Published September 19, 2008
M'sian banks untouched by sub-prime woes
By PAULINE NG
IN KUALA LUMPUR
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DECENT net margins on conventional banking business likely shielded Malaysian financial institutions from material exposure to the global sub-prime implosion. At least, that's what bankers and analysts say.
While now-disgraced US financial institutions were busily building up their over-exposure to toxic sub-prime-backed structured paper, Malaysian institutions were busy repairing balance sheets muddied after the Asian Financial Crisis of the late 1990s and concentrating on traditional lending rather than complex derivatives.
Of Malaysia's nine banking groups, only the two largest are likely to have the risk appetite for the complicated debt swaps. And if they had any sub-prime-related exposure, it would be small. 'The rest of us are unlikely to have these exotic risks,' said a banker at a smaller banks.
Malaysian banks can still derive net interest margins of 2.5 to 3 per cent - unlike in the US, where the ultra-competitive scene means banks have to eke out the slimmest of margins. This means Malaysian banks don't have to try all that hard to make money, says Standard & Poor's equity analyst Alex Chia.
'No Malaysian bank has reported any material exposure to the sub-prime mess and nothing has jumped out in past quarters,' he said. 'If there were any material exposure, it would have shown up by now. But generally, there was no motivation to take such risks.'
Earlier this year, Malaysia's biggest financial group Maybank revealed it had indirect sub-prime exposure of US$35 million - the only local bank to have reported any exposure.
Lack of direct exposure notwithstanding, the issue of exposure because of counterparty risks is less clear. Counterparty risk is the risk associated with the financial stability of a party entered into contract with.
In the US, credit default swap counterparty risk is a growing concern to many institutions, given the domino effect the unwinding of such debts has had on the markets.
Because of the opaqueness of such swaps it is difficult to quantify the risks. For example, a bank may transact with another bank without exposure to such swaps, but the second bank may have dealings with another bank with significant exposure.
'It's a very, very big circle you're talking about, and it's a million-dollar question I can't answer,' a banker said on whether Malaysian banks could be exposed in such a manner.
Few believe local banks have such exposure, but the sceptics point to Lehman Brothers' denial in July last year of sub-prime-related losses. By this week the 158-year-old firm was filing for bankruptcy.
Bank Negara Malaysia is monitoring the situation. Governor Zeti Akhtar Aziz this week said there is no need to inject any liquidity into the financial market as it is able to withstand any shocks that might arise from sub-prime losses.
Thursday, 18 September 2008
Published September 19, 2008
Abdullah may not seek re-election
Umno Supreme Council tells him he is not popular at the grassroots
By S JAYASANKARAN
IN KUALA LUMPUR
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THERE is a possibility that Prime Minister Abdullah Ahmad Badawi may not seek re-election at the December polls of the United Malays National Organisation - of which he is president - following a meeting yesterday of Umno's Supreme Council, according to party insiders.
Mr Abdullah: May not contest post for Umno president in December
Even as recently as Wednesday, Mr Abdullah had maintained that he would seek re-election. But the insiders said the meeting had been 'lively and frank' and that while no firm decision had been taken on the handover of power - Mr Abdullah has said he will hand over the job to his deputy Najib Razak by June 2010 - the message delivered to Mr Abdullah was that he was not popular at the grassroots.
Mr Abdullah has been under pressure following the National Front's disastrous showing in the March 8 general elections. Since then he has had to continually fight bushfires that included ferocious and relentless attacks from former prime minister Mahathir Mohamad and former finance minister Tengku Razaleigh Hamzah.
Mr Abdullah's popularity in the party further waned following Opposition leader Anwar Ibrahim's spectacular victory in the Permatang Pauh by-election. Mr Anwar won an increased majority which indicated that the Malays were still staying away from the party that claimed to champion their cause.
A mishandled crisis in his home state of Penang further demonstrated that Mr Abdullah had lost the support of his home base while last week's arrests of three people under the Internal Security Act lent further credence to the thesis that Mr Abdullah's administration was losing credibility.
According to party insiders, the issues came to the fore during yesterday's meeting with some Supreme Councillors speaking bluntly to the premier. One leader, apparently, even told Mr Abdullah that he would not get the nominations necessary to run for party president. Under party rules, a challenger for the presidency needs 58 nominations to run for the post.
More tellingly, International Trade Minister Muhyiddin Yassin, who said in Singapore two weeks ago that Mr Abdullah should step down sooner rather than later, wasn't criticised, indicating that his statement was supported by a majority of Supreme Council members.
The meeting came to a conclusion when Mr Najib stepped in to quell the debate, saying he would discuss the matter further with Mr Abdullah.
This was reinforced by Mr Abdullah who told the press he would meet Mr Najib later. 'Whatever decision I make, I will discuss with Najib and the Supreme Council will be informed.' Mr Abdullah told reporters.
Meanwhile, Mr Abdullah also rejected a challenge put forward by Mr Anwar. The opposition leader threw down the gauntlet yesterday, asking the prime minister to convene an emergency parliamentary sitting to deliberate a no-confidence motion against his leadership 'by no later than Tuesday, Sept 23'.
Mr Anwar said that because Mr Abdullah clearly did not believe he had more than 31 possible defectors, 'then go to Parliament'. Mr Anwar has consistently maintained that he had the numbers to topple the government. But the premier declined to take the bait, saying that Parliament was due to meet after Hari Raya anyway.
Separately, Mr Abdullah said that neither 'Mr Anwar nor anybody else' would be arrested under the ISA. There had been speculation that the government was planning to crack down on the opposition following Mr Anwar's threats to topple the government.
Abdullah may not seek re-election
Umno Supreme Council tells him he is not popular at the grassroots
By S JAYASANKARAN
IN KUALA LUMPUR
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THERE is a possibility that Prime Minister Abdullah Ahmad Badawi may not seek re-election at the December polls of the United Malays National Organisation - of which he is president - following a meeting yesterday of Umno's Supreme Council, according to party insiders.
Mr Abdullah: May not contest post for Umno president in December
Even as recently as Wednesday, Mr Abdullah had maintained that he would seek re-election. But the insiders said the meeting had been 'lively and frank' and that while no firm decision had been taken on the handover of power - Mr Abdullah has said he will hand over the job to his deputy Najib Razak by June 2010 - the message delivered to Mr Abdullah was that he was not popular at the grassroots.
Mr Abdullah has been under pressure following the National Front's disastrous showing in the March 8 general elections. Since then he has had to continually fight bushfires that included ferocious and relentless attacks from former prime minister Mahathir Mohamad and former finance minister Tengku Razaleigh Hamzah.
Mr Abdullah's popularity in the party further waned following Opposition leader Anwar Ibrahim's spectacular victory in the Permatang Pauh by-election. Mr Anwar won an increased majority which indicated that the Malays were still staying away from the party that claimed to champion their cause.
A mishandled crisis in his home state of Penang further demonstrated that Mr Abdullah had lost the support of his home base while last week's arrests of three people under the Internal Security Act lent further credence to the thesis that Mr Abdullah's administration was losing credibility.
According to party insiders, the issues came to the fore during yesterday's meeting with some Supreme Councillors speaking bluntly to the premier. One leader, apparently, even told Mr Abdullah that he would not get the nominations necessary to run for party president. Under party rules, a challenger for the presidency needs 58 nominations to run for the post.
More tellingly, International Trade Minister Muhyiddin Yassin, who said in Singapore two weeks ago that Mr Abdullah should step down sooner rather than later, wasn't criticised, indicating that his statement was supported by a majority of Supreme Council members.
The meeting came to a conclusion when Mr Najib stepped in to quell the debate, saying he would discuss the matter further with Mr Abdullah.
This was reinforced by Mr Abdullah who told the press he would meet Mr Najib later. 'Whatever decision I make, I will discuss with Najib and the Supreme Council will be informed.' Mr Abdullah told reporters.
Meanwhile, Mr Abdullah also rejected a challenge put forward by Mr Anwar. The opposition leader threw down the gauntlet yesterday, asking the prime minister to convene an emergency parliamentary sitting to deliberate a no-confidence motion against his leadership 'by no later than Tuesday, Sept 23'.
Mr Anwar said that because Mr Abdullah clearly did not believe he had more than 31 possible defectors, 'then go to Parliament'. Mr Anwar has consistently maintained that he had the numbers to topple the government. But the premier declined to take the bait, saying that Parliament was due to meet after Hari Raya anyway.
Separately, Mr Abdullah said that neither 'Mr Anwar nor anybody else' would be arrested under the ISA. There had been speculation that the government was planning to crack down on the opposition following Mr Anwar's threats to topple the government.
Published September 19, 2008
Slide in property investment deals continues in Q3
Global financial instability, stock market volatility hit sentiment: CBRE
By EMILYN YAP
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PROPERTY investment sales continue to soften in Q3 2008 and global financial instability could keep investors out of the market, said a CB Richard Ellis (CBRE) report.
According to latest figures from CBRE Research, property investment transactions in Q3 (up to Sept 18) reached $3.17 billion. This is a 35 per cent drop from $4.86 billion in Q2 and a 65 per cent slide from $9.09 billion in Q1 this year. On a quarterly basis, property investment sales last peaked in Q3 2007 at $16.51 billion.
'The lingering worldwide impact of the US-spawned credit crisis has compounded financial instability in most global economies, compelling many regional investors to adopt a cautionary attitude,' said CBRE's report.
Many are holding back on major investment decisions as credit conditions tighten, and stock market volatility has also hit investor sentiments, it said.
Driving property investment sales in Q3 was the industrial sector, which accounted for 61 per cent or $1.92 billion of transaction value. However, most of the sector's contribution came from a single $1.71 billion deal, in which JTC Corporation divested its industrial property portfolio to Mapletree Industrial Trust.
The residential sector was the next largest contributor, registering 26 per cent or $807.79 million of property investment sales in Q3. There was only one successful collective-sale deal in the period, where an unnamed developer bought Ruby Apartments for $11 million.
'Developers' ability to acquire sites was dampened by rising construction costs, rising interest rates and tighter lending measures,' said the report. Investment activity in the retail and office sectors was also quiet in Q3, with transaction values of $215.04 million and $142.84 million respectively.
While the hospitality sector accounted for just $100 million of property investment sales, CBRE noted that the limited supply of hotel rooms today would attract greater investor interest in the medium term.
Property investment sales chalked up in the year to date stood at $17.12 billion, with 65 per cent coming from the residential and office sectors. While this is some distance from the $54.02 billion achieved for the whole of 2007, it has already exceeded the $14.66 billion in 2005.
'Looking ahead, investors are expected to stay on the sidelines in view of the cautious market conditions that are likely to prevail until the end of the year,' said the CBRE report. Nevertheless, it noted that demand for quality assets as a hedge against inflation may provide some support for investment activity the rest of the year.
Slide in property investment deals continues in Q3
Global financial instability, stock market volatility hit sentiment: CBRE
By EMILYN YAP
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PROPERTY investment sales continue to soften in Q3 2008 and global financial instability could keep investors out of the market, said a CB Richard Ellis (CBRE) report.
According to latest figures from CBRE Research, property investment transactions in Q3 (up to Sept 18) reached $3.17 billion. This is a 35 per cent drop from $4.86 billion in Q2 and a 65 per cent slide from $9.09 billion in Q1 this year. On a quarterly basis, property investment sales last peaked in Q3 2007 at $16.51 billion.
'The lingering worldwide impact of the US-spawned credit crisis has compounded financial instability in most global economies, compelling many regional investors to adopt a cautionary attitude,' said CBRE's report.
Many are holding back on major investment decisions as credit conditions tighten, and stock market volatility has also hit investor sentiments, it said.
Driving property investment sales in Q3 was the industrial sector, which accounted for 61 per cent or $1.92 billion of transaction value. However, most of the sector's contribution came from a single $1.71 billion deal, in which JTC Corporation divested its industrial property portfolio to Mapletree Industrial Trust.
The residential sector was the next largest contributor, registering 26 per cent or $807.79 million of property investment sales in Q3. There was only one successful collective-sale deal in the period, where an unnamed developer bought Ruby Apartments for $11 million.
'Developers' ability to acquire sites was dampened by rising construction costs, rising interest rates and tighter lending measures,' said the report. Investment activity in the retail and office sectors was also quiet in Q3, with transaction values of $215.04 million and $142.84 million respectively.
While the hospitality sector accounted for just $100 million of property investment sales, CBRE noted that the limited supply of hotel rooms today would attract greater investor interest in the medium term.
Property investment sales chalked up in the year to date stood at $17.12 billion, with 65 per cent coming from the residential and office sectors. While this is some distance from the $54.02 billion achieved for the whole of 2007, it has already exceeded the $14.66 billion in 2005.
'Looking ahead, investors are expected to stay on the sidelines in view of the cautious market conditions that are likely to prevail until the end of the year,' said the CBRE report. Nevertheless, it noted that demand for quality assets as a hedge against inflation may provide some support for investment activity the rest of the year.
Published September 19, 2008
US investors dumped Asian stocks before current crisis
In S'pore, they let go of net US$897m of shares in Q2
By CHUANG PECK MING
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AMERICAN investors were winding down their Asian stock holdings - including Singapore stocks - and going easy on picking up shares globally before the latest financial shocks at home hit their portfolios.
Fears of inflation fanned by surging oil prices, plus anxiety about a global economic slowdown, led US investors to dump a net US$5.7 billion of Asian equities in the April-June second quarter, up from US$3.5 billion in Q1, according to the latest US Treasury figures.
In Singapore, US investors let go of a net US$897 million of shares as average trading volume on the Singapore Exchange slumped to 1.5 billion units - 13 per cent down from Q1 and more than 50 per cent from less than a year earlier.
The Straits Times Index was off another 8.37 points at end-June, taking its first-half loss to 15 per cent.
US investors continued to head for the exit here after selling a net US$960 million in Q1, a sharp reversal from the previous quarter when they snapped up US$2.02 billion of stocks.
US net sales of Singapore shares in Q2 were the third-largest by US investors in the region, after Japan and South Korea.
US investors sold a net US$2.48 billion of shares in Japan, down from US$3.09 billion in Q1.
They disposed of a net US$1.03 billion of Korean stocks in Q2, after buying US$1.85 billion in the preceding quarter. Beyond China, Hong Kong and Taiwan, US investors were net sellers in all other Asian stock markets in Q2.
In China, they picked up a net US$124 million of shares, up from zero in Q1.
In Hong Kong, they bought a net US$94 million of equities, overturning their position in Q1 when they got rid of US$2.42 billion.
In Taiwan, they cut back purchases to a net US$11 million, from US$70 million in Q1.
That's also what they did with their overall global investments too - slowing the accumulation of stocks to a net US$16.78 billion in Q2, from US$23.71 billion in Q1.
The MSCI world equity index fell 11.7 per cent in H1 - its worst half-time run since a 13.8 per cent slide in H1 1982.
US purchases of European stocks - the single-biggest US shareholdings - were a net US$10.22 billion, down from a net US$13.46 billion in Q2, as the FTSE Eurofirst sank 21 per cent in six months to June - the worst first-half showing since the index was configured in 1986.
US investors dumped Asian stocks before current crisis
In S'pore, they let go of net US$897m of shares in Q2
By CHUANG PECK MING
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AMERICAN investors were winding down their Asian stock holdings - including Singapore stocks - and going easy on picking up shares globally before the latest financial shocks at home hit their portfolios.
Fears of inflation fanned by surging oil prices, plus anxiety about a global economic slowdown, led US investors to dump a net US$5.7 billion of Asian equities in the April-June second quarter, up from US$3.5 billion in Q1, according to the latest US Treasury figures.
In Singapore, US investors let go of a net US$897 million of shares as average trading volume on the Singapore Exchange slumped to 1.5 billion units - 13 per cent down from Q1 and more than 50 per cent from less than a year earlier.
The Straits Times Index was off another 8.37 points at end-June, taking its first-half loss to 15 per cent.
US investors continued to head for the exit here after selling a net US$960 million in Q1, a sharp reversal from the previous quarter when they snapped up US$2.02 billion of stocks.
US net sales of Singapore shares in Q2 were the third-largest by US investors in the region, after Japan and South Korea.
US investors sold a net US$2.48 billion of shares in Japan, down from US$3.09 billion in Q1.
They disposed of a net US$1.03 billion of Korean stocks in Q2, after buying US$1.85 billion in the preceding quarter. Beyond China, Hong Kong and Taiwan, US investors were net sellers in all other Asian stock markets in Q2.
In China, they picked up a net US$124 million of shares, up from zero in Q1.
In Hong Kong, they bought a net US$94 million of equities, overturning their position in Q1 when they got rid of US$2.42 billion.
In Taiwan, they cut back purchases to a net US$11 million, from US$70 million in Q1.
That's also what they did with their overall global investments too - slowing the accumulation of stocks to a net US$16.78 billion in Q2, from US$23.71 billion in Q1.
The MSCI world equity index fell 11.7 per cent in H1 - its worst half-time run since a 13.8 per cent slide in H1 1982.
US purchases of European stocks - the single-biggest US shareholdings - were a net US$10.22 billion, down from a net US$13.46 billion in Q2, as the FTSE Eurofirst sank 21 per cent in six months to June - the worst first-half showing since the index was configured in 1986.
Published September 19, 2008
14 S'pore firms in Forbes 'Best under US$1b' list
Companies include Ezra, Swiber, Straits Trading and Food Empire
By CHOW PENN NEE
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SINGAPORE saw 14 companies on the Forbes Asia's 'Best Under a Billion' list.
The China connection proved to be a common thread among some of the companies.
Into its fourth year, the annual list features the best 200 Asia-Pacific companies with less than US$1 billion in sales.
Companies which made the cut were sifted out of a possible 24,155 publicly- listed companies. Consistent growth in both sales and profits over three years were the key criteria.
According to Forbes, all the companies on the 2008 list increased sales and profits despite major indices in Hong Kong, Japan, Korea and Australia each falling by more than 20 per cent in the past year.
The 14 Singapore-listed companies on the list belong to various sectors including shipbuilding, water treatment, education, tin mining, property investment and manufacturing.
They include Ezra, a one-time stockmarket darling which provides ship chartering services for the offshore oil-and-gas industry; Swiber, also in shipbuilding and offshore engineering; and Straits Trading, subject of a takeover battle earlier this year.
The China connection proved to be a common thread among some of the companies. Midas - which produces aluminium alloy products used in high-speed trains and does business in China - also made the cut as did private education provider Raffles Education, which is expanding rapidly in China and building a university campus there.
Making its second appearance on the list was Food Empire, a manufacturer of instant beverages and frozen food.
Emerging markets such as Russia, Ukraine and Kazakhstan are where Food Empire - which has 1,200 employees in 18 offices and factories around Eurasia - has made its mark. Group revenue has more than doubled and net profit almost tripled to S$22 million over the last five years.
The Greater China region dominated the list with 88 companies. Forbes said some of the companies on the list were beneficiaries of the Beijing Olympics, such as Hong Kong's Focus Media, and sports companies such as mainland China's Li Ning and China Hongxing Sports.
Companies which provide food and transport for tourists to China and South-east Asia also benefited. Alibaba.com, a popular e-commerce venture in China, was also on the list.
The list also included 22 companies from India, 23 companies from Japan, 10 from Australia, 13 from South Korea, and 13 from Malaysia.
Taiwan had 25 companies, Thailand had seven and there were two each from New Zealand, Indonesia, Pakistan, Sri Lanka and the Philippines.
14 S'pore firms in Forbes 'Best under US$1b' list
Companies include Ezra, Swiber, Straits Trading and Food Empire
By CHOW PENN NEE
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SINGAPORE saw 14 companies on the Forbes Asia's 'Best Under a Billion' list.
