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.