Published October 4, 2008
SGX board stemmed investment loss: CEO
Board members objected to SGX management's decision to continue investing some $150 million in hedge funds
By JAMIE LEE
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(Singapore)
A $150 million Singapore Exchange (SGX) investment in hedge funds could have been wiped out by today's financial crisis if not for the board's intervention, SGX chief executive Hsieh Fu Hua said at the company's annual general meeting yesterday.
STANDING FIRM
The sound advice from the board was proof that SGX needed strong directors in turbulent times, rather than cut back on directors' fees to save costs, MrHsieh told shareholders
He raised the issue after some shareholders questioned a proposed 40 per cent hike in directors' fees, which was eventually passed. The investors asked whether it was appropriate to raise the fees now, when the capital markets are expected to fare badly because of the credit crisis.
In August 2004, SGX pumped $150 million into a market-neutral funds portfolio, which returned $131 million in redemption proceeds this fiscal year 2008 - 12.7 per cent less than the principal.
Such funds are aimed at helping to 'neutralise' the effect of market movements by matching long and short equity positions in different stocks.
SGX management wanted to continue investing in such funds at the end of a three-year investment mandate in mid-2007, but the idea was shot down by board members, who said the company should liquidate the fund instead.
'The board stood strongly against management' on this issue, said Mr Hsieh. SGX management obliged and liquidated the portfolio from July 2007 - the start of financial year 2008 - to December 2007.
The sound advice from the board was proof that SGX needed strong directors in turbulent times, rather than cut back on directors' fees to save costs, Mr Hsieh told shareholders.
SGX chairman JY Pillay also said directors' rates had to be raised to 'a more competitive level' to attract more talent. 'I don't think we are rewarding them too handsomely at all,' he said, pointing out the fees were equivalent to just 0.22 per cent of full-year 2008 net profit.
SGX raised total directors' fees to $1.07 million. The basic fee for each non-executive director has been upped to $55,000, from $40,000 in fiscal year 2007. Audit committee chairman Lee Hsien Yang - who is also the chairman of listed conglomerate Fraser and Neave - will receive $30,000, up 50 per cent from $20,000 the previous year.
Mr Hsieh assured shareholders at the meeting that the bourse will remain profitable, and that the variable bonus component for staff will help mitigate costs.
He told reporters on the sidelines of the shareholders' meeting that the curbs relating to naked short-selling are expected to 'remain in place for a long time to come'. But he said it has 'not been our philosophy' to ban short-selling completely.
Sunday, 5 October 2008
Published October 4, 2008
AIG to morph into global property, casualty firm
It will sell non-core business units to pay off US$85b govt loan
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(CHARLOTTE, North Carolina)
INSURER American International Group said yesterday that it plans to sell off its 'non-core' business units to pay off its massive government loan.
The plans, expected by Wall Street, drove up AIG's shares 19 per cent in mid-day trading. But it now leaves investors wondering if the sales will be enough.
AIG, one of the world's biggest insurers, said that it plans to retain its US property and casualty and foreign general insurance businesses. The New York-based insurer also said that it plans to retain an ownership interest in its foreign life insurance operations.
AIG, once the world's largest insurer, will refashion itself into a global property and casualty company with a stake in an overseas unit that sells life policies in China, South Korea and India, chief executive officer Edward Liddy said in a conference call. AIG may also sell its plane-leasing unit, consumer finance division, US car insurer, a reinsurance business and asset manager, he said.
'We won't exactly be the AIG of old, but we'll have a very secure position,' Mr Liddy said. 'This is going to be a formidable company that emerges from this.'
'I think what the Federal Reserve has provided us has been very generous and we are going to do everything we can not to have to go back to them.'
He added that he didn't expect a fire sale and buyers would have to assume the debt of AIG businesses they acquired.
However, he added that 'we'll sell as many assets as needed to repay our obligations'.
AIG shares were up 76 US cents at US$4.76 in mid-day trading.
'We are giving AIG credit that it can use its Fed-supported liquidity to pursue a measured and deliberate asset sale programme,' said CreditSights analyst Rob Haines in a research note.
So far, AIG has announced only one deal, a sale of its 50 per cent interest in London City Airport to its partner in the venture, Global Infrastructure Partners. It bought the stake as a joint venture with the private-equity fund in 2006 for a total price estimated around US$1.4 billion. The companies didn't disclose the terms of the deal.