The China connection proved to be a common thread among some of the companies.
Into its fourth year, the annual list features the best 200 Asia-Pacific companies with less than US$1 billion in sales.
Companies which made the cut were sifted out of a possible 24,155 publicly- listed companies. Consistent growth in both sales and profits over three years were the key criteria.
According to Forbes, all the companies on the 2008 list increased sales and profits despite major indices in Hong Kong, Japan, Korea and Australia each falling by more than 20 per cent in the past year.
The 14 Singapore-listed companies on the list belong to various sectors including shipbuilding, water treatment, education, tin mining, property investment and manufacturing.
They include Ezra, a one-time stockmarket darling which provides ship chartering services for the offshore oil-and-gas industry; Swiber, also in shipbuilding and offshore engineering; and Straits Trading, subject of a takeover battle earlier this year.
The China connection proved to be a common thread among some of the companies. Midas - which produces aluminium alloy products used in high-speed trains and does business in China - also made the cut as did private education provider Raffles Education, which is expanding rapidly in China and building a university campus there.
Making its second appearance on the list was Food Empire, a manufacturer of instant beverages and frozen food.
Emerging markets such as Russia, Ukraine and Kazakhstan are where Food Empire - which has 1,200 employees in 18 offices and factories around Eurasia - has made its mark. Group revenue has more than doubled and net profit almost tripled to S$22 million over the last five years.
The Greater China region dominated the list with 88 companies. Forbes said some of the companies on the list were beneficiaries of the Beijing Olympics, such as Hong Kong's Focus Media, and sports companies such as mainland China's Li Ning and China Hongxing Sports.
Companies which provide food and transport for tourists to China and South-east Asia also benefited. Alibaba.com, a popular e-commerce venture in China, was also on the list.
The list also included 22 companies from India, 23 companies from Japan, 10 from Australia, 13 from South Korea, and 13 from Malaysia.
Taiwan had 25 companies, Thailand had seven and there were two each from New Zealand, Indonesia, Pakistan, Sri Lanka and the Philippines.
Published September 19, 2008
Should Minibond Series 3 have taken the retail route?
By R SIVANITHY
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IF YOU want a front-row lesson in first-class financial obfuscation for structured products, then look no further than the way the recently collapsed Minibond Series 3 notes was packaged and marketed.
Lehman structured a synthetic derivative product to hedge its exposure to various instruments and linked it to the default likelihood of six major banks.
Up to $200 million of these notes were sold to a gullible retail public who probably thought they were buying a five-year bond issued by six leading banks that paid a 5 per cent coupon per year but were in reality, not only exposed to the US housing market but also to a complex credit default swap arrangement whose substantive party was the now-bankrupt Lehman Brothers.
The cover of the Pricing Document prominently stated that the issue was credit-linked to six financial institutions, namely Barclays Bank, Citigroup, Deutsche Bank, Goldman Sachs, UBS and UOB - these banks being defined as Reference Entities or REs.
Much was made of the fact that the viability of the notes depended on whether these six banks or REs would go bankrupt and there are repeated warnings to this effect throughout the document. Investors were given plenty of information on the credit ratings of these six REs and links to their websites while Lehman is listed only as the Arranger in small print.
The fine print at the bottom of the cover, however, states that Lehman is also Swap Counterparty, besides being the arranger. Not many retail investors would have seen this, and if they had, few would probably have understood the importance of this information. More on this later.
Investors, however, were urged to read the Base Prospectus in conjunction with the Pricing Statement. In the former's page 24, it is stated that 'the Notes are intended to provide investors with a coupon for assuming exposure to the credit risks of companies or of sovereign states, that is, the Reference Entities'.
'By acquiring the Notes, investors can gain exposure to the credit risks of the REs without directly holding debt obligations of the REs, for example, bonds issued by the REs.'
Note that the language used creates the impression that gaining exposure to the credit risks of the six REs is something desirable - and, by extension, this suggests that the notes are good investments - when in reality, the key to the whole issue is in the words 'without directly holding debt obligations' of the REs.
In other words, the six REs are not participants in the notes, receive no money from the issue and are not issuers of the notes. Instead, the next sentence reveals all: 'This (exposure) is achieved by linking payment of the principal and/or interest on the Notes to an RE's default.'
Who provides this link? In all the documents, this is given as Minibond Ltd but this is a special purpose vehicle with only US$1,000 in capital. The substantive party behind Minibond Ltd is most likely Lehman Brothers. Here's how it works.
Lehman most probably owned securities in the six REs. In order to hedge itself against a default by any of these REs, it set up Minibond to offer notes to the public. Minibond offered these notes with attractive terms and because of clever marketing and pricing, collects a certain amount of cash from retail investors.
This money is then used to buy securities - in the case of Series 3, it was collateralised debt obligations (CDOs), most probably on US mortgage instruments. Minibond then collects the cash flows from these CDOs. In order to pay investors the quarterly coupon and to ensure no problems with currency/interest rate fluctuations, it swaps these cash flows with a counterparty, which is Lehman. It is stated elsewhere that if the swap deals fail in addition to an RE default, the whole issue will be terminated. Thus, since Lehman has failed, so has the issue.
The crux of the entire deal appears on page 17 under Credit Default Swap where it is stated that Minibond has an agreement with Lehman in which Lehman pays Minibond a premium for insuring Lehman against credit losses on the REs.
In effect, the money that Singapore retail investors exchanged for the notes were not for any bonds issued by the six names that appeared on the cover of the prospectus but instead, went towards insuring Lehman against losses in its portfolio.
The quarterly coupon investors received was not interest from the six REs but instead, Lehman paying an insurance premium, partly financed by cash obtained from CDOs.
In short, Lehman structured a synthetic derivative product to hedge its own exposure to various instruments and linked it to the default likelihood of six major banks.
Should the true nature of the instrument have been disclosed upfront? Yes, especially since it was marketed to retail investors - though it has to be said that many other notes and products have been sold in a similar manner and the only reason that the poor disclosure of this particular series of notes surfaced is that Lehman went bust. Had it not, or had it been rescued, the coupon payments would have continued as per normal and no one would have been the wiser.
Moreover, while it is possible to piece together the actual substance of these notes from the documents available, it is a tedious process and arguably not within the ability of the average retail investor.
There are many issues also unresolved - for one thing, how many other similar products are out there? How could the authorities allow the conflicts of interest inherent in one party from being the arranger, issuer and swap counterparty?
How is it that, if Lehman alone performed all these functions, there was virtually no disclosure of Lehman's financial position or credit rating? Instead, investors' attention was focused on the six REs - wrongly, as it turned out.
Finally, if disclosure was weak, then so was knowledge among distributors. Some brokers did not understand the true nature of the instrument and sold it as a bond. Maybe the name had something to do with it, though as investors have now found out painfully, what they had bought was not a bond but a convoluted swap-based instrument.
Thus, should such products be allowed to continue to come into the retail market?
Should Minibond Series 3 have taken the retail route?
By R SIVANITHY
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IF YOU want a front-row lesson in first-class financial obfuscation for structured products, then look no further than the way the recently collapsed Minibond Series 3 notes was packaged and marketed.
Lehman structured a synthetic derivative product to hedge its exposure to various instruments and linked it to the default likelihood of six major banks.
Up to $200 million of these notes were sold to a gullible retail public who probably thought they were buying a five-year bond issued by six leading banks that paid a 5 per cent coupon per year but were in reality, not only exposed to the US housing market but also to a complex credit default swap arrangement whose substantive party was the now-bankrupt Lehman Brothers.
The cover of the Pricing Document prominently stated that the issue was credit-linked to six financial institutions, namely Barclays Bank, Citigroup, Deutsche Bank, Goldman Sachs, UBS and UOB - these banks being defined as Reference Entities or REs.
Much was made of the fact that the viability of the notes depended on whether these six banks or REs would go bankrupt and there are repeated warnings to this effect throughout the document. Investors were given plenty of information on the credit ratings of these six REs and links to their websites while Lehman is listed only as the Arranger in small print.
The fine print at the bottom of the cover, however, states that Lehman is also Swap Counterparty, besides being the arranger. Not many retail investors would have seen this, and if they had, few would probably have understood the importance of this information. More on this later.
Investors, however, were urged to read the Base Prospectus in conjunction with the Pricing Statement. In the former's page 24, it is stated that 'the Notes are intended to provide investors with a coupon for assuming exposure to the credit risks of companies or of sovereign states, that is, the Reference Entities'.
'By acquiring the Notes, investors can gain exposure to the credit risks of the REs without directly holding debt obligations of the REs, for example, bonds issued by the REs.'
Note that the language used creates the impression that gaining exposure to the credit risks of the six REs is something desirable - and, by extension, this suggests that the notes are good investments - when in reality, the key to the whole issue is in the words 'without directly holding debt obligations' of the REs.
In other words, the six REs are not participants in the notes, receive no money from the issue and are not issuers of the notes. Instead, the next sentence reveals all: 'This (exposure) is achieved by linking payment of the principal and/or interest on the Notes to an RE's default.'
Who provides this link? In all the documents, this is given as Minibond Ltd but this is a special purpose vehicle with only US$1,000 in capital. The substantive party behind Minibond Ltd is most likely Lehman Brothers. Here's how it works.
Lehman most probably owned securities in the six REs. In order to hedge itself against a default by any of these REs, it set up Minibond to offer notes to the public. Minibond offered these notes with attractive terms and because of clever marketing and pricing, collects a certain amount of cash from retail investors.
This money is then used to buy securities - in the case of Series 3, it was collateralised debt obligations (CDOs), most probably on US mortgage instruments. Minibond then collects the cash flows from these CDOs. In order to pay investors the quarterly coupon and to ensure no problems with currency/interest rate fluctuations, it swaps these cash flows with a counterparty, which is Lehman. It is stated elsewhere that if the swap deals fail in addition to an RE default, the whole issue will be terminated. Thus, since Lehman has failed, so has the issue.
The crux of the entire deal appears on page 17 under Credit Default Swap where it is stated that Minibond has an agreement with Lehman in which Lehman pays Minibond a premium for insuring Lehman against credit losses on the REs.
In effect, the money that Singapore retail investors exchanged for the notes were not for any bonds issued by the six names that appeared on the cover of the prospectus but instead, went towards insuring Lehman against losses in its portfolio.
The quarterly coupon investors received was not interest from the six REs but instead, Lehman paying an insurance premium, partly financed by cash obtained from CDOs.
In short, Lehman structured a synthetic derivative product to hedge its own exposure to various instruments and linked it to the default likelihood of six major banks.
Should the true nature of the instrument have been disclosed upfront? Yes, especially since it was marketed to retail investors - though it has to be said that many other notes and products have been sold in a similar manner and the only reason that the poor disclosure of this particular series of notes surfaced is that Lehman went bust. Had it not, or had it been rescued, the coupon payments would have continued as per normal and no one would have been the wiser.
Moreover, while it is possible to piece together the actual substance of these notes from the documents available, it is a tedious process and arguably not within the ability of the average retail investor.
There are many issues also unresolved - for one thing, how many other similar products are out there? How could the authorities allow the conflicts of interest inherent in one party from being the arranger, issuer and swap counterparty?
How is it that, if Lehman alone performed all these functions, there was virtually no disclosure of Lehman's financial position or credit rating? Instead, investors' attention was focused on the six REs - wrongly, as it turned out.
Finally, if disclosure was weak, then so was knowledge among distributors. Some brokers did not understand the true nature of the instrument and sold it as a bond. Maybe the name had something to do with it, though as investors have now found out painfully, what they had bought was not a bond but a convoluted swap-based instrument.
Thus, should such products be allowed to continue to come into the retail market?
Published September 19, 2008
Beijing acts to boost sagging stock market
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(BEIJING/SHANGHAI) China announced steps to bolster its sagging stock market, including scrapping its stamp tax on stock purchases and enlisting a government-controlled investment agency to buy shares of listed Chinese companies.
China's benchmark stock index slid for a third session in a row yesterday to a 22-month closing low, hit by turmoil in the global financial sector that weighed on banking shares. The Shanghai Composite Index has tumbled more than 20 per cent this month and is down nearly 70 per cent from its record peak last October.
China will end its 0.1 per cent stamp tax on purchases of equities, effective today, although the levy will still apply to sales of shares, state television reported. The tax had already been reduced from 0.3 per cent in April to try to prop up the market.
Separately, the official Xinhua news agency said Central Huijin, a government-controlled investment agency, would buy shares of Chinese listed companies to help stabilise the market. 'The government has sent a strong signal that it will support the stock market, in particular major banks,' said senior stock analyst Qian Qimin at Shenyin & Wanguo Securities in Shanghai.
Xinhua said Huijin, an arm of China Investment Corp, the country's sovereign wealth fund, would buy shares in three state-owned banks whose shares have fallen steeply - Industrial and Commercial Bank of China, Bank of China and China Construction Bank Corp. China Investment Corp was set up a year ago to manage US$200 billion of China's foreign currency reserves.
The Assets Supervision and Administration Commission, the agency that oversees Chinese state-owned enterprises also said yesterday that the enterprises should buy back their shares from the stock market in accordance with their growth needs. - Reuters
Beijing acts to boost sagging stock market
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(BEIJING/SHANGHAI) China announced steps to bolster its sagging stock market, including scrapping its stamp tax on stock purchases and enlisting a government-controlled investment agency to buy shares of listed Chinese companies.
China's benchmark stock index slid for a third session in a row yesterday to a 22-month closing low, hit by turmoil in the global financial sector that weighed on banking shares. The Shanghai Composite Index has tumbled more than 20 per cent this month and is down nearly 70 per cent from its record peak last October.
China will end its 0.1 per cent stamp tax on purchases of equities, effective today, although the levy will still apply to sales of shares, state television reported. The tax had already been reduced from 0.3 per cent in April to try to prop up the market.
Separately, the official Xinhua news agency said Central Huijin, a government-controlled investment agency, would buy shares of Chinese listed companies to help stabilise the market. 'The government has sent a strong signal that it will support the stock market, in particular major banks,' said senior stock analyst Qian Qimin at Shenyin & Wanguo Securities in Shanghai.
Xinhua said Huijin, an arm of China Investment Corp, the country's sovereign wealth fund, would buy shares in three state-owned banks whose shares have fallen steeply - Industrial and Commercial Bank of China, Bank of China and China Construction Bank Corp. China Investment Corp was set up a year ago to manage US$200 billion of China's foreign currency reserves.
The Assets Supervision and Administration Commission, the agency that oversees Chinese state-owned enterprises also said yesterday that the enterprises should buy back their shares from the stock market in accordance with their growth needs. - Reuters
Published September 19, 2008
Macquarie Group takes heat from market driven by fear
Investors seek relative safety of gold and commodities even as world central banks oil credit markets
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(SYDNEY/LONDON) In a sign that the domino effect of the US financial crisis is far from over, another investment bank may now be the victim of poor sentiment - this time in Australia.
Shares in Australia's biggest investment bank Macquarie Group plunged 23 per cent yesterday on fears that the global credit crunch could hurt its ability to refinance debt, dealers said.
Macquarie shares closed down A$7.88 at A$26.05, having lost some 38 per cent of their value this week. They are down 70 per cent from a 12-month high of A$88.73.
'While we believe the hedge fund 'short Macquarie' arguments do not bear closer scrutiny, the direction of Macquarie's price is telling us Macquarie is broken,' JPMorgan analyst Brian Johnson wrote in a note to clients.
'In this environment, with the hedge funds driving the agenda, it is hard to identify a catalyst to turn Macquarie's price direction around.'
The group, which manages assets such as airports and toll roads globally, has suffered from investor concerns over companies carrying large debts in the wake of the collapse of US investment giant Lehman Brothers.
Moody's Investors Service has affirmed the investment bank's A2 long-term issuer rating but cut the outlook to stable from positive.
And despite positive earnings results on Tuesday, US investment bank Morgan Stanley topped the list of major financial firms scrambling to find a buyer.
CNBC reported yesterday that Morgan Stanley was in advanced talks with US regional banking powerhouse Wachovia. Earlier, CNBC reported that HSBC Holdings and China's CITIC Group were also eyeing Wall Street's second-largest investment bank, although CITIC has denied these claims.
'The fear is who is next,' said John O'Brien, senior vice-president at MKM Partners in Cleveland. 'It almost feels like people scour the books and say who is the next likely target that we can put a short on. And that spreads continuous fear.'
The US Securities and Exchange Commission (SEC) has stepped in to curb short-selling, but share slumps stoked talk that Wall Street's two surviving investment banks may have to join up with a commercial bank to survive.
British bank Lloyds TSB took advantage of the market turmoil to achieve a long-held ambition by scooping up the country's biggest mortgage lender HBOS in a US$22 billion all-share deal to end a slump in HBOS shares prompted by fears about its funding.
Another financial giant, Washington Mutual (WaMu), beleaguered by mortgage losses, has put itself up for sale, sources familiar with the situation said. Potential suitors include Citigroup, JPMorgan, Wells Fargo and HSBC.
Meanwhile, the world's top central banks joined forces yesterday to throw a multi-billion-dollar lifeline to global markets in a dramatic effort to free up bank-to-bank lending, frozen by the upheavals on Wall Street.
In an unprecedented move, the US Federal Reserve made an extra US$180 billion available to major central banks to lend on to their local commercial banks in a bid to get dollars circulating in overnight and term money markets.
Central banks including the Fed, the Bank of England and the European Central Bank also lent out extra funds in their own currencies as markets reeled.
Analysts said the extra funds calmed markets, but this would likely prove only temporary and noted mixed demand from banks for the extra funds on offer in the auctions yesterday.
'There's a complete lack of faith in the markets,' said Jim O'Neill, chief economist at Goldman Sachs Group Inc in London. 'There's a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act.'
Even as equities continue to be battered, commodities are being propelled upwards as investors turn towards them as 'safer' bets. Oil prices surged above US$100 a barrel again yesterday, supported also by the unrest in oil-rich Nigeria.
'Oil is not viewed as safe a haven as gold, but investors consider it safer than equities,' said Victor Shum, an energy analyst with consultancy Gertz & Purvin in Singapore. -- AFP, Reuters, AP, Bloomberg
Macquarie Group takes heat from market driven by fear
Investors seek relative safety of gold and commodities even as world central banks oil credit markets
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(SYDNEY/LONDON) In a sign that the domino effect of the US financial crisis is far from over, another investment bank may now be the victim of poor sentiment - this time in Australia.
Shares in Australia's biggest investment bank Macquarie Group plunged 23 per cent yesterday on fears that the global credit crunch could hurt its ability to refinance debt, dealers said.
Macquarie shares closed down A$7.88 at A$26.05, having lost some 38 per cent of their value this week. They are down 70 per cent from a 12-month high of A$88.73.
'While we believe the hedge fund 'short Macquarie' arguments do not bear closer scrutiny, the direction of Macquarie's price is telling us Macquarie is broken,' JPMorgan analyst Brian Johnson wrote in a note to clients.
'In this environment, with the hedge funds driving the agenda, it is hard to identify a catalyst to turn Macquarie's price direction around.'
The group, which manages assets such as airports and toll roads globally, has suffered from investor concerns over companies carrying large debts in the wake of the collapse of US investment giant Lehman Brothers.
Moody's Investors Service has affirmed the investment bank's A2 long-term issuer rating but cut the outlook to stable from positive.
And despite positive earnings results on Tuesday, US investment bank Morgan Stanley topped the list of major financial firms scrambling to find a buyer.
