'We became cash-rich and when the market fell, we went into UBS and Citi,' he said. 'But we went in too early. That's part of the ride.'
...
'How could we have known this was the extent of the damage? You look at all the big-name banks - they have gone down, misjudged the situation, ruined their careers,' Mr Lee said.
GIC converts preferred notes in Citigroup to common shares
By May Wong, Channel NewsAsia | Posted: 27 February 2009 2026 hrs
SINGAPORE: The Government of Singapore Investment Corp (GIC) has said it will convert its convertible preferred notes in the US lender Citigroup to common stock in a bid to help shore up the troubled US lender.
The exchange price is US$3.25 a share – a 32 per cent premium to Citigroup's closing price on Thursday. The price is way under the conversion price of US$26.35 a share under the original terms of the investment.
Singapore’s GIC Loses $33 Billion as Assets Tumble, WSJ Says
By Andrea Tan and Chris Peterson
Feb. 17 (Bloomberg) -- Government of Singapore Investment Corp., one of two sovereign wealth funds owned by the island, lost as much as S$50 billion ($33 billion) in 2008, the Wall Street Journal said, citing two people familiar with the matter.
The fund doesn’t plan to get rid of its investments including in Citigroup Inc. and UBS AG even as asset values plummet, the newspaper said. GIC expects the two banks to provide substantial long-term returns, according to the report.
Sovereign wealth funds in Asia and the Middle East have pumped money into global financial institutions to help replenish capital eroded by writedowns and losses that have topped $1 trillion globally. GIC, overseeing more than $100 billion of reserves, has invested about $18 billion in UBS and Citigroup since December 2007.
Merrill, rated “underperform,” faces “headwinds of deleveraging and the next disruptive step of restructuring.” ...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:
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.”
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.
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.
Meanwhile, the 1-year performance of the stocks have indeed been nothing to envy:
"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 caseThe subprime damage and the suspected tax evasion has had severe consequences for the top leadership of the bank:
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.
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.So, not only has UBS taken a severe beating in the subprime mortgage crisis, its wealth management business is undergoing severe pressures as well.
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.
Citigroup plans to sell $400 billion in assetsAs 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?
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.
Shareholders take brunt of banks' capital raisingThe 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.
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.
Oil prices 'unlikely to rise further'Well, shortly after Lee Kuan Yew's pronouncement, Oil prices shot up above $110, and today is trading at above $125.
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.'
Goldman Says Oil `Likely' to Reach $150-200 a BarrelWell well, wrong again, Mr. Lee Kuan Yew.
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.
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 SaysThis week, Warren Buffett, the wealthiest man in the world, gets his chance to give his take on the credit crunch and the banking sector:
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.''
Buffett says U.S. in recession; banks to face painIs Lee Kuan Yew listening?
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."
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.
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.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.
'I decided not to pick that one,' Mr Buffett added.
Singapore's GIC may invest in more banksAfter 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:
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.
"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.
Citigroup, Merrill Lead Record Week of Bond OfferingsAn inherent ability to recover from the crisis? Not without a lot of additional capital - extra capital which is going to dilute your existing stakes.
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.
Citigroup Sells $3 Billion of Stock to Boost CapitalCitigroup'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.
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."
Morgan Stanley sees big bank woes just beginningJust 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:
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."
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.
'[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.
"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.
The Government of Singapore Investment Corp (GIC) is injecting 11 million Swiss francs, or nearly US$10 billion, into the troubled Swiss banking giant UBS.A few months later, on March 5th, 2008, the following was reported on many news sources, including reuters, about Jim Rogers' comments that Singapore was going to lose money on its investments in investment banks. (For those who don't know, Jim Rogers is one of the most successful investors of all time, and partnered George Soros when the two ran their Quantum Fund)
This will give GIC an almost 9 percent stake in UBS.
The deal comes as UBS announced that it was making further multi-billion dollar writedowns for its US sub-prime exposure.
"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.Just today (April 1st, 2008) UBS has announced massive losses and is again trying to raise capital, just a few months after its massive capital raising exercise that involved GIC. Reuters reports:
UBS AG doubled its writedowns from the subprime crisis, parted company with its chairman and asked shareholders for more emergency capital on Tuesday in a second dramatic attempt to reverse its fortunes.But what is interesting about GIC's 'investment' is that UBS has been characterised as requesting more 'emergency capital' to 'reverse its fortunes'. I'm not sure I'd really put money in such a company and call it an investment.The Swiss bank wrote down an additional $19 billion on U.S. real estate and related assets, causing a net loss of 12 billion Swiss francs ($12.03 billion) in the first quarter, and said it would seek 15 billion francs through a rights issue of shares.
