Published October 1, 2008
Maybank closes sweetened deal for stake in BII
With $315m rebate, it'll pay $1.77 billion for 55.6% stake held by Sorak
By PAULINE NG IN KUALA LUMPUR

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MALAYSIA'S Maybank has clinched a controlling stake in Bank Internasional Indonesia (BII) after persuading the core shareholders of the Indonesian lender to sweeten the deal.
Maybank managed to obtain a rebate of $315.2 million, or the equivalent of a 15 per cent discount, for the shares held by Sorak Financial Holdings. Sorak's shareholders are Fullerton Financial Holdings, a unit of Temasek, and South Korea's Kookmin Bank.
This amounts to an implicit price payable per BII share held by Sorak of 433 rupiah.
Maybank has, nonetheless, indicated its intent to stick to an earlier general offer of 510 rupiah per share payable to BII minorities - probably to appease the Indonesian capital market watchdog Bapepam, which was upset the deal was not completed last week.
'For the avoidance of doubt, the Tender Offer will still be conducted at 510 rupiah per BII share,' Maybank said.
With the price reduction of $315.2 million, the total acquisition cost for Sorak's effective 55.6 per cent equity interest in BII will amount to $1.77 billion.
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The proposed acquisition was completed yesterday. The deal has seen numerous twists and turns, the final one being last week's request by the Malaysian central bank for a price revision in view of the global financial crisis and possible impairment to Maybank's fundamentals if it were to abide by the original price.
However, it was not mentioned in the company's announcement to the exchange whether Bank Negara had approved the revisions to the deal, which in its original form priced the entire BII stake at RM8.6 billion (S$3.6 billion). The bank will now pay slightly over RM7.8 billion.
Analysts saw the new deal as a compromise. The effective discount of some 7 per cent did not reduce BII's valuations by much - the further rebate of $78.8 million from Fullerton's $236.4 million reduction offer last week notwithstanding.
Instead of 4.6 times book, the revised price now values BII at about 4.3 times book, according to AmResearch banking analyst Fiona Leong's back-of- the-envelope calculations.
'It's still pricey,' she opined, pointing out the revised price does not address Bank Negara's concerns on the issue of impairment to Maybank and, by extension, the rest of the local banking system.
The Minorities Shareholder Watchdog Group, which has called for Maybank's board to resign over what they perceive as a wretched proposition, had maintained the bank ought not to pay more than 3 times book, given the prevailing crises in global finance.
Maybank's biggest shareholder is the country's largest state-owned unit trust agency Permodalan Nasional, which has thousands of account holders.
The Employees Provident Fund is also a substantial shareholder of Maybank and, owing to growing concerns of potential impairment losses, has also called on Maybank's board to take responsibility if the transaction proves to be ill advised.

Published October 1, 2008
COMMENTARY
Who is behind the mess at the Capitol?
By LEON HADAR IN WASHINGTON

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CAPITOL Hill is a place where US lawmakers have supported policies and approved legislation that changed American and world history, including the protectionist Hawley-Smoot Tariff Act that accelerated the coming of the Great Depression and the global economic crisis of the 1930s.
It's not inconceivable that the last days of September 2008 would be recalled by future historians as a time when US lawmakers, driven by a desire for political self-preservation and ideological dogma, helped set in motion the Great Depression II.
Leading the set of villains would be those lawmakers who would be seen as responsible for one of the most shocking legislative debacles in American history, the Monday vote having scuttled the proposed US$700 billion financial bailout plan.
Heading the charge were a group of conservative Republican lawmakers in the House of Representatives who decided to vote 'no' for the compromise legislation that had been worked out over the weekend by Democratic and Republican leaders on Capitol Hill and Bush administration officials, led by Treasury Secretary Henry Paulson.
And why did they decide to change their vote in the last minute, causing the stock market to plunge and to wipe US$1.2 trillion off the books?
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Well, it seems that the oh-so-sensitive Republican lawmakers were furious at the Democratic Speaker of the House, Representative Nancy Pelosi from California, for criticising the Bush administration's economic policies when she introduced the legislation. The poor kids. Teacher Pelosi hurt their feelings so much.
So they decided to punish the Republican Bush administration and anxious investors who were waiting for Washington to come to their rescue.
Bipartisan negotiation
In fact, in her short speech before the vote, Ms Pelosi expressed her own shock when Mr Paulson and US Federal Reserve chairman Ben Bernanke had warned her and other Congressional leaders of the danger of a financial meltdown, and pleaded for a bailout.
She stressed that she and her fellow Democrats felt that they had no choice but to negotiate with the Republicans on a legislative deal to help save the economy. But the House Republicans claimed that they were appalled that the Speaker would say such things. In fact, they just used Ms Pelosi's speech as an excuse to vote against the Bill that they and their constituents at home didn't like. (The Congressional election takes place next month.)
'We put everything we had into getting the votes to get there today,' said John Boehner, the Republican Minority Leader in the House. 'But the Speaker had to give a partisan voice that poisoned our conference; it caused a number of members, who we thought we could get, to go south,' he explained.
'There's a terrible crisis affecting the American economy,' responded House Financial Services chairman Barney Frank, a Democrat from Massachusetts. 'We have come together on a Bill to alleviate the crisis. And because somebody hurt their feelings, they decide to punish the country?' he said.
The result was a defeat for the Bill, 205-228, with two-thirds of Republicans and more than a third of Democrats (most of them were members of the Black Caucus) voting 'no' - which stunned officials, lawmakers and the media in Washington. It was greeted in Wall Street with a sense of foreboding. Pundits raised the possibility that the American economy was heading, indeed, into a painful and long recession as the credit freeze creates disincentives for new investment. There is going to be more personal and business bankruptcies, followed by rising unemployment.
No new votes were scheduled for yesterday and today over the Jewish New Year, which means that the American and global financial markets would probably continue to slide down in the next two days.
'Grown-ups' will take charge
But top Democratic and Republican leaders insisted that the 'grown-ups' would take charge before the end of the week and get the bailout plan approved by both the House of Representatives, followed by the Senate (where there seems to be a clear majority in favour of the legislation).
So everyone seems to be waiting for those 'grown-ups', although one of the main concerns on Capitol Hill is that the Republican presidential candidate, Senator John McCain, would attempt once again - like he did last week - to interject himself into the negotiations in Washington. He may demand perhaps that the televised debate between the two vice-presidential candidates scheduled for tomorrow be cancelled.
Who knows? Is it possible that his running mate, Alaska governor Sarah Palin - who boasted about her foreign policy credentials by noting that she can see Russia from the window of her home in Alaska - might try to help end the financial crisis? Perhaps she can also see Wall Street from the window of her house.