CNBC reported yesterday that Morgan Stanley was in advanced talks with US regional banking powerhouse Wachovia. Earlier, CNBC reported that HSBC Holdings and China's CITIC Group were also eyeing Wall Street's second-largest investment bank, although CITIC has denied these claims.
'The fear is who is next,' said John O'Brien, senior vice-president at MKM Partners in Cleveland. 'It almost feels like people scour the books and say who is the next likely target that we can put a short on. And that spreads continuous fear.'
The US Securities and Exchange Commission (SEC) has stepped in to curb short-selling, but share slumps stoked talk that Wall Street's two surviving investment banks may have to join up with a commercial bank to survive.
British bank Lloyds TSB took advantage of the market turmoil to achieve a long-held ambition by scooping up the country's biggest mortgage lender HBOS in a US$22 billion all-share deal to end a slump in HBOS shares prompted by fears about its funding.
Another financial giant, Washington Mutual (WaMu), beleaguered by mortgage losses, has put itself up for sale, sources familiar with the situation said. Potential suitors include Citigroup, JPMorgan, Wells Fargo and HSBC.
Meanwhile, the world's top central banks joined forces yesterday to throw a multi-billion-dollar lifeline to global markets in a dramatic effort to free up bank-to-bank lending, frozen by the upheavals on Wall Street.
In an unprecedented move, the US Federal Reserve made an extra US$180 billion available to major central banks to lend on to their local commercial banks in a bid to get dollars circulating in overnight and term money markets.
Central banks including the Fed, the Bank of England and the European Central Bank also lent out extra funds in their own currencies as markets reeled.
Analysts said the extra funds calmed markets, but this would likely prove only temporary and noted mixed demand from banks for the extra funds on offer in the auctions yesterday.
'There's a complete lack of faith in the markets,' said Jim O'Neill, chief economist at Goldman Sachs Group Inc in London. 'There's a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act.'
Even as equities continue to be battered, commodities are being propelled upwards as investors turn towards them as 'safer' bets. Oil prices surged above US$100 a barrel again yesterday, supported also by the unrest in oil-rich Nigeria.
'Oil is not viewed as safe a haven as gold, but investors consider it safer than equities,' said Victor Shum, an energy analyst with consultancy Gertz & Purvin in Singapore. -- AFP, Reuters, AP, Bloomberg
Published September 19, 2008
AIG has direct stake in three listings here
Its largest stake is in Macquarie Prime Reit, followed by First Lease & Jiutian
By JAMIE LEE
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(SINGAPORE) Ailing insurer American International Group (AIG) has direct and significant stakes in Singapore listings Macquarie Prime real estate investment trust (Reit), First Ship Lease Trust and Jiutian Chemical Group, Bloomberg data showed.
About 10 other firms listed here are exposed to investment funds owned by the world's largest insurer, which was thrown a life-line on Wednesday in the form of a US$85 billion government loan.
AIG directly owns 10.9 per cent of Macquarie Prime Reit, which works out to $75.3 million based on yesterday's closing price of 72 cents. It also holds 0.9 per cent stake of the Reit through two AIG-managed international funds, known as the Singapore bond and Acorns of Asia balanced funds.
First Ship Lease Trust has about 8 per cent, or 40.4 million shares, held directly by AIG. This is worth $34.4 million based on the last closing price of 85 cents. AIG also holds an additional 1.6 per cent of First Ship through the same two international funds.
China-based Jiutian Chemical Group has nearly 4 per cent in the direct hands of AIG. The 64.6 million shares is equivalent to $4.84 million, according to yesterday's closing price of 7.5 cents. Two AIG-managed funds - AIG South-east Asia small companies fund and Southeast Asia small and mid-cap fund - owns another 0.3 per cent.
AIG has not declared changes in shareholding to the Singapore Exchange.
First Ship Lease Trust called AIG late afternoon on Wednesday regarding the company's shareholding and was told that AIG would be holding on to its stake for now, chief financial office Cheong Chee Tham told BT.
'We have received no indication from AIG on selling,' he said.
Macquarie Pacific Star spokesperson said: 'Macquarie Pacific Star, the manager of MP Reit, maintains regular communications with the Reit's substantial unitholders,' adding that AIG has held its stake in the Reit since its listing in September 2005.
'However, we are not in a position to speak on behalf of them. AIG, as a substantial unitholder, is required to inform the market of any change in their interest in MP Reit.'
AIG-managed funds are also invested in other stocks including S-chips Ferrochina, Fibrechem Technologies and Synear Food Holdings, property firms Ho Bee Investment and Hotel Properties, marine players STX Pan Ocean and Swiber Holdings, as well as Raffles Education Corporation and Raffles Medical Group. All stakes are below 0.5 per cent.
Fibrechem and Raffles Medical have not contacted AIG on their shareholdings, spokesmen said. Ferrochina and Raffles Education declined comment.
As the US Treasury rushes to save AIG, Wall Street has turned its attention to Morgan Stanley, after the Financial Times reported that the US investment bank was in preliminary merger talks with parties including Wachovia, the fourth largest US bank based on assets, and China Investment Corporation. This follows the declared bankruptcy of Lehman Brothers in the same week.
Morgan Stanley directly owns 12 per cent of United Industrial Corporation (UIC), a property unit of Singapore's second largest bank United Overseas Bank, Bloomberg data showed. It also holds another 1.36 per cent in UIC through its asset management and investment divisions.
Some 10 per cent of logistics firm CWT is also held by Morgan Stanley. It holds 9.79 per cent directly and 0.25 per cent through its asset management arm. 'Everything remains well and unchanged now,' CWT chief financial officer Lynda Goh told BT.
Lehman has no significant direct investment in stocks here, according to Bloomberg.
AIG has direct stake in three listings here
Its largest stake is in Macquarie Prime Reit, followed by First Lease & Jiutian
By JAMIE LEE
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(SINGAPORE) Ailing insurer American International Group (AIG) has direct and significant stakes in Singapore listings Macquarie Prime real estate investment trust (Reit), First Ship Lease Trust and Jiutian Chemical Group, Bloomberg data showed.
About 10 other firms listed here are exposed to investment funds owned by the world's largest insurer, which was thrown a life-line on Wednesday in the form of a US$85 billion government loan.
AIG directly owns 10.9 per cent of Macquarie Prime Reit, which works out to $75.3 million based on yesterday's closing price of 72 cents. It also holds 0.9 per cent stake of the Reit through two AIG-managed international funds, known as the Singapore bond and Acorns of Asia balanced funds.
First Ship Lease Trust has about 8 per cent, or 40.4 million shares, held directly by AIG. This is worth $34.4 million based on the last closing price of 85 cents. AIG also holds an additional 1.6 per cent of First Ship through the same two international funds.
China-based Jiutian Chemical Group has nearly 4 per cent in the direct hands of AIG. The 64.6 million shares is equivalent to $4.84 million, according to yesterday's closing price of 7.5 cents. Two AIG-managed funds - AIG South-east Asia small companies fund and Southeast Asia small and mid-cap fund - owns another 0.3 per cent.
AIG has not declared changes in shareholding to the Singapore Exchange.
First Ship Lease Trust called AIG late afternoon on Wednesday regarding the company's shareholding and was told that AIG would be holding on to its stake for now, chief financial office Cheong Chee Tham told BT.
'We have received no indication from AIG on selling,' he said.
Macquarie Pacific Star spokesperson said: 'Macquarie Pacific Star, the manager of MP Reit, maintains regular communications with the Reit's substantial unitholders,' adding that AIG has held its stake in the Reit since its listing in September 2005.
'However, we are not in a position to speak on behalf of them. AIG, as a substantial unitholder, is required to inform the market of any change in their interest in MP Reit.'
AIG-managed funds are also invested in other stocks including S-chips Ferrochina, Fibrechem Technologies and Synear Food Holdings, property firms Ho Bee Investment and Hotel Properties, marine players STX Pan Ocean and Swiber Holdings, as well as Raffles Education Corporation and Raffles Medical Group. All stakes are below 0.5 per cent.
Fibrechem and Raffles Medical have not contacted AIG on their shareholdings, spokesmen said. Ferrochina and Raffles Education declined comment.
As the US Treasury rushes to save AIG, Wall Street has turned its attention to Morgan Stanley, after the Financial Times reported that the US investment bank was in preliminary merger talks with parties including Wachovia, the fourth largest US bank based on assets, and China Investment Corporation. This follows the declared bankruptcy of Lehman Brothers in the same week.
Morgan Stanley directly owns 12 per cent of United Industrial Corporation (UIC), a property unit of Singapore's second largest bank United Overseas Bank, Bloomberg data showed. It also holds another 1.36 per cent in UIC through its asset management and investment divisions.
Some 10 per cent of logistics firm CWT is also held by Morgan Stanley. It holds 9.79 per cent directly and 0.25 per cent through its asset management arm. 'Everything remains well and unchanged now,' CWT chief financial officer Lynda Goh told BT.
Lehman has no significant direct investment in stocks here, according to Bloomberg.
Published September 19, 2008
GLOBAL FINANCIAL CRISIS
AIA loses its boss amid the storm
Mark O'Dell quits; rivals said to be eyeing AIG's assets worldwide
By GENEVIEVE CUA
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(SINGAPORE) Amid the drama surrounding its US parent, AIA Singapore yesterday announced the shock departure of its executive vice-president and general manager Mark O'Dell, who is understood to be joining another insurance firm.
Mr O'Dell: His decision to leave is not related to the recent developments at AIG but a personal decision that he has been planning for some time
AIA's US parent AIG Inc was extended a lifeline by the Federal Reserve, a loan of US$85 billion for a 24-month term. In return, the Fed will own 79.9 per cent of the ailing insurance giant. But it is clear that AIG must sell assets to repay the loan.
News articles yesterday speculated that European insurers are hoping to snap up AIG's assets in Europe and Asia. Hong Kong's AIA has denied a report of a management buyout. AIA Singapore was not specifically mentioned though it remains in the same boat as its siblings.
David Havens, credit analyst at UBS AG, told Bloomberg that AIG has 'the best Asian insurance franchise in life and general insurance of any Western company'. Companies named as possible buyers of AIG assets include Prudential, Munich Re and Allianz SE.
AIG has been hit by US$18 billion in losses arising from guarantees on mortgage derivatives. Ratings downgrades exacerbated its liquidity crunch, forcing it to raise another US$14.5 billion which it did not have.
On Mr O'Dell's departure, Mark Wilson, AIA president and regional president of AIG Life Companies (Asia-Pacific), said in a statement last night that Mr O'Dell has taken leave of absence with immediate effect.
'(Mr O'Dell's) decision to leave the company is in no way related to the recent developments at AIG. It is a personal decision that he has been planning for some time,' he said.
Kenneth Juneau, executive vice-president and senior regional life executive of AIA's regional office, will take over Mr O'Dell's portfolio in the interim 'until a statement is made on the new general manager for AIA Singapore'. Mr Juneau is an AIA veteran with more than 30 years' experience in the insurance industry.
Meanwhile, the company yesterday also said that it has rolled out a 'policy conservation programme' to enable those who had cancelled policies in the last couple of days to reinstate them at no cost or penalty.
Some 0.1 per cent of policies were cancelled in the last couple of days by policyholders worried about the possibility of insolvency. With over two million in-force policies, this works out to about 2,000 cancellations.
In the last couple of days since news broke of AIG's troubles, hundreds of policyholders had thronged AIA's office to cancel policies or to get more information.
The reinstatement programme will apply to whole life and endowment plans surrendered between Sept 15 and 19. While there will be no penalties, policyholders will need to submit evidence of insurability. Written requests for reinstatement must be received by AIA within 14 days of the date of surrender.
The policies will be reinstated in full, with no interest charged on the back premiums and cash values returned. Any dividends will be re-deposited into the policyholder's account and interest will continue to accrue from the date of reinstatement.
Mr Wilson said: 'We have received feedback that many of our customers are now more reassured of AIA Singapore's financial position and would like to continue to enjoy the insurance protection and accumulated savings that their policies offer.'
The Monetary Authority of Singapore (MAS) said: 'We are satisfied with the ability of the company to carry on business as usual and to meet new demands even when there are any changes in management.' It also said that it welcomes AIA's policy reinstatement programme and reiterated that the firm has sufficient assets to meet its liabilities to policyholders.
'Policyholders should not act hastily to terminate their insurance policies as they may suffer losses . . . and lose the insurance protection they may need,' said MAS executive director (insurance supervision) Low Kwok Mun.
The Life Insurance Association (LIA) also said that AIA policyholders 'have no cause for concern with regards to their policies'. It said that policyholders should refrain from hastily cashing in their policies 'based on unfounded fears regarding the financial health of its US based parent'.
It also warned against any poaching of AIA clients by other insurers, adding: 'The LIA takes very seriously any attempt by distributors to target AIA policyholders and advise them to surrender or replace their policies.'
Mr O'Dell was LIA president. The deputy president is Darren Thomson, Manulife chief executive.
GLOBAL FINANCIAL CRISIS
AIA loses its boss amid the storm
Mark O'Dell quits; rivals said to be eyeing AIG's assets worldwide
By GENEVIEVE CUA
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(SINGAPORE) Amid the drama surrounding its US parent, AIA Singapore yesterday announced the shock departure of its executive vice-president and general manager Mark O'Dell, who is understood to be joining another insurance firm.
Mr O'Dell: His decision to leave is not related to the recent developments at AIG but a personal decision that he has been planning for some time
AIA's US parent AIG Inc was extended a lifeline by the Federal Reserve, a loan of US$85 billion for a 24-month term. In return, the Fed will own 79.9 per cent of the ailing insurance giant. But it is clear that AIG must sell assets to repay the loan.
News articles yesterday speculated that European insurers are hoping to snap up AIG's assets in Europe and Asia. Hong Kong's AIA has denied a report of a management buyout. AIA Singapore was not specifically mentioned though it remains in the same boat as its siblings.
David Havens, credit analyst at UBS AG, told Bloomberg that AIG has 'the best Asian insurance franchise in life and general insurance of any Western company'. Companies named as possible buyers of AIG assets include Prudential, Munich Re and Allianz SE.
AIG has been hit by US$18 billion in losses arising from guarantees on mortgage derivatives. Ratings downgrades exacerbated its liquidity crunch, forcing it to raise another US$14.5 billion which it did not have.
On Mr O'Dell's departure, Mark Wilson, AIA president and regional president of AIG Life Companies (Asia-Pacific), said in a statement last night that Mr O'Dell has taken leave of absence with immediate effect.
'(Mr O'Dell's) decision to leave the company is in no way related to the recent developments at AIG. It is a personal decision that he has been planning for some time,' he said.
Kenneth Juneau, executive vice-president and senior regional life executive of AIA's regional office, will take over Mr O'Dell's portfolio in the interim 'until a statement is made on the new general manager for AIA Singapore'. Mr Juneau is an AIA veteran with more than 30 years' experience in the insurance industry.
Meanwhile, the company yesterday also said that it has rolled out a 'policy conservation programme' to enable those who had cancelled policies in the last couple of days to reinstate them at no cost or penalty.
Some 0.1 per cent of policies were cancelled in the last couple of days by policyholders worried about the possibility of insolvency. With over two million in-force policies, this works out to about 2,000 cancellations.
In the last couple of days since news broke of AIG's troubles, hundreds of policyholders had thronged AIA's office to cancel policies or to get more information.
The reinstatement programme will apply to whole life and endowment plans surrendered between Sept 15 and 19. While there will be no penalties, policyholders will need to submit evidence of insurability. Written requests for reinstatement must be received by AIA within 14 days of the date of surrender.
The policies will be reinstated in full, with no interest charged on the back premiums and cash values returned. Any dividends will be re-deposited into the policyholder's account and interest will continue to accrue from the date of reinstatement.
Mr Wilson said: 'We have received feedback that many of our customers are now more reassured of AIA Singapore's financial position and would like to continue to enjoy the insurance protection and accumulated savings that their policies offer.'
The Monetary Authority of Singapore (MAS) said: 'We are satisfied with the ability of the company to carry on business as usual and to meet new demands even when there are any changes in management.' It also said that it welcomes AIA's policy reinstatement programme and reiterated that the firm has sufficient assets to meet its liabilities to policyholders.
'Policyholders should not act hastily to terminate their insurance policies as they may suffer losses . . . and lose the insurance protection they may need,' said MAS executive director (insurance supervision) Low Kwok Mun.
The Life Insurance Association (LIA) also said that AIA policyholders 'have no cause for concern with regards to their policies'. It said that policyholders should refrain from hastily cashing in their policies 'based on unfounded fears regarding the financial health of its US based parent'.
It also warned against any poaching of AIA clients by other insurers, adding: 'The LIA takes very seriously any attempt by distributors to target AIA policyholders and advise them to surrender or replace their policies.'
Mr O'Dell was LIA president. The deputy president is Darren Thomson, Manulife chief executive.
September 19, 2008, 6.28 pm (Singapore time)
Latest update
China stocks soar 9.5% on official aid package
* All shares rise their daily limits
* Chinese stocks listed abroad rise more
* Hopes for more market-boosting steps
* Spectacular debuts in Shenzhen show speculators back
* Scepticism over long-term outlook
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SHANGHAI - Chinese stocks soared over 9 per cent on Friday in response to an unprecedented package of government measures to support the market, and as a rebound of equities overseas eased fears for the global financial system.
The Shanghai Composite Index, which sank to a new 22-month closing low on Thursday, ended 9.46 per cent higher at 2,075.091 points, its biggest daily gain since October 2001.
Every one of the more than 1,600 shares on the Shanghai and Shenzhen exchanges jumped by its daily limit in the early morning and then remained there throughout the day. Most stocks have 10 per cent limits, while some have 5 per cent.
'The rescue effort will continue to have an impact for weeks - after all, this is the first time in the 18-year history of the stock market that authorities are taking such a step,' said Zhang Qi, analyst at Haitong Securities.
The government announced after the market closed on Thursday that Central Huijin, an arm of the country's sovereign wealth fund, would help stabilise the stock market by buying shares in listed companies, including three top state-owned banks.
Authorities also scrapped the 0.1 per cent stamp tax on purchases of equities, and urged state-owned enterprises to buy back shares of their listed units from the market.
To rise further
Analysts said the index, which had plunged 69 per cent from last October's record peak, might climb a further 10 per cent or so in coming weeks, though slowing corporate profit growth and heavy supplies of fresh equity could still weigh on the market in the long term.
Rises on Friday in overseas-listed Chinese stocks, which are not subject to daily price limits, suggested further room for domestically listed shares to climb. Industrial & Commercial Bank of China's Shanghai A shares gained 10 per cent, but its Hong Kong H shares were up over 17 per cent.
As the initial impact of the support package wears off in coming days, bank shares are likely to outperform since the government said three top banks in particular would be a target of Huijin's buying, analysts said.
Turnover in Shanghai A shares was active on Friday morning but almost ground to a halt in the afternoon because so few investors were willing to sell.
Limited rescue efforts for the stock market have failed in the past; after the stock trading tax was cut in April, the index jumped 9.29 per cent on the following day, only to resume sliding within a couple of weeks.
But analysts think the latest package has a better chance of succeeding because stock valuations have fallen to levels where they are no longer expensive by historical standards.
The average price-earnings ratio of China's local-currency A shares was at a record low of 16 times historic earnings on Thursday, a level last hit in late 2005 when the market was ending a four-year slump.
The index had already begun rebounding during the day on Thursday from near technical support at 1,783 points, its high in 2004. It faces immediate resistance at 2,140, the top of its downtrend channel from late July.
