Published February 12, 2009

COMMENTARY
Don't paper over cracks with paper losses

It's time to review what caused them and ascertain what needs fixing

By WONG WEI KONG
ASSOCIATE NEWS EDITOR
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PAPER losses are not real losses - but it can be argued that the two are really just different sides of the same coin.

And there could be danger in taking too sanguine a view of paper losses, and seeing them as something of less concern than real losses.

Let's put it this way: the one meaningful difference between a paper loss and a real or realised loss is holding power, or the ability of an investor to sit out the loss against another's need to sell and thereby realise the loss.

All the factors leading to the loss, whether paper or real, are similar, such as wrong calls, misplaced assumptions, unfortunate timing or bad advice.

Tuesday's revelation of the performance of Temasek Holdings provides a study on paper losses.

The global financial meltdown cost the Singapore investment company a $58 billion loss in eight months, the government said. Temasek's net portfolio value fell 31 per cent from $185 billion on March 31, 2008 to $127 billion on Nov 30, 2008.

The loss is on paper, it was stressed, and the government said it had full confidence in Temasek as well as the Government of Singapore Investment Corp (GIC) to ride out the market downturn as long-term investors and produce solid returns over time.



What can be said about this? For one thing, it is a paper loss because Temasek has a holding power that is the envy of most fund managers. Second, given its very longterm horizon, it is improbable that any of these losses will be realised (indeed, they could turn to gains). But all that should not prevent a review of what led to the losses.

To be fair, the drop in Temasek's net portfolio value was less than the fall in some regional equity indices (the MSCI Singapore index lost 44 per cent and MSCI Asia ex-Japan shed 45 per cent over the same period).

Still, there's nothing to stop Temasek from outperforming the rest of the market by a bigger margin or to book a much smaller loss (or even gain) - which is what Singapore Airlines did, by booking a hedging gain amid steep losses within the industry.

Too often, paper losses are used to soften the blow of investments that have not gone according to plan. But in the real world, paper losses do have consequences.

Take listed companies. A lot of the losses or weaker earnings being announced by companies are down to fair-value adjustments, with accounting rules requiring firms to mark down the value of their investments or assets even if they have not realised the losses - in other words, paper losses. But the market still treats these as bottomline results, and the fact that these are paper losses does not save the companies from being punished by investors.

It's the same for individuals. An investor who had borrowed to buy shares would be asked to top up the balance if he suffers paper losses of a certain extent, even if he does not realise the loss. A homeowner will also be asked to top up, if the value of his property drops by a certain extent from the original valuation, even if it's all on paper. The concept of negative equity and accounting for it, in fact, hinges on the treatment of paper losses as potential actual losses.

So there are realities to paper losses.

Back to Temasek: It's highly likely, given the nature of its mandate and its long-term view, that the damage to its portfolio will remain "just" paper losses. Yet, the extent of the paper loss - a shock to many Singaporeans - should still lead to a closer examination or a rethink of the way Temasek operates and invests. If all's fine, and only the markets are to be blamed, so much the better. If some adjustments are needed, now is as good a time as any to begin that process.

Published February 12, 2009

China exports, imports in shock plunge

January falls are steepest since records started, boding ill for 2009 growth

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(BEIJING) Chinese exports and imports fell unexpectedly sharply in January, underlining how badly the world's third-largest economy has been hit by the global financial crisis and the impact that is having on its neighbours.

Exports fell 17.5 per cent from a year earlier, after a 2.8 per cent decline in December, while imports plunged 43.1 per cent, twice as much as December's 21.3 per cent year-on-year drop, the General Administration of Customs said yesterday.

Both falls were the steepest since economists' records began in 1993. Imports and exports have now fallen for three months in a row from their year-earlier levels.

The declines mirrored big falls elsewhere in Asia and suggested to several analysts that the economy has yet to bottom out - despite green shoots of recovery seen in rising metals prices.

'The economy is still weakening and fundamentals are still weakening, mostly due to the external shock,' said Qing Wang, chief China economist with Morgan Stanley in Hong Kong. 'At least in the next quarter or two, the headwinds from weak external demand will be extremely strong, which is why we expect overall economic growth will be worse before getting better.

