Monday, November 10, 2008

The Minibonds / High Notes Fiasco: Who Should Bear the Blame???

As we all know, the subprime fiasco which originated in the United States has seen its hand of carnage stretch beyond the boundaries of physical geography and slap several hundred Singaporean "investors" in the face to the tune of millions of dollars in losses. And of course now that the financial weapons of mass destruction have detonated, the casualties of this “economic pearl harbour” are scrambling to apportion the blame to other parties, in hopes that they can get some sort of money back. Meanwhile, those involved in the long chain of origination and distribution of the toxic financial instruments are of course making sure that none of the blame falls on them, and the way to do that, is to blame someone else, of course.

In the midst of this clown show, which are the parties involved and what blame can you place on them, in order to avoid taking personal responsibility? Here’s my take on this comedy of errors:


Several US lenders made questionable loans during the period of a housing bubble to borrowers of questionable credit-worthiness. Many of them did this in an attempt to "flip" the loans off their balance sheets using credit derivatives and other instruments, and in the process earn fees. While this method of churning loans made money while the credit markets remained buoyant and while the housing market stayed in the clouds, it soon turned sour once the housing market turned on its head and the credit markets imploded, leaving the lenders stranded with bad loans on their balance sheets.

VERDICT: Greedy lenders have to take the blame for lending irresponsibly. Several have suffered the ultimate penalty by going bankrupt


And of course there are a whole bunch of mortgagees who took out loans they could not afford in order to buy property that was over valued and which should never have been bought. The heady prospect of flipping a piece of property for several thousand dollars in profit drove many speculators to launch the housing market into an unsustainable bubble, which ultimately burst, leaving the borrowers deep in debt with real estate which could only be sold at a steep loss.

VERDICT: Irresponsible borrowers took out loans they could not repay in order to speculate on the property market. These mortgagees over-leveraged and paid the penalty by losing out big time on their investments.


Right now, politicians are trying to say all the right things to convince the people that the financial crisis is all the fault of those greedy irresponsible bankers. But of course they forget that Fannie Mae and Freddie Mac were actually commissioned by congress itself, and of course they won’t tell you that while Fannie Mae officials were trying to tighten lending standards, it was Congressmen who were berating them for “impeding the American dream.”

VERDICT: Idiotic politicians who did not understand finance encouraged irresponsible lending, in the name of allowing every American to own their own home - lovely rhetoric, but financially very dumb.

Investment banks

These guys are the ones we all love to hate. The man on Main Street loves to point the finger at the Wall Street banker who is drawing a multi-million dollar salary. And now that several Wall Street institutions have crashed and burned, plumber joe is rubbing his hands with glee.

And yes, many of these Wall Street dudes were irresponsible in their actions. Their creativity and ingenuity drove the credit market to new heights, setting it up for the most spectacular crash this century. They hived toxic investments off to unsuspecting investors. They created complex, labyrinthine financial instruments which people could not understand in order to transfer risk to unsuspecting parties.

VERDICT: Greedy bankers created and sold some of the most complex, toxic financial instruments the world has yet to see, all in the name of greater fees and bigger bonuses! And now, several of the banks have been wiped off the face of the earth, into the realm of history.

Local banks and brokerages

And where did the instruments originated by the investment banks go? In order to reach the Ang Mo Kio investor, it had to be distributed through the local financial institutions. These local institutions, of course, attracted by the commissions they would earn when they sold the products to investors, pushed their burden of responsibility to regulators to give the okay to investors.

Of course they didn’t understand the real import of what they were doing, but who cares about that when there’s money to be earned?

VERDICT: Greedy bankers and brokers closed their eyes and gleefully collected commissions in the process of distributing the products to their clients. If Daddy MAS says the products are okay, then they are okay. Yippeeee!!!!

Relationship managers

Ha ha ha. No surprise why these guys have been called relationship damagers. They coaxed, cajoled, manipulated and deceived their clients into buying products which should never have been touched by the man on the street. And now, this breed is one of the most reviled in Singapore society.

VERDICT: Unethical relationship managers sold the financial products without really understanding them. And now many of them are facing the axe, in addition to the ire of angry investors


Regulators, of course, truly had no idea what the substance of those credit instruments really were. For goodness sake, it takes Mathematics PhDs to really understand the ins and outs of those instruments. Did MAS hire these guys to thoroughly analyse the products before approving them? I seriously doubt so.

VERDICT: The regulators didn’t really have the expertise to understand the instruments they had approved. They should instead have left it off the approved investment list


You didn’t seriously think I would leave the investors who actually purchased these derivative instruments blame-free, did you? Ha ha. Guess What? Caveat Emptor. Most of these investors didn’t take the effort to really understand what they were getting themselves into. Many didn’t bother to read the investment prospectus, and even if they did, never really took the time and effort to realize that they should not be anywhere the minibonds, high notes and other similar instruments. More on this? Read here.

The Perfect Chain

As you can see, it takes a "perfect chain" of irresponsible acts to result in the financial Chernobyl that has come to pass. All it took was one responsible individual to break the sequence of events. But strangely, all those involved behaved more or less in the same way.

If you are any one of the abovementioned parties, I have now given you ammunition to blame everybody else except yourself.

I hope you all have lots of fun playing the big blame game!!! =)

Wednesday, October 22, 2008

Why Regulation for Minibonds...?

In one of the latest developments in Singapore's Minibond saga, Tan Kin Lian, champion of the burnt minibonds investors, has released a request for proposals to lawyers for services for collective legal action by the minibonds investors against the bankers and brokers who sold them the minibonds products.

Also, the 84-page minibonds prospectus is available on the TOC website, here. A brief browse into the contents of the prospectus reveals some interesting information. On page 17, under "Risk Factors," we see:
Risks relating to the nature of the Notes

Suitability of the Notes

The purchase of the Notes involves certain risks including market risk, credit risk and liquidity risk. Investors should ensure that they understand the nature of all these risks before making a decision to invest in the Notes. In addition, on the occurrence of a Credit Event (as defined herein) in respect of a Reference Entity, Noteholders could lose all or a substantial part of their investment in the Notes. This Base Prospectus and the Pricing Statement are not and do not purport to be investment advice. You should conduct such independent investigation and analysis regarding the Notes and the other assets on which the obligations of the Issuer under the Notes are secured as you deem appropriate. You should make an investment only after you have determined that such investment is suitable for your financial investment objectives. You should consider carefully whether the Notes are suitable for you in light of your experience, objectives, financial position and other relevant circumstances.

From the outset, the prospectus explicitly states several important points for that investors should do and take note of:
Noteholders could lose all or a substantial part of their investment in the Notes.

It also clearly states,
You should conduct such independent investigation and analysis regarding the Notes and the other assets

In one paragraph alone, the prospectus clearly instructs the investor in what are sound principles of investment analysis. Always do your own homework (independent investigation and analysis).

Ultimately, then, the investors who bought the minibonds cannot fault Lehman brothers with the argument that they depended on the RMs to advise them, as Lehman had clearly stated in the prospectus that the investors need to do their own independent analysis.

So the problem, then, are the RMs & brokers guilty of anything? The investors claim they were deceived and misplaced their trust in the advisors who sold them things they should not have been investing in.

That, my friends, is why regulation is needed - NOT because of some supposed higher cause of justice, but instead to prevent idiots from destroying their retirement accounts with their own stupidity, and also to prevent un-ethical misrepresentation of securities by financial 'advisors'

The government also can't really be faulted... because the RMs had a duty to inform the 'investors' that they had to do their own homework. This was not the government's responsibility.

Hence, the best way to protect yourself is to just automatically adopt the attitude that one must do his own homework. And if you find that you do not understand what you are analysing, just stay away. Abdicating the responsibility of investment analysis to someone else is a sure recipe for disaster. If the 'investors' (aka fools) had actually bothered to adopt this principle, they would not have been misled by the RMs.

Don't be a fool. Don't let ignorance destroy your retirement account. The best way to protect yourself from fraud is to do your own homework!!!