However, it may sell its remaining stake in Blackstone Group, in which it spent US$150 million in 1998 for a 7 per cent interest. AIG recorded a US$398 million gain for the second quarter last year from selling some of the shares of the company which went public last year.
Mr Liddy said that the company has been contacted by 'numerous' parties regarding possible sales of businesses, and AIG will try to sell its operations to 'brand-name' buyers who have strong ratings and balance sheets.
He added that he wouldn't be surprised to see sovereign wealth funds providing resources to acquire some AIG businesses.
One unit that analysts have said could be sold is International Lease Finance Corp., which leases out more than 900 aircraft with asset values topping US$44 billion at the end of the second quarter.
Another unit that could possibly be sold is consumer-focused lender American General Finance Corp. Other businesses that AIG operates include life, commercial car and accident and health insurers.
On the brink of failure last month, AIG was bailed out when the government offered it a two-year US$85 billion loan to avoid bankruptcy during one of the most tumultuous times during the ongoing credit crisis that saw Lehman Brothers Holdings Inc file for bankruptcy protection and the sale of Merrill Lynch & Co to Bank of America Corp.
In return for the loan, the government received warrants to purchase up to 79.9 per cent of AIG.
As at Sept 30, AIG had drawn US$61 billion on the credit facility, of which about US$54 billion has gone towards its securities lending and financial products area. The rest of the money has been for other liquidity needs amid an 'unprecedented' freezing of credit markets, Mr Liddy said.
While the sale of some of AIG's businesses will be used to pay off the outstanding government loan, additional funds will be used to help address the company's capital structure, Mr Liddy said.
AP, Bloomberg, AFP
AIG to morph into global property, casualty firm
It will sell non-core business units to pay off US$85b govt loan
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(CHARLOTTE, North Carolina)
INSURER American International Group said yesterday that it plans to sell off its 'non-core' business units to pay off its massive government loan.
The plans, expected by Wall Street, drove up AIG's shares 19 per cent in mid-day trading. But it now leaves investors wondering if the sales will be enough.
AIG, one of the world's biggest insurers, said that it plans to retain its US property and casualty and foreign general insurance businesses. The New York-based insurer also said that it plans to retain an ownership interest in its foreign life insurance operations.
AIG, once the world's largest insurer, will refashion itself into a global property and casualty company with a stake in an overseas unit that sells life policies in China, South Korea and India, chief executive officer Edward Liddy said in a conference call. AIG may also sell its plane-leasing unit, consumer finance division, US car insurer, a reinsurance business and asset manager, he said.
'We won't exactly be the AIG of old, but we'll have a very secure position,' Mr Liddy said. 'This is going to be a formidable company that emerges from this.'
'I think what the Federal Reserve has provided us has been very generous and we are going to do everything we can not to have to go back to them.'
He added that he didn't expect a fire sale and buyers would have to assume the debt of AIG businesses they acquired.
However, he added that 'we'll sell as many assets as needed to repay our obligations'.
AIG shares were up 76 US cents at US$4.76 in mid-day trading.
'We are giving AIG credit that it can use its Fed-supported liquidity to pursue a measured and deliberate asset sale programme,' said CreditSights analyst Rob Haines in a research note.
So far, AIG has announced only one deal, a sale of its 50 per cent interest in London City Airport to its partner in the venture, Global Infrastructure Partners. It bought the stake as a joint venture with the private-equity fund in 2006 for a total price estimated around US$1.4 billion. The companies didn't disclose the terms of the deal.
However, it may sell its remaining stake in Blackstone Group, in which it spent US$150 million in 1998 for a 7 per cent interest. AIG recorded a US$398 million gain for the second quarter last year from selling some of the shares of the company which went public last year.
Mr Liddy said that the company has been contacted by 'numerous' parties regarding possible sales of businesses, and AIG will try to sell its operations to 'brand-name' buyers who have strong ratings and balance sheets.
He added that he wouldn't be surprised to see sovereign wealth funds providing resources to acquire some AIG businesses.
One unit that analysts have said could be sold is International Lease Finance Corp., which leases out more than 900 aircraft with asset values topping US$44 billion at the end of the second quarter.
Another unit that could possibly be sold is consumer-focused lender American General Finance Corp. Other businesses that AIG operates include life, commercial car and accident and health insurers.
On the brink of failure last month, AIG was bailed out when the government offered it a two-year US$85 billion loan to avoid bankruptcy during one of the most tumultuous times during the ongoing credit crisis that saw Lehman Brothers Holdings Inc file for bankruptcy protection and the sale of Merrill Lynch & Co to Bank of America Corp.
