarter results. If the intervening Treasury stress tests have not by then revealed the true state of their balance sheets, then their first-quarter results may do so. “The first week in April – that’s when the children’s party is over,” says Chris Whalen, co-founder of Institutional Risk Analytics. “That is when the obvious will become apparent.” The Obama administration remains opposed to federal control. Mr Geithner last week said: “Governments are terrible managers of bad assets.” Others say he may eventually face no choice. “The danger we face is a Freddie Mac/Fannie Mae scenario where government gives the banking sector guarantees and then socialises the losses,” says Adam Posen, an economist. “That’s the worst thing we could do.”

59 comments:

Anonymous said...

maybe not cutting losses will be good for us after all.

if nationalization does take place and it is confirmed that ALL money is thus lost, maybe singaporeans will be jolted out of their complaceny.

wake up, please. it is never a good idea to give a monopolistic ruling party a blank cheque.

Anonymous said...

This government will NEVER admit wrong.

Its in their pysche.

Afterall, they are all creme de la creme.

They were brought up since 16 thinking that.

With the GST hike in the midst of high inflation, with the multiple investment mistakes - all "good learning experiences".

With a general in place taking care of Temasek's portfolio, I fear cutting loss is not in his vocab. He just might throw in his "reserves" thinking he has all the might to turn the tide.

But u r spot on. Nationalisation is on the cards. When that happens, as Mr Black Swan Talib Nassim advocates, our "paper losses" will become real and this might yet be another "good learning experience" as with Micropolis....an investment we made abt 10 years ago in the range of 360M which we lost quickly in 6 months.

Anonymous said...

The Japanese must be the most stimulating people in the world, throwing up one stimulus package after another over the years, but achieving really nothing positive over the last decade in terms of putting the economy back on track.

I think the Americans have been watching and realising that adopting the Japanese approach will also take them nowhere. How much more needs to be written off by the banks from their balance sheet is anybody's guess. More shocks will surely come out when the banks are forced to reveal the true state of their balance sheets.

Lost Citizen

Anonymous said...

Will Singapore go bankrupt after all these losses?

If bankrupt, means Sing Dollar also finish. Your personal reserves (even nothing to do with GIC or Temasek) also finish.

The country also finish.

Very unlikely, right?

Think in this way. If you are worth $10 billion, even if you lose $5 billion, still got $5 billion what. Far from poor or bankrupt. Still damm rich what.

Anonymous said...

Southeast Asia always have had a "shifting emporium".

Aceh used to be a thriving centre. So was Malacca.

Look at them now.

Nothing is for certain. Nothing lasts forever.

After this round of bloodletting and with the shift in the global economic order, Singapore will not last long.

Most manufacturing jobs will go.

Downstream service-related industries will go pop.

Hopefully, our geography and the continued relevance of ASEAN will give our transportation hub some meaning.

Hopefully, the casinos and all the nitelife here can give tourism a boost.

But , all in all, the loss will be greater than the gains.

UNLESS, our shift into high value added industries and R&D pays off.

But then i seriously doubt it.

In politics, we are told to shut up.

How can such "innovative and creative Singaporeans" then produce anything the world cannot think of?

Get real.

Sing dollar will devalue.

Property price here will depreciate another 40%.

Real wealth will go down.

I am shfiting assets to Asutralia and Thailand.

Save yrself.

Anonymous said...

one step closer to tracking the dragon. but not good enough.

Hum Ka Fu Kwei said...

Now then cut loss siao ah!?

The window to cut loss is already close. Now just have to rough out the storm and hope!

Anonymous said...

To anon 3:24pm. I will elaborate your point a bit.

I am in Singapore's "research" industry. The problem is primarily that they run it as though it is an admin. Asking for tons of reports, wanting ppl to produce nice looking wayang stuff that has no true value, having the ball carrying culture.

We have lots of profs who seem to think it is ok to be 10-20 years behind in their own research specialities. They keep talking like their experts and are believed cause the ppl funding the stuff are even more goondu.

Ppl who work well in this environment generally do not make good researchers. I think this "long term" project of theirs will fail unless they do something drastic abt it.

Anonymous said...

Like sports lah.

Spend millions to attract second-tier talents, who eventually leave after they make their money or after getting acceptance to more prestigious institutions.

Same goes for R&D. Spend millions to get foreigners to run our R&D industries as "administrators" and then deny local talent doing the real hard work of "reserach".

One result will come out of this.

Top tier administrators will revolve in and out of Singapore.

Frustrated local talents will eventually give up and leave.