Monday, October 06, 2008

SingTel's OpenNet Wins NGNBN NetCo Bid; Biggest Loser to be StarHub

OpenNet recently won the NetCo segment of the NGNBN. The consortium comprised Canada's Axia NetMedia, and Singapore's SingTel, SPH and Singpower Group. Although it might have been painted as a close "two-horse" race, I doubt if there were ever any questions as to who was going to win the bid. With the government putting up $750m to fund the NGNBN NetCo passive network, it could not afford to place its bets on the Infinity network, which would have faced stiff, cutthroat competition from SingTel, had the latter not won the tender.

And now that SingTel's consortium has won the bid, the long term outlook for StarHub doesn't look pretty. StarHub's franchise lies with its cable network and its strong programming line-up. It keeps customers and prevents churn by using its exclusive cable infrastructure to tighten its stranglehold on the telecoms market with strong triple & quadruple play packages.

But with the advent of the new NGNBN structure, StarHub will see this competitive advantage starting to erode. The open-access fibre infrastructure gives SingTel the advantage now. Despite holding only a 30% stake in OpenNet, SingTel has a huge revenue-share stake in OpenNet's revenues, due to its lease structure agreement with the newly-formed infrastructure company.

Furthermore, we can expect SingTel to move swiftly to rollout the new infrastructure and to start selling next-gen services in this market. The competition will force StarHub to lower prices on its cable franchise in order to prevent churn to the new SingTel fibre offerings. But that will be difficult, considering SingTel's assault on Starhub's cable network, most recently exemplified by MioTV's win of the Champions league broadcast rights.

Add to that SingTel's stranglehold and dominance over international internet gateways coming into Singapore (just try accessing youtube at peak hours over starhub and singtel, and you'll see the difference), and StarHub's cable internet is likely to suffer in the long run.

With the prospect of pricing pressure and heightened competition, Starhub doesn't look like the best stock in Singapore's telecom landscape. Furthermore, the company is almost exclusively focused in the Singapore market, unlike SingTel which has diversified investments in emerging markets overseas. Starhub will have to move quickly to reinvent itself in the light of latest developments, or it may continue to see its stock decline.


[IDA] Selects OpenNet Consortium as its Network Company

By Anshu Shrivastava
TMCnet Contributing Editor

Axia NetMedia has announced that Infocomm Development Authority of Singapore (IDA) has selected the OpenNet consortium as its Network Company (NetCo).

As per the contract, OpenNet will provide passive fibre grid services for Singapore's Next Generation National Broadband Network (NGNBN).

Back in May, the company announced it entered into an agreement creating the OpenNet consortium. This OpenNet proposal is for the rights to provide passive fibre grid services throughout Singapore. The second is for the rights to provide the active Real Broadband services over the fibre grid.

At present, Axia has a 30 percent interest in OpenNet, while SingTel, Singapore Press, and SP Telecommunications taking up the remaining interest with 30 percent, 25 percent and 15 percent share, respectively.

“OpenNet's approach is future-proof with no compromises from either the technology or business structure perspectives for the passive segment of the network,” said Art Price, chairman and CEO at Axia NetMedia.

He also said in a statement that Axia now has references for the best in class next generation network (NGN) solutions for rural, regional and metropolitan communities. Based on open access no conflict principles, OpenNet plans to create the NGN solution.

According to the company, a key component of the solution involves OpenNet acquiring access to existing infrastructure through usage fees that vary with the market adoption of OpenNet's services.

OpenNet expects to complete the agreement contracting process with the IDA as planned, within the next seven months and expects that the Singapore-wide fibre grid will be completed by June 2012.

The company believes that when completed, OpenNet will provide Singapore with a “truly open, better and faster fibre-to-the-home network.”

This announcement is the first part of IDA's RFP process for a complete NGNBN. IDA said that the second part is the provision of active broadband services over the fibre grid.

Ken Lewis is Confused - BoA's Investment Banking to Remain Second Rate, even with Merrill Acquisition

“Merrill was paying typical Wall Street pay... We intend to pay market instead.” - Ken Lewis

Ken Lewis, CEO of Bank of America, has gone on the record making the statement above. And while this statement may seem to make sense to some, it really betrays Ken's confusion and fundamental lack of understanding about Wall Street and the investment banking business.

Mr Lewis seems to imply that there is a difference between "typical Wall Street pay" and "market pay." But While Merrill Lynch gives generous pay packets to its bankers and other staff, this WAS market pay - for the investment banking business. That's why it was typical. Typical Wall Street Market Pay!

But you see, Ken Lewis really didn't mean to say he intended to "pay market," because "paying market" means paying "typical Wall Street pay." What Ken Lewis really meant was this - We intend to pay "commercial bank pay". After all, that's what BoA has been, is, and will continue to be, predominantly - a huge lumbering commercial bank, and a second rate investment bank. Acquiring Merrill isn't going to change that, and here's why:

Paying investment bankers commercial banking pay, is simply going to see the investment bankers either:

  1. leave for other bulge bracket banks which are going to continue paying wall street market pay, or

  2. see them leaving to start their own corporate finance advisory houses and/or join other boutique investment banking shops, or

  3. leave to start their hedge funds and/or private equity shops

Indeed, that's why we see what's going on today: top Merrill talent is already being snapped up by its competitors. Banks like Barclays, Goldman Sachs and Morgan Stanley are swooping in like vultures to scoop up the talent that has been wounded by Ken Lewis' foolish rhetoric. I mean, what would you expect the investment bankers to do when their egos are hurt by Ken Lewis' statements saying that he hates Wall Street's inflated pay?

That's why Lewis' cost cutting strategies with Countrywide and FleetBoston are going to fail miserably when he applies the same to Merrill. Merrill is NOT a commercial bank where the bargaining power lies with the bank and cost-cutting is the way to go. Merrill is primarily a relationship business where its most important assets are its people. And as Lewis will learn in time to come, your business goes out the door when your most important assets go out the door. And your assets go out the door when your bankers and brokers go out the door.

Commercial banking is fundamentally different to investment banking, and Ken Lewis doesn't get that. That's why BoA is going to continue to have a second rate investment banking franchise. And that's why, in the years to come, we're going to see write-downs on Lewis' ill considered and ill executed acquisition.

Good luck all you BoA shareholders. You're going to need it =)

Saturday, October 04, 2008

Vikram Pandit is a Loser; Berkshire Hathaway 2 - GIC 0

In the latest development of what must be the most eventful year in the history of banking, Warren Buffett's Wells Fargo has snatched Wachovia bank from Vikram Pandit's Citigroup. In what must be the most humiliating and daring bank acquisition to date, Wells bid and closed a $16b deal for Wachovia, an offer that trumped Citi's pathetic $2.1b and that has Pandit and his minions crying foul, or whining, rather.

But Pandit seriously doesn't have much of a chance. Wells Fargo is paying much more and is not requiring any assistance from FDIC, in contrast to Citigroup's relatively pathetic bid which involved "FDIC agreeing to absorb up to $42 billion in losses should Wachovia's $312 billion pool of loans later turn sour." The withdrawal of FDIC involvement will surely mean a goodbye to Citi's bid for Wachovia, but Pandit must have known better than to expect that his paltry offer would have been the best in the market.

Wednesday, September 24, 2008

No sympathy from me for Lehman Minibonds investors

After the collapse of Lehman Brothers, Bear Stearns, and the unwinding of the credit markets over the past year or so, several Singaporean investors have found themselves burnt, having dumped significant portions of their retirement savings in credit derivatives and other similar financial instruments. One of these products in particular, Lehman's Minibonds, has been completely wiped out following the Chapter 11 bankruptcy of Lehman brothers.

Now, several of these investors (losers), are crying and complaining to the MAS, claiming that the authority did not do enough to protect them from the risks of these investments that are now close to worthless. As quoted in the Straits Times...

ST Sep 24, 2008
Minibonds worry: 'How is the layman supposed to beware when the prospectus is filled with jargon that even the sellers do not fully comprehend?'

MY WIFE and I are joint account holders of Maybank Singapore. We purchased $100,000 of the Minibonds Series 5 from Maybank's investment banker around August last year. We were under the impression then that these were supposedly very safe bonds.

Every few months, I would even call up Maybank to ask about the performance of our Minibonds and whether I should still hold on to them. Each time, I was informed that these bonds were still sound, and there wasn't any need to bail out.

