Tuesday, August 28, 2007

Barclays In Trouble, And Temasek Feeling the Heat

Sometime last month, when it was announced that Temasek was taking a stake in Barclays in order to support the British behemoth's bid for ABN, I expressed scepticism about the wisdom of the deal. I thought it was rather unwise to make an investment in a bank that was engaged in a bidding war with a fierce rival, the Royal Bank of Scotland consortium, which would probably mean that Barclays would be paying a premium if it won the bid. About a month later, things are indeed turning out rather poorly for Barclays' bid for ABN, and for Temasek's investment in Barclays.

A senior Barclays banker recently lost his job due to the recent subprime squeeze in the credit markets. Meanwhile, The Times has recently published an article about the problems that the bank as a whole is facing due to sub-prime related losses:

"Barclays Bank was dragged deeper into the sub-prime mortgage crisis last night after Landesbank Sachsen, a major client, had to be rescued by a rival state-owned bank in Germany.

Barclays appears to have been responsible both for designing a complex fund that got Sachsen into difficulty and for helping to pull the plug on the bank by demanding margin calls in respect of another Sachsen investment." read more

As a result of the problems, Barclays' share price has dipped significantly, and this has had the double effect of causing Temasek's investment to dip by about 15%, while at the same time Barclays' bid for ABN has been diluted because part of the bid was made in stock. See this article for more information.

Now, it looks like Temasek's investment will quickly start off as a loser, and it also seems like it has taken a significant stake in a bank that will have a slightly poorer competitive position vis-a-vis the RBS-ABN combination, which looks more likely than not to be consummated sometime soon.

Indeed, as its size continues to grow and assets under management balloon, Temasek seems to be running into problems as it ventures overseas, beyond Singapore's shores. Only time will tell if this investment turns out to be the second major disappointment since the Shin Saga.


Anonymous said...

I could not agree with you that temasek is in trouble, in fact nothing will happen.

ShinCorpse which lost few billions dollars doesn't land any of Lee family and HoJinx in hot soup, and no public can even scrutinize these cronies and Lee's family. Why do you think a 'mere' $150 millions to PAP is anything to them ?

No one will bring them justice and the their own law will silence those who question them as history has told us. They can get away everytime. This time is no different.
You are just overreact because what are you going to do ?

Anonymous said...

2nd incoming GST increase in 3... 2... 1...

Tricked Forever! said...

So what if Temasek seems to be in the heat? As they always pointed out, "Its a long-term investment!"

Few years time, the CEO will not be there any more. So, who will worry about the shor-term losses?

Get the pays and bonuses first, talk later. When later? You guess is as good as mine. That is quite a simple trick that always work for them, isn't it?