DBS Shares Rally despite the Passing of Richard Stanley; Singapore Economy in the Dumps

As DBS staff bid their final farewell to chief executive Richard Stanley, who died of leukemia last Saturday, the shares of Singapore's biggest bank continued to rally. DBS stock price continued its rise, even as Mr. Stanley's cortege passed through Shenton Way this afternoon. This is despite the fact that in the last four months, it has been Mr. Koh Boon Hwee, Chairman of DBS and a non-banker, who has been steering the DBS ship amidst Stanley’s absence and Singapore's steepest recession.

DBS' stock rise comes amidst a broader market rally. It is thus not clear if the stock rise indicates that investors are placing confidence in the bank's chairman, or if it is a simply a stock movement in tandem with the broader market. The DBS board, nevertheless, feels that Mr Koh is worth his weight in gold.

In comparison to Mr. Stanley who was paid almost $5 million for eight months of work in 2008, Mr. Koh has received $2 million in 'special remuneration' from DBS for assuming an 'active management oversight' role from Jan 1 to April 30 last year.

Lee Kuan Yew is Full Of Crap

Lee Kuan Yew is all over the news today, talking about GIC's 25% loss. In particular, he has been defending GIC's investments in the banks. I've written extensively about these investments, but MM Lee's latest attempts and defending GIC are some of the crappiest shit I've seen in a while.

Damn it - I'm just absolutely fed up with Lee's crap. For goodness sake already, just own up and admit that GIC did not have a clue.

MM Lee was quoted today in the Business Times, saying:

'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.

Here's the octogenerian politician, trying to wriggle his way out by claiming that GIC could not have known the extent of the damage. He blames the big-name bankers for ruining their careers, and says its all "part of the ride".

Well, thats a bucketload of bullcrap.

You want to know how you could have "known the extent of the damage", Mr Lee?? I'll Tell You HOW!!!

GIC's Conversion from Preferred to Common Marks the Beginning of the End

In news just out, GIC has agreed to convert its preferred stake in Citigroup to Common Equity, to go along with the US government's continued bailout plan for the company.

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.

"2008 Was a Year to Forget" - 2009 Probably will be One to Forget, Too

Singapore's MTI recently released the country's Q4 2008 economic statistics. The numbers are, quite simply, absolutely dismal.

Singapore's economy shrinks 16.4% annualized rate in Q4
By Chris Oliver
Last update: 9:33 p.m. EST Feb. 25, 2009

HONG KONG (MarketWatch) -- Singapore's economy contracted at an annualized 16.4% in the October-to-December quarter, its sharpest pace of contraction in 33 years, according to revised figures released Thursday by the Ministry of Trade and Industry. For the whole of 2008, the economy grew 1.1%, after expanding 7.8% the preceding year, the ministry said in the 169-page Economic Survey of Singapore report. The manufacturing sector declined 10.7% in the fourth quarter on year, while the services sector was down 1.3%. Initial estimates published in January were for a 16.9% annualized contraction in the fourth quarter.

Think that's bad?

Wait until you compare this contraction with other economies around the world, and you'll see how bad it really is.The following image, courtesy of the Business Times, tells a thousand words.



Hmm. No wonder that Singapore's economists are not particularly optimistic. Here's some quotes to ponder, and enjoy (bold added):

'The manufacturing weakness story is well known, but the main thing is the speed and severity with which the services sector rolled over,' said OCBC economist Selena Ling. 'When two of your engines fall off, you can't see the economy flying at all.'

...latest estimates prompted OCBC to cut its 2009 full year forecast, from -2.8 per cent to -4.8 per cent. 'Frankly, we don't see any light at the end of the tunnel for financial services. It will be the main drag on services,' said Ms Ling. 'And we think consumption will fall off the cliff once we get the retrenchment numbers.'

...

'Broadly speaking, 2008 was a year to forget,' said Standard Chartered economist Alvin Liew. 'The data revision was minimal. It was already bad but it got a little bit worse,' he said.

Well well, I guess the PAP ministers can't possibly be patting their backs this time, like they always do each time Singapore announces its economic growth numbers. A marketwatch commenter has hit the nail squarely on the head:

"Wonder if their egos shrank at the same rate? They must have put the economy through the wringer and then the dryer. Should never wash cotton economies in hot water and then dry in dryer."

Ha ha ha. But now let's get serious.