Published October 1, 2008
Hope flickers as US seeks to revive bailout
Interbank markets severely strained, but stocks recover on hopes US rescue plan may be saved
By CONRAD TAN

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(SINGAPORE) Stocks worldwide plunged yesterday and then clawed their way back after US lawmakers stunned investors by rejecting a sweeping plan to save the financial sector.

Plans to salvage the massive rescue package aimed at removing the rot from banks and other financial institutions there are already underway.
Last night, Keith Hennessey, director of the National Economic Council which advises the US president on economic policy, said the government is considering changes to the proposals that were rebuffed by lawmakers on Monday, according to Bloomberg. President George Bush himself warned of 'painful and lasting' economic damage to the country if the rescue plan is delayed further.
The idea is to make minor amendments and pass the bill, whose failure wiped more than US$1 trillion from financial markets.
'We don't intend to leave here without the job being done,' said Christopher Dodd, who chairs the high-level banking committee in the US Senate, one of the two lawmaking bodies in the US Congress. He said US senators may deal with the bill as early as today.
Members of the House of Representatives, the lower house of Congress, who defeated the bailout package by 228 votes to 205, are also expected to do a rethink. 'The Dow dropping 777 points is a pretty powerful force to find another 12 votes,' said Chris Lehane, a political consultant for the Democratic Party.
US lawmakers were expected to reconvene only tomorrow after a two-day holiday but efforts are now afoot to push this forward.
Even if the plan is approved, 'we should expect a longer, deeper recession' and further consolidation of the banking sector in the US, said Gerard Lyons, chief economist at Standard Chartered Bank, in a report yesterday. 'Across Europe we will see a deteriorating economic situation and further financial fallout.'
If the rescue plan fails, it 'could accelerate the downward spiral in global financial markets, as markets are dragged into a new vicious cycle of losses and accelerated deleveraging', said Citigroup analyst Kit Wei Zheng in a separate report.
If so, Singapore would likely suffer a more prolonged and severe slump in exports than expected, as well as damage to domestic demand and the local property sector, he added.
Reflecting the uncertainty, Asian markets swung between despair and hope. Major share indices plummeted at the start of trading with the Dow Jones Industrial Average falling 7 per cent on Monday. But most stock benchmarks in the region recovered later in the day, as the price of futures contracts traded on major US equity indices rose on hopes that the bailout plan may still be saved.
Stocks in Europe also opened lower, but reversed losses to trade higher. By midday in London, the FTSE-100 index was up 0.2 per cent.
Investors around the world had earlier believed that the proposals, which include a plan for the US government to buy up to US$700 billion worth of troubled assets from banks and other financial institutions, would be approved after a weekend of frenzied talks between leaders from both major political parties.
Multiple bank failures across Europe on Monday added to the shock of the plan's defeat by a narrow margin, sending shares in the US into free-fall, while indices tracking stock market volatility there soared to record highs.
'We hit a policy brick wall - and confidence across the financial sector collapsed,' said Mr Lyons. 'The big worry is that the lack of trust now being seen in the banking market spreads and we see contagion into other markets.'
The Straits Times Index ended just 0.1 per cent down after falling 5.1 per cent earlier, while Hong Kong's Hang Seng Index actually finished 0.8 per cent higher after sliding 6 per cent in the morning. In Japan, where trading ended before markets in Europe opened, the Nikkei-225 index sank 4.1 per cent.
'Despite the serious setback, it remains our view that Congress will eventually vote to approve the bailout package,' said UBS analysts in a report.
Interbank lending was once again under extreme stress, even as central banks worldwide continued to flood the banking system with liquidity in a desperate attempt to unblock credit channels and bring down short-term borrowing costs.
Here, the Singapore interbank offered rate or Sibor for overnight US dollar loans more than doubled to 6.25 per cent from 2.67 per cent on Monday - the biggest one-day jump on record. Interest rates for US dollar loans between banks of longer maturities also rose, but less sharply, while rates for Singapore dollar interbank loans eased from earlier highs.
Banks in Hong Kong, Australia and Japan were also charging each other unusually high rates for funds or hoarding cash, prompting regulators to take drastic measures to get banks to resume lending to each other.
In a statement last night, the Monetary Authority of Singapore said it had intervened to ease recent upward pressure on Singapore dollar interbank rates and is ready to inject additional liquidity if needed. 'Financial institutions in Singapore are functioning normally,' it added.
Indonesia, Taiwan and South Korea announced restrictions on short-selling stocks - betting that share prices will fall - while Hong Kong regulators warned that they would act against abusive short-sellers.
In a statement just past noon yesterday, the Singapore Exchange said trading here remained orderly.