Now that Lehman Brothers is bankrupt, and the public disclosure that our Minibonds investment has, in fact, nothing at all to do with bonds, but are instead Collateralised Debt Obligation (CDO)-related derivatives, we are extremely disappointed, distressed and upset with Maybank's lack of professionalism and poor product knowledge.

The investment advisers are more interested in closing the deal and going through the motions during the investors' risk-analysis.

We fully understand the concept of buyer beware. However, in this situation, how is the layman supposed to beware of what they're being sold when the 60-odd-page prospectus is filled with legalese and technical jargon that even the sellers themselves do not fully comprehend?

Ngo Chee Keong

Nice try mr Ngo, but I think people like you are idiots.

If you don't understand the legalese and technical jargon in the prospectus, WHY THE HELL ARE YOU TOUCHING THE INVESTMENT?

And, if you know that the sellers themselves do not fully comprehend the jargon, WHY ARE YOU STILL BELIEVING WHAT THEY SAY?

Anybody with any knowledge about investing will have heard one of Warren Buffett's principles of investing: Only invest within your circle of competence.


Obviously mr Ngo did not heed Warren Buffett's advice, just like thousands of other 'investors' who got burned by Lehman's bankruptcy.

And now he looks like the idiot he really is.

The minibonds saga should be a poignant lesson to everyone on why you should NEVER TRUST 'FINANCIAL ADVISORS'. Always DO YOUR OWN HOMEWORK. And DON'T TOUCH WHAT YOU DO NOT UNDERSTAND.

Those who diligently do their homework, educate themselves on financial instruments and how to invest well don’t get FOOLED by these so-called ‘financial advisors’

Any tom dick or harry can get a CFP or become a personal banker. just talk to insiders and they will tell you how selfish, mercenary and unethical these financial salespeople are. All they care about is getting their commission.


The best and only real protection for your retirement savings is to arm yourself with knowledge and financial education.

The best investors have never depended on the regulator to protect their downside.

These are universal principles of investing that will stand the test of time. Whether it was the go-go- years, the tech bubble, or today's credit crunch. Follow them and you will avoid the hazardous damages to your retirement nest.


The former CEO of NTUC, Tan Kin Lian, has now called on the MAS to be pro-active, and to 'protect' the small investors' interests:
"I hope that the Monetary Authority of Singapore or the Attorney General can take similar action on behalf of retail investors in Singapore, who had been misled into investing in the Mini-Bonds and similar structured products. These investors were clearly misled by the relationship managers into investing in these products on the advice that these investments were safe.

It is time to hold the financial institutions accountable for their mis-selling activities and for our regulators to be pro-active."

Indeed, how easy it is to point the finger at the bank, the broker, and the fund manager for misleading you. It is easy to point the finger at the regulator.

But, it looks like somebody agrees with me. here's a letter countering Tan Kin Lian's statements in the st forum:
ST Forum - Sep 25, 2008

Ultimately, it's buyer beware

I REFER to Tuesday's report, 'MAS tells banks to give priority to worried investors'.

It may be presumptuous of Mr Tan Kin Lian to assume that the banks erred in selling structured products to retail customers. These products are regulated under the Financial Advisers Act and the Securities and Futures Act. Only qualified advisers can market and give advice on such products. They must have a reasonable basis for any recommendation that is made on structured products and must provide investors with a fair description of all material information.

Be that as it may, investors looking to invest in these complex structures should exercise extra caution before entering into such financial transactions. The decision to invest should be based on your own judgment and not solely on advice given by the bank or its advisers. Before investing, you should consider whether the products fit with your financial goals, risk appetite and personal situation.

Understand the features of structured notes. Even in the case of a 'principal protected' product, the principal may only be insured by the issuer and, thus, may be lost in the case of a liquidity crisis or other solvency problems with the issuer.

Structured products are not suitable for all investors. Each product can exhibit very different characteristics as well as associated risks and rewards. They may appear to be fixed-income instruments, but may contain embedded options which do not necessarily reflect the risk of the issuing credit. These options may be 'plain vanilla' or highly leveraged exotic options.

As each is unique, the risks inherent in any one structured note may not be obvious. Hence, read carefully the prospectus or pricing statement, which explains the risks, tax treatment and other important information in detail.

Ultimately, it is your responsibility to protect your own interests. If you do not understand how the product works, seek clarification with your adviser. Don't buy anything that you do not understand.

Jag Kuo Soon Yong

Wednesday, August 20, 2008

Goodbye, Ricky Wong. Singapore Will Miss You

In latest developments regarding Singapore's NGNBN, City Telecom, formerly the consortium lead of Infinity consortium, has pulled out of the race for NetCo, reports Reuters:
StarHub leads group in S'pore broadband network bid
Wed Aug 20, 2008 1:13am EDT

SINGAPORE, Aug 20 (Reuters) - StarHub Ltd, Singapore's No. 2 telecoms firm, will lead the consortium bidding to build the city-state's next-generation broadband network, consortium member MobileOne said on Wednesday. StarHub replaces Hong Kong's City Telecom (CTI) who has dropped out.

Qatar Investment Authority, the Middle Eastern state's investment vehicle, has also joined the consortium, the statement said. (Reporting by Jennifer Tan; Edited by Saeed Azhar)

© Thomson Reuters 2008.
The silence of City Telecom on why this happened will certainly leave interested observers puzzled and curious as to the cause of this recent events. This is especially so considering the tremendous enthusiasm displayed by Ricky Wong, CEO of City Telecom and de facto leader of Infinity, for Singapore's NGNBN.

Ricky's interview with the Business Times demonstrated that he was a man with a dream – to ensure that in five years there would be fibre to most homes in Singapore. Ricky's vision was for Singapore, along with Hong Kong, to become a model for the rest of the world.
"The Americans and Europeans will come here to learn and follow us. We will become the technology leaders.”
This was a dream that would surely have benefited Singapore, and Mr Wong reckoned that tech-savvy people worldwide would then see that Singapore would be the best place to live, work and play – better than Silicon Valley, because it would have the best infrastructure. Unfortunately, for better or for worse, Ricky and his team are no longer in the running for the multi-billion dollar NGNBN project.

Can Infinity deliver without him? CTI's departure must have been due to significant developments in the NGNBN NetCo tender. Starhub and M1 are still around, but CTI's involvement was Infinity's trump card. CTI's unparalled experience with FTTH networks in Hong Kong is no longer part of Infinity's package. Now that the Hong Kongnese are no longer around, one wonders how much steam there is left in Infinity's bid.

Meanwhile, OpenNet's consortium members will surely be quietly smiling to themselves in the light of this new development. With CTI gone, there is no foreign technical expertise in the Infinity consortium, OpenNet will surely hold the edge with Axia's solid experience in operating open access fibre networks, along with mighty SingTel backing the group.

Yet, the tender process is not over, and we might see surprises again.

But for now, all I can say is, goodbye Ricky. Your vision for Singapore was an inspiring, compelling one. Those who knew your vision for the country will surely miss you.

Friday, August 08, 2008

Singapore's Quality of Life vs Sweden's

This has got to be one of the best written letters in the ST Forum on Singapore's quality of life and how it's not really as good as the Singapore government makes it out to be. I append it here for my future reference. Emphasis added by me.

For more information on this topic, see "Quality of Life is more than Material Wellbeing: GDP as an Incomplete Measure of Singapore's Development"
Swede quality of life

I REFER to Ms Heng Siew Cheng's letter, 'Why one couple is resettling in Sweden'', (July 17) and the replies by Singapore Senior Minister of State for Finance and Transport, Mrs Lim Hwee Hua (July 22), and 'Where else can you buy your home in 5 years?'' by Mr Peter Wadeley (July 24) My Singaporean wife moved to Sweden in 2001. She gave birth to our first child, a boy, last November. We are now on holiday, extending our first flush of joy of parenting in Singapore with my wife's family.

My wife, a teacher, is on a year's maternity leave. I am on paternity leave for 45 days here. When I return home, I shall still be on paternity leave for three more months. The generous duration of our parental leave is mandated by the state. Mr Wadeley implies that Singaporeans can buy a home in five years. I disagree. Last year, the median household income was $4,870. Even with grants, an average family cannot pay off a flat that quickly. It is also unachievable for Ms Heng and her Swedish husband, even if their collective income barely breaches the HDB's $8,000 bar.