In return for the loan, the government received warrants to purchase up to 79.9 per cent of AIG.
As at Sept 30, AIG had drawn US$61 billion on the credit facility, of which about US$54 billion has gone towards its securities lending and financial products area. The rest of the money has been for other liquidity needs amid an 'unprecedented' freezing of credit markets, Mr Liddy said.
While the sale of some of AIG's businesses will be used to pay off the outstanding government loan, additional funds will be used to help address the company's capital structure, Mr Liddy said.
AP, Bloomberg, AFP
Published October 4, 2008
Smells like recession
US lawmakers okay US$700b rescue plan but credit crunch knocks out economy
By CONRAD TAN
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(Singapore)
THE bailout package has a nice ring to it, but economists now say that it is nowhere near enough to get the global or even the US economy out of jail.
The massive US$700 billion rescue plan aimed at saving the US financial sector returned yesterday before the House of Representatives with fresh sweeteners to sway them. It worked.
Having thrown out the plan last week and stunned stock markets across the world, the lawmakers voted yes in its latest incarnation by a margin of 263-171.
The Senate had already approved the plan earlier this week. So what happens next?
Quite simply, more trouble, economists say - with a US recession now increasingly likely. This was the case even before the rescue plan was approved. Crucial credit channels remain jammed, as banks everywhere grow increasingly nervous about lending to one another, choking the supply of credit to fund business operations and investment activity. 'Whatever happens over the weekend, the outlook for the global economy is much dimmer,' said Song Seng Wun, senior economist and head of research at CIMB here.
He warned that Singapore's economy could stall or even contract in 2009, if the US slips into recession next year - a scenario 'which now looks increasingly likely'.
'The drag will be from lower exports as well as a significant slowdown through the economy, with perhaps the only exception being the construction sector,' he added.
In a startling sign of how deeply the crunch was biting, nearly 100 US corporate treasurers took part in an emergency conference call on Thursday to warn one another that banks there are using any excuse to charge more to renew lines of credit, Bloomberg reported. Banks are afraid to lend even to investment grade corporate clients, who are struggling to keep credit lines open to pay employees and purchase raw materials. Some were charged an extra 75 basis points to keep credit lines open.
Meanwhile, the authorities are turning to every weapon in their arsenal - and finding it ineffective. This week, futures traders were betting heavily that the US Federal Reserve would slash its target for the federal funds rate - the rate which US banks charge one another for loans - by half a percentage point to just 1.5 per cent at its next policy meeting on Oct 29, in a bid to stimulate economic activity by reducing the cost of borrowing.
But with interbank rates already more than double the Fed's official target rate of 2 per cent now, any cut in interest rates would be 'more of a psychological move to boost confidence that things are being done', said Mr Song. 'Banks will still be fairly cautious about interbank lending and counterparty risk' as a lot more US banks are likely to fail due to worsening economic conditions, he added.
Meanwhile, the real economy is being hit. Latest data showed that US employers slashed payrolls by 159,000 in September, the most in more than five years, a worrisome sign that the economy is hurtling toward a deep recession. Almost 760,000 jobs have disappeared this year. At a household level, that means millions of Americans will be forced to buy less 'stuff' - bad news for an economy that relies on consumer spending for about 70 per cent of its growth. Goldman Sachs economists expect a recession worse than the ones seen in 1990 and 2001.
Treasury Secretary Hank Paulson and Fed chairman Ben Bernanke have resorted to increasingly bold and desperate measures to fight the flames. They saved mortgage finance giants Fannie Mae and Freddie Mac and insurer American International Group, and arranged rescues for Merrill Lynch, Morgan Stanley and Goldman Sachs. They guaranteed money-market funds, banned short-selling of stocks; and pumped hundreds of billions of dollars into interbank markets worldwide to bring down borrowing costs.
None of it was enough to stop the crisis of confidence sweeping through the financial sector, which has already reached European shores. Governments in Europe are desperately trying to prop up more banks crippled by a lack of short-term funding.
London interbank offered rates or Libor, the global benchmark used to price a wide variety of bank loans and debt securities worldwide, remain far above official central bank target rates for interbank lending - suggesting that the deep mistrust between financial institutions is unlikely to vanish soon.