Our R&D, as with our sports venture, will never leave a lasting edifice. Only short passages that certain so and so had served Singapore's interests...

but if u wanna have lasting value from either of these ventures...i m afraid it will not come about for a long time...

at the end of the day, I think that such a strategy not only will not work...it detracts from the grand intent...

why would i ever let my son train as a table tennis player if i know that at the end of the day, his chances of making national team is going further and further away...

the point is: unconditionally bringin in all these foreigners and making them first team, quashes the dreams and aspirations of locals....

No lasting edifice will survive the island...

Onlooker said...

Cutting losses is a viable solution.
But given their past records they will not do it even if they are wrong.
Sad but true.PAPer pride (ego) is worth more than our CPF money (tontine) unfortunately.

Anonymous said...

Anon 4:08pm & 4:21pm,

What you said are very true in the real ground. Those cannot work or produce rubbish will stay by carrying balls and dirty office politics against those who can produce good research results. The so called admin and top management run the show to protect their own turfs and asses. Good researchers are victimized and harassed and eventually they left or told to leave. Such situation is real. Did you see any breakthroughs after those great FT or returned LT researchers working for years? Prof Ying? prof Edison Liu? Prof Sydney? What these people are doing? Insiders said these so called top notch researchers are bullied by all the admin, paper works and also office politics. Heavy red tapes from the admin have been dragging their feet. So, what do you expect the outcome? Expected!

Anonymous said...

beg beg beg.no shame to beg.

problem solved!

Anonymous said...

Humph, Nationalising industries.....
It's only a matter of time when protectionism would be in vogue. Desperate time calls for desperate measures. Ultimately Sillypore will suffer. Maybe moving to Malaysia isn't such a bad idea after all.

Anonymous said...

when everybody starts shouting "buy local"...

the rest of the cranes in singapore will join the one third that are already resting idle...

Anonymous said...

follow the fart and cut loss! smart move!

Anonymous said...

Cutting losses now would mean their decisions and judgements were wrong all along.

Not cutting loss means the long term investment argument is still on track and they were not wrong.

Have they ever admit they were wrong?

Lost Citizen

Anonymous said...

we shld heed the old wisdom of the Hokkiens

Kiang jiu ho

Mai Gai Kiang

Getting something wrong is common lah...

Whats the worst is the refusal to admit and truely learn...

Anonymous said...

follow the fart. how much are you paid to do it? $3m? lol

Anonymous said...

vote for the opposition and everything will be alright! LOL.

Anonymous said...

Anonymous 5:04 PM

when everybody(China, India, USA, EU) starts shouting "buy local"...

the rest of the cranes around the world in Klang, Kolkata, Freemantle, Philadelphia, Shanghai, Tokyo, Singapore will join the one third that are already resting idle...

Anonymous said...

Anon 6:02 PM

vote for the opposition and everything will be alright! LOL.

Vote for PAP and everything will be all gone. Rofl

Anonymous said...

calcutta still can ship to mumbai...

tokyo to osaka...

shanghai to hong kong...

singapore ship from tp to jurong ah?

Anonymous said...

moral of the story:

when you cram so many brains into a tiny dot, the brains become....very tiny!

Anonymous said...

Hi Lucky

How is Obama going to nationalise the banks?

To resolve the credit crunch, he basically needs to write down all the CDS and other toxic stuff to $0 (which is probably already overpriced).

LuckySingaporean said...

Anon 6:24,

You have a very good point. These banks have big black holes so how is the US govt going to take over. How is the black hole going to disappear?...Nationalisation does not make losses disapear.

Ok the CDS have been halved. But the toxic stuff is still there. The difference between nationalisation and other solutions is the Treasury does not need to seek approval to pump money into an outside entity that is partially owned by other stakeholders. When they nationalise the govt just swallow everything, then it implicitly guarantees the banks obligations. Now that it is part of the FDIC or US treasury, they can just pump money when needed into the entity as the losses are incurred. Assuming the credit rating of US govt is stil rock solid, the issue of insolvency disappears. A few years later when all the CDS expires and the toxic stuff recovers or get written off. They can sell back the bank to the market and recover some money.

LuckySingaporean said...

Anon 6:24,

Just to add there are people who think that this problem is intractable because it is a hole of $20T (true?). If it is that big, it might bring down the US govt, the US$, and world as we know it.

I look at Geithner's face everytime he speaks and can tell that he is dealing with something really big...for which there are no easy answers...

Anonymous said...

Anonymous 6:09 PM

calcutta still can ship to mumbai...

tokyo to osaka...

shanghai to hong kong...

That's protectionism

Anonymous said...

Anonymous 6:23 PM

moral of the story:
when you cram so many brains into a tiny dot, the brains become....very tiny!

amoral of the story:
When you cram so many brains into a tiny dot,The brainy brains become ....
a)very defensive.
b)very tiny.
c)Kiang jiu ho Mai Gai Kiang
d) All of the above.