Mrs Lim's comparison is incomplete. Nine in 10 Singaporeans merely lease their homes (HDB flats are typically 99-year leaseholds). Freehold ownership is higher in Sweden: Forty per cent live in landed property, 20 per cent in freehold condos and 40 per cent in rental flats. Swedish rental flats are akin to HDB flats. The main differences are that there is no downpayment, and the rental contract does not expire.

It is true, as Mrs Lim says, that Swedes spend 13 per cent of their income on housing. But for the money, half of us have our own garden - and precious time - to play with our children.

She suggests it is less expensive to raise children here. It is true that consumer goods are cheaper here and Singapore ranks third globally in per capita GDP (purchasing power adjusted) and Sweden 12th, according to the World Bank. But as more of Singapore's GDP comprises imports and exports, the statistic does not reveal the extent of benefit to its citizens.

The World Bank uses Household Final Consumption Expenditure (HFCE) as an affordability benchmark. Including goods and services provided by the government, it tells how much one has for useful spending, either directly or through tax. Sweden's HFCE per capita, in 2005 figures, is US$30,000, (S$42,000) double Singapore's US$14,000.

Ms Heng is concerned about raising children here. Having lived in both countries, I agree. The United Nations' Human Development Index, based on 350 indicators, tracks 'a long and healthy life, knowledge and a decent standard of living'. Sweden ranks sixth worldwide, while Singapore trails at 25th.

I am not advocating the adoption of Sweden's welfare system wholesale. But, if Singapore adopts a tiny part, giving parents flexibility and cheaper childcare, it probably means a tax hike of just a few per cent.

I would like to extend a warm welcome to Ms Heng to Sweden.

Jan Sundström

Friday, July 04, 2008

Singapore's SWFs and the 3 Behemoths of Mass Implosion

What do UBS AG, Merrill Lynch and Citigroup have in common?

A. They're all banks which have received significant cash infusions from Singapore's Sovereign Wealth Funds, GIC and Temasek.

B. They're the 3 largest casualties of the ongoing credit crisis.

Behemoths of Mass Implosion

Meredith Whitney, one of the most prominent Wall Street bank stock analysts, recently put out research notes either downgrading or cutting financial estimates for the three banks:
Merrill, rated “underperform,” faces “headwinds of deleveraging and the next disruptive step of restructuring.” ...

Ms. Whitney says she continues to “be negative in our outlook on Citigroup due simply to the fact that the company has seriously constrained earnings power, in addition to the writedowns seen in 2Q08,” which she estimates will hit $12.2-billion. ...

UBS is rated “underperform” by Oppenheimer because the Swiss bank “faces a difficult task of navigating through its risk exposures from the investment bank and rebuilding its damaged wealth management franchise.”
Whitney's pessimisim is not without good reason. UBS AG, Citigroup and Merrill Lynch, have been the banks with the largest total bank writedowns to date, far and ahead of the rest of their peers:

Citigroup leads the pack, with UBS and Merrill trailing close behind. But the gap between these three banks and the rest is extremely large - HSBC is the next closest with about half of Merrill's damage.

The same three banks lead in another key statistical metric: writedowns/market cap ratio:

This time, Merrill leads the charge. UBS and Citigroup fare better on this ratio, but still are way higher than the rest of the pack.

The stock markets have, in turn responded to the financial carnage the banks have inflicted on themselves: Merrill, Citigroup and UBS are amongst the top 5 % decliners in stock price:

Meanwhile, the 1-year performance of the stocks have indeed been nothing to envy:

The Dubious Wisdom of Lee Kuan Yew

Lee Kuan Yew just a month ago made some comments about GIC's splendid investments in Citigroup and UBS:
"The franchise of the banks, the expertise that they have, under proper leadership, they will be able to recover and rise again ... Will there be another Swiss bank like UBS for wealth management? I doubt it, we doubt it, that is why we invested in it." Citigroup, he added, had "an enormous spread worldwide as a retail bank".
These statements have indeed turned out to be questionable, if not downright wrong. UBS' 'unparalleled' wealth management franchise appears to be undergoing an unparalleled tax evasion investigation:
UBS shares hit by talk of further losses, tax evasion case
Jun 23, 2008

ZURICH (AFP) — Shares in Swiss banking giant UBS plunged on Monday amid talk of further losses and as investors worried that a US tax evasion case around a former employee could widen to the bank itself.

At the close, UBS shares showed a fall of 4.42 percent to 22.06 Swiss francs on the Zurich stock exchange, after a loss of 3.27 percent on Friday. The overall market was down 0.60 percent.

In a note to investors, an analyst at Credit Suisse warned that UBS's wealth management could come under "significant pressure" if the tax evasion investigations broadens to a case directly impacting the bank.

"In a worst case scenario, UBS could lose its banking license which could have adverse effects on the global private banking franchise," she wrote.

On Sunday, Swiss newspaper Sonntag reported that US law enforcement officials had made a formal request to come to Switzerland to investigate a tax evasion case involving UBS.

The move has been sparked by the confession of former UBS banker Bradley Birkenfeld to a Florida court last week that he conspired to help US clients dodge millions of dollars in taxes.

Swiss officials from the justice and finance ministries have already travelled to Washington for talks with their US counterparts amid concern the case could damage the overall reputation of Switzerland's financial industry.
The subprime damage and the suspected tax evasion has had severe consequences for the top leadership of the bank:
UBS AG (UBS) was at the center of a tornado of crushing news Tuesday, as it announced major changes to its board amidst pressure from the U.S. Department of Justice to reveal the names of top clients taking advantage of the bank’s tax breaks.

Four of the No. 1 Swiss bank’s board members - Stephan Haeringer, Rolf Meyer, Peter Spuhler and Lawrence Weinbach - will step down at the bank’s Oct. 2 shareholder meeting.


The bank has been the biggest European casualty to the U.S. subprime-mortgage crisis. It has written down more than $38 billion in the last three quarters, and its stock has dropped more than 57% year-to-date.

Continuing that trend, the bank will likely post a second-quarter loss with another markdown of about $4.9 billion, according to Bloomberg News estimates.

UBS said it will immediately submit board-member recommendations to the governance committee and will explore redefining directors’ and management’s responsibilities.
So, not only has UBS taken a severe beating in the subprime mortgage crisis, its wealth management business is undergoing severe pressures as well.

How about Citigroup's "enormous spread worldwide as a retail bank"? Well, it seems that is turning out to be a liability, rather than an asset.
Citigroup plans to sell $400 billion in assets
International Herald Tribune
By Eric Dash; Friday, May 9, 2008

Vikram Pandit is doing some serious spring cleaning at Citigroup.

Since becoming chief executive in December, Pandit has been clearing out the corporate attic of weak businesses and unloading worrisome assets at bargain-basement prices.

In an effort to streamline the sprawling company and placate restive shareholders, Pandit has sold or closed more than 45 branches in eight states. He has also disposed of Citigroup's headquarters building in Tokyo and its investment-banking base in New York and ditched more than $12.5 billion in loans used to finance corporate buyouts. And he has jettisoned the Diners Club credit card franchise, Citi's commercial leasing divisions and a big pension administration unit.

Pandit is not done yet. After months of false starts, Citigroup is now trying to sell Primerica Financial, a life insurance and mutual fund company, according to people close to the situation. He is also looking to sell its back-office outsourcing unit in India and its Smith Barney brokerage firm in Australia. Some speculate he also may try to sell 340 bank branches in Germany, possibly to Deutsche Bank.

On Friday, at Pandit's first major presentation to investors and analysts, Citigroup said that it planned to sell about $400 billion in assets in the next two to three years.
As it turns out, Vikram Pandit is trying to get rid of many of Citigroup's assets. Citigroup's worldwide sprawl made it a giant behemoth to big to manage. On top of that, Vikram Pandit has absolutely no experience running a consumer bank. Does Lee Kuan Yew really like such a person managing Citigroup's wide retail sprawl?