As a result of the weakness in imports, China notched up its second-biggest monthly trade surplus. January's total of US$39.1 billion was just shy of last November's record of US$40.1 billion and served as a reminder, ahead of this week's Group of Seven (G-7) finance ministers' meeting in Rome, of the economic imbalances at the root of the global financial crisis.

Economists had expected a US$28.7 billion surplus based on a 10.8 per cent fall in exports and a 28.5 per cent drop in imports from year-earlier levels.

Exports to the US and EU fell 9.8 and 17.4 per cent, respectively. Shipments from Japan fell 43.5 per cent from a year earlier; those from South Korea were down 46.4 per cent and from Taiwan, 58 per cent.

In part, the sharp falls in both imports and exports were exacerbated by the timing of Chinese New Year, which resulted in 17 working days this January compared with 22 last year.

But the drops surpassed most economists' already bleak projections, and with no sign of a pick-up in demand overseas, the export picture is likely to worsen before it improves.

However, analysts broadly agree that the Chinese economy remains more resilient than many in the region, and that the authorities have plenty of room to beef up the already considerable stimulus measures they have announced in recent months.

And 'while the recent export slowdown has been alarming, China's export slump has not been as severe as in some neighbouring countries with a greater reliance on high-tech exports', said Jing Ulrich, chairman of China equities at JPMorgan in Hong Kong. -- Reuters, IHT

Published February 12, 2009

Barclays doubles headcount in less than 6 months

It expects to more than double it again to 650 by year-end

By SIOW LI SEN

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(SINGAPORE) Barclays has more than doubled the headcount at its global technology centre at Changi to 250 in less than six months. And it expects to more than double it again to 650 by year-end - a reminder that not all banks are slashing and burning.

Amid the noise of massive losses and vanishing jobs at international banks, Barclays - which this week posted pre-tax 2008 profit of £6.1 billion (S$13.2 billion), down 14 per cent - expects to grow its retail and commercial businesses.

Frits Seegers, chief executive of Barclays global retail and commercial banking, said the Singapore centre will accelerate hiring to reach 1,500 by 2011 as Barclays expands its Asian operations and gains market share in the UK as rival foreign banks pull back.

Last September, the Barclays Business Technology Centre in Changi - its third after London and Johannesburg - had only 110 staff.

Barclays has 49 million customers today, up from 34 million in 2006, with nine million added in 2008 alone. Growth has been mostly organic, Mr Seegers told BT this week.

"Singapore is incredibly important to us" as a global hub for processing and developing systems for worldwide retail and commercial banking, he said. "We have 250 people today. It will be 650 by year-end." And he expects 1,500 by 2011.

The Singapore hub does high-value intellectual work, said Mr Seegers, who heaped praise on the bank's staff here. "Most of all, the people of Singapore,

I feel, when I ask for things to get done, they get done in a good way," he said. Mr Seegers, who joined the British bank in 2006 after six years in Asia, gave an insight into how Barclays has managed to avoid the enormous losses of many of its peers.

It started tightening credit at the end of 2006 and has been very conservative, he said. "I never forgot the pain I learned in Asia," he added, referring to the 1997-98 financial crisis. So while cuts in credit cards and credit lines by US banks will reach US$2 trillion, Barclays' credit card business in the US posted a US$250 million profit in 2008.

In the UK, Barclays last year increased its mortgage market share 15 per cent to 7 per cent as international banks pulled out of the market, he said.

"And in the case of repossessions, Barclays did 160 in 2008."

The bank's loan-to-value home loan book is 4 0 per cent and Mr Seegers expects the new mortgage loan-to-value ratio to rise to 50 per cent.

He sees the global recession getting much worse and concedes that Barclays will be affected - but he also reckons it is the right time to expand, as prices have fallen.

As for the uproar over executive bonuses, Mr Seegers, who will not receive any 2008 bonus, said it is a complex matter.

He accepts that senior people such as himself should join shareholders in their misery and forego any bonus, but said lower- ranked, hard-working staff who achieve their targets should be rewarded.

"I have some single mothers working for me," he said. "No bonus means they cannot go on vacation, after working day and night. I think they should get their bonus."

Barclays has announced a bonus review and said bonuses paid to staff fell 48 per cent last year.