Answer: d but who cares.
But c for Anonymous 6:23 PM

Anonymous said...

where got? :)

u gay gow lah lol

Anonymous said...

Anon 6.09

Calcutta still can ship to Mumbai..

Tokyo to Osaka....

Shanghai to Hong Kong...

Singapore to Horsburgh Lighthouse lor...

We cannot loose one!

Anonymous said...

moral of the story:
some people avoid shit.
some people step on shit
some people step over shit
some people...sample shit.

but the leaders are always on top of the shit....basking.

Anonymous said...

This is way too CHEEM for me,

All I know is KY is too quiet and meek for now, like a dog with his tail between his legs from the losses at GIC and Temasek.

By doing nothing, he is dragging Singaporeans into poverty. We know that the 320 ppl at Temasek and those in GIC is not worth a dime, if they do nothing.

You either cut loss which means you are left with nothing or you go in and grab the whole bank after you analyze the nett value of the Bank which is very cheap at the moment, this will prevent nationalisation and safeguard the very little that is left.

KY the rest is up to you and your legacy!!

Anonymous said...

All the banks we have invested in are echnically insolvent...

we can get it for free...

The US will be happy for Singapore to assume the billions of debt each of these banks now owe...

(a trillion is a possibility considering all the 4 we have thrown money into - ie USB, Citi, MERRIL (now part of BOA) and Barclays)

Anonymous said...

how much are you paid?

pumpkin said...

Shouldn't the chairman and Board of Directors of Tamasek and GIC made to feel some pain for the losses. They are guiding and overseeing the investment decisions and amply rewarded with generous director's fees. They should be shamed in public and made to pay back the fees they have collected!

Anonymous said...

Whether the troubled banks will be nationalised or not, private money will get on board and not "how to get private money on board" as Treasury Secretary Geithner worries or pretends to worry about.

After all society will always need banks and who do not want to own a part of a new bank.

Methink the big private money in question had been purposely moved out of those banks resulting in their collapse and are sitting somewhere to make a comeback.

By nationalising the banks, it means, as Lucky rightly implied, the present banks might have to be liquidated.

You see, this is how a supposedly "rich" nation default on its bank derivatives which the world has bought up with their trade surpluses with the US.

In any case, the shares that GIC & Temasek had bought in these banks at the start of the banking shakeout will also be gone for good.

Sure there is nothing much left of them now but then if the US govt were to leave those banks running, their share prices might eventually rise to their former level ... like may be in 10 or 20 years time.

But why even give the other nations this little chance. When you decide to default, you don't O$P$ anymore, okay.

In the commercial world, that is also how pte ltd companies play it when they can no longer service their debts - just declare bankruptcy. But before that some are even shrewd enough to create decoy suppliers to funnel their funds into them.

Think Lehman Brothers.

Anonymous said...

joke

Anonymous said...

Is anybody reading?

Anonymous said...

maybe this country deserves what's coming.

since they are so smart and rigid, let them show us how they fuck up lah,

why say more than you should right? why stand in their way? :)

sammyboy said...

Cut loss? Double down more likely...

Anonymous said...

Save yourself, move your money out before SGD devalues.

Anonymous said...

Now we know clearly whether the US can be trusted to be an ally. It will finish you off even if you help them, so long as you serve its purpose.

LKY thought he was a banana man enough to rub shoulders with the Ang Mohs. After all they even invited him to give talks to their Congress and that kind of thing. So he thought wow even such a superpower needs his hoary wisdom. He never learnt even after the SIP saga. Like they say a fool is soon parted from his gold.

Anyway, Obama seems more inclined to go a different route from the Bush man but can he, given the national interest of the US and the entrenched interests of its capitalist cabal who still "loves" to do business in the US?

For where else can you get a big nation like the US so deeply sold on the concept of living from paycheck to paycheck and if that's not enough, why that well-dressed guy from the bank with the tall white hat will hand you a gold credit card and say: "Don't worry just use it."

Even our local Ah Longs cannot beat that.

Anonymous said...

aiyah, just beg lah. why waste time talk so much.nobody gives a damn

Anonymous said...

PAP!PAP!PAP!LOL

Anonymous said...