Suffering the Consequences

Who is taking the brunt of all this financial damage? Ultimately, it is the shareholders of these banks. And although GIC and Temasek have incorporated some sort of short term guaranteed returns for their investments in the banks, ultimately, these investments will convert into equity and suffer the effects of dilution:
Shareholders take brunt of banks' capital raising
Saturday June 21, 7:26 am ET
By Joe Bel Bruno, AP Business Writer
Banks cutting dividends, diluting shares to raise badly needed capital

NEW YORK (AP) -- America's banks and brokerages are scrambling to raise badly needed cash, but it may be at the expense of shareholders.

Since the subprime mortgage market imploded, financial companies caught in the fallout have been raising capital in two major ways -- cutting dividends and issuing more shares. Both methods erode shareholder value; analysts believe the industry is poised for more.

"The market is now seeing a substantial increase in financial companies issuing common and convertible instruments in an effort to shore up liquidity," said Standard & Poor's senior index analyst Howard Silverblatt. "The additional financing gives them immediate breathing room, with the payback being longer term dilution."

Put plainly, their gain is your pain.

Just this past week, Fifth Third Bancorp Chief Executive Kevin Kabat needed a cash infusion of $2 billion to bail out his struggling regional bank, while KeyCorp CEO Henry Meyer needed $1.5 billion. Both will issue stock to boost their balance sheets.

Banks have raised more than $60 billion this year by selling common and preferred shares.

The issuance of new stock acts to dilute the value of current shareholders because profit gets split among more shares. It's like having the family over for a turkey dinner and at the last minute grandpa invites the neighbors, too. There'll be less for everybody.
The end of the credit crisis is no where in sight, and the banks have yet to see the light at the end of the tunnel. And from how things are going right now, that light seems quite far away.

The writedowns at the banks have resulted in corresponding losses in stock price. And dilution of shareholders returns due to capital raisings only add to these woes. These are real losses that Singapore's SWFs will suffer; the supposed downside protection they built into their investments are but a short-term illusion.

Were these investments a good idea? We will only know for sure in a few years time when we have the benefit of 20/20 hindsight.

But the way things are going, the prospects for these investments simply don't look good at all.

Thursday, June 26, 2008

Good on Temasek, Shame on the Government

On Recent Events

I have come to know, through very reliable sources, of an incident that has greatly enhanced my confidence in Temasek as being independent of government influence. This incident has greatly influenced my perceptions of Temasek and has deepened my understanding of the regulatory problems that Temasek is facing in Indonesia and Thailand.

Not too long ago, the top officials of a Singapore Government Agency (let's call it ABC) approached the top leadership of Temasek, seeking that Temasek influence one of the corporations (XYZ) under its control to enact a series of plans designed to produce a favourable regulatory outcome for ABC. This occurred because ABC feared that it would not be able to get XYZ to do what ABC wanted without Temasek's influence.

I am extremely happy to say that Temasek turned around to ABC and said that Temasek cannot and would not influence the management of the corporations under its control. This is despite the fact that Temasek could have tried to accede to ABC's requests and influence XYZ without risk of public knowledge. However, I feel that the officials of ABC should have known much better than to try to use the government's position as owner of Temasek to try to get Temasek to influence XYZ in ABC's favour.

Temasek and the Ministry of Finance have clearly stated repeatedly that Temasek is to act independently of the government as a financial investor. Temasek's role is thus not to produce political and/or regulatory outcomes for government agencies. Any act by Temasek to this effect would severely tarnish the credibility and reputation of Temasek in its operations, particularly considering the trouble it is going through with Shin Corp in Thailand and with Indosat in Indonesia.

Thus, I would go so far to say that ABC's behaviour was tantamount to an attempt to abuse one's position of authority and influence. It was a selfish act that only considered the individual interests of ABC without considering the potentially deliterious consequences to Temasek, the Ministry of Finance, and the rest of Singapore. I am hence extremely disappointed with the top officials of ABC. What they did was fundamentally irresponsible and unacceptable.

Once again, I would like to give credit to Ho Ching and Temasek for standing firm in not exercising its influence over XYZ, and hope that this behaviour is indicative of how Temasek conducts itself with the rest of its investments.

On PT Indosat

ST Telemedia has recently completed its divestment of its stake in PT Indosat to Qatar Telecom.
ST Telemedia completes $2.5b Indosat sale to Qtel
S'pore firm transfers stake that had been at centre of antitrust dispute. -ST
Chua Hian Hou

Tue, Jun 24, 2008
The Straits Times

QATAR Telecom (Qtel) has defied some political resistance to complete a controversial acquisition of a Singapore firm's stake in No.2 Indonesian telco Indosat.

The US$1.8 billion (S$2.5 billion) stake was transferred to Qtel by Singapore Technologies Telemedia (ST Telemedia), which held the shares in two holding companies. ST Telemedia is a unit of Temasek Holdings.

The Indosat stake that ST Telemedia held has been at the centre of a legal dispute since last year, when Indonesia's Business Competition Supervisory Commission, or KPPU, ruled that the Singapore firm had breached antitrust laws.

The KPPU claimed that Temasek had engaged in monopolistic practices in Indonesia's mobile-phone market, and had breached anti-competitive laws by holding majority stakes in more than one company in the same industry.

Temasek has a deemed stake of about 20 per cent in Indonesia's No.1 telco Telekomunikasi Selular (Telkomsel) held via SingTel. It also had a 31 per cent deemed stake in Indosat, held via its wholly owned unit ST Telemedia.

The KPPU fined the companies and also ordered Temasek to sell its deemed stake in either Telkomsel or Indosat. It also ruled that buyers could purchase the shares only in 5 per cent chunks at most.

Temasek, SingTel and ST Telemedia claimed that there was no breach of antitrust laws and appealed against the ruling in the Central Jakarta District Court.

But last month, the Indonesian court upheld the KPPU's ruling. The three firms then said they would appeal against this decision to the Indonesian Supreme Court.

But on June 7, ST Telemedia announced that it was selling its Indosat stake to Qtel.
It is unfortunate that ST Telemedia has had to elect to divest its lucrative stake in PT Indosat in order for its parent, Temasek, to avoid further complications in the antitrust lawsuit it is facing against KPPU. While not the most favourable outcome, practically it was probably the most prudent decision on the part of ST Telemedia.

In light of the incident I have narrated above, I have much more confidence in believing that Temasek exerted no strategic influence over its 'effective' stakes in PT Indosat (previously owned thru ST Telemedia) or Telkomsel (currently owned thru SingTel). In light of this, the regulatory decision by KPPU against Temasek probably holds little water and I am inclined to accept the arguments of Temasek's lawyers that Temasek is innocent of the claims of monopolistic practices brought against it by KPPU.

Yet this incident is exemplary of the problems that Temasek faces as it expands out of Singapore to make investments overseas. Even as Temasek makes its decisions on commercial grounds and independently of the Singapore government, its government-linked perception and the close ties to the government do Temasek no favours. Indeed, Temasek's status as a government owned entity is very much a liability when it comes to dealing with political and regulatory knock-on effects. Temasek's actions overseas incite political suspicion simply because it is owned by the Ministry of Finance, and not necessarily because the government actually exerts any influence over its actions.

On Shin Corp

How best, then, to deal with this problem? One solution would be not to take any majority stakes in any prominent or politically-linked foreign companies:
Singapore's Temasek plans to cut its stake in Thailand's Shin Corp
By Amy Kazmin in Bangkok, for the Financial Times
Published: June 18 2008 03:00 | Last updated: June 18 2008 03:00

SINGAPORE'S Temasek Holdings plans to reduce its stake in Shin Corp, the Thai group it took control of more than two years ago, through a public offering of shares.

In a statement to the Stock Exchange of Thailand yesterday, Shin Corp said it was drafting a prospectus for an offering that would increase the minority shareholding, although it also said it would have to monitor the investment climate and sentiment in order to "conduct a successful offering . . . in the future".

Shin Corp gave no details of a timeframe or size for such a deal.
In January 2006, Temasek paid $3.8bn, or Bt49 per share, for a 96 per cent stake in Shin Corp, the telecommunications-to-aviation group founded by Thaksin Shinawatra, who was then Thailand's prime minister.

