Buying high and selling low: Uniquely Temasek?
Asia Sentinel just published a damning indictment of Temasesk Holdings’ performance over the past year and its current CEO Ho Ching. Among other things, a sub-heading reads:
Aristocratic lineage isn’t a qualification for financial management
Very true. Don’t think I need to bring up to the reader the cronyistic nature of Singapore’s politics and large companies. Now for some highlights:
Temasek’s loss on BoA alone is estimated around US$4.6 billion, or roughly US$1,000 for every single Singaporean citizen. Big losses too were sustained on most of the rest of the financial portfolio such as Barclays of the UK and UBS of Switzerland.
Other huge losses were sustained by the even less transparent Government Investment Corporation, which invested Swiss francs 11 billion in UBS in 2007 and added to it in a rights issue in 2008. From US$60 in New York in 2007, UBS shares have slumped to US$13, having been down to US$7. Did GIC also sell UBS when Temasek was selling BoA? Or is its presence in Singapore, where it occupies the former residence of the president, too useful for bringing in business from Myanmar generals and other friends of Singapore?
The desire to get out of Wall Street’s black holes was understandable but the exodus seems to have been part of the group’s follow-the-crowd mentality. And one wonders if it is not going to repeat itself.
Here’s something on Temasek’s incoming CEO:
Goodyear’s claim to fame was increasing BHP’s market capitalization from US$12 billion to US$200 billion and a quadrupling its share price in his eight years at the helm. However, most of this was luck – the biggest mineral price boom for 40 years — plus acquisitions made at increasingly high prices. Goodyear’s reputation would be very different if Rio Tinto had accepted BHP’s top of the market bid made just after he left office but with his support. Instead Rio’s ego maniac chief executive rejected the offer so, having saddled itself with massive debt of its own, now going cap in hand to China.
A running theme throughout the op-ed is that Temasek was a follower, rather than a setter of market trends and this applies as well to its recent focus on China:
So Temasek is again following fashion, re-focusing on Asia at a time when Asian markets have already recovered a long way while its former western favorites are still languishing. Temasek still seems to think that Chinese banks made a good proxy for its economy and consumers. Just like Southeast Asia in the 1990s, China’s economy can grow rapidly, but still leave banks with piles of bad debts flowing from government-directed lending.
Indeed an article I saw earlier on NYT raised the likely possibility of how investing in Chinese banks may pay off only for corrupt officials and speculators, leaving nothing for shareholders like Temasek:
In China, ventures may be spectacularly unprofitable, yet enrich everyone lucky enough to get a piece. Developers, for example, construct vacant office buildings as an excuse to borrow from state banks. They rake off a cut for themselves, pay bribes to the party officials who deliver the land and reward bank functionaries with sumptuous banquets and trips to Macao. Soon enough, the trophy skyscraper descends into financial disaster, but the developers, bankers and party officials have already extracted their riches, and for long afterward they will still enjoy them.
Given how dependent our SWFs are on Singaporeans CPF, it’s absolutely critical that Temasek be transparent on its losses:
Quite how badly Temasek has done is hard to figure out because the data presented is scanty and unconsolidated. For example, in 2007-08 the value of its portfolio increased by 13 percent to S$185 billion but it is unsure how much of that was simply a capital injection from the government. There are also black holes like its subsidiary Astrea, which borrowed US$810 million in earlier in the decade to invest in a portfolio of private equity and buyout funds. Another fall for Wall Street fashion which will likely be reflected in pensions for Singaporeans.
Finally the damning verdict:
Ho appears to have made a career of assuming that smart people with the right degrees and loaded up with mathematical models in one hand and high sounding jargon in the other knew more than anyone else about investment. Thus during the boom years for financial services, Temasek followed the crowd, pushing the financial sector component of its portfolio up to 40 percent, most of it invested in just the high profile western outfits favored by Ho’s Wharton-bred advisors..
Like the archetypal senior Singapore bureaucrat, paper qualifications seem to have counted for far more than actual experience running a business. Such businesses as these people run are mostly Singapore public sector ones shielded from the force of free competition. Even Singapore Airlines is beginning to look jaded in an era of low cost carriers pioneered by a Malaysian, Tony Fernandes and AirAsia, and the gradual breakdown of fare cartel.
If nothing else, the record of Temasek gives the lie to notion spread by Singapore’s ruling clique that they are the best guardians of the people’s savings. Paternalism morphed into an arrogance whose full cost to Singaporeans is for now hidden by the opaque nature of the government’s accounts, and the very partial revelations provided by Temasek. Singaporeans, gather your purse-strings and, together, pull.
In short, go read the article. It’s worth every word.
Update: Under the Willow Tree also has this:
Two pictures speak two thousand words.