Scepticism
'We think the authorities are determined to put a floor under the market and if the current measures are not enough they will follow up with others, including an economic stimulus package,' investment bank ING said in a report.
However, some analysts continue to doubt that the market has found a long-term floor. Morgan Stanley advised investors to sell into the rally.
'The rescue does draw a hard defence line, and the stock markets should stabilise, but more gradual corrections still are likely ahead,' it said in a report.
'In our view, both the A share and H share markets are having a more fundamental problem than just poor sentiment - an earnings recession coming - and we do not see this priced in yet.'
Two shares staged spectacular debuts in Shenzhen on Friday, suggesting the government's support package had encouraged speculators to return to the market.
Zhejiang Quartz Crystal Optoelectronic Technology jumped 232 per cent from its initial public offer price to 50.80 yuan, far above analysts' expectations of around 19 yuan. Sichuan Crun surged 254 per cent to 37.00 yuan, above expectations of 12 yuan.
Inner Mongolia Yili and Bright Dairy were suspended on Friday after plunging earlier this week because of China's scandal over chemically contaminated milk. -- REUTERS
Latest update
China stocks soar 9.5% on official aid package
* All shares rise their daily limits
* Chinese stocks listed abroad rise more
* Hopes for more market-boosting steps
* Spectacular debuts in Shenzhen show speculators back
* Scepticism over long-term outlook
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SHANGHAI - Chinese stocks soared over 9 per cent on Friday in response to an unprecedented package of government measures to support the market, and as a rebound of equities overseas eased fears for the global financial system.
The Shanghai Composite Index, which sank to a new 22-month closing low on Thursday, ended 9.46 per cent higher at 2,075.091 points, its biggest daily gain since October 2001.
Every one of the more than 1,600 shares on the Shanghai and Shenzhen exchanges jumped by its daily limit in the early morning and then remained there throughout the day. Most stocks have 10 per cent limits, while some have 5 per cent.
'The rescue effort will continue to have an impact for weeks - after all, this is the first time in the 18-year history of the stock market that authorities are taking such a step,' said Zhang Qi, analyst at Haitong Securities.
The government announced after the market closed on Thursday that Central Huijin, an arm of the country's sovereign wealth fund, would help stabilise the stock market by buying shares in listed companies, including three top state-owned banks.
Authorities also scrapped the 0.1 per cent stamp tax on purchases of equities, and urged state-owned enterprises to buy back shares of their listed units from the market.
To rise further
Analysts said the index, which had plunged 69 per cent from last October's record peak, might climb a further 10 per cent or so in coming weeks, though slowing corporate profit growth and heavy supplies of fresh equity could still weigh on the market in the long term.
Rises on Friday in overseas-listed Chinese stocks, which are not subject to daily price limits, suggested further room for domestically listed shares to climb. Industrial & Commercial Bank of China's Shanghai A shares gained 10 per cent, but its Hong Kong H shares were up over 17 per cent.
As the initial impact of the support package wears off in coming days, bank shares are likely to outperform since the government said three top banks in particular would be a target of Huijin's buying, analysts said.
Turnover in Shanghai A shares was active on Friday morning but almost ground to a halt in the afternoon because so few investors were willing to sell.
Limited rescue efforts for the stock market have failed in the past; after the stock trading tax was cut in April, the index jumped 9.29 per cent on the following day, only to resume sliding within a couple of weeks.
But analysts think the latest package has a better chance of succeeding because stock valuations have fallen to levels where they are no longer expensive by historical standards.
The average price-earnings ratio of China's local-currency A shares was at a record low of 16 times historic earnings on Thursday, a level last hit in late 2005 when the market was ending a four-year slump.
The index had already begun rebounding during the day on Thursday from near technical support at 1,783 points, its high in 2004. It faces immediate resistance at 2,140, the top of its downtrend channel from late July.
Scepticism
'We think the authorities are determined to put a floor under the market and if the current measures are not enough they will follow up with others, including an economic stimulus package,' investment bank ING said in a report.
However, some analysts continue to doubt that the market has found a long-term floor. Morgan Stanley advised investors to sell into the rally.
'The rescue does draw a hard defence line, and the stock markets should stabilise, but more gradual corrections still are likely ahead,' it said in a report.
'In our view, both the A share and H share markets are having a more fundamental problem than just poor sentiment - an earnings recession coming - and we do not see this priced in yet.'
Two shares staged spectacular debuts in Shenzhen on Friday, suggesting the government's support package had encouraged speculators to return to the market.
Zhejiang Quartz Crystal Optoelectronic Technology jumped 232 per cent from its initial public offer price to 50.80 yuan, far above analysts' expectations of around 19 yuan. Sichuan Crun surged 254 per cent to 37.00 yuan, above expectations of 12 yuan.
Inner Mongolia Yili and Bright Dairy were suspended on Friday after plunging earlier this week because of China's scandal over chemically contaminated milk. -- REUTERS
September 19, 2008, 6.40 pm (Singapore time)
EU wants explanation of widening China milk scandal
* EU calls for full disclosure
* Starbucks recalls milk in China stores
* China agency finds 10% of samples contaminated
* Dairy company executives vow clean-up
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BEIJING - The European Union wants an explanation of a Chinese dairy scandal that has made thousands of infants ill, an official said on Friday, after the scare spread to milk in cartons and Starbucks dumped a supplier in China.
A government food quality watchdog said nearly 10 per cent of milk and drinking yoghurt samples from three major dairy companies were contaminated with potentially deadly melamine.
Panicked parents have crowded hospitals and demanded redress since officials and the Sanlu Group, China's biggest maker of infant milk powder, said last week that babies were sick with kidney stones and complications after drinking toxic milk powder.
At the latest count, 6,244 children have become ill. Four have died and 158 are suffering 'acute kidney failure'.
Robert Madelin, director-general for health and consumer protection at the European Commission, said the European Union did not import Chinese infant milk powder and there had been no EU reports of illness from other imported Chinese dairy products.
But with foreign consumers watching China again struggle with toxic food and claims of delays and cover-ups, Mr Madelin told reporters in Beijing he expected an account of what went wrong.
'We are trying to establish the facts. We are discussing all aspects of this crisis bilaterally with our colleagues in China,' Mr Madelin said.
'On the governance aspects, we are also asking questions, and we will learn the truth probably about the same time you do.'
After a nationwide check, China's General Administration of Quality Supervision, Inspection and Quarantine named two of China's top dairy producers, Xinhua news agency has reported.
Almost one-tenth of liquid milk and yoghurt batches from Mengniu Dairy and Inner Mongolia Yili Industrial Group Co Ltd contained melamine, which is banned in food.
Several samples of milk from the Bright dairy group also had the substance.
Used in making plastics, melamine is rich in nitrogen, an element often used to measure protein levels. By adding melamine to watered-down milk, dealers can fool quality checks.
Starbucks
Starbucks Corp said its 300-plus cafes in mainland China had pulled milk supplied by Mengniu. Starbucks said no employees or customers had fallen ill from the milk.
Yili, a Beijing Olympic Games sponsor, already faced a recall in Hong Kong, where authorities found eight of its 30 products, including ice-cream and yoghurt ice bars, contained melamine.
In Singapore, the government food watchdog advised retailers to pull Yili yoghurt ice bars from their shelves.
Mengniu and Yili apologised to shaken consumers and investors and vowed to recall and destroy problem products.
'Anyone who must step down will step down, anyone who must bear legal responsibility will bear legal responsibility,' Yao Tongshan, Mengniu executive director and chief financial officer, told reporters in Hong Kong, where the company is listed.
Quality officials stressed that most Chinese milk was safe, trying to shore up public trust already shaken by a litany of food scares involving eggs, pork and seafood in recent years.
The Chinese quality watchdog also said melamine-tainted milk would not make adults sick unless they drank more than two litres a day. But consumers sounded far from reassured.
'I'm pretty worried. In the future I will certainly trust the milk industry less,' said Zhang Xi, a 25-year-old engineer, sitting at a Starbucks outlet in Beijing.
China launched reforms to clean up food and product safety after a wave of scandals last year, including melamine found in pet food ingredients sent to the United States.
Now it is again vowing to punish errant businesses and officials and there have already been dismissals, detentions and arrests linked to Sanlu, 43 per cent owned by New Zealand dairy giant Fonterra.
But Chinese media have mostly kept quiet about claims that Sanlu and officials in Shijiazhuang, where the company is based, concealed the poisonings from the public and senior authorities during the Beijing Olympics in August.
New Zealand Prime Minister Helen Clark said on Monday that Chinese officials acted last week only after her government pressed Beijing.
China's dairy industry will need more than a blitz of inspections and detentions to cure it, said Guan Anping, a former trade official and now a lawyer who has dealt with the industry.
'Scattered milk farmers have been at the mercy of milk thugs, local strongmen who control prices and get away with putting all sorts of things in milk to maximise their profits,' Mr Guan said.
Police seized 222 kg of melamine and arrested 12 people on Thursday, bringing the total detained in the scandal to 18. -- REUTERS
EU wants explanation of widening China milk scandal
* EU calls for full disclosure
* Starbucks recalls milk in China stores
* China agency finds 10% of samples contaminated
* Dairy company executives vow clean-up
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BEIJING - The European Union wants an explanation of a Chinese dairy scandal that has made thousands of infants ill, an official said on Friday, after the scare spread to milk in cartons and Starbucks dumped a supplier in China.
A government food quality watchdog said nearly 10 per cent of milk and drinking yoghurt samples from three major dairy companies were contaminated with potentially deadly melamine.
Panicked parents have crowded hospitals and demanded redress since officials and the Sanlu Group, China's biggest maker of infant milk powder, said last week that babies were sick with kidney stones and complications after drinking toxic milk powder.
At the latest count, 6,244 children have become ill. Four have died and 158 are suffering 'acute kidney failure'.
Robert Madelin, director-general for health and consumer protection at the European Commission, said the European Union did not import Chinese infant milk powder and there had been no EU reports of illness from other imported Chinese dairy products.
But with foreign consumers watching China again struggle with toxic food and claims of delays and cover-ups, Mr Madelin told reporters in Beijing he expected an account of what went wrong.
'We are trying to establish the facts. We are discussing all aspects of this crisis bilaterally with our colleagues in China,' Mr Madelin said.
'On the governance aspects, we are also asking questions, and we will learn the truth probably about the same time you do.'
After a nationwide check, China's General Administration of Quality Supervision, Inspection and Quarantine named two of China's top dairy producers, Xinhua news agency has reported.
Almost one-tenth of liquid milk and yoghurt batches from Mengniu Dairy and Inner Mongolia Yili Industrial Group Co Ltd contained melamine, which is banned in food.
Several samples of milk from the Bright dairy group also had the substance.
Used in making plastics, melamine is rich in nitrogen, an element often used to measure protein levels. By adding melamine to watered-down milk, dealers can fool quality checks.
Starbucks
Starbucks Corp said its 300-plus cafes in mainland China had pulled milk supplied by Mengniu. Starbucks said no employees or customers had fallen ill from the milk.
Yili, a Beijing Olympic Games sponsor, already faced a recall in Hong Kong, where authorities found eight of its 30 products, including ice-cream and yoghurt ice bars, contained melamine.
In Singapore, the government food watchdog advised retailers to pull Yili yoghurt ice bars from their shelves.
Mengniu and Yili apologised to shaken consumers and investors and vowed to recall and destroy problem products.
'Anyone who must step down will step down, anyone who must bear legal responsibility will bear legal responsibility,' Yao Tongshan, Mengniu executive director and chief financial officer, told reporters in Hong Kong, where the company is listed.
Quality officials stressed that most Chinese milk was safe, trying to shore up public trust already shaken by a litany of food scares involving eggs, pork and seafood in recent years.
The Chinese quality watchdog also said melamine-tainted milk would not make adults sick unless they drank more than two litres a day. But consumers sounded far from reassured.
'I'm pretty worried. In the future I will certainly trust the milk industry less,' said Zhang Xi, a 25-year-old engineer, sitting at a Starbucks outlet in Beijing.
China launched reforms to clean up food and product safety after a wave of scandals last year, including melamine found in pet food ingredients sent to the United States.
Now it is again vowing to punish errant businesses and officials and there have already been dismissals, detentions and arrests linked to Sanlu, 43 per cent owned by New Zealand dairy giant Fonterra.
But Chinese media have mostly kept quiet about claims that Sanlu and officials in Shijiazhuang, where the company is based, concealed the poisonings from the public and senior authorities during the Beijing Olympics in August.
New Zealand Prime Minister Helen Clark said on Monday that Chinese officials acted last week only after her government pressed Beijing.
China's dairy industry will need more than a blitz of inspections and detentions to cure it, said Guan Anping, a former trade official and now a lawyer who has dealt with the industry.
'Scattered milk farmers have been at the mercy of milk thugs, local strongmen who control prices and get away with putting all sorts of things in milk to maximise their profits,' Mr Guan said.
Police seized 222 kg of melamine and arrested 12 people on Thursday, bringing the total detained in the scandal to 18. -- REUTERS
Published September 18, 2008
Strong demand cuts HDB's stock of unsold units
Bookings for new flats jump 49% to 12,580 in financial year ended March
By EMILYN YAP
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THE strong property market in the Housing and Development Board's (HDB) last financial year whittled down its stock of unsold flats. The board now holds about 1,500 completed units, compared with 3,500 last year.
Reflecting the boom, bookings for new flats rose 49 per cent year on year to 12,580 in the financial year ended March 31.
'There has been an increase in demand for new flats,' HDB chief executive Tay Kim Poh said at a press briefing on the board's annual report. 'We have been ramping up the building programme.'
The growing need for public housing prompted HDB to offer 8,400 new Build-To-Order (BTO) flats this year - 40 per cent higher than the 6,000 last year and more than three times the 2,400 in 2006.
Of this year's planned supply, about 5,000 new flats have already been launched, leaving more than 3,000 for the remaining months of 2008.
More flats from the BTO pipeline will be situated at Punggol and Sengkang. About 2,500 units are in Punggol, as part of HDB's plan to build up a critical mass to support a thriving town centre. The other new flats will be spread across various towns including Yishun, Woodlands and Bukit Panjang.
HDB has not decided on the supply of new BTO flats for 2009.
'We'll monitor demand,' said Mr Tay. 'When necessary, we'll make adjustments to our building programme to make sure our supply matches demand.'
ERA Asia-Pacific's assistant vice-president Eugene Lim said: 'So far, take-up for new BTO flats has been pretty good.'
Demand comes largely from first-time buyers, he said. But it can take up to three years for such flats to be ready, so some buyers turn instead to existing units in the resale market.
PropNex chief executive Mohamed Ismail expects demand for resale housing to remain strong, and reckons the Resale Price Index may grow another 5 per cent in H2 2008. The HDB market should suffer little or no effect from the US financial crisis, he said.
According to HDB's Mr Tay, resale flat demand has been driven by various market segments, including permanent residents and first-time and second-time home buyers. No details have been released on the profiles of resale flat buyers.
Beyond new and resale flats, demand for rental flats has also grown, prompting HDB to build another 2,000 units this year.
It plans to increase its stock of rental flats from 42,000 now to about 50,000 in the next few years and is reviewing eligibility rules to ensure these units go to people in genuine need.
HDB completed 6,247 flats last financial year, more than three times the number the year before. HDB also had 18,073 flats under construction, 27 per cent more than in the previous year.
Against a backdrop of rising construction costs, Mr Tay reaffirmed HDB's commitment to keep flats affordable. 'We are monitoring the situation closely,' he said.
According to HDB, a new four-room flat can cost about $300,000 to develop today, taking into account land, building and other costs. This is higher than the subsidised price of a four-room flat sold by HDB at $200,000 to $260,000.
HDB's greatest challenge is to continue to ensure that people in the mass consumer segment have affordable roofs over their heads, said PropNex's Mr Ismail. 'This may mean having to review certain policies, such as the income ceiling for HDB flat applicants, and perhaps even abolishing the resale levy.'
Strong demand cuts HDB's stock of unsold units
Bookings for new flats jump 49% to 12,580 in financial year ended March
By EMILYN YAP
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THE strong property market in the Housing and Development Board's (HDB) last financial year whittled down its stock of unsold flats. The board now holds about 1,500 completed units, compared with 3,500 last year.
Reflecting the boom, bookings for new flats rose 49 per cent year on year to 12,580 in the financial year ended March 31.
'There has been an increase in demand for new flats,' HDB chief executive Tay Kim Poh said at a press briefing on the board's annual report. 'We have been ramping up the building programme.'
The growing need for public housing prompted HDB to offer 8,400 new Build-To-Order (BTO) flats this year - 40 per cent higher than the 6,000 last year and more than three times the 2,400 in 2006.
Of this year's planned supply, about 5,000 new flats have already been launched, leaving more than 3,000 for the remaining months of 2008.
More flats from the BTO pipeline will be situated at Punggol and Sengkang. About 2,500 units are in Punggol, as part of HDB's plan to build up a critical mass to support a thriving town centre. The other new flats will be spread across various towns including Yishun, Woodlands and Bukit Panjang.
HDB has not decided on the supply of new BTO flats for 2009.
'We'll monitor demand,' said Mr Tay. 'When necessary, we'll make adjustments to our building programme to make sure our supply matches demand.'
ERA Asia-Pacific's assistant vice-president Eugene Lim said: 'So far, take-up for new BTO flats has been pretty good.'
Demand comes largely from first-time buyers, he said. But it can take up to three years for such flats to be ready, so some buyers turn instead to existing units in the resale market.
PropNex chief executive Mohamed Ismail expects demand for resale housing to remain strong, and reckons the Resale Price Index may grow another 5 per cent in H2 2008. The HDB market should suffer little or no effect from the US financial crisis, he said.
According to HDB's Mr Tay, resale flat demand has been driven by various market segments, including permanent residents and first-time and second-time home buyers. No details have been released on the profiles of resale flat buyers.
Beyond new and resale flats, demand for rental flats has also grown, prompting HDB to build another 2,000 units this year.
It plans to increase its stock of rental flats from 42,000 now to about 50,000 in the next few years and is reviewing eligibility rules to ensure these units go to people in genuine need.
HDB completed 6,247 flats last financial year, more than three times the number the year before. HDB also had 18,073 flats under construction, 27 per cent more than in the previous year.
Against a backdrop of rising construction costs, Mr Tay reaffirmed HDB's commitment to keep flats affordable. 'We are monitoring the situation closely,' he said.
According to HDB, a new four-room flat can cost about $300,000 to develop today, taking into account land, building and other costs. This is higher than the subsidised price of a four-room flat sold by HDB at $200,000 to $260,000.
HDB's greatest challenge is to continue to ensure that people in the mass consumer segment have affordable roofs over their heads, said PropNex's Mr Ismail. 'This may mean having to review certain policies, such as the income ceiling for HDB flat applicants, and perhaps even abolishing the resale levy.'
Published September 18, 2008
SembMarine unit wins US$229m Sinopec contract
Chinese firm's first rig to be built outside China set for delivery in 2011
By VINCENT WEE
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SEMBCORP Marine (SembMarine) unit PPL Shipyard has won a US$229 million contract from a subsidiary of China oil major Sinopec Corporation.
Standing tall: The Pacific Class 375 rig remains one of PPL's most popular designs with 27 orders so far
The contract, which came from Sinopec International (HK), is for the construction of a jackup rig, Sinopec Corporation's first to be built outside China and which could pave the way for more deals in the future from the group.
The Pacific Class 375 rig to be built is scheduled for delivery in the first quarter of 2011, and will be owned and operated by Sinopec Corporation unit Shanghai Offshore Petroleum Bureau. Sinopec Corporation, formally known as China Petroleum & Chemical Corporation, is one of China's leading oil exploration companies with oil and gas blocks and 364 exploration licences in 26 provinces in eastern, western and southern China as well as shares in projects from Russia to Saudi Arabia.