The deal, Thailand's largest takeover, triggered a crisis as Bangkok residents protested against the Shinawatra family's $1.9bn tax-free profits from the deal.

Critics accused the Singaporean state investment agency of violating Thai laws limiting foreign ownership of telecoms companies to 49 per cent, though the deal replicated similar take-overs.

The furore culminated in the September 2006 coup and the seizure of most of the Shinawatra family's earnings from the sale.

The military government also vowed to investigate whether the takeover violated foreign investment laws.
Like the PT Indosat case, Temasek probably made the investment in Shin Corp in full compliance of the laws of Thailand as they knew it, and were unfortunate victims of the political turmoil in Thailand. In all fairness to Temasek, it had probably no inkling that the military coup and its subsequent fallout could have been triggered by the sale of Shin Corp by Thaksin Shinawatra to Temasek.

Yet in hindsight, the highly politically charged nature of the transaction should have raised alarm bells during Temasek's political due diligence of the transaction. Here was an asset of national pride, changing hands between the Prime Minister of the country and the investment arm of a foreign government body. Surely there had to be knock-on political ramifications.

But nevermind that, what is done has been done and we cannot turn back the clock. Yet Temasek's latest plan to cut its stake in Shin Corp only just having recently acquired it, is acknowledgement that an investment's political fallout is a burden too heavy for the company to bear. This mirrors ST Telemedia's decision subsequent to the KPPU case, on behalf of Temasek.

But adopting such a strategy going forward can place significant constraints on Temasek's investment options. It now has to carefully weigh the potential political ramifications of every investment it makes. Doing so would narrow the universe of potential investment and acquisition targets available to Temasek, and place downward pressures on Temasek's investment returns. That Temasek's assets under management continue to balloon, do it no favours either. Temasek has to deal with the double whammy of having more capital under its responsibility, and fewer options with which to deploy this capital.

Indeed, Ho Ching's job is certianly not one I would envy; it is a tough set of problems she has to deal with. But deal with these problems, she and her team must. Otherwise, it is time to reduce the scale and scope of Temasek, and start returning the money to the people.

Can Singapore's corporate elite come up with the solutions for such tough problems? Singaporeans will surely watch intently, and only time will tell.

Monday, June 09, 2008

Temasek’s Hands in Too Many Pies

In the latest news surrounding Temasek – related investments in Telecom companies, ST Telemedia has divested its entire stake in PT Indosat to Qatar Telecom.
Business Times - 09 Jun 2008
STT sells Indosat stake, giving Qatar firm a boost
ST Telemedia divesting its entire stake in Indonesian mobile operator

(DUBAI/SINGAPORE) Qatar Telecom (Qtel) is poised to be a major player in the Indonesian telecoms market with the announcement on Saturday that Singapore Technologies Telemedia is selling its entire stake in PT Indosat.

'We believe that Indonesia is a high growth market for telecommunications and that Indosat is very well placed to compete in that market,' said Qtel chief executive Nasser Marafih.

Qtel will pay US$1.8 billion for the 40.8 per cent stake in PT Indosat held by Asia Mobile Holdings, a joint venture firm between the Qatari outfit and STT.

ST Telemedia, a subsidiary of Temasek Holdings, will no longer have any involvement in Indosat after the transaction.

The disposal of the stake came after an Indonesian competition watchdog ruled that Temasek has breached the country's anti-monopoly laws and ordered the Singapore investment firm to divest its holdings in either PT Indosat or PT Telkomsel.

Temasek indirectly holds 35 per cent of PT Telkomsel via its 56-per cent owned unit Singapore Telecommunications Ltd (SingTel).
Temasek’s official line is that ST Telemedia’s board of directors made the divestment decision entirely independently of Temasek. Independence might be true at an operational level, in the sense that the executives handling the divestment and the executives handling the anti-monopoly lawsuit do not know about what each other are doing. However, we can be quite sure that top level executives at Temasek were fully cognizant of all developments at STT which led to the decision to divest the PT Indosat stake, in light of the legal developments in Indonesia.

STT’s latest move in divesting PT Indosat is the latest in a string of developments that can be traced directly to Temasek’s nature as a Singapore government-owned investment agency; the Shin Saga is probably the incident that is most vivid in our minds. While Temasek and its subsidiaries may have complied with the law (according to its lawyers), its close links to the Singapore government and ruling family have presented unpleasant problems as the company ventures overseas and makes investments abroad.

Foreign governments, for whatever reason, have seen it unfit for Temasek to exert too much influence on their countries’ corporate scenes; the spectre of a tiny country owning massive stakes in prominent corporations has lead to anti-competitive lawsuits, tax-evasion attacks and pretty much anything else plausible in the legal arsenal to make sure that Temasek feels the pain of its corporate expansion. And as the saying goes, once bitten, twice shy.

The aftermath of the Thai military coup and the resultant pain felt by Temasek subsequent to stock market losses on Shin Corp must surely have fueled the rapid decision by STT to divest its PT Indosat stake, for fear of potential losses to PT Indosat or further legal penalties that Temasek might have had to suffer as a result of the ongoing legal action in Indonesia. Indeed, there is no other plausible explanation - the PT Indosat stake is such a lucrative investment that ST Telemedia would certainly not have made such a divestment except under duress.

These recent events only serve to underscore the challenges that Temasek faces going forward – its massive capital base, extensive reach in many companies, and undeniable politically-linked image mean that Temasek will see itself facing the prospect of anti-competitive suspicions and political reactions from foreign governments. Indeed, it would certainly be no surprise if Temasek’s investment analysts have added a new dimension to their investment risk analysis – the risk of political backlash, a risk quite unique to Temasek. These risks will only serve to grow as the corporation extends its reach and as the funds under its care expand in size.

And so perhaps it is time for the government to rethink its strategy with regards to its management of its sovereign wealth, and perhaps consider some sort of proper privatization of the GLCs under Temasek’s ownership. For instance, the Indonesian antitrust case would certainly not have happened if Temasek did not control SingTel. Or Temasek might be seen to be much more independent from the Singapore government if it underwent some form of privatization, perhaps an IPO and listing and the attendant enforced corporate disclosure.

Whatever the case, maintaining the status quo is definitely unsatisfactory. Temasek will see its investment mandate constrained by attempts to avoid political backlash from the foreign countries it seeks to invest in. One thing is for sure – repeated press releases claiming that Temasek acts independently of the government and independently of its subsidiaries are too little and too lousy.

It is time for Temasek and the Singapore Government to do better.

Tuesday, May 13, 2008

SingTel, Starhub & M1: A Comparative Analysis

(Z74 = SingTel, CC3 = Starhub, B2F = M1)


Singapore Telecommunications Limited, together with its subsidiaries, provides services and solutions in fixed, mobile and data communications, Internet, IT and consultancy, and satellite.

  • Wireline services include cable-based and satellite-based fixed telecommunications network services, such as domestic and IDD services, leased lines, data communications, lease of satellite capacity, Inmarsat, and Internet services.
  • Wireless services comprise mobile telecommunications services, such as cellular and paging services, and sale of handsets and pagers.
  • Information technology and engineering services portfolio consists of information technology consultancy, systems integration, and engineering services.
  • Other businesses include subscription television; technical and management consultancy services; ownership and chartering of barges; provision of storage facilities for submarine cables and related equipment; billing services; IT disaster recovery services; operation and maintenance of fibre optic network between Brisbane and Cairns; research and development of software; and managing and operating a call centre for telecommunications services.
Singapore Telecommunications provides its services to corporate and consumer markets primarily in Singapore and Australia. The company was founded in 1879 and is headquartered in Singapore, Singapore. Singapore Telecommunications Limited is a subsidiary of Temasek Holdings (Private) Limited.

SingTel also has extensive overseas investments in Mobile operators around Asia. These include Bharti Airtel of India and Telkomsel of Indonesia.


StarHub, Ltd., an info-communications company, provides a range of information, communications, and entertainment services over its fixed, cable, mobile, and Internet platforms for residential and commercial customers in Singapore.