What's the prospects for Singapore's economic recovery? How is our growth possibly going to be restored? Stanchart's Mr Liew, again:

Stanchart's Mr Liew noted that much of the fall-off in total demand was due to a 9.6 per cent drop in external demand in the fourth quarter. ...

'The recovery process - if we see any at all - needs to come from the external sector. If that doesn't recover, we are looking at a very protracted downturn,' he said.

Singapore's export oriented economy means that any recovery is going to be driven by a revival in exports, driven by our biggest export markets - US and Wester Europe. And what's happening to those economies right now? Hmm... let's see:

A raft of data due out is expected to show the recession-hit economy is worsening. Among the reports, non-farm payrolls for February will shed light on the labor market, with analysts expecting unemployment to reach 7.9 percent.

Following Friday's fall in U.S. stocks, with the S&P 500 closing at a 12-year low, analysts are watching to see if indexes can hold and recover from these lows, suggesting a bottom has been formed, or whether stocks have further depths to plumb.

"We continue to get hit on a daily basis by very bad economic news and the markets are trying to put in a stand here at the November 2008 lows," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

- Banks and economy to keep bears' grip on stocks, Reuters

Mr Buffett isn't the most optimistic person about the economy either:-

In his eagerly anticipated annual letter to Berkshire shareholders, Buffett also offered a gloomy economic outlook, saying "the economy will be in shambles throughout 2009 -- and for that matter, probably well beyond."

And how about Europe?

European Union economic confidence plunges to new low
MARK SMITH, Deputy Business Editor, February 27 2009

Business and consumer confidence across the 27-nation European Union plunged to new low in February, an influential survey has revealed in the latest sign that the recession is continuing to deepen in the UK's largest export market.

The declining global economy seriously hampers the ability of any nation to trade its way out of recession - and the apparent advantages of weak sterling remain of little consequence to exporters in a world where demand has fallen off a cliff.

News of the latest survey, conducted by the European Commission, also came as the unemployment rate in Germany, Europe's largest economy, edged up to 8.5% in February following a much sharper rise the previous month.

Sorry to break all the bad news, but i guess the state of the economy is what it is right now. No use papering over the cracks.

I guess it's not a surprise then that "PM Lee ... did not rule out the possibility that the Singapore economy could shrink by as much as 8 per cent this year." (ST)

What?? 8% contraction?? The world's highest paid head-of-state and you're talking about an 8% contraction?

Surely, you have got to be kidding me.

How did our SWFs manage to invest in the 3 worst performing CDO issuing banks???

Recent research as reported by the Financial Times reveals that half of CDOs (collateralised debt obligations) of ABS (asset backed securities) have failed. Guess which were the three banks which were the most involved in this business?

Here's a clue: GIC and Temasek invested in all 3 of them =)

Half of all CDOs of ABS failed
By Paul J Davies

Published: February 10 2009 19:38 | Last updated: February 10 2009 19:38

Almost half of all the complex credit products ever built out of slices of other securitised bonds have now defaulted, according to analysts, and the proportion rises to more than two-thirds among deals created at the peak of the cycle.

The defaults have affected more than $300bn worth of these collateralised debt obligations, which were built from bits of other asset backed securities (ABS) such as mortgage bonds, other CDOs and structured bonds, or derivatives of any of these, according to analysts at Wachovia and Morgan Stanley.

So-called CDOs of ABS caused huge losses to banks such as Merrill Lynch, UBS and Citigroup, which held large amounts of the supposedly safest, top-rated chunks of them. They have since been damned by bodies such as the Bank for International Settlements as being too complex to risk manage effectively.

CDOs of ABS were used increasingly at the peak of the credit bubble to keep the securitisation machine moving by recycling hard to sell bits of subprime mortgage bonds and other risky tranches into new structures with top-notch credit ratings.

However, the ratings of these deals proved unsustainable, as evidenced by the fact they have accounted for 92.9 per cent of all 16,587 ratings downgrades globally from all rating agencies since the beginning of last year, according to Morgan Stanley.

And, here's more analysis of the same, also from the Financial Times:

But now, at long last, one shard of reality has just emerged to piece this gloom. In recent weeks, bankers at places such as JPMorgan Chase and Wachovia have been quietly sifting data trying to ascertain what has happened to those swathes of troubled CDO of ABS.

The conclusions are stunning. From late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds (known as mezzanine CDO of ABS) and much of the rest from safer tranches (high grade CDO of ABS.)

Out of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi.

The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.