The high performance jackup rig will be built based on PPL Shipyard's proprietary Pacific Class 375 design and proprietary components. It will be equipped to drill high-pressure and high-temperature wells at 30,000 feet while operating in 375 feet of water and will have accommodation for 120 crew.
The Pacific Class 375 rig remains one of PPL's most popular designs. So far, 27 rigs have been ordered with 13 units delivered and 14 units currently under various stages of construction with deliveries till 2011. The most recent contract, which SembMarine announced earlier this month, was for two of these rigs for US$425 million.
'We are pleased that Sinopec International (HK) has chosen PPL Shipyard to place its first jack-up rig order. This is significant as it will be the first jackup drilling rig to be constructed outside China for China Petroleum and Chemical Corporation. We are delighted to be part of this milestone,' said PPL senior general manager Tan Kim Yung.
This contract is not expected to have any material impact on the net tangible assets and earnings per share of SembMarine for the year ending Dec 31, 2008. SembMarine stock closed four cents lower at $3.15 yesterday.
SembMarine unit wins US$229m Sinopec contract
Chinese firm's first rig to be built outside China set for delivery in 2011
By VINCENT WEE
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SEMBCORP Marine (SembMarine) unit PPL Shipyard has won a US$229 million contract from a subsidiary of China oil major Sinopec Corporation.
Standing tall: The Pacific Class 375 rig remains one of PPL's most popular designs with 27 orders so far
The contract, which came from Sinopec International (HK), is for the construction of a jackup rig, Sinopec Corporation's first to be built outside China and which could pave the way for more deals in the future from the group.
The Pacific Class 375 rig to be built is scheduled for delivery in the first quarter of 2011, and will be owned and operated by Sinopec Corporation unit Shanghai Offshore Petroleum Bureau. Sinopec Corporation, formally known as China Petroleum & Chemical Corporation, is one of China's leading oil exploration companies with oil and gas blocks and 364 exploration licences in 26 provinces in eastern, western and southern China as well as shares in projects from Russia to Saudi Arabia.
The high performance jackup rig will be built based on PPL Shipyard's proprietary Pacific Class 375 design and proprietary components. It will be equipped to drill high-pressure and high-temperature wells at 30,000 feet while operating in 375 feet of water and will have accommodation for 120 crew.
The Pacific Class 375 rig remains one of PPL's most popular designs. So far, 27 rigs have been ordered with 13 units delivered and 14 units currently under various stages of construction with deliveries till 2011. The most recent contract, which SembMarine announced earlier this month, was for two of these rigs for US$425 million.
'We are pleased that Sinopec International (HK) has chosen PPL Shipyard to place its first jack-up rig order. This is significant as it will be the first jackup drilling rig to be constructed outside China for China Petroleum and Chemical Corporation. We are delighted to be part of this milestone,' said PPL senior general manager Tan Kim Yung.
This contract is not expected to have any material impact on the net tangible assets and earnings per share of SembMarine for the year ending Dec 31, 2008. SembMarine stock closed four cents lower at $3.15 yesterday.
Published September 18, 2008
Time for SGX to consider disclosure of short sales
By LYNETTE KHOO
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IN a receding tide where everything goes under, the practice of short-selling has become more rampant. Abusive short-selling in the US is blamed in part for the demise of Lehman Brothers, and fears that it could hit other firms is prompting the US Securities and Exchange Commission (SEC) to extend and widen its temporary short-selling limits that expired last month.
This is not new. Short sales are already restricted in the Hong Kong and Australian stock exchanges under certain conditions. With the big boys having short-selling rules or looking to implement them for their larger markets, one wonders if SGX should follow suit.
An answer to this question is not easy. Given the lack of disclosure on short positions here, there is little indication of the overall short-selling activities here, except for anecdotes from individual brokerages. In a bull market, this may be less relevant. But in extreme bearish market conditions, this issue has taken on greater gravity.
Investors typically short-sell on borrowed scrip or do intraday shorting on 'naked' positions. Alternatively, investors can do a leveraged short over-the-counter using contracts for differences.
SGX currently has no restrictions on short-selling. Any move in this direction could possibly draw flak from free-market supporters - judging from market response to SGX's proposal in mid-2007 to discourage short-selling covered warrants. By the way, that proposal has since been left on the backburner.
But one could also argue that in exceptional times like these, there should be more protection for the regular investors from abusive short-selling in this opaque part of the market, where there is no disclosure on open short positions.
The weak performance of recent IPOs - many have tanked on their first trading days - is also prompting calls to ban naked shorts on them. The poor demand to subscribe to IPOs has also triggered market talk that some underwriters may resort to unorthodox methods to meet the minimum base of public shareholders.
Some say that SGX should draw lessons from HKEx, where short-selling restrictions cover stocks whose public float capitalisation is less than HK$1 billion, among other restrictions. Hong Kong's 'uptick' rule also limits the ability of short-sellers to build positions in a falling market by barring short sales below the best current ask price.
Probably, not everyone would agree with the potential curb by SEC on short-selling, and any unwinding by Asian bourses on their easing of short-selling rules during the good years.
When times are bad, it is easy to cry for protection against the downside. But one cannot know for sure if short-selling is exaggerating falls in Singapore shares unless some disclosure is made on short sales. And with the market biased on the downside, it is difficult for traders to profit on long positions. To restrict short-selling will do little to help stimulate liquidity.
In such market conditions, it is no surprise that there is little interest for IPOs now. One should remember that the demand for IPOs is also a function of reasonable pricing and the sectors they are in, as not all IPOs have been painted with the same brush.
There also appears to be no real evidence that IPOs on HKEx have held up better than those on SGX. A glance at the HKEx IPOs this year shows that about 50 per cent of them sank on the first trading day, similar to that on SGX, despite HKEx's restrictions on short-selling.
SGX is not without safeguards at this point. Naked short positions are usually covered intraday to avoid the risk of SGX buying in at a higher price. The Central Depository has to buy in against open positions by the end of the third trading day from the short-sale date at two bids higher than the last traded price.
Perhaps, before we call for further restrictions on short-selling, we need to first receive timely information on it. There are no rules governing disclosure of short sales currently, unlike in Hong Kong where the exchange collates data on borrowed scrip and releases a summary report twice a day. The Australian stock exchange also imposes obligations on brokers to report naked and covered short-selling to ASX for dissemination to the market.
Given the current market conditions, SGX should consider providing such clarity on short-selling positions here. This would give the market a better idea on whether short-selling is affecting Singapore shares the way it supposedly did on US financial stocks.
Time for SGX to consider disclosure of short sales
By LYNETTE KHOO
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IN a receding tide where everything goes under, the practice of short-selling has become more rampant. Abusive short-selling in the US is blamed in part for the demise of Lehman Brothers, and fears that it could hit other firms is prompting the US Securities and Exchange Commission (SEC) to extend and widen its temporary short-selling limits that expired last month.
This is not new. Short sales are already restricted in the Hong Kong and Australian stock exchanges under certain conditions. With the big boys having short-selling rules or looking to implement them for their larger markets, one wonders if SGX should follow suit.
An answer to this question is not easy. Given the lack of disclosure on short positions here, there is little indication of the overall short-selling activities here, except for anecdotes from individual brokerages. In a bull market, this may be less relevant. But in extreme bearish market conditions, this issue has taken on greater gravity.
Investors typically short-sell on borrowed scrip or do intraday shorting on 'naked' positions. Alternatively, investors can do a leveraged short over-the-counter using contracts for differences.
SGX currently has no restrictions on short-selling. Any move in this direction could possibly draw flak from free-market supporters - judging from market response to SGX's proposal in mid-2007 to discourage short-selling covered warrants. By the way, that proposal has since been left on the backburner.
But one could also argue that in exceptional times like these, there should be more protection for the regular investors from abusive short-selling in this opaque part of the market, where there is no disclosure on open short positions.
The weak performance of recent IPOs - many have tanked on their first trading days - is also prompting calls to ban naked shorts on them. The poor demand to subscribe to IPOs has also triggered market talk that some underwriters may resort to unorthodox methods to meet the minimum base of public shareholders.
Some say that SGX should draw lessons from HKEx, where short-selling restrictions cover stocks whose public float capitalisation is less than HK$1 billion, among other restrictions. Hong Kong's 'uptick' rule also limits the ability of short-sellers to build positions in a falling market by barring short sales below the best current ask price.
Probably, not everyone would agree with the potential curb by SEC on short-selling, and any unwinding by Asian bourses on their easing of short-selling rules during the good years.
When times are bad, it is easy to cry for protection against the downside. But one cannot know for sure if short-selling is exaggerating falls in Singapore shares unless some disclosure is made on short sales. And with the market biased on the downside, it is difficult for traders to profit on long positions. To restrict short-selling will do little to help stimulate liquidity.
In such market conditions, it is no surprise that there is little interest for IPOs now. One should remember that the demand for IPOs is also a function of reasonable pricing and the sectors they are in, as not all IPOs have been painted with the same brush.
There also appears to be no real evidence that IPOs on HKEx have held up better than those on SGX. A glance at the HKEx IPOs this year shows that about 50 per cent of them sank on the first trading day, similar to that on SGX, despite HKEx's restrictions on short-selling.
SGX is not without safeguards at this point. Naked short positions are usually covered intraday to avoid the risk of SGX buying in at a higher price. The Central Depository has to buy in against open positions by the end of the third trading day from the short-sale date at two bids higher than the last traded price.
Perhaps, before we call for further restrictions on short-selling, we need to first receive timely information on it. There are no rules governing disclosure of short sales currently, unlike in Hong Kong where the exchange collates data on borrowed scrip and releases a summary report twice a day. The Australian stock exchange also imposes obligations on brokers to report naked and covered short-selling to ASX for dissemination to the market.
Given the current market conditions, SGX should consider providing such clarity on short-selling positions here. This would give the market a better idea on whether short-selling is affecting Singapore shares the way it supposedly did on US financial stocks.
Published September 18, 2008
Maybank shares slide after it gets nod for BII purchase
By PAULINE NG
IN KUALA LUMPUR
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SHARES of Maybank fell 6.76 per cent yesterday, a day after its controversial purchase of Bank Internasional Indonesia (BII) was set back on track.
Bapepam's granting of some flexibility in the Maybank purchase of BII was reciprocated by Bank Negara's reinstatement of its earlier approval, paving the way for the Malaysian bank to complete the deal.
But the prospect of the RM8.6 billion (S$3.6 billion) transaction being completed at a time of great turmoil in global financial markets did not go down well with investors. Maybank dropped to a 10-week low of RM6.90 yesterday for a loss of 50 sen compared to the broader Kuala Lumpur Composite Index's 0.93 per cent loss.
Analysts said that having overpaid for the Indonesian bank, Maybank will now have to raise about half of the acquisition price in a tightening credit market.
Hwang-DBS Vickers said imputing a 6 per cent interest cost to its total capital raising exercises, the bank's FY09 earnings were expected to be dampened by 11 per cent. It rates the bank fully valued at RM7.
Earlier it appeared that Maybank would be let off the hook, unable to complete the BII deal because of new takeover rules at the end of June by the Indonesian financial market watchdog which had led the Malaysian central bank to revoke its approval for the transaction on the grounds that Maybank could suffer impairment charges amounting to RM3.4 billion.
But just a few days after it categorically said it would not entertain any exceptions to its new rules as it did not want to create a negative precedent, Bapepam made another U-turn.
Maybank told the exchange on Tuesday that Bapepam's letter of Sept 15 touched on the possibility of a conditional extension to the two-year timeframe for the 20 per cent re-float requirement under the new takeover rules. A conditional extension would be considered should a re-float exercise risk potential material losses to the new controlling party exceeding 10 per cent of its total investment in the acquired company.
Bapepam's irrational behaviour did not go unnoticed. 'Strangely, this decision came after it rejected Maybank's earlier appeal for a waiver to the sell-down requirement, stating that if they considered an exemption, it would create a negative precedent to the newly introduced regulation,' Hwang-DBS Vickers said in a client note.
In its Sept 9 letter, Bapepam also said an exemption would undermine the fundamental and objective of the new rules as well as its regulatory function.
Maybank on Tuesday said that since all conditions precedent to the share sale agreement signed in March after it won a bid for Sorak Financial Holdings had been met, it would engage with Fullerton and Kookmin Bank towards completing the deal. Fullerton owns 75 per cent of Sorak - the controlling shareholder of BII - and Kookmin Bank the balance.
Maybank shares slide after it gets nod for BII purchase
By PAULINE NG
IN KUALA LUMPUR
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SHARES of Maybank fell 6.76 per cent yesterday, a day after its controversial purchase of Bank Internasional Indonesia (BII) was set back on track.
Bapepam's granting of some flexibility in the Maybank purchase of BII was reciprocated by Bank Negara's reinstatement of its earlier approval, paving the way for the Malaysian bank to complete the deal.
But the prospect of the RM8.6 billion (S$3.6 billion) transaction being completed at a time of great turmoil in global financial markets did not go down well with investors. Maybank dropped to a 10-week low of RM6.90 yesterday for a loss of 50 sen compared to the broader Kuala Lumpur Composite Index's 0.93 per cent loss.
Analysts said that having overpaid for the Indonesian bank, Maybank will now have to raise about half of the acquisition price in a tightening credit market.
Hwang-DBS Vickers said imputing a 6 per cent interest cost to its total capital raising exercises, the bank's FY09 earnings were expected to be dampened by 11 per cent. It rates the bank fully valued at RM7.
Earlier it appeared that Maybank would be let off the hook, unable to complete the BII deal because of new takeover rules at the end of June by the Indonesian financial market watchdog which had led the Malaysian central bank to revoke its approval for the transaction on the grounds that Maybank could suffer impairment charges amounting to RM3.4 billion.
But just a few days after it categorically said it would not entertain any exceptions to its new rules as it did not want to create a negative precedent, Bapepam made another U-turn.
Maybank told the exchange on Tuesday that Bapepam's letter of Sept 15 touched on the possibility of a conditional extension to the two-year timeframe for the 20 per cent re-float requirement under the new takeover rules. A conditional extension would be considered should a re-float exercise risk potential material losses to the new controlling party exceeding 10 per cent of its total investment in the acquired company.
Bapepam's irrational behaviour did not go unnoticed. 'Strangely, this decision came after it rejected Maybank's earlier appeal for a waiver to the sell-down requirement, stating that if they considered an exemption, it would create a negative precedent to the newly introduced regulation,' Hwang-DBS Vickers said in a client note.
In its Sept 9 letter, Bapepam also said an exemption would undermine the fundamental and objective of the new rules as well as its regulatory function.
Maybank on Tuesday said that since all conditions precedent to the share sale agreement signed in March after it won a bid for Sorak Financial Holdings had been met, it would engage with Fullerton and Kookmin Bank towards completing the deal. Fullerton owns 75 per cent of Sorak - the controlling shareholder of BII - and Kookmin Bank the balance.
Published September 18, 2008
Abdullah takes defence portfolio, appoints Najib as finance minister
Sabah Progressive Party leaves National Front, citing dissatisfaction
By S JAYASANKARAN
IN KUALA LUMPUR
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PRIME Minister Abdullah Ahmad Badawi has moved to appease supporters of his deputy Najib Razak by appointing the latter as Finance Minister with immediate effect while taking over Mr Najib's defence portfolio.
Mr Abdullah: Indicated that he may relinquish his post before 2010 deadline
Mr Abdullah also gave a grim warning to his former Cabinet colleague Anwar Ibrahim at yesterday's press conference when he described Mr Anwar as a 'threat to the economy and, possibly, national security' of the country.
When asked what action he planned against Mr Anwar, Mr Abdullah's answer could not be described as reassuring. 'I will not indicate the plan,' he said, 'but what I do will be in the best interests of the people and country.'
In a new setback for Mr Abdullah, a small party yesterday announced that it was leaving the ruling coalition because of dissatisfaction with his leadership.
Mr Abdullah also indicated that he may relinquish his post before the earlier deadline. 'I will not be staying (longer) than 2010 naturally. If I should want to go earlier, that is (possible). That is a flexibility that we have arranged,' he told a news conference. In addition, Mr Abdullah reiterated that both men agreed to his plan to hand over power to Mr Najib by June 2010 although, for the first time, he conceded that he could leave earlier, 'depending on my deputy's performance'.
Tellingly, Mr Najib did not concede an inch when asked if the promotion - the finance portfolio is one of the most powerful positions in the country - would mean that he would decline if delegates from the ruling United Malays National Organisation (Umno) ignored the agreement and nominated him, instead of Mr Abdullah, for the party presidency in party polls scheduled for December.
'Both the Cabinet and the Umno Supreme Council have agreed to the decision, so I hope the party will follow it,' said a straight-faced Mr Najib in an answer that Mr Abdullah could not have liked.
In fairness, however, Mr Abdullah did say when he unveiled his handover plan three months ago that Mr Najib would be handed increasingly greater responsibilities ahead of his assuming the premiership. In addition, National Front component parties had complained that foreign investors needed a person who could articulate Malaysia's interests well.
Even so, political analysts interpreted the move as a pre-emptive strike by Mr Abdullah to preserve his position against what could be a potentially stormy Supreme Council meeting today.
Also yesterday, the Sabah Progressive Party, a small member of the 14-party National Front, quit the coalition.
The party has two members in Parliament, and its exit reduces the National Front's majority to just 56 at a time when Opposition leader Anwar Ibrahim is trying to seize power.
To say that the premier is under pressure would be an understatement. Last week, International Trade Minister Muhyiddin Yassin called on Mr Abdullah to step down earlier than planned. On Monday, Law Minister Zaid Ibrahim resigned in protest against the administration's arrest of three people, including a female journalist, under the Internal Security Act.
Looming over the intense internal bickering in Umno is the shadow of Opposition leader Anwar Ibrahim who, on Tuesday, said that he 'had the numbers' of possible defectors to his Opposition coalition and would proceed to topple the government through peaceful means.
The portents are potentially ominous for Mr Abdullah, 67, who could face an open revolt today if enough Supreme Council members believe former premier Mahathir Mohamad's repeated refrain - that Mr Abdullah had to go if the ruling National Front coalition had any chance in the next general election.
The intense political uncertainty is casting a pall over the markets with yields on Malaysian government securities rising and the Kuala Lumpur stock exchange falling briefly to a two-year low yesterday. By and large, however, analysts weren't impressed by Mr Najib's elevation.
Abdullah takes defence portfolio, appoints Najib as finance minister
Sabah Progressive Party leaves National Front, citing dissatisfaction
By S JAYASANKARAN
IN KUALA LUMPUR
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PRIME Minister Abdullah Ahmad Badawi has moved to appease supporters of his deputy Najib Razak by appointing the latter as Finance Minister with immediate effect while taking over Mr Najib's defence portfolio.
Mr Abdullah: Indicated that he may relinquish his post before 2010 deadline
Mr Abdullah also gave a grim warning to his former Cabinet colleague Anwar Ibrahim at yesterday's press conference when he described Mr Anwar as a 'threat to the economy and, possibly, national security' of the country.
When asked what action he planned against Mr Anwar, Mr Abdullah's answer could not be described as reassuring. 'I will not indicate the plan,' he said, 'but what I do will be in the best interests of the people and country.'
In a new setback for Mr Abdullah, a small party yesterday announced that it was leaving the ruling coalition because of dissatisfaction with his leadership.