  • Mobile services include 3G that enables users to make video calls and 3.5G that offers broadband Internet access over mobile phone; mobile voice services; mobile data services, including video downloads, Web SMS, MMS animation and wallpapers, MMS retrieval centre, Disney mobile, mobile ESPN premiership, and themes, as well as call, MP3, and true tones; green prepaid card; and roaming services.
  • Cable TV services comprise operation of news, movies, entertainment, sports, music, and education channels.
  • Broadband services include mobile and home broadband access, as well as other Internet services; and fixed network services comprise voice, data, Internet, and wholesale services for businesses.
  • StarHub offers online value-added services, such as online music portal; email and broadband content filtering service, family access network, and anti-virus email scan services; data/Web storage services; corporate portal and IP-VPN solutions; and content creation and development solutions.
It is also involved in the sale of customer premise telecommunication equipment. The company was incorporated in 1998 and is based in Singapore, Singapore. StarHub, Ltd. is a subsidiary of Asia Mobile Holdings Pte., Ltd.


MobileOne, Ltd. provides cellular mobile communications services in Singapore. It provides

  • a range of mobile voice and data communications services over its 2G/3G/3.5G network.
  • international call services to mobile and fixed line users; and wireless broadband Internet services to home, office, and mobile users.
  • a range of mobile voice, nonvoice, and value-added services on its cellular network and as an operator.
It has a network of operator-owned retail shops (M1 Shop) and operator-appointed distributor outlets in Singapore. As of December 31, 2007, MobileOne operated approximately 13 M1 shop outlets, as well as an e-shop, which sells mobile phones and accessories online. The company also had approximately 1,535,000 mobile customers comprising 856,000 postpaid customers and 679,000 prepaid customers.

In addition, it involves in the research and development of mobile telecommunications product and services, as well as provision of after sales support and customer services. MobileOne has a partnership with Vodafone to provide a range of wireless business products and solutions, as well as has a joint venture with PLDT (SG) Retail Service Pte, Ltd. to provide prepaid mobile services. The company was founded in 1994 and is headquartered in Singapore, Singapore.


The following is a comparative financial analysis of the three companies:


As can be seen SingTel has the highest margins whereas Starhub has the highest profitability ratios. However, SingTel has contributions from associates above the EBITDA line, so this skews the results.

Leverage & Multiples:

SingTel has the strongest leverage ratios. However it is also the most expensive, compared to M1 which is the cheapest stock, and has the highest yield.

Saturday, May 10, 2008

Lee Kuan Yew Wrong Again! This Time, It's Oil.

Two months ago, Lee Kuan Yew, Minister Mentor of Singapore and Chairman of GIC, made the following statements about oil prices, as reported by the Straits Times:
Oil prices 'unlikely to rise further'
March 8, 2008 (Straits Times)

OIL prices are not likely to go higher, Minister Mentor Lee Kuan Yew said yesterday.

As crude oil prices hit US$105 (S$145) per barrel,
MM Lee believes it is not likely to creep further up to US$110.

'The oil suppliers are testing the limits. They believe that China and India now form a new long-term base demand. They may be right,' he said.

'I don't think it can go up US$110, US$120, US$150 and the world economy goes on. Inflation will go through the roof.

'Economies of the West will go down, hyper-inflation in many developing countries. So it will go into reverse. There's no projection right to the end.'
Well, shortly after Lee Kuan Yew's pronouncement, Oil prices shot up above $110, and today is trading at above $125.

(Image courtesy of theenergycollective)

On top of that, just a few days ago, respected Goldman Sachs Analysts have predicted that oil could spike up towards $150 and even maybe $200!
Goldman Says Oil `Likely' to Reach $150-200 a Barrel
By Nesa Subrahmaniyan

May 6 (Bloomberg) -- Crude oil prices may rise to between $150 and $200 a barrel within two years because of a lack of adequate supply growth, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.

``The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,'' the Goldman analysts wrote in the report dated May 5.

Global fuel demand growth is outpacing gains in output. China, the world's fastest growing major economy, has more than doubled oil use since New York crude dropped to this decade's low of $16.70 a barrel on Nov. 19, 2001. That's soaked up most of the world's spare capacity amid supply cuts in Nigeria, Iraq and Venezuela.
Well well, wrong again, Mr. Lee Kuan Yew.

Wrong on energy, and wrong on banking.

Not only are the industry's most respected analysts holding opinions diametrically opposite to you, the world's most respected investors, such as Warren Buffett and Jim Rogers, have also made the opposite investment decisions compared to you.

Seriously, what is Lee Kuan Yew doing as the Chairman of GIC, Singapore's $300 billion investment fund? The man isn't qualified for the post!

Lee Kuan Yew vs Warren Buffett: Part 2
Lee Kuan Yew Ain't No Warren Buffett
GIC, UBS & Jim Rogers

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

Saturday, May 03, 2008

Is an Incompetent Cabinet What We Have?

As of the writing of this post, it has been no less than 65 days since Mas Selamat made his escape from the Whitney road detention center (WRDC). Most of the attention and writings in the blogosphere and the press to date surround the question of whether DPM Wong Kan Seng should resign from his post. Especially taking center stage has been the manner of the government's accountability and the way PM Lee Hsien Loong exonerated DPM Wong from any fault with regards to Mas Selamat's escape.

While these are certainly important and valid issues to raise, I fear that harping over whether WKS should resign is to risk losing the forest for the trees. Yes, WKS is the minister overseeing the ISD and the WRDC. But demanding his resignation because of the operational lapses at WRDC is a tough act, as WP Opposition leader Low Thia Khiang found out when he was forced into an embarrassing silence by the PM. This is simply because it is difficult to draw a direct link between Wong Kan Seng and the lack of grills on the window that Mas Selamat used to escape.

What, perhaps, is more telling about the competence of the government, and what netizens need to turn their attention to, is the fact that the cabinet ministers are now directly responsible for the recapture of Mas Selamat. There is no doubt about their responsibility for the coordination of National Security and there is no question that they are ultimately responsible for a failure to recapture Mas Selamat.

Mas Selamat has been at large for a lengthy period of time. If Mas Selamat is still in Singapore, then we seriously have to question the competence of our internal security forces for being unable to catch the man in tiny Singapore. If Mas Selamat has escaped our shores, again we have to question the competence of our internal security forces and border defences for letting the man escape.

Here is the low down on the main characters involved:

1. Prime Minister Lee Hsien Loong as the head of the government will bear overall responsibility for the coordination of the various ministries and government bodies responsible for the capture of Mas Selamat. The Prime Minister's Office oversees the National Security Coordination Secretariat (NSCS), tasked with national security planning and the coordination of policy and intelligence issues. A branch of the NSCS, the Joint Counter Terrorism Centre (JCTC), is a multi-agency centre which provides strategic analysis of terrorism-related issues to support policy-making and the development of counter-terrorism capabilities; as well as providing strategic early warning of terrorism-related developments.
2. Deputy Prime Minister Wong Kan Seng is the Minister for Home Affairs, and oversees the following government bodies directly related to Mas Selamat's recapture:
  • Singapore Police Force (SPF) - The SPF is the main agency tasked with maintaining law and order in the city-state. Part of the SPF is the Special Operations Command (SOC), a frontline unit grouping together various specialist units into a single strategic reserve of the regular forces to be called upon in any contingency and serious case of public disorder. They will no doubt be the frontline involved in the domestic search and recapture of Mas Selamat.
  • Internal Security Department (ISD) - The ISD's mission is to confront and address security threats, including international terrorism, foreign subversion and espionage. The ISD also monitors domestic counterterrorism, international counterterrorism, surveillance, apprehension of suspected militants or terrorists and protection of Singapore's national borders.
  • Immigration and Checkpoints Authority (ICA) - The ICA is in charge of the security of the territory of the nation and goods entering the country as well as foreigners entering the country. Conversely, it will also be in charge of preventing escaped terrorists from passing through the checkpoints under its jurisdiction.