The Singapore interbank offered rate or Sibor for three-month Sing-dollar loans - an important benchmark for housing and business loans here - remains much higher than in early September, before Lehman collapsed. This, despite coming down of late. 'The bailout programme notwithstanding, things still could get worse,' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. He expects fewer new jobs to be created here in the coming months compared to the strong employment growth earlier this year, which will mean less spending by consumers and leaner times for businesses. 'Until the last couple of weeks, I was still optimistic that things could still get back on track. But now it does seem that the whole global economy is going to weaken going into 2009.'
Smells like recession
US lawmakers okay US$700b rescue plan but credit crunch knocks out economy
By CONRAD TAN
Email this article
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(Singapore)
THE bailout package has a nice ring to it, but economists now say that it is nowhere near enough to get the global or even the US economy out of jail.
The massive US$700 billion rescue plan aimed at saving the US financial sector returned yesterday before the House of Representatives with fresh sweeteners to sway them. It worked.
Having thrown out the plan last week and stunned stock markets across the world, the lawmakers voted yes in its latest incarnation by a margin of 263-171.
The Senate had already approved the plan earlier this week. So what happens next?
Quite simply, more trouble, economists say - with a US recession now increasingly likely. This was the case even before the rescue plan was approved. Crucial credit channels remain jammed, as banks everywhere grow increasingly nervous about lending to one another, choking the supply of credit to fund business operations and investment activity. 'Whatever happens over the weekend, the outlook for the global economy is much dimmer,' said Song Seng Wun, senior economist and head of research at CIMB here.
He warned that Singapore's economy could stall or even contract in 2009, if the US slips into recession next year - a scenario 'which now looks increasingly likely'.
'The drag will be from lower exports as well as a significant slowdown through the economy, with perhaps the only exception being the construction sector,' he added.
In a startling sign of how deeply the crunch was biting, nearly 100 US corporate treasurers took part in an emergency conference call on Thursday to warn one another that banks there are using any excuse to charge more to renew lines of credit, Bloomberg reported. Banks are afraid to lend even to investment grade corporate clients, who are struggling to keep credit lines open to pay employees and purchase raw materials. Some were charged an extra 75 basis points to keep credit lines open.
Meanwhile, the authorities are turning to every weapon in their arsenal - and finding it ineffective. This week, futures traders were betting heavily that the US Federal Reserve would slash its target for the federal funds rate - the rate which US banks charge one another for loans - by half a percentage point to just 1.5 per cent at its next policy meeting on Oct 29, in a bid to stimulate economic activity by reducing the cost of borrowing.
But with interbank rates already more than double the Fed's official target rate of 2 per cent now, any cut in interest rates would be 'more of a psychological move to boost confidence that things are being done', said Mr Song. 'Banks will still be fairly cautious about interbank lending and counterparty risk' as a lot more US banks are likely to fail due to worsening economic conditions, he added.
Meanwhile, the real economy is being hit. Latest data showed that US employers slashed payrolls by 159,000 in September, the most in more than five years, a worrisome sign that the economy is hurtling toward a deep recession. Almost 760,000 jobs have disappeared this year. At a household level, that means millions of Americans will be forced to buy less 'stuff' - bad news for an economy that relies on consumer spending for about 70 per cent of its growth. Goldman Sachs economists expect a recession worse than the ones seen in 1990 and 2001.
Treasury Secretary Hank Paulson and Fed chairman Ben Bernanke have resorted to increasingly bold and desperate measures to fight the flames. They saved mortgage finance giants Fannie Mae and Freddie Mac and insurer American International Group, and arranged rescues for Merrill Lynch, Morgan Stanley and Goldman Sachs. They guaranteed money-market funds, banned short-selling of stocks; and pumped hundreds of billions of dollars into interbank markets worldwide to bring down borrowing costs.
None of it was enough to stop the crisis of confidence sweeping through the financial sector, which has already reached European shores. Governments in Europe are desperately trying to prop up more banks crippled by a lack of short-term funding.
London interbank offered rates or Libor, the global benchmark used to price a wide variety of bank loans and debt securities worldwide, remain far above official central bank target rates for interbank lending - suggesting that the deep mistrust between financial institutions is unlikely to vanish soon.
The Singapore interbank offered rate or Sibor for three-month Sing-dollar loans - an important benchmark for housing and business loans here - remains much higher than in early September, before Lehman collapsed. This, despite coming down of late. 'The bailout programme notwithstanding, things still could get worse,' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. He expects fewer new jobs to be created here in the coming months compared to the strong employment growth earlier this year, which will mean less spending by consumers and leaner times for businesses. 'Until the last couple of weeks, I was still optimistic that things could still get back on track. But now it does seem that the whole global economy is going to weaken going into 2009.'
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