Mr Abdullah also indicated that he may relinquish his post before the earlier deadline. 'I will not be staying (longer) than 2010 naturally. If I should want to go earlier, that is (possible). That is a flexibility that we have arranged,' he told a news conference. In addition, Mr Abdullah reiterated that both men agreed to his plan to hand over power to Mr Najib by June 2010 although, for the first time, he conceded that he could leave earlier, 'depending on my deputy's performance'.
Tellingly, Mr Najib did not concede an inch when asked if the promotion - the finance portfolio is one of the most powerful positions in the country - would mean that he would decline if delegates from the ruling United Malays National Organisation (Umno) ignored the agreement and nominated him, instead of Mr Abdullah, for the party presidency in party polls scheduled for December.
'Both the Cabinet and the Umno Supreme Council have agreed to the decision, so I hope the party will follow it,' said a straight-faced Mr Najib in an answer that Mr Abdullah could not have liked.
In fairness, however, Mr Abdullah did say when he unveiled his handover plan three months ago that Mr Najib would be handed increasingly greater responsibilities ahead of his assuming the premiership. In addition, National Front component parties had complained that foreign investors needed a person who could articulate Malaysia's interests well.
Even so, political analysts interpreted the move as a pre-emptive strike by Mr Abdullah to preserve his position against what could be a potentially stormy Supreme Council meeting today.
Also yesterday, the Sabah Progressive Party, a small member of the 14-party National Front, quit the coalition.
The party has two members in Parliament, and its exit reduces the National Front's majority to just 56 at a time when Opposition leader Anwar Ibrahim is trying to seize power.
To say that the premier is under pressure would be an understatement. Last week, International Trade Minister Muhyiddin Yassin called on Mr Abdullah to step down earlier than planned. On Monday, Law Minister Zaid Ibrahim resigned in protest against the administration's arrest of three people, including a female journalist, under the Internal Security Act.
Looming over the intense internal bickering in Umno is the shadow of Opposition leader Anwar Ibrahim who, on Tuesday, said that he 'had the numbers' of possible defectors to his Opposition coalition and would proceed to topple the government through peaceful means.
The portents are potentially ominous for Mr Abdullah, 67, who could face an open revolt today if enough Supreme Council members believe former premier Mahathir Mohamad's repeated refrain - that Mr Abdullah had to go if the ruling National Front coalition had any chance in the next general election.
The intense political uncertainty is casting a pall over the markets with yields on Malaysian government securities rising and the Kuala Lumpur stock exchange falling briefly to a two-year low yesterday. By and large, however, analysts weren't impressed by Mr Najib's elevation.
Published September 18, 2008
Some want to reinstate AIA policies
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(SINGAPORE) Scores of Singaporeans continued to throng the American International Assurance (AIA) office again yesterday, although this time, some were looking to reinstate their policies.
And according to speculation, jittery policy holders who had previously chosen to pull out on fears that AIA's parent company - insurance giant American International Group (AIG) - would fold may even get the opportunity to reinstate their insurance policies without being subject to a penalty.
The US Federal Reserve announced yesterday that it would throw AIG a lifeline in the form of a two-year US$85 billion emergency loan to keep it from going belly up. As part of the deal, the government will get a 79.9 per cent stake in AIG.
AIA Singapore had also said on Tuesday that it has 'more than sufficient capital and reserves above the regulatory minimum requirements to meet obligations to policyholders'.
AIA is the largest insurance company in Singapore.
Some want to reinstate AIA policies
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(SINGAPORE) Scores of Singaporeans continued to throng the American International Assurance (AIA) office again yesterday, although this time, some were looking to reinstate their policies.
And according to speculation, jittery policy holders who had previously chosen to pull out on fears that AIA's parent company - insurance giant American International Group (AIG) - would fold may even get the opportunity to reinstate their insurance policies without being subject to a penalty.
The US Federal Reserve announced yesterday that it would throw AIG a lifeline in the form of a two-year US$85 billion emergency loan to keep it from going belly up. As part of the deal, the government will get a 79.9 per cent stake in AIG.
AIA Singapore had also said on Tuesday that it has 'more than sufficient capital and reserves above the regulatory minimum requirements to meet obligations to policyholders'.
AIA is the largest insurance company in Singapore.
Published September 18, 2008
'All Weather' boost, Minibond dampener
Investors in Merrill notes to get refund, but Minibond saga likely to drag on
By SIOW LI SEN
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(SINGAPORE) First, the good news: investors who subscribed to the All Weather Booster Notes arranged by Merrill Lynch and wish to pull out now can do so - and get a refund.
On the other hand, those who invested in the Minibond notes arranged by now-bankrupt Lehman Brothers are in for a long wait to know what's in store as the unwinding process has yet to begin.
Both sets of investors had started to sweat after Lehman went bankrupt and Merrill Lynch was bought by Bank of America (BoA). Fortunately for those who invested in the All Weather Booster Notes, although the sale had closed, the notes had not been issued yet. They are due to be issued on Sept 20 and the money collected from investors is being held by the distributors till then.
'We understand that distributors have received advice from Merrill Lynch that investors who have subscribed to the Citrine All Weather Booster Notes will have the option of getting a refund if they do not want to go ahead with the purchase now that Bank of America has bought over Merrill Lynch,' said Koh Ching Ching, OCBC Bank spokeswoman.
OCBC is among nine distributors here who sold the Citrine Notes. The rest are ABN Amro Bank, AmFraser Securities, CIMB GK, Citibank, DBS Vickers, DMG & Partners, Standard Chartered Bank and UOB Kay Hian.
Meanwhile, HSBC Trustee, which looks after the Minibond investors, said it is engaging legal counsel to explore all options.
Investors who bought Minibond notes worth almost $500 million arranged by the bankrupt Lehman Brothers have been calling and visiting their brokers and bankers trying to get some answers.
A spokesman for HSBC Institutional Trust Services yesterday said: 'In our capacity as trustee, we are focused on safeguarding the interests of the investors and are engaging legal counsel to explore all options available.'
Allen & Gledhill are the legal advisers to the Minibond notes, which were sold over the last two years to mainly small investors as the minimum amount was $5,000.
Morose Minibond investors have been trying to get some answers from their brokers and bankers on what's going to happen to their investments.
But there are no answers although there is a long line of parties who will first be paid before Minibond noteholders get anything.
In the event of default, which requires the underlying assets to be sold, 'the net proceeds could be insufficient to pay all the amounts due to noteholders', said Minibond in a filing document.
It also said that the swap counterparty (Lehman), the trustee and the custodian (both HSBC) shall rank prior to the noteholders when it comes to what money may be recovered.
'All Weather' boost, Minibond dampener
Investors in Merrill notes to get refund, but Minibond saga likely to drag on
By SIOW LI SEN
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(SINGAPORE) First, the good news: investors who subscribed to the All Weather Booster Notes arranged by Merrill Lynch and wish to pull out now can do so - and get a refund.
On the other hand, those who invested in the Minibond notes arranged by now-bankrupt Lehman Brothers are in for a long wait to know what's in store as the unwinding process has yet to begin.
Both sets of investors had started to sweat after Lehman went bankrupt and Merrill Lynch was bought by Bank of America (BoA). Fortunately for those who invested in the All Weather Booster Notes, although the sale had closed, the notes had not been issued yet. They are due to be issued on Sept 20 and the money collected from investors is being held by the distributors till then.
'We understand that distributors have received advice from Merrill Lynch that investors who have subscribed to the Citrine All Weather Booster Notes will have the option of getting a refund if they do not want to go ahead with the purchase now that Bank of America has bought over Merrill Lynch,' said Koh Ching Ching, OCBC Bank spokeswoman.
OCBC is among nine distributors here who sold the Citrine Notes. The rest are ABN Amro Bank, AmFraser Securities, CIMB GK, Citibank, DBS Vickers, DMG & Partners, Standard Chartered Bank and UOB Kay Hian.
Meanwhile, HSBC Trustee, which looks after the Minibond investors, said it is engaging legal counsel to explore all options.
Investors who bought Minibond notes worth almost $500 million arranged by the bankrupt Lehman Brothers have been calling and visiting their brokers and bankers trying to get some answers.
A spokesman for HSBC Institutional Trust Services yesterday said: 'In our capacity as trustee, we are focused on safeguarding the interests of the investors and are engaging legal counsel to explore all options available.'
Allen & Gledhill are the legal advisers to the Minibond notes, which were sold over the last two years to mainly small investors as the minimum amount was $5,000.
Morose Minibond investors have been trying to get some answers from their brokers and bankers on what's going to happen to their investments.
But there are no answers although there is a long line of parties who will first be paid before Minibond noteholders get anything.
In the event of default, which requires the underlying assets to be sold, 'the net proceeds could be insufficient to pay all the amounts due to noteholders', said Minibond in a filing document.
It also said that the swap counterparty (Lehman), the trustee and the custodian (both HSBC) shall rank prior to the noteholders when it comes to what money may be recovered.
Published September 18, 2008
US govt reaches out to banks to organise WaMu buyout
Morgan Stanley weighing merger option, says report
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(NEW YORK) The US government has been reaching out to large banks in an effort to organise a buyout of the beleaguered Washington Mutual Inc (WaMu), according to a person briefed on the talks between regulators and banks.
The obstacle, however, is that 'no one knows what's in their books', the person said, speaking on condition of anonymity because of the sensitivity of the matter. There could be, he said, 'a minimum amount of value there'.
A New York Post report yesterday citing unnamed sources said regulators have reached out to Wells Fargo & Co, JPMorgan Chase & Co and HSBC Holdings plc, among other institutions. The Post noted that no discussions of a deal between any of those banks and WaMu were underway.
Shares of WaMu have plummeted in recent weeks amid continued concerns about mounting losses in the bank's lending portfolios.
WaMu shares have fallen 49 per cent over the past month and are off 83 per cent for the entire year.
WaMu, the biggest US savings and loan, is favoured to be the next financial institution to fall, according to odds offered by Paddy Power plc, Ireland's largest bookmaker.
The Dublin-based bookmaker yesterday cut its odds on WaMu's collapse, which it defines as 75 per cent one-day fall in its share price, to 1-5, meaning a five euro bet would return one euro. American International Group (AIG), bailed out by the US government late on Tuesday, was the previous favourite.
'We were getting ready to pay out on AIG when the rescue package was thrown into the mix,' Paddy Power said yesterday. 'The odds suggest that Washington Mutual mightn't be so lucky, but they've been wrong before.'
Standard & Poor's cut WaMu's credit rating to junk on Sept 17, citing its exposure to the deteriorating US housing market.
Meanwhile, shares in Morgan Stanley plunged up to 42 per cent and shares in Goldman Sachs Group Inc were down more than 20 per cent in late morning trading yesterday on lingering worries about their ability to survive, and a day after both reported better-than-forecast results.
Morgan Stanley is weighing whether it should remain independent or merge with a bank, given the recent turbulence in the company's share price, broadcaster CNBC reported yesterday.
Morgan officials were not in merger talks as at late on Tuesday, CNBC said, citing unnamed people close to the matter.
'But senior people at Morgan concede that further zig-zags in the company's stock price could and possibly will force the company to change course and seek a merger partner, probably a well-capitalised bank,' CNBC reported on its website.
Morgan said on Tuesday its core businesses continue to generate solid profits, as the No. 2 US investment bank hurried to convince investors that it is withstanding the financial turmoil that has dramatically changed the face of Wall Street over the past few days.
Although its fiscal third-quarter profit slipped 7 per cent, the result surpassed Wall Street's expectations. Morgan reported strong performance in its core prime brokerage, commodities and equities businesses.
The New York-based investment bank - which reported results a day earlier than scheduled - earned US$1.43 billion, or US$1.32 per share, compared with US$1.54 billion, or US$1.44 per share in the year-ago period. Revenue rose to US$8.05 billion from US$7.96 billion.
'Despite unprecedented market conditions, Morgan Stanley's core client franchise achieved solid revenue growth, profitability and return-on-equity this quarter,' said chairman and CEO John Mack. -- AP, Bloomberg, Reuters
US govt reaches out to banks to organise WaMu buyout
Morgan Stanley weighing merger option, says report
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(NEW YORK) The US government has been reaching out to large banks in an effort to organise a buyout of the beleaguered Washington Mutual Inc (WaMu), according to a person briefed on the talks between regulators and banks.
The obstacle, however, is that 'no one knows what's in their books', the person said, speaking on condition of anonymity because of the sensitivity of the matter. There could be, he said, 'a minimum amount of value there'.
A New York Post report yesterday citing unnamed sources said regulators have reached out to Wells Fargo & Co, JPMorgan Chase & Co and HSBC Holdings plc, among other institutions. The Post noted that no discussions of a deal between any of those banks and WaMu were underway.
Shares of WaMu have plummeted in recent weeks amid continued concerns about mounting losses in the bank's lending portfolios.
WaMu shares have fallen 49 per cent over the past month and are off 83 per cent for the entire year.
WaMu, the biggest US savings and loan, is favoured to be the next financial institution to fall, according to odds offered by Paddy Power plc, Ireland's largest bookmaker.
The Dublin-based bookmaker yesterday cut its odds on WaMu's collapse, which it defines as 75 per cent one-day fall in its share price, to 1-5, meaning a five euro bet would return one euro. American International Group (AIG), bailed out by the US government late on Tuesday, was the previous favourite.
'We were getting ready to pay out on AIG when the rescue package was thrown into the mix,' Paddy Power said yesterday. 'The odds suggest that Washington Mutual mightn't be so lucky, but they've been wrong before.'
Standard & Poor's cut WaMu's credit rating to junk on Sept 17, citing its exposure to the deteriorating US housing market.
Meanwhile, shares in Morgan Stanley plunged up to 42 per cent and shares in Goldman Sachs Group Inc were down more than 20 per cent in late morning trading yesterday on lingering worries about their ability to survive, and a day after both reported better-than-forecast results.
Morgan Stanley is weighing whether it should remain independent or merge with a bank, given the recent turbulence in the company's share price, broadcaster CNBC reported yesterday.
Morgan officials were not in merger talks as at late on Tuesday, CNBC said, citing unnamed people close to the matter.
'But senior people at Morgan concede that further zig-zags in the company's stock price could and possibly will force the company to change course and seek a merger partner, probably a well-capitalised bank,' CNBC reported on its website.
Morgan said on Tuesday its core businesses continue to generate solid profits, as the No. 2 US investment bank hurried to convince investors that it is withstanding the financial turmoil that has dramatically changed the face of Wall Street over the past few days.
Although its fiscal third-quarter profit slipped 7 per cent, the result surpassed Wall Street's expectations. Morgan reported strong performance in its core prime brokerage, commodities and equities businesses.
The New York-based investment bank - which reported results a day earlier than scheduled - earned US$1.43 billion, or US$1.32 per share, compared with US$1.54 billion, or US$1.44 per share in the year-ago period. Revenue rose to US$8.05 billion from US$7.96 billion.
'Despite unprecedented market conditions, Morgan Stanley's core client franchise achieved solid revenue growth, profitability and return-on-equity this quarter,' said chairman and CEO John Mack. -- AP, Bloomberg, Reuters
Published September 18, 2008
Fed rescues AIG to save the world
Global insurance giant was just too big to be allowed to fail - it could have taken the US economy down with it
By ANDREW MARKS
NEW YORK CORRESPONDENT
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ON Tuesday, the US Federal Reserve Board authorised the New York Fed to loan American International Group (AIG) US$85 billion to stave off an imminent bankruptcy and keep the world's financial system from collapsing, and took the milestone step of essentially becoming the majority stakeholder in the world's largest private insurance company - a corporation whose underwriting and guarantees back hundreds of billions of dollars worth of securities around the globe.
In the chaotic world of unprecedented and extraordinary events that have defined Wall Street and the world's banking system the past seven months, a period that has witnessed the biggest corporate bankruptcies (Lehman Brothers) and rescues (Bear Stearns, Fannie Mae and Freddie Mac) in US history, the Fed's latest move to prevent a national and global debacle in the credit markets may be the most extraordinary and unprecedented event of all.
The loan will give the company, which sells insurance in more than 130 countries, time to sell its assets on an orderly basis, AIG said in a statement.
CEO Robert Willumstad, 63, will be replaced by former Allstate Corp CEO Edward Liddy, 62.
On Wall Street and in financial capitals around the world, investors and bankers breathed an initial huge sigh of relief, because of the fear that AIG's failure might very well have sent the Wall Street-born credit crisis - a debacle that has already wreaked enough financial destruction to bring down several of the world's largest investment banks and has thus far left 29 major financial institutions with a trillion dollars of losses - into outright collapse of the financial system.
'I'll tell you, that was a close one. We came to the brink of Armageddon with the prospect of AIG failing,' said one money manager who didn't want his name used. 'It would have been a real 'Black Monday' like the one had in 1987', when the Dow swooned 22.7 per cent, he said. 'The 'depression' word started getting tossed around as people contemplated what AIG's going under would do to the economy,' he added.
After taking a 79.9 per cent stake in the insurer that cost US$85 billion of US taxpayer money, the Fed said in a written statement: 'The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.'
But after Wall Street rallied on Tuesday afternoon as word spread of a government intervention to spare AIG, boosting the Dow to a 140 point, 1.4 per cent rebound from the latest 'Black Monday' sell-off, investors reversed course amid renewed concerns for the health of the financial system yesterday morning in New York, sending stocks tumbling once again.
In the first half-hour of trading on the NYSE, blue chips were down 234 points, or 2.12 per cent, to 10,824, wiping out Tuesday's gains and then some, as the spread between the three-month Treasury bill and the three-month Libor spiked to its highest level since the crisis began, indicating even tighter credit conditions. The S&P 500 was off 26 points, or 2.19 per cent, and the Nasdaq Composite was falling by 51 points, or 2.35 per cent.
'The problem for the financial markets now is liquidity and the willingness to lend. The Fed members obviously felt that keeping AIG afloat was crucial to keeping the markets stable. Over time, we'll start to see that stability return, but it's going to take a while,' said Joel Naroff, president of Naroff Economic Advisors.
Adding to the renewed feelings of panic was the late Tuesday news that the Reserve Primary Fund, the very first money market fund, became only the second money fund in history to fall below US$1 per share. 'That's a sign of market panic,' said Marc Pado, chief investment strategist at Cantor Fitzgerald. 'But I can only imagine how bad things would be today if the Fed had left AIG to fail. After (Treasury Secretary Henry) Paulson said they wouldn't use federal funds to bail out companies, to do just that for AIG only days later meant there was no other choice, and shows the depth of the problems they're looking at,' he said.
Analysts said that AIG - whose underwriting of billions of dollars worth of credit default swaps (essentially, insurance against default on assets tied to corporate debt and mortgage securities) alone made the insurer's survival crucial to the world financial system - would not have been able to meet new collateral requirements after being downgraded by credit rating firms. 'The sheer number of individuals and businesses that depend on this company is so monumental,' observed hedge fund manager and market commentator James Cramer, 'I think it's safe to say the whole financial world might seize up if AIG looked like it was going to go under.'
Mr Pado believes stocks will test the lows the Dow hit on Tuesday before stabilising. 'But this won't be a V-shaped recovery. There are still issues left out there for the market to worry over,' he said, noting concerns over the survival of Washington Mutual, the largest savings & loan in the US, and mortgage insurers Ambac and MBIA.
'Stocks will start to see improvement when the focus shifts to Q4, but for now people are looking at their personal wealth and seeing how, between the depressed housing market and now the stock market, it's getting hammered and that means it's going to be harder to see a recovery.'
