Monday, May 05, 2008

Lee Kuan Yew vs. Warren Buffett - Round 2

Some time last week, Lee Kuan Yew made a few comments about GIC's investments in the big banks, and also about Warren Buffett. He said in a Bloomberg interview:
Singapore's GIC May Seek More Bank Assets, Lee Says
By Haslinda Amin and Linus Chua

April 30 (Bloomberg) -- Government of Singapore Investment Corp. may add more bank assets to its $18 billion of investments in UBS AG and Citigroup Inc. as it chases stable returns over periods as long as 30 years, Minister Mentor Lee Kuan Yew said.

The Singapore sovereign wealth fund, which manages more than $100 billion, bought stakes in the two banks as they sought to repair balance sheets after writedowns linked to U.S. subprime mortgages. GIC, as the fund is known, may hold the stakes for two to three decades, said Lee, who's GIC's chairman.

``If there are other banks of the quality of the two that we bought into, with the promise and the capabilities and inherent capabilities to recover, we have got the liquidity to meet it, to make such an investment,'' Lee, 84, said in a Bloomberg Television interview late yesterday. ``We will not rule it out.''
This week, Warren Buffett, the wealthiest man in the world, gets his chance to give his take on the credit crunch and the banking sector:
Buffett says U.S. in recession; banks to face pain
Sun May 4, 2008 7:51pm EDT

OMAHA, Nebraska (Reuters) - Warren Buffett on Sunday said he does not expect financial markets to panic as write-downs and losses for bad debts mount in the financial services industry, but said those losses were not over "by a long shot."

The world's richest person, who runs Berkshire Hathaway Inc, said at a press conference the Federal Reserve brought markets back from a precipice in March in helping broker JPMorgan Chase & Co's purchase of Bear Stearns Cos, which was on the brink of bankruptcy.

"There's going to be more pain, sure," Buffett said. "The action of the Fed, in terms of Bear Stearns, prevented in my opinion the contagion where you're essentially going to have bank runs on the investment banks ... The idea of a financial panic ... has been pretty well taken care of. That was a watershed event."

He added, though: "That doesn't mean the losses are over by a long shot ... We've looked at some of the investment banks, and it's clear some more losses are going to be incurred."
Is Lee Kuan Yew listening?

He showed he clearly didn't listen to Jim Rogers by making comments about GIC possibly buying into more banks. And he most probably isn't listening to Warren Buffett either. Hell, Lee doesn't even really understand Warren Buffett's investment philosophy.

Buffett was speaking at his annual shareholder meeting, and had more to add:
In a question-and-answer session at the shareholder meeting, Buffett said that from a risk perspective, some banks got ``too big to manage.''
Sound familiar? What's the biggest bank in the world? I think it's one of the banks that Lee Kuan Yew's GIC invested in: Citigroup! which according to LKY, has
"an enormous spread worldwide as a retail bank".
Well, now we really know what an "enormous spread" is - it's a liability.

To finish off, be sure that it's not just about words, but it's also about making prudent investment decisions. Warren Buffett, like LKY & GIC, had the chance to pick up a stake in the banks. But Mr Buffett chose differently:
And Mr Buffett said banks need better risk management. He said he recently considered the prospects of a large investment bank, which he did not identify, by reading its 270-page annual report. He said he highlighted 25 pages where he did not understand what he had read.

'I decided not to pick that one,' Mr Buffett added.
Lee Kuan Yew and GIC, however, decided to plonk billions into Citigroup and UBS, now two of the greatest loss making banks since the credit crunch began.

Who do you think made the correct decision? Mr. Buffett or Mr. Lee?

I seriously think there's no debate!

[Update - A reader has kindly informed:
"LKY is a senior advisor to Citigroup which means that he get millions off from Citigroup from deal, salary and payment every month, every year.
Please add this important disclosure as it might shred light why LKY is so eager to invest in frailing banks."]

Related Posts:
Lee Kuan Yew Ain't No Warren Buffett
GIC, UBS & Jim Rogers


Anonymous said...

Lee said it will take 30 years to see the fruits of investment but by that time he is no more in this earth, who is accountable ?

jeremy said...