3. Deputy Prime Minister Shunmugam Jayakumar is the Coordinating Minister for National Security. The Co-ordinating Minister chairs an inter-ministerial committee comprising the Minister for Foreign Affairs, the Minister for Home Affairs and the Minister for Defence. His responsibility is to oversee counter-terrorism in Singapore, by co-ordinating the NSCS, mentioned above.
4. Minister of Defence Teo Chee Hean is entrusted with overseeing the defence needs of the Republic of Singapore. The Ministry of Defence oversees the Singapore Armed Forces (SAF), of which at least 2 branches are directly involved:

  • The SAF Military Police Command is the military police unit of the Singapore Armed Forces, and whose men have been directly involved in the search for Mas Selamat.
  • The Singapore Navy will no doubt be tasked with patrolling the shores of Singapore to prevent the escape of Mas Selamat by water.


As you can see, there are direct links between ministerial responsibility and the recapture of Mas Selamat. Netizens, bloggers, MPs and the opposition would do well to focus on these links, rather than to have their attention diverted by the tenuous relationship between the WRDC escape and Wong Kan Seng.

The leadership of Government Singapore is to be truly tested in the coming days.

Let's see how well it holds up.

Related Posts:
Wong Kan Seng Off the Hook? Not So Fast. The Game Has Just Begun!

Wednesday, April 30, 2008

Lee Kuan Yew Ain't No Warren Buffett

GIC a few months ago took significant stakes in global banking giants UBS and Citigroup. The share prices of these companies have since taken a tumble due to the impact of the credit crisis, but according to GIC, that's no worry, since GIC has taken these investments with a 'long term view.' In addition to GIC's existing investments in those banks, Lee Kuan Yew, Chairman of GIC and Minister Mentor of Singapore, has gone on the record as saying:
Singapore's GIC may invest in more banks
Reuters, April 30

The Government of Singapore Investment Corp may invest in more banks in Europe and the United States if it gets the chance, adding to its stakes in beleaguered bank UBS and Citigroup, its chairman told Bloomberg TV.

"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."

"We are buying something that we intend to keep for the next two to three decades and grow with them", he said, adding that GIC was a long-term investor.

After throwing in billions of dollars into credit-crunch battered financial institutions, Lee Kuan Yew is prepared to deploy more capital into this area. Ever confident about GIC's investments, the octogenarian further defended GIC's decisions:
"The franchise of the banks, the expertise that they have, under proper leadership, they will be able to recover and rise again ... Will there be another Swiss bank like UBS for wealth management? I doubt it, we doubt it, that is why we invested in it." Citigroup, he added, had "an enormous spread worldwide as a retail bank".
Interesting rationale. According to Lee Kuan Yew, UBS and Citigroup have "inherent capabilities to recover" from the credit crisis. Well, this is quite a debatable statement.

Just a few months after GIC's investments, recovery of the banking sector is far from sight. Instead, the banks are scrambling to raise more capital to deal with the damage the credit crunch has dealt them:
Citigroup, Merrill Lead Record Week of Bond Offerings
By Bryan Keogh and Gabrielle Coppola

April 25 (Bloomberg) -- Citigroup Inc. and Merrill Lynch & Co. led $45.3 billion of U.S. corporate bond offerings, the busiest week on record, as financial companies sold debt at the highest yields since April 2001.

Sales compare with $31.2 billion last week and an average this year of $18 billion, according to data compiled by Bloomberg. Citigroup, the biggest U.S. bank by assets, sold $6 billion of hybrid bonds in the company's largest public debt offering, while New York-based securities firm Merrill Lynch raised $9.55 billion by issuing debt and preferred securities.

Bond offerings soared as investors grew more optimistic financial companies can recover from $309 billion of writedowns and credit losses tied to the collapse of the subprime-mortgage market. Banks and securities firms sold 85 percent of investment- grade debt this week, Bloomberg data show. High-yield bond issuance swelled to the most since November.
An inherent ability to recover from the crisis? Not without a lot of additional capital - extra capital which is going to dilute your existing stakes.

The debt issuance is not the end of the story. Citigroup is issuing equity as well:
Citigroup Sells $3 Billion of Stock to Boost Capital
By Bradley Keoun

April 29 (Bloomberg) -- Citigroup Inc., the U.S. bank hit with writedowns on subprime mortgages and bonds, is selling $3 billion of stock two weeks after reporting its second straight quarterly loss.

The shares are being sold in a public offering, New York- based Citigroup said today in a statement. Citigroup already has raised more than $30 billion of capital since December. A weakening U.S. economy and rising consumer delinquencies forced Chief Executive Officer Vikram Pandit to rescind assurances earlier this year that the bank didn't need to raise more funds.

"This was extremely disappointing," William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, said in a Bloomberg Television interview. "We were hoping they wouldn't have to go the equity markets like this."
Citigroup's issuance of equity financing is implicit acknowledgement that it won't be able to deal with the upcoming problems in the credit markets without substantial help. Add to that a weakening US economy and a looming recession, the clouds on the horizon are only getting darker.

Morgan Stanley realised this in its latest research report on the banking sector, painting a very bleak picture of the road ahead. This is in stark contrast to investors (including GIC) who have been calling an end to the banks' credit woes:
Morgan Stanley sees big bank woes just beginning
Monday April 28, By Joseph A. Giannone

NEW YORK (Reuters) - Morgan Stanley analysts on Monday told clients to "sell the rally" in financial stocks, slashing forecasts for big bank earnings and warning that the current credit crunch is only just beginning.

In aggregate, Morgan Stanley reduced its estimates for 2008 large bank earnings by $17 billion, or 26 percent, and reduced 2009 forecasts by $13 billion, or 15 percent. The analysts expect higher loan losses and expenses, offset by higher net interest income, though profits could fall further still if the Federal Reserve stops lowering interest rates.

"More capital hikes and dividend cuts (are) coming as our credit deteriorates and forward earnings decline," analysts led by Betsy Graseck wrote in a report. "We think we are only in the third inning of the credit cycle and expect this credit cycle will be worse than (the slump in) 1990-91."
Just for the record, a baseball game usually has nine(9) innings. Morgan Stanley's declaration that we are only in the third inning of the credit cycle, simply says we're not even a third of the way through the game. A Seeking Alpha contributor has also observed:
The credit markets have improved, in terms of increased liquidity, with the Fed opening up the discount window for investment banks. However, the real economy, which has had only a minimal impact on the financial markets thus far, is deteriorating rapidly. Home prices are continuing to decline, costs of living are continuing to increase (look at the price of oil and food for examples), and the job market is reeling. The real economy will come back around and hit the financial institutions far harder than the freeze in the credit markets did. The Fed put out one fire, but threw gasoline on the other - through massive inflation - and we have not even begun to witness the effects this will have on our economy.
Well, well, it appears Lee Kuan Yew doesn't seem so wise any more. Certainly not as wise as Warren Buffett, whose Berkshire Hathaway has stayed away from picking up stakes in these big banks. And its just as well that we clearly see the difference here, as GIC and Temasek have been repeatedly using slogans to "invest for the long term," to parade themselves as value investors of the Buffett kind.

But Lee Kuan Yew doesn't really understand Warren Buffett. He also said in the interview with Bloomberg:
'[Buffett] has a different view. He has to give returns to his investors year by year. We don't have to. We have to think in terms of the next 10, 20, 30 years. We are buying into something which we intend to keep for the next two, three decades and grow with them.'
But I think anybody who knows Warren Buffett knows that Buffett's favourite investment horizon is forever, and that the investment legend has repeatedly stressed that Berkshire's focus is not on the quarter-to-quarter or year-to-year earnings. In all his writings to shareholders, one can clearly discern that Buffett has his eye on the long term future. Furthermore, Buffett's track record of consistently outperforming the market spans a good 50 years... Thus, for Lee to say the Buffett is narrowly focused on the year-to-year performance of his company, is to demonstrate a gross and fundamental misunderstanding of Buffett's investment philosophy - and thus it was ridiculous for Lee Kuan Yew to claim that GIC has significantly different obligations to its shareholders compared to Berkshire.

Finally, let's not forget Jim Rogers' warning to Singapore's Sovereign Wealth Funds earlier this year:
"It grieves me to see what Singapore is doing. They are going to lose money," he added, referring to investments by Government of Singapore Investment Corp and Temasek in Citigroup, Switzerland's UBS and Merrill Lynch.
I think that just about sums up what is going to happen.