Fed rescues AIG to save the world
Global insurance giant was just too big to be allowed to fail - it could have taken the US economy down with it
By ANDREW MARKS
NEW YORK CORRESPONDENT
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ON Tuesday, the US Federal Reserve Board authorised the New York Fed to loan American International Group (AIG) US$85 billion to stave off an imminent bankruptcy and keep the world's financial system from collapsing, and took the milestone step of essentially becoming the majority stakeholder in the world's largest private insurance company - a corporation whose underwriting and guarantees back hundreds of billions of dollars worth of securities around the globe.
In the chaotic world of unprecedented and extraordinary events that have defined Wall Street and the world's banking system the past seven months, a period that has witnessed the biggest corporate bankruptcies (Lehman Brothers) and rescues (Bear Stearns, Fannie Mae and Freddie Mac) in US history, the Fed's latest move to prevent a national and global debacle in the credit markets may be the most extraordinary and unprecedented event of all.
The loan will give the company, which sells insurance in more than 130 countries, time to sell its assets on an orderly basis, AIG said in a statement.
CEO Robert Willumstad, 63, will be replaced by former Allstate Corp CEO Edward Liddy, 62.
On Wall Street and in financial capitals around the world, investors and bankers breathed an initial huge sigh of relief, because of the fear that AIG's failure might very well have sent the Wall Street-born credit crisis - a debacle that has already wreaked enough financial destruction to bring down several of the world's largest investment banks and has thus far left 29 major financial institutions with a trillion dollars of losses - into outright collapse of the financial system.
'I'll tell you, that was a close one. We came to the brink of Armageddon with the prospect of AIG failing,' said one money manager who didn't want his name used. 'It would have been a real 'Black Monday' like the one had in 1987', when the Dow swooned 22.7 per cent, he said. 'The 'depression' word started getting tossed around as people contemplated what AIG's going under would do to the economy,' he added.
After taking a 79.9 per cent stake in the insurer that cost US$85 billion of US taxpayer money, the Fed said in a written statement: 'The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.'
But after Wall Street rallied on Tuesday afternoon as word spread of a government intervention to spare AIG, boosting the Dow to a 140 point, 1.4 per cent rebound from the latest 'Black Monday' sell-off, investors reversed course amid renewed concerns for the health of the financial system yesterday morning in New York, sending stocks tumbling once again.
In the first half-hour of trading on the NYSE, blue chips were down 234 points, or 2.12 per cent, to 10,824, wiping out Tuesday's gains and then some, as the spread between the three-month Treasury bill and the three-month Libor spiked to its highest level since the crisis began, indicating even tighter credit conditions. The S&P 500 was off 26 points, or 2.19 per cent, and the Nasdaq Composite was falling by 51 points, or 2.35 per cent.
'The problem for the financial markets now is liquidity and the willingness to lend. The Fed members obviously felt that keeping AIG afloat was crucial to keeping the markets stable. Over time, we'll start to see that stability return, but it's going to take a while,' said Joel Naroff, president of Naroff Economic Advisors.
Adding to the renewed feelings of panic was the late Tuesday news that the Reserve Primary Fund, the very first money market fund, became only the second money fund in history to fall below US$1 per share. 'That's a sign of market panic,' said Marc Pado, chief investment strategist at Cantor Fitzgerald. 'But I can only imagine how bad things would be today if the Fed had left AIG to fail. After (Treasury Secretary Henry) Paulson said they wouldn't use federal funds to bail out companies, to do just that for AIG only days later meant there was no other choice, and shows the depth of the problems they're looking at,' he said.
Analysts said that AIG - whose underwriting of billions of dollars worth of credit default swaps (essentially, insurance against default on assets tied to corporate debt and mortgage securities) alone made the insurer's survival crucial to the world financial system - would not have been able to meet new collateral requirements after being downgraded by credit rating firms. 'The sheer number of individuals and businesses that depend on this company is so monumental,' observed hedge fund manager and market commentator James Cramer, 'I think it's safe to say the whole financial world might seize up if AIG looked like it was going to go under.'
Mr Pado believes stocks will test the lows the Dow hit on Tuesday before stabilising. 'But this won't be a V-shaped recovery. There are still issues left out there for the market to worry over,' he said, noting concerns over the survival of Washington Mutual, the largest savings & loan in the US, and mortgage insurers Ambac and MBIA.
'Stocks will start to see improvement when the focus shifts to Q4, but for now people are looking at their personal wealth and seeing how, between the depressed housing market and now the stock market, it's getting hammered and that means it's going to be harder to see a recovery.'
Wednesday, 17 September 2008
Published September 17, 2008
SEC to bar 'naked' short-selling
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(WASHINGTON) With Wall Street engulfed in crisis, the Securities and Exchange Commission is planning measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some fear could be turned against other vulnerable companies.
Mr Cox: The SEC plans in a few days to impose new permanent protections against abusive 'naked' short-selling
During emergency meetings between federal officials and investment bank executives over the weekend, SEC chairman Christopher Cox indicated to the bankers that the agency plans in a few days to impose new permanent protections against abusive 'naked' short-selling, a person familiar with the matter said Monday.
Unlike the SEC's temporary emergency ban this summer covering naked short-selling in 19 stocks, the new measures will apply to trading in the broader market. The person spoke on condition of anonymity because the SEC actions have not been officially announced.
A critic of the agency said the action comes too late to stem a tide of short-selling attacks that have felled huge companies.
The SEC measures likely would include removing an exception for market makers in options on stocks from rules restricting naked short-selling, and a tightening of anti-fraud rules related to that activity, according to the person familiar with the matter.
Those two measures could be put in place administratively by quick approval of the SEC commissioners. Another change - reducing from 13 to five the number of days short-sellers would have to deliver stocks after an initial failure to do so - would require a public meeting and formal vote to propose it as a new rule.
Short-sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
Naked short-selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately after the sale.
Jim Hardesty, president and market strategist at Hardesty Capital Management in Baltimore, called the possible reduction of delivery time 'a tepid little measure'. However, he endorsed a ban on all naked short-selling similar to the one the SEC instituted in summer covering stocks of 19 major financial firms.
Hedge funds and other aggressive short-sellers 'are ganging up on one company after another', he said. 'A company the scale of Merrill Lynch got into the clutches of those people.'
Investors like Mr Hardesty contend that naked short-selling, if left unchecked, would give hedge funds and other aggressive short-sellers an unfair advantage to attack other victims after Lehman Brothers Holdings Inc. Merrill Lynch & Co - being bought by Bank of America Corp in a US$50 billion shotgun deal - and insurer American International Group Inc, which reportedly appealed to the Federal Reserve for emergency funding, were said to be among the likely targets.
A spokesman for the Securities Industry and Financial Markets Association, Wall Street's biggest lobby group, declined to comment on Monday. Spokesmen for the Managed Funds Association, a group representing hedge funds, didn't immediately return a call seeking comment.
But Steve Thel, a business law professor at Fordham University who was an attorney at the SEC, said the agency's actions are a way to limit abuses in short-selling in an orderly way without 'making it hard for people to express negative opinion' about companies.
The purpose of market regulations is 'not to protect incumbent management from the market's understanding of bad news', Prof Thel said.
Investors have clamoured for the SEC to institute another emergency order similar to its ban from mid-July to mid-August against naked short-selling of the stocks of mortgage finance companies Fannie Mae and Freddie Mac, and 17 large investment banks - including Lehman and Merrill.
The SEC's temporary order required short-sellers to actually borrow shares before selling them. By law, it could not be extended beyond Aug 12.
Mr Cox has said the order helped prevent potential 'distort and short' manipulation of stocks, which occurs when rumours and misinformation are used to drive down the price of a stock that has been sold short. -- AP
SEC to bar 'naked' short-selling
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(WASHINGTON) With Wall Street engulfed in crisis, the Securities and Exchange Commission is planning measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some fear could be turned against other vulnerable companies.
Mr Cox: The SEC plans in a few days to impose new permanent protections against abusive 'naked' short-selling
During emergency meetings between federal officials and investment bank executives over the weekend, SEC chairman Christopher Cox indicated to the bankers that the agency plans in a few days to impose new permanent protections against abusive 'naked' short-selling, a person familiar with the matter said Monday.
Unlike the SEC's temporary emergency ban this summer covering naked short-selling in 19 stocks, the new measures will apply to trading in the broader market. The person spoke on condition of anonymity because the SEC actions have not been officially announced.
A critic of the agency said the action comes too late to stem a tide of short-selling attacks that have felled huge companies.
The SEC measures likely would include removing an exception for market makers in options on stocks from rules restricting naked short-selling, and a tightening of anti-fraud rules related to that activity, according to the person familiar with the matter.
Those two measures could be put in place administratively by quick approval of the SEC commissioners. Another change - reducing from 13 to five the number of days short-sellers would have to deliver stocks after an initial failure to do so - would require a public meeting and formal vote to propose it as a new rule.
Short-sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
Naked short-selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately after the sale.
Jim Hardesty, president and market strategist at Hardesty Capital Management in Baltimore, called the possible reduction of delivery time 'a tepid little measure'. However, he endorsed a ban on all naked short-selling similar to the one the SEC instituted in summer covering stocks of 19 major financial firms.
Hedge funds and other aggressive short-sellers 'are ganging up on one company after another', he said. 'A company the scale of Merrill Lynch got into the clutches of those people.'
Investors like Mr Hardesty contend that naked short-selling, if left unchecked, would give hedge funds and other aggressive short-sellers an unfair advantage to attack other victims after Lehman Brothers Holdings Inc. Merrill Lynch & Co - being bought by Bank of America Corp in a US$50 billion shotgun deal - and insurer American International Group Inc, which reportedly appealed to the Federal Reserve for emergency funding, were said to be among the likely targets.
A spokesman for the Securities Industry and Financial Markets Association, Wall Street's biggest lobby group, declined to comment on Monday. Spokesmen for the Managed Funds Association, a group representing hedge funds, didn't immediately return a call seeking comment.
But Steve Thel, a business law professor at Fordham University who was an attorney at the SEC, said the agency's actions are a way to limit abuses in short-selling in an orderly way without 'making it hard for people to express negative opinion' about companies.
The purpose of market regulations is 'not to protect incumbent management from the market's understanding of bad news', Prof Thel said.
Investors have clamoured for the SEC to institute another emergency order similar to its ban from mid-July to mid-August against naked short-selling of the stocks of mortgage finance companies Fannie Mae and Freddie Mac, and 17 large investment banks - including Lehman and Merrill.
The SEC's temporary order required short-sellers to actually borrow shares before selling them. By law, it could not be extended beyond Aug 12.
Mr Cox has said the order helped prevent potential 'distort and short' manipulation of stocks, which occurs when rumours and misinformation are used to drive down the price of a stock that has been sold short. -- AP
Published September 17, 2008
Maybank gets the go-ahead for BII purchase
KL lifts objection to deal after Jakarta eases takeover rule
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(KUALA LUMPUR) Malaysia's central bank reinstated approval for Malayan Banking's planned US$2.7 billion purchase of an Indonesian bank after a takeover rule governing the purchase was eased.
Malaysia's central bank yesterday lifted its objection to the purchase of PT Bank Internasional Indonesia (BII), Maybank said in a statement to the Malaysian stock exchange. Malaysia had blocked the purchase after Indonesia enacted a rule that forced buyers to sell 20 per cent of the target back to the market in two years, saying the law may trigger losses at Maybank.
Indonesia's regulator will extend the two-year time frame if Maybank's losses from the purchase exceed 10 per cent of the acquisition price of 510 rupiah a share, Ahmad Fuad Rahmany, chairman of the Capital Market and Financial Supervisory Institutions Agency, said in a Sept 15 letter to Maybank.
'We believe the above clarification of conditional extension will lead to a positive development with respect to Maybank's proposed acquisition,' Mr Rahmany wrote in his letter.
Maybank last month set aside RM483.8 million (S$201 million) for a deposit on the purchase, in case the acquisition failed. The bank said on Monday the Indonesian regulator had refused to drop the takeover rule completely.
'For as long as Maybank is unable to dispose of the 20 per cent stake at a price higher than 459 rupiah a share, it will be given an extension,' Chris Oh, an analyst with JPMorgan Securities (Malaysia) Sdn, said in a note to clients yesterday. 'Maybank should be able to absorb the loss.'
Malaysia's central bank opposed the deal over concern Maybank would lose RM3.4 billion by meeting the takeover rule, Maybank chief executive officer Abdul Wahid Omar said on Aug 27.
Losses would be incurred if Maybank sold BII shares for less than the purchase price, and if Maybank wrote down the value of the asset, Mr Abdul Wahid said last month.
Maybank yesterday lost 5.7 per cent to RM7.4 in Kuala Lumpur trading before Mr Rahmany confirmed the contents of his letter.
The planned acquisition was viewed by many investors as overpriced, and Maybank shares have lost 17 per cent since the takeover was announced on March 26. BII hasn't traded in Jakarta since July 29.
'The stock exchange will allow Bank Internasional's shares to resume trading once I receive the letter from the company,' Erry Firmansyah, president of the Indonesia Stock Exchange, said in a mobile-phone text message.
Maybank is buying the controlling stake in the Indonesian bank from a group led by Singapore investment agency Temasek Holdings. -- Bloomberg
Maybank gets the go-ahead for BII purchase
KL lifts objection to deal after Jakarta eases takeover rule
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(KUALA LUMPUR) Malaysia's central bank reinstated approval for Malayan Banking's planned US$2.7 billion purchase of an Indonesian bank after a takeover rule governing the purchase was eased.
Malaysia's central bank yesterday lifted its objection to the purchase of PT Bank Internasional Indonesia (BII), Maybank said in a statement to the Malaysian stock exchange. Malaysia had blocked the purchase after Indonesia enacted a rule that forced buyers to sell 20 per cent of the target back to the market in two years, saying the law may trigger losses at Maybank.
Indonesia's regulator will extend the two-year time frame if Maybank's losses from the purchase exceed 10 per cent of the acquisition price of 510 rupiah a share, Ahmad Fuad Rahmany, chairman of the Capital Market and Financial Supervisory Institutions Agency, said in a Sept 15 letter to Maybank.
'We believe the above clarification of conditional extension will lead to a positive development with respect to Maybank's proposed acquisition,' Mr Rahmany wrote in his letter.
Maybank last month set aside RM483.8 million (S$201 million) for a deposit on the purchase, in case the acquisition failed. The bank said on Monday the Indonesian regulator had refused to drop the takeover rule completely.
'For as long as Maybank is unable to dispose of the 20 per cent stake at a price higher than 459 rupiah a share, it will be given an extension,' Chris Oh, an analyst with JPMorgan Securities (Malaysia) Sdn, said in a note to clients yesterday. 'Maybank should be able to absorb the loss.'
Malaysia's central bank opposed the deal over concern Maybank would lose RM3.4 billion by meeting the takeover rule, Maybank chief executive officer Abdul Wahid Omar said on Aug 27.
Losses would be incurred if Maybank sold BII shares for less than the purchase price, and if Maybank wrote down the value of the asset, Mr Abdul Wahid said last month.
Maybank yesterday lost 5.7 per cent to RM7.4 in Kuala Lumpur trading before Mr Rahmany confirmed the contents of his letter.
The planned acquisition was viewed by many investors as overpriced, and Maybank shares have lost 17 per cent since the takeover was announced on March 26. BII hasn't traded in Jakarta since July 29.
'The stock exchange will allow Bank Internasional's shares to resume trading once I receive the letter from the company,' Erry Firmansyah, president of the Indonesia Stock Exchange, said in a mobile-phone text message.
Maybank is buying the controlling stake in the Indonesian bank from a group led by Singapore investment agency Temasek Holdings. -- Bloomberg
Published September 17, 2008
Opposition can form new govt: Anwar
More than required Front MPs have given commitments, he tells media
By S JAYASANKARAN
IN KUALA LUMPUR
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IN a move that was slightly anti-climactic, Malaysian opposition leader Anwar Ibrahim announced yesterday that the opposition coalition could form the next government but stopped short of revealing the names or precise numbers of defectors.
Public support: Anwar addressing supporters waving national flags during a gathering in a stadium in Petaling Jaya, outside Kuala Lumpur, on Monday
'We have received firm commitments from members of Parliament in excess of the numbers required to form a new government,' he told a packed press conference.
Anwar said he had written to Prime Minister Abdullah Ahmad Badawi requesting a meeting with him to discuss the terms of the takeover, calling such an approach 'conciliatory'.
'We will reveal the names (of the defecting lawmakers) to the Prime Minister if he wants,' Anwar said. Pressed on the exact numbers, Anwar hedged: 'More than 31.'
The Opposition needs 30 seats to retain a simple majority.
Separately, the treasurer of Parti Islam SeMalaysia (PAS), Hatta Ramli, told newsmen that Anwar's coalition had received commitments from 35 National Front lawmakers.
Asked to name names, Anwar said that was 'impossible as the government would immediately begin harassing them', adding 'we do not want another Teresa Kok', referring to the opposition lawmaker who was detained on Friday under the Internal Security Act for allegedly trampling on religious sensitivities.
Even so, his statements are unlikely to impress Mr Abdullah who told senior civil servants yesterday that the Opposition leader was 'just bluffing'.
One political analyst said that even if presented with a list of would-be defectors, 'no Prime Minister in the world would resign on such grounds'.
Indeed, Anwar is expected to be lambasted by the mainstream media today for his apparent lack of credibility.
As if anticipating the response, Anwar told reporters that no one had believed him when he talked about taking over five states and denying the Front its two-thirds parliamentary majority in March 8 general elections.
Nor had they believed him when he said he would increase his majority in the Permatang Pauh by-election.
'But all of that actually happened,' he said to loud cheers from his supporters.
It is not clear if Malaysia's King can intervene even if he was convinced of Anwar's support.
The only way for Anwar to get to the top would be to win a parliamentary vote of no-confidence against the Prime Minister, the analyst said. Then all it would take for Anwar to be appointed prime minister was an audience with the King who had to be satisfied that Anwar really had the support from a majority of parliamentarians.
Parliament next sits on Oct 13.
Opposition can form new govt: Anwar
More than required Front MPs have given commitments, he tells media
By S JAYASANKARAN
IN KUALA LUMPUR
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IN a move that was slightly anti-climactic, Malaysian opposition leader Anwar Ibrahim announced yesterday that the opposition coalition could form the next government but stopped short of revealing the names or precise numbers of defectors.
Public support: Anwar addressing supporters waving national flags during a gathering in a stadium in Petaling Jaya, outside Kuala Lumpur, on Monday
'We have received firm commitments from members of Parliament in excess of the numbers required to form a new government,' he told a packed press conference.
Anwar said he had written to Prime Minister Abdullah Ahmad Badawi requesting a meeting with him to discuss the terms of the takeover, calling such an approach 'conciliatory'.
'We will reveal the names (of the defecting lawmakers) to the Prime Minister if he wants,' Anwar said. Pressed on the exact numbers, Anwar hedged: 'More than 31.'
The Opposition needs 30 seats to retain a simple majority.
Separately, the treasurer of Parti Islam SeMalaysia (PAS), Hatta Ramli, told newsmen that Anwar's coalition had received commitments from 35 National Front lawmakers.
Asked to name names, Anwar said that was 'impossible as the government would immediately begin harassing them', adding 'we do not want another Teresa Kok', referring to the opposition lawmaker who was detained on Friday under the Internal Security Act for allegedly trampling on religious sensitivities.
Even so, his statements are unlikely to impress Mr Abdullah who told senior civil servants yesterday that the Opposition leader was 'just bluffing'.
One political analyst said that even if presented with a list of would-be defectors, 'no Prime Minister in the world would resign on such grounds'.