I still can't understand how our Government can characterise GIC's and Temasek's performance as "not disreputable".

UBS Tax Fraud Makes Lee Kuan Yew Look Like a Dufus Dumbo

In April 2008, this blogger took note of Lee Kuan Yew's comments in an interview with Bloomberg. The octogenarian Minister Mentor was defending GIC, the Singaporean sovereign weath fund of which he is Chairman, which had made investments in UBS and Citigroup just months before. I have previously dealt with Citigroup and the prospect of its equity investors being wiped out due to nationalisation. But for this post, the subject of my analysis is UBS.

The Minister Mentor went on the record complimenting the private banking franchise of UBS, citing this as the reason why GIC made a significant investment in the famous Swiss bank:

"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." -MM Lee, in a Bloomberg Interview, Apr 08

In an expression of his support for UBS, the Minister Mentor's GIC duly bet US$10 Billion of Singapore's hard-earned reserves that UBS would recover, with its revival driven by the world-renowned reputation of UBS' private banking business. Nevermind the huge investment banking losses that UBS had sustained - at least its private banking business was still intact and relatively untarnished.

Well, this week, that reputation for integrity has all but evaporated. UBS has admitted to defrauding the US government by helping some of its US clients conceal their assets. It is also paying US$780 million in fines and compensation to the US govt as a result.

UBS to Pay $780 Million Over U.S. Tax Charges
Swiss Bank to Name Some U.S. Clients

By David S. Hilzenrath and Zachary A. Goldfarb
Washington Post Staff Writers
Thursday, February 19, 2009; D01

UBS, Switzerland's largest bank, agreed yesterday to pay $780 million to settle civil and criminal charges by the U.S. government that it helped thousands of American clients use Swiss accounts to evade U.S. taxes.

UBS also agreed to turn over the names of some of those clients.

The settlement ended a legal battle that pitted Switzerland's legendary tradition of bank secrecy against the U.S. government's determination to crack down on tax cheats.

But how the U.S. government resolved perhaps the central issue in its dispute with UBS was not disclosed, making it hard to assess how much the government gained in its battle against tax evasion.

The Justice Department charged that over several years UBS provided Swiss bank accounts to approximately 20,000 U.S. clients with assets of about $20 billion. About 17,000 of those clients concealed their identities and the existence of their UBS accounts from the IRS, the Justice Department alleged.

A key question in the investigation was whether the bank and the Swiss authorities would divulge information about all of the thousands of clients the U.S. government suspected of using UBS accounts to evade taxes or only those clients who met the much narrower Swiss legal conditions for parting the curtain of bank secrecy.

...

"UBS avoided compliance with U.S. securities laws for many years, at the same time they were engaged in other illegal conduct, which makes this one of the most egregious cases of its kind," Scott W. Friestad, deputy director of enforcement at the SEC, said in a statement.

...

"It is apparent that as an organization we made mistakes and that our control systems were inadequate," UBS chief executive Marcel Rohner said.

You might think $780 million is enough to settle the case. But the real damage has only just begun. The true fallout will be seen when UBS is finally forced to disclose the names of the US citizens who have secret bank accounts with UBS. This will truly shake the foundations of the private banking industry in Switzerland and set a new precedent for the private banking industry all over the world - including in Singapore. The prospective disclosure is now part of a civil lawsuit that US government is filing against UBS.

U.S. Sues UBS Seeking Swiss Account Customer Names
By David Voreacos and Carlyn Kolker

Feb. 19 (Bloomberg) -- The U.S. government sued UBS AG, Switzerland’s largest bank, to try to force disclosure of the identities of as many as 52,000 American customers who allegedly hid their secret Swiss accounts from U.S. tax authorities.

U.S. customers had 32,940 secret accounts containing cash and 20,877 accounts holding securities, according to the Justice Department lawsuit filed today in federal court in Miami. U.S. customers failed to report and pay U.S. taxes on income earned in those accounts, which held about $14.8 billion in assets during the middle of this decade, according to the court filing.

“At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes,” John A. DiCicco, acting assistant attorney general in the Justice Department’s tax division, said in a statement.

...

Roy Smith, a finance professor at New York University’s Stern School of Business and a former Goldman Sachs Group Inc. partner, said a UBS loss in the case would be “very bad news” for Swiss banks.

Swiss Secrecy

“If you get to the point where you’re able to get information on 52,000 accounts just because they exist, not because of evidence of a crime, you’ve gotten rid of Swiss banking secrecy forever,” Smith said. “If the European Union follows suit, it’ll virtually be the end of secret accounts in Switzerland.”

