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Temasek sells its Merrill Lynch stake

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The FT, among others is reporting that Temasek Holdings have offloaded their stake in Bank of America (obtained when BoA took over Merrill Lynch):

Temasek Holdings,the Singapore state investment company, disclosed on Friday that it sold its entire 3.8 per cent stake in Bank of America in the first quarter of 2009, bringing to an end its unprofitable investment in the US financial group after little more than a year.

The move follows an announcement by Ho Ching, Temasek chief executive, that the company is to cut its target for planned investments in developed economies and invest more in emerging markets.

FT also calculated that TH lost about US$3bn in doing so:

Singapore’s acquisitive Temasek is up to its old tricks again, buying high and selling low, as it emerged on Friday that the state-backed investment agency sold its 3 per cent stake in Bank of America in the first quarter of this year, suffering an estimated $3bn loss in the process.

WSJ estimated Temasek lost about US$4.6bn.

Among other things, Temasek is seeking to re-focus on Asia (on China and somewhat less on India) after its disastrous foray into Western financial markets, as noted earlier:

Ms Ho, who is scheduled to step down as Temasek head on October 1, said in a speech to a group of young professionals this week that Temasek would focus more on Asia and other emerging markets such as Latin America and Russia as it reduces its focus on the US and Europe.

She said Temasek had decided to adopt a revised investment strategy with 10 per cent of its assets in emerging markets, 20 per cent in developed economies, 30 per cent in Singapore and 40 per cent in the rest of Asia outside of Japan.

This would replace a previous allocation strategy of having a third of its assets in each of Singapore, Asia and developed economies. In the last fiscal year that ended in March 2008, 41 per cent of its S$185bn (US$126bn) portfolio was invested in Asia, 30 per cent in Singapore and 23 per cent in developed economies.

This may well be why Temasek was willing to jump on the China bandwagon.

On the topic of increasing their investments in developing markets, Bloomberg reported yesterday that Temasek may be selling more bonds to raise capital:

May 14 (Bloomberg) — Temasek Holdings Pte, Singapore’s state-owned investment firm, may sell more bonds with different maturities as it seeks to increase its investments in Asia and other emerging markets, Chief Executive Officer Ho Ching said.

The firm will be increasing its investments in Latin America, Russia and Africa to as much as 10 percent of its portfolio, while cutting its holdings in more developed countries that are members of the Organization for Economic Cooperation and Development to 20 percent, Ho said in a speech posted on Temasek’s Web site today.

What does this mean for Singaporeans?  Well for one thing, expect CPF to step up its purchases of Temasek bonds to help finance their new investments.  In other words, CPF depositors (aka Singaporeans) had better pray that Temasek’s new strategy pays off.  But of course we know that Singaporeans don’t get extra when Temasek does well.  They get paid a measely 2.5% constant rate, a rate which is easily outstripped by buying long term foreign government bonds of the safest nature.  That’s the nature of CPF.

When Temasek does badly and eats into our reserves, you can expect the government to raise the Minimum Sum for CPF withdrawal and further stymie withdrawals through compulsory annuities and other creative means to deny Singaporeans their withdrawal rights to their own money.  That’s the nature of CPF.

Furthermore, Singaporeans only knew of Temasek’s sale of its ML/BoA shares through a publicised news report which drew as its source the US SEC filing Temasek had to make on 14th May:

A Form 13F filing to the U.S. Securities and Exchange Commission yesterday from Temasek indicates that the fund no longer held shares in Bank of America or Merrill Lynch as of March 31. An earlier filing showed that the Singapore firm owned 219.7 million Merrill Lynch shares at the end of 2008.

This raises the question: If Temasek wasn’t required to file this transaction with the SEC, would Singaporeans learn of it at all?  It was the same thing with the Mas Selamat breakout.  The authorities waited 4 hours to notify the public; precious time with which the JI detainee made good with on his escape.  As someone else had wondered aloud, if Mas Selamat had been apprehended within the 4 hours, would Singaporeans have even learned that he managed to break out of a high-security detention facility at all?

No one would be hot and bothered about Temasek if it didn’t draw upon the the coerced savings of Singaporeans (CPF’s forced savings) as its cheap source of investnments.  The relationship isn’t direct, but CPF buys bonds from the government, including both Temasek and GIC.  So it’s imperative that Temasek remain transparent and accountable to Singaporeans.

Update: I saw this surprisingly critical piece published in the Straits Times:

Temasek unloaded all its shares by the end of the first quarter of this year when prices averaged US$6.73, just before an April rally that saw BoA shares double from US$7 to US$14. It is impossible to time the market perfectly, of course, but could Temasek have waited a little while more for the situation to improve?

Tellingly, none of the other sovereign wealth funds that had ploughed into the global investment banks at roughly the same time had exited their investments.

The Singapore Government has already admitted to buying into these mega-banks too early. Did Temasek make it two wrongs by also selling too early? Could it have hedged its bets by selling only part of its stake?

The second issue is whether Temasek had taken sufficient measures to protect itself against downside risk, knowing full well that it was investing such a hefty amount in a US bank in the middle of a gathering financial storm.

And also this commentary piece on the Singapore Enquirer:

Having already suffered heavy loses on initial investments, optimism sprung eternal when Bank of America bought over Merril Lynch to prevent it from going bankrupt. The conversion of Merril into Bank of America shares promised some long term recovery given that Bank of America is a much bigger franchise.

Had Temasek sold its stake after the Bank of America takeover in Sep 2008, it could have gained US$1.5 billion, according to an estimate by Ilian Mihov, an economics professor at graduate business school INSEAD in Singapore. The stock price of Bank of America ranged from US$26 – US$37 per share in Sep 2008.

That resolve, or foolishness, was short lived and today it was confirmed that Temasek had sold its entire stake by 31 Mar 09. Choosing instead to increase investments in emerging markets and reduce exposure to developed economies.over and over, AND over again.

Market timing is clearly not a strong suit of Madam Ho Ching. Since the end of March, when Temasek completed the sale (at an average price of US$6.73), Bank of America stock has risen 66 percent (presently it is US$11.31).

US$11.31 is not much compared to the US$37 it could have made in Sep, but its obviously much better than US$6.73.

Written by defennder

May 15, 2009 at 8:40 PM

Posted in Singapore affairs, US

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