Indeed, Anwar is expected to be lambasted by the mainstream media today for his apparent lack of credibility.
As if anticipating the response, Anwar told reporters that no one had believed him when he talked about taking over five states and denying the Front its two-thirds parliamentary majority in March 8 general elections.
Nor had they believed him when he said he would increase his majority in the Permatang Pauh by-election.
'But all of that actually happened,' he said to loud cheers from his supporters.
It is not clear if Malaysia's King can intervene even if he was convinced of Anwar's support.
The only way for Anwar to get to the top would be to win a parliamentary vote of no-confidence against the Prime Minister, the analyst said. Then all it would take for Anwar to be appointed prime minister was an audience with the King who had to be satisfied that Anwar really had the support from a majority of parliamentarians.
Parliament next sits on Oct 13.
Published September 17, 2008
SGX's Hsieh gets $7.18 million salary
Pay was raised 12.5% thanks to $5.3m bonus, annual report shows
By JAMIE LEE
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SINGAPORE Exchange (SGX) chief executive Hsieh Fu Hua was paid $7.18 million for the fiscal year ended June 30, 2008, a 12.5 per cent increase from the preceding year's $6.38 million.
SGX's annual report shows that the higher remuneration was due to a $0.8 million or 17.8 per cent rise in variable bonus to $5.3 million from $4.5 million.
The report said the bonus took into consideration the achievement of specific quantitative and qualitative key performance indicators.
In addition to the bonus, Mr Hsieh was paid a fixed salary of $754,068, a long- term incentive of about $1 million (from the second and final partial vesting of performance shares awarded in fiscal 2006) and $71,317 worth of benefits- in-kind.
SGX also granted 225,000 performance shares - which will vest in November 2010 - to Mr Hsieh in fiscal 2008.
The report said the bonus took into consideration the achievement of specific quantitative and qualitative key performance indicators.
JY Pillay, who was re-designated as non-executive chairman with effect from Sept 28, 2007, took home $857,973 for the fiscal year.
This comprised $136,550 in fixed pay, $133,923 of benefits-in- kind, and pro-rated director's fees of $587,500 from the beginning of October last year to June 30 this year.
Of those in the 'five top-earning executives' remuneration' category, head of markets Gan Seow Ann earned $2.35 million, up from $2.1 million for the preceding year; chief financial officer Seck Wai Kwong took home about $2.2 million, up from $1.99 million; and head of risk management and regulation Yeo Lian Sim received $1.84 million, up from $1.59 million a year ago.
Head of listings Lawrence Wong earned $1.24 million. A comparative figure for FY2007 was not available.
Chief operations officer Muthukrishnan Ramaswami, who joined SGX from Citigroup in July last year, took home $1.81 million. This excludes a 'hiring incentive payment' of $1 million.
SGX reported a 48.7 per cent slump in net profit to $90.4 million for its fiscal fourth quarter, from $176.3 million a year ago, which included a $65.5 million gain on disposal of SGX Centre.
Still, SGX's full-year net profit rose 13.4 per cent to $478.3 million, from $421.8 million the preceding year, beating a consensus forecast of $460 million from 11 analysts polled by Bloomberg.
SGX's Hsieh gets $7.18 million salary
Pay was raised 12.5% thanks to $5.3m bonus, annual report shows
By JAMIE LEE
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SINGAPORE Exchange (SGX) chief executive Hsieh Fu Hua was paid $7.18 million for the fiscal year ended June 30, 2008, a 12.5 per cent increase from the preceding year's $6.38 million.
SGX's annual report shows that the higher remuneration was due to a $0.8 million or 17.8 per cent rise in variable bonus to $5.3 million from $4.5 million.
The report said the bonus took into consideration the achievement of specific quantitative and qualitative key performance indicators.
In addition to the bonus, Mr Hsieh was paid a fixed salary of $754,068, a long- term incentive of about $1 million (from the second and final partial vesting of performance shares awarded in fiscal 2006) and $71,317 worth of benefits- in-kind.
SGX also granted 225,000 performance shares - which will vest in November 2010 - to Mr Hsieh in fiscal 2008.
The report said the bonus took into consideration the achievement of specific quantitative and qualitative key performance indicators.
JY Pillay, who was re-designated as non-executive chairman with effect from Sept 28, 2007, took home $857,973 for the fiscal year.
This comprised $136,550 in fixed pay, $133,923 of benefits-in- kind, and pro-rated director's fees of $587,500 from the beginning of October last year to June 30 this year.
Of those in the 'five top-earning executives' remuneration' category, head of markets Gan Seow Ann earned $2.35 million, up from $2.1 million for the preceding year; chief financial officer Seck Wai Kwong took home about $2.2 million, up from $1.99 million; and head of risk management and regulation Yeo Lian Sim received $1.84 million, up from $1.59 million a year ago.
Head of listings Lawrence Wong earned $1.24 million. A comparative figure for FY2007 was not available.
Chief operations officer Muthukrishnan Ramaswami, who joined SGX from Citigroup in July last year, took home $1.81 million. This excludes a 'hiring incentive payment' of $1 million.
SGX reported a 48.7 per cent slump in net profit to $90.4 million for its fiscal fourth quarter, from $176.3 million a year ago, which included a $65.5 million gain on disposal of SGX Centre.
Still, SGX's full-year net profit rose 13.4 per cent to $478.3 million, from $421.8 million the preceding year, beating a consensus forecast of $460 million from 11 analysts polled by Bloomberg.
Published September 17, 2008
Market will reveal gems when dust settles
By VEN SREENIVASAN
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WHEN I asked a broker how he's doing, he exclaimed: 'There is so much blood on the street, I'm slipping and sliding everywhere.'
Colourful though the phrase may be, his description of the impact of the unprecedented events shaking global financial markets during the past 48 hours was no exaggeration.
The collapse of one of the world's oldest investment banks, the takeover of another, and troubles at the world's biggest insurance firm are tectonic events which will reshape the US - and global - financial landscape for decades to come.
No single event has shaken the market as much since the 1929 Great Depression.
Year of malaise
Here in Singapore, a year of malaise has led to near capitulation with the Straits Times Index breaching the key 2,500 points mark for the first time in over two years. By the close of trading yesterday, the index had fallen some 8 per cent over the last one week.
These are echoes of the 1997 crisis, when the collapse of highly geared major Asian corporates brought many Asian banks to their knees. The result was a region-wide economic slowdown which lasted through the end of 1998.
Yet, investors who rode on fundamentals not only came through intact from that crisis, but saw their investments double, triple and even quadruple over the subsequent two or three years.
While no one can predict what the next days or weeks will bring, the events currently unfolding on Wall Street may be cathartic if they help end the malaise afflicting markets for over a year and enable the global financial system to claw back to firmer ground.
Some market experts are even beginning to sound optimistic this week. Mark Mobius, executive chairman of global fund manager Templeton Asset Management, told Bloomberg: 'We're probably now at the bottom and it'll be a build-up of confidence from here on in, if these decisions are made.'
If Dr Mobius is right, value investors should position themselves to capitalise on opportunities that could emerge in the months to come.
Interestingly, the 'Black Monday' plunge on the Singapore market came on relatively low liquidity. This has been especially so for some second-liners which until recently were market darlings.
Take for example C&O Pharma. The stock dropped 28 per cent from 28 cents to 20 cents on a mere volume of 101,000 shares on Monday. Another market darling Oceanus fell from a month high of 26 cents to 20 cents on Monday, a 23 per cent tumble on a volume of only 11 million shares worth less than $2.5 million.
Ferrochina fell a massive 26 per cent on Monday, totalling a 37.5 per cent plunge over three market days on the back of margin calls on modest volumes.
Just three weeks ago, this company reported a scintillating set of first-half results of 419 million yuan (S$88 million) in net profits.
Analysts project full-year FY08 profits to be anywhere between 900 and 960 million yuan (about S$190-200 million). This suggests a forward P/E multiple of around three times.
Others like heavily owned China Hongxing and Li Heng have similarly been bashed down.
The selldown was not restricted to S-chips.
Heavily traded commodity play Straits Asia Resources has crashed from a July high of $4.20 to under $1.70 now.
Bellwethers
Meanwhile, bellwethers such as Singapore Press Holdings, Neptune Orient Lines, CapitaLand, Keppel Corp, SingTel and the banks have sunk to two-year lows. Ditto for mid-caps like crane operator Tat Hong or refinery & tank farm specialist Rotary Engineering.
The question one has to ponder is this: Are these companies in danger of collapse? Are their businesses shrinking? Are their balance sheets and order books damaged? Are they facing a liquidity crisis?
Make no mistake: The near-term market outlook remains uncertain. No one can be sure how long it will take for this storm to blow over. No one really knows the extent of damage inflicted on corporate and personal balance sheets. And jangled nerves and margin calls could rule the day.
But as the saying goes, it is darkest before the dawn.
And when this frenzied forced selling subsides, and the dust ultimately settles, the market will reveal the gems.
Market will reveal gems when dust settles
By VEN SREENIVASAN
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WHEN I asked a broker how he's doing, he exclaimed: 'There is so much blood on the street, I'm slipping and sliding everywhere.'
Colourful though the phrase may be, his description of the impact of the unprecedented events shaking global financial markets during the past 48 hours was no exaggeration.
The collapse of one of the world's oldest investment banks, the takeover of another, and troubles at the world's biggest insurance firm are tectonic events which will reshape the US - and global - financial landscape for decades to come.
No single event has shaken the market as much since the 1929 Great Depression.
Year of malaise
Here in Singapore, a year of malaise has led to near capitulation with the Straits Times Index breaching the key 2,500 points mark for the first time in over two years. By the close of trading yesterday, the index had fallen some 8 per cent over the last one week.
These are echoes of the 1997 crisis, when the collapse of highly geared major Asian corporates brought many Asian banks to their knees. The result was a region-wide economic slowdown which lasted through the end of 1998.
Yet, investors who rode on fundamentals not only came through intact from that crisis, but saw their investments double, triple and even quadruple over the subsequent two or three years.
While no one can predict what the next days or weeks will bring, the events currently unfolding on Wall Street may be cathartic if they help end the malaise afflicting markets for over a year and enable the global financial system to claw back to firmer ground.
Some market experts are even beginning to sound optimistic this week. Mark Mobius, executive chairman of global fund manager Templeton Asset Management, told Bloomberg: 'We're probably now at the bottom and it'll be a build-up of confidence from here on in, if these decisions are made.'
If Dr Mobius is right, value investors should position themselves to capitalise on opportunities that could emerge in the months to come.
Interestingly, the 'Black Monday' plunge on the Singapore market came on relatively low liquidity. This has been especially so for some second-liners which until recently were market darlings.
Take for example C&O Pharma. The stock dropped 28 per cent from 28 cents to 20 cents on a mere volume of 101,000 shares on Monday. Another market darling Oceanus fell from a month high of 26 cents to 20 cents on Monday, a 23 per cent tumble on a volume of only 11 million shares worth less than $2.5 million.
Ferrochina fell a massive 26 per cent on Monday, totalling a 37.5 per cent plunge over three market days on the back of margin calls on modest volumes.
Just three weeks ago, this company reported a scintillating set of first-half results of 419 million yuan (S$88 million) in net profits.
Analysts project full-year FY08 profits to be anywhere between 900 and 960 million yuan (about S$190-200 million). This suggests a forward P/E multiple of around three times.
Others like heavily owned China Hongxing and Li Heng have similarly been bashed down.
The selldown was not restricted to S-chips.
Heavily traded commodity play Straits Asia Resources has crashed from a July high of $4.20 to under $1.70 now.
Bellwethers
Meanwhile, bellwethers such as Singapore Press Holdings, Neptune Orient Lines, CapitaLand, Keppel Corp, SingTel and the banks have sunk to two-year lows. Ditto for mid-caps like crane operator Tat Hong or refinery & tank farm specialist Rotary Engineering.
The question one has to ponder is this: Are these companies in danger of collapse? Are their businesses shrinking? Are their balance sheets and order books damaged? Are they facing a liquidity crisis?
Make no mistake: The near-term market outlook remains uncertain. No one can be sure how long it will take for this storm to blow over. No one really knows the extent of damage inflicted on corporate and personal balance sheets. And jangled nerves and margin calls could rule the day.
But as the saying goes, it is darkest before the dawn.
And when this frenzied forced selling subsides, and the dust ultimately settles, the market will reveal the gems.
Published September 17, 2008
Investors fret over Lehman's Minibonds
Distributors waiting for unwinding instructions from bankrupt US bank
By SIOW LI SEN
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(SINGAPORE) Events that have unfolded in the United States over the past few days could hurt some investors here. Those who had bought Minibond notes worth almost $500 million, arranged by Lehman Brothers over the last two years, were left in the dark yesterday as to how much they might recover as there is no news yet from the bankrupt US bank.
Unlike what their name suggests, Minibonds are not bonds but a derivative product that offers investors little protection.
Meanwhile, there may be better news for those that invested in the All Weather Booster Notes arranged by Merrill Lynch that were sold earlier this month, but have not been issued yet. BT understands that the Monetary Authority of Singapore (MAS) might look at giving these investors an option to withdraw from the deal. Merrill itself has just been sold to Bank of America.
Investors who bought Minibonds are more likely to get burnt. A fair number could be retail investors given that the minimum amount sold was $5,000. The Minibond notes were sold over the last two years under series 2 to 10, the latest of which was just last month.
One retail investor who sunk $5,000 into Minibond series 3 said: 'I should have bought a watch.' Another who had bought $2 million worth was more sanguine, saying that he will 'move on'.
According to one broker, the earlier Minibond series was quite popular because they offered as much as 5 per cent dividend, and were invested mainly in high yielding collateralised debt obligations (CDOs), which only got a bad name after the US sub-prime mortgage crisis broke in the middle of 2007.
Distributors of Minibonds which include local and foreign banks, brokerages and Hong Leong Finance were getting anxious calls from clients yesterday but could not shed much light as they had yet to hear from Lehman.
Said a CIMB-GK Securities executive: 'I'm also waiting for news - I didn't invest but some of my friends invested in it.'
Carol Fong, chief executive of CIMB-GK Securities, said that the firm was in touch with Lehman Brothers in Hong Kong to assist clients with their enquiries on the Minibonds.
'In response to enquiries from customers, OCBC Securities has advised them to wait for further news from Lehman Brothers on how the investment bank will unwind the transactions and pay noteholders the credit event redemption amount,' said Koh Ching Ching, OCBC Bank spokeswoman.
'We are currently taking legal advice and will keep our clients updated,' said Ajay Mathur, RBS, head of retail banking.
A United Overseas Bank spokeswoman said that the bank is taking a proactive approach in updating clients on the latest developments. 'I've been explaining the whole day to all walks of life,' said Daniel Seah, UOB Kay Hian senior officer. He said that there was value in the underlying assets which were invested by Minibond, a company set up to issue the notes.
Minibond has to sell these assets. After deducting the costs involved in the termination, what is left will be paid back to investors, he said. 'The main thing is, how much investors can get back depends on the open market value of the assets.'
The problem lies in the value of the assets, such as CDOs which have become tainted by negative publicity, although not all are associated with sub-prime mortgages.
The latest Minibond series 9 and 10 which were sold last month focused on safer assets such as bonds, said Mr Seah. The underlying assets in series 9 and 10 consist of senior secured and unsecured securities issued or guaranteed by major US and European banks, according to the document lodged with MAS.
The document also said that Minibond has issued seven series of notes under the programme, with the outstanding amount at about $482 million.
As for the All Weather Booster Notes arranged by Merrill Lynch, Mr Seah said that he understands that investors could be offered a choice of backing out if they want to. Distributors may then refund their clients.
The sale of the All Weather Booster Notes closed on Sept 12 and the money collected from investors is currently held by the distributors - ABN Amro Bank, AmFraser Securities, CIMB GK, Citibank, DBS Vickers, DMG & Partners, OCBC Securities, Standard Chartered Bank and UOB Kay Hian. The notes will only be issued on Sept 20.
Investors fret over Lehman's Minibonds
Distributors waiting for unwinding instructions from bankrupt US bank
By SIOW LI SEN
Email this article
Print article
Feedback
(SINGAPORE) Events that have unfolded in the United States over the past few days could hurt some investors here. Those who had bought Minibond notes worth almost $500 million, arranged by Lehman Brothers over the last two years, were left in the dark yesterday as to how much they might recover as there is no news yet from the bankrupt US bank.
Unlike what their name suggests, Minibonds are not bonds but a derivative product that offers investors little protection.
Meanwhile, there may be better news for those that invested in the All Weather Booster Notes arranged by Merrill Lynch that were sold earlier this month, but have not been issued yet. BT understands that the Monetary Authority of Singapore (MAS) might look at giving these investors an option to withdraw from the deal. Merrill itself has just been sold to Bank of America.
Investors who bought Minibonds are more likely to get burnt. A fair number could be retail investors given that the minimum amount sold was $5,000. The Minibond notes were sold over the last two years under series 2 to 10, the latest of which was just last month.
One retail investor who sunk $5,000 into Minibond series 3 said: 'I should have bought a watch.' Another who had bought $2 million worth was more sanguine, saying that he will 'move on'.
According to one broker, the earlier Minibond series was quite popular because they offered as much as 5 per cent dividend, and were invested mainly in high yielding collateralised debt obligations (CDOs), which only got a bad name after the US sub-prime mortgage crisis broke in the middle of 2007.
Distributors of Minibonds which include local and foreign banks, brokerages and Hong Leong Finance were getting anxious calls from clients yesterday but could not shed much light as they had yet to hear from Lehman.
Said a CIMB-GK Securities executive: 'I'm also waiting for news - I didn't invest but some of my friends invested in it.'
Carol Fong, chief executive of CIMB-GK Securities, said that the firm was in touch with Lehman Brothers in Hong Kong to assist clients with their enquiries on the Minibonds.
'In response to enquiries from customers, OCBC Securities has advised them to wait for further news from Lehman Brothers on how the investment bank will unwind the transactions and pay noteholders the credit event redemption amount,' said Koh Ching Ching, OCBC Bank spokeswoman.
'We are currently taking legal advice and will keep our clients updated,' said Ajay Mathur, RBS, head of retail banking.
A United Overseas Bank spokeswoman said that the bank is taking a proactive approach in updating clients on the latest developments. 'I've been explaining the whole day to all walks of life,' said Daniel Seah, UOB Kay Hian senior officer. He said that there was value in the underlying assets which were invested by Minibond, a company set up to issue the notes.
Minibond has to sell these assets. After deducting the costs involved in the termination, what is left will be paid back to investors, he said. 'The main thing is, how much investors can get back depends on the open market value of the assets.'
The problem lies in the value of the assets, such as CDOs which have become tainted by negative publicity, although not all are associated with sub-prime mortgages.
The latest Minibond series 9 and 10 which were sold last month focused on safer assets such as bonds, said Mr Seah. The underlying assets in series 9 and 10 consist of senior secured and unsecured securities issued or guaranteed by major US and European banks, according to the document lodged with MAS.
The document also said that Minibond has issued seven series of notes under the programme, with the outstanding amount at about $482 million.
As for the All Weather Booster Notes arranged by Merrill Lynch, Mr Seah said that he understands that investors could be offered a choice of backing out if they want to. Distributors may then refund their clients.
The sale of the All Weather Booster Notes closed on Sept 12 and the money collected from investors is currently held by the distributors - ABN Amro Bank, AmFraser Securities, CIMB GK, Citibank, DBS Vickers, DMG & Partners, OCBC Securities, Standard Chartered Bank and UOB Kay Hian. The notes will only be issued on Sept 20.
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