Swiss banks would still get business from Asia, Russia, eastern Europe and Africa, he noted.

The Justice Department accused UBS of conspiring to defraud the U.S. by helping 17,000 Americans hide accounts from the Internal Revenue Service. The U.S. will drop the charge in 18 months if the bank reforms its practices, helps prosecutors and makes payments.

In entering a deferred-prosecution agreement, UBS agreed to a statement of facts that said from 2000 to 2007, it actively helped “U.S. individual taxpayers in establishing accounts at UBS in a manner designed to conceal the U.S. taxpayers’ ownership or beneficial interest in said accounts.”

Evading Requirements

UBS bankers “facilitated the creation of such accounts in the names of offshore companies, allowing such U.S. taxpayers to evade reporting requirements,” according to the statement of facts. Prosecutors filed a complaint, unsealed yesterday, accusing UBS of conspiring to defraud the U.S. by helping Americans hide accounts from the IRS.

“UBS and its U.S. clients knew that it violated U.S. law for U.S. taxpayers to maintain undeclared accounts with UBS in Switzerland -- whether the accounts held cash or securities,” IRS agent Daniel Reeves said in a declaration filed with today’s lawsuit.

...

Private bankers went to great lengths to hide their clients’ identities and assure them of Swiss customs of secrecy, prosecutors said in the criminal complaint filed against UBS. In January 2003, after UBS signed an agreement to share tax information with the IRS, bank managers sent U.S. clients letters saying they had kept client identities secret since 1939.

Some bankers went so far as to develop written codes to hide their communications about U.S. clients’ assets, according to court documents filed in today’s lawsuit.

In June, U.S. prosecutors secured the guilty plea of a former UBS private banker, Bradley Birkenfeld, who is cooperating with investigators. Another Switzerland-based UBS banker, Raoul Weil, was indicted on a charge that he helped rich Americans evade taxes.

Private banks take pride in providing their clients with secrecy and privacy. Because many of their clients are exceptionally wealthy and do not wish for the composition or magnitude of their assets to be known to the public. But in this case, UBS clearly went too far. It abused the bank secrecy laws for its clients and helped to facilitate tax fraud - and the worst thing is that UBS has admitted doing so knowingly and for several years. Is this what Lee Kuan Yew and his son, Prime Minister Lee Hsien Loong, are trying to model Singapore after?

Singapore in recent years has made massive efforts to enter into the integrated resort (gambling) and private banking industries. Both are heavily interrelated in that they both attract money inflows from the rich and wealthy. But which rich and wealthy are we trying to attract?

Some of you might remember that in October 2006, a certain Andy Xie, who was then Asia Chief Economist of Morgan Stanley, was fired after making certain comments about Singapore's Economy. Amongst the derisive comments he made about Singapore's economy, the following were the most cutting:

"Actually, Singapore’s success came mainly from being the money laundering center for corrupt Indonesian businessmen and government officials. Indonesia has no money. So Singapore isn’t doing well. To sustain its economy, Singapore is building casinos to attract corrupt money from China." - Andy Xie, ex Morgan Stanley Asia Chief Economist

Is this what Singapore is turning into, a full fledged money laundering center? Is this the plan, with two massive integrated resorts flying high-rollers from the region in to gamble with their millions, and many more private banks to stash their cash away in secret accounts, while gambling even bigger sums in the global financial markets?

As a Singaporean, the latest unraveling of tax fraud charges against UBS, the largest private bank in the world, truly makes me shudder. Switzerland, at least, has other things to fall back upon when it faces a setback of such magnitude. But can Singapore's reputation and economy survive such a hit if something similar happens to us in the future? Our government has not had many ideas in recent years to drive Singapore's growth - and if our push into IRs and private banking fails, Singapore's economic growth could be set back several long years.

GIC's bet on UBS is a mistake that Singapore can ultimately recover from. But the PAP's bet on private banking and gambling may someday prove to be catastrophic for our nation.

"Substantial Long-term Returns" From Bank Investments? Fat Hope, GIC

Well well, things are getting exciting. All of us know that GIC is reported to have incurred losses of US$33 Billion. All of us know that the government keeps on saying that GIC & Temasek are long term investors. And guess what, the press reported that GIC expects long-term returns from its bank investments (and I think, that's what Temasek expects as well)

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.