This man in a Ford Granada pulls up next to a guy in a Rolls Royce at a stop sign. Their windows are open and he yells at the guy in the Rolls: "Hey, you got a telephone in there?" The guy in the Rolls says, "Yes, of course I do." "I got one too... see?" "Uh, huh, yes, that's very nice." Then the man in the Granada says, "You got a fax machine?" "Why, actually, yes, I do." "I do too! See? It's right here!" "Uh-huh." The light is just about to turn green and the guy in the Granada says, "So, do YOU have a double bed in back there?" And the guy in the Rolls says, "NO! Do you?" "Yep, got my double bed right in back here — see?!" The light turns and the man in the Granada takes off. Well, the guy in the Rolls is not about to be one-upped, so he goes immediately to a customizing shop and orders them to put a double bed in back of his car. About two weeks later, the job is finally done and he picks up his car and drives all over town looking for the Granada. He finally finds it parked alongside the road so he pulls his Rolls up next to it. The windows on the Granada are all fogged up and he feels a little awkward about it, but he gets out of his newly modified Rolls and taps on the foggy window of the Granada. The man in the Granada finally opens the window a crack and peeks out. The guy in the Rolls says, "Hey. Remember me?" "Yeah, yeah, I remember you. What's up?" "Check this out — I got a double bed installed in my Rolls." And the man in the Granada says, "YOU GOT ME OUT OF THE SHOWER TO TELL ME THAT?!"

Anonymous said...

Two prisoners were sitting in their cell talking, one said to the other, “You are getting out in a couple of weeks, are you going straight or back in Politics.

Anonymous said...

Look likes that is now inevitable that S$ would collapse against almost all the western countries in distress.

LKY must be damn jealous by now that Uncle Sam has gone bankrupt,but US$ is now the strongest in the world.

Well,that is the difference that PAP does not seem to realise.USA has a strong private sector but Singapore has a strong but incompetent PAP-this is with particular reference to their financial management,I wouldn't say they are incompetent in all things.

Anonymous said...

Hey Lucky Tan,

So do you think snap elections is on the cards? Would love to hear your thoughts on this...

Anonymous said...

Now is the time for GIC and Temasek to go in and buy up these bank shares at unbelievable prices !!!!! Buy, Buy, Buy.

What? Already bought such high prices, and loads of it !!!!

Guess they're stuck at the high prices ..... just like other ordinary investors. And we thought they were such shrewd investors.

williambanzai7 said...

Between Temasek and GIC, its roughly 60 billion. Cheer up, thars a little over what Bernie Madoff stole.

Ah Pat said...

Argh, Lucky! I'm just so angry that our gahmen has lost S$50 (60?) billion just like that. Then now say, "This is a good time to top up your parents' CPF." Sure it is a good time. Know what? Not only will it NOT top up their CPF (I give them cash), I'll try to use up my CPF in any way I can!!! The money is MINE to begin with! ARGHHHHHHHHHHHHHHHH *bang head against wall* SIGH!!!!!!!

Anonymous said...

More like 108 Billion SGD.

Temasek lost 58B, GIC about 50B.

This surely is a world record and a first.

Ah Pat said...

Thanks, Anon 10:21 AM.

We have a world-class gahmen indeed!!!!!!! ARGHHHHHHH!!!!!!!!

Anonymous said...

Now that BoA stock is below $5, most pension funds are banned from owning the stock. Both Citi and BoA and a number of European banks are toast.

There is still time to get out although the window is closing fast. The government will likely take over the banks in short order. I won't be surprised to see "bank holidays" declared, perhaps coordinated worldwide, while they sort things out. So it may be wise to keep some cash at home for now.

Good luck.

Anonymous said...

No,the paper loss value is much more than $100 billions combined for TMS and GIC

Of course TMS figure was dated 31 Nov 2009,today we are at 19 Feb 2009,and the stock only moves south so far,all over the world..

Why do you think usually loud mouth,financial wizkid of 154th Dr Tony Tan is surprisingly reticent?

Well,he declared in Davos that his GIC had portfolio value of $450 billion,and later Minister Lim under pressure fr NMP Lim,confessed that GIC loss was 41%

41% of $450 billion is more like $184.5 billion

Not to worry,Toy Tan assured:we invest for long term,but he did not believe some of the banks might be bankrupt or nationalised.

Of course,we hope not,it is our money.

Anonymous said...

Don't be a bodoh Singaporean. It has never been "your money", and I think it never will be.

If its "YOUR MONEY", if someone losses $100,000 of "your money", will you be here commenting in a sarcastic blog or will you be spending the night in Hong Lim Park protesting.

No Name is right, Singaporean have not feel the pain yet.

Anonymous said...

I'm not trying to side the gahmen or anything. I myself is a victim of the current crisis and there's no worse time to graduate than at a time like this. With regards to their investment in the banks, could it be that they are making use of their equity stakes in the major players in the banking industry to gird Singapore's position as a financial centre? ie. if those banks were to shift operations elsewhere and/or retrench staff, they will probably think twice since GIC is the stakeholder. Getting the banks to stay here means more jobs for everyone too once the economy picks up.

отели в барселоне said...

The writer is totally right, and there is no skepticism.

www.mueblesennavarra.com said...

Really effective data, thanks for this article.