Accountable? whats that? even if he is around after 30 yrs, would he be accountable for anything?

Anonymous said...

Warren Buffett is a respectable businessman. He earns his keep and is responsible for the decisions he makes, especially with regards to managing risks in investments. MM Lee on the other hand, is a respectable elder statesman with access to a ready, guaranteed and growing pool of financial resources. That's the difference.

Anonymous said...

Accountable? Does Suzhou Industial park ring a bell?

Anonymous said...

You failed to mention that LKY is a senior advisor to Citigroup which means that he get millions off from Citigroup from deal, salary and payment every month, every year.

Please add this important disclosure as it might shred light why LKY is so eager to invest in frailing banks.

Anonymous said...

After that long a time... guess no one can say.. YOU BS!

Alan Wong said...

If he is one of the bank adviser and yet sanctions that it is OK to invest billions of our taxpayers monies in the bank that he advises, does not that mean a conflict of interest ?

Can he still maintain that he is whiter than white ?

Anonymous said...

Does anyone sees stains in the Whites?


Anonymous said...

LKY was a lawyer by training, and became a politician. His right-hand men were the people behind Singappore's financial strategies in its early years. What does he know about finance, investment, banking? Buffett does what he does for a living, for many many years. No brainer on who is talking BS and who is being razor sharp here.

Anonymous said...

Refer to 'No brainer on who is talking BS and who is being razor sharp here'. You are absolutely spot on. I also believe Warren Buffet has more humanity in him and the humility to admit that he is no expert when it comes to legal matters. It is a fact that he is one of the richest man in the world thru' astute investments and foresight. His track record over a few decades is enough proof of his ability. The big problem for the MM is taking on more than he can chew and this becomes a more serious problem for the rest of us. His ego will not allow him to admit it.

Anonymous said...

Interesting and exciting exchanges. For the fun of debate, let's raise the stakes hypothetically. What-if WB and LKY switches role back in the early days of Singapore. Can anyone predict what Singapore will be like today? Little do I wonder why America is still the largest debtor in the world and wonder why WB is of no help to America economy at all. See the difference now? Both are great intellectuals in nature, but they are a world apart when it comes to management.

Anonymous said...

Where is the sense of proportion when you compare the US economy to that of sheep city. And since when did WB claim to be a politician. Granted that the MM did a great job in the early years but staying longer than he should has undermined what ever he had achieved. And more importantly, there is a conflict of interest with family members. Hypothetically do you think the MM can solve the problems in the US or China if he was the president of either country. Please get real.

Anonymous said...

To be fair to GIC and LKY,

Their investments in Citi and UBS were not pure play equity but convertibles, so they will be getting a fixed rate of about 7-9% annually on about $20billion for at least 2 years before they need to convert them to shares (the Citi convertible is for 5 years at least before they need to convert)

So its unfair to make a judgement of their investments now. They have 2 years for UBS to recover and more than 5 for Citi. In the mean time they are earning 7-9% a year on $20billion. So I think they made a pretty decent investment.

familybusiness said...

LKY will not be around to be accountable for the GIC investments. He is looking at 30 years down the road. To be fair to all Singaporeans and not treat them like idiots, is it possible for anyone to have such vision to see so far ahead ?
Let's be honest, does it make sense to have LKY and daughter-in-law manage such a large amount of public funds ? Who are they accountable to ? PM Lee ?

Anonymous said...

Both are great intellectuals in nature, but they are a world apart when it comes to management.

Yes i agree and hence see no point in putting one down in the light of the virtues of the other. WB can afford to insulate himself somewhat from the international political realm, as that is the job of the US president. He can easily excuse himself from making politically-charged comments because as far as he's concerned, he's just a businessman-investor.
In all probability, LKY's comments have underlying strategic and political intents for Singapore, GIC, the investment arm of Singapore is inextricably linked to the government, and it is the job of a statesman like LKY to send a timely and strong message to the world by its actions. And needless to say, bloopers can happen to just about everyone, but just don't make a mockery of the good that has already been done.

Anonymous said...


Anonymous said...

It is also alright if he made and makes blunders. After many a man made many a blunder, indeed all are humans.