Singapore's Temasek defends costly Bank of America exit

[Law_ong]

Fri May 22, 2009 2:03am EDT

 

* Temasek says risk-return environment had changed

 

* May take investment loss to cut risk, tap opportunities

 

* Temasek's losses on BofA may exceed $3 bln

 

* Letter comes after whirlwind of criticism (adds analysts quotes, background)

 

By Kevin Lim and Saeed Azhar

 

SINGAPORE, May 22 (Reuters) - Singapore's Temasek defended its money-losing exit from Bank of America (BAC.N), saying the U.S.-centric bank did not fit its investment criteria and the risk was perceived to be greater than the expected return.

 

The explanation, a rarity for the state investor, came in a letter to major Singapore newspapers after the loss on BofA attracted fierce criticism from the usually muted pro-government local media, investors and independent blogs, which noted BofA shares have rallied more than 70 percent after Temasek's exit.

 

The losses are also expected to be discussed when Singapore's Parliament convenes next week.

 

Temasek, which is headed by Ho Ching, the wife of Singapore's prime minister, sold its 3 percent stake in BofA in the first quarter after converting its Merrill shares into BofA in January. Temasek has not said how much it lost in the process, but Reuters estimated the loss was more than $3 billion. [iD:nSIN454726]

 

Temasek announced in February that Ho will step down and be replaced by Chip Goodyear, the former CEO of BHP Billiton (BHP.AX), on Oct. 1.

 

"Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader U.S. economy. The risk-return environment had also changed substantially," Myrna Thomas, managing director for corporate affairs, said in the letter.

 

Temasek's aim is to ensure that its portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, Thomas said.

 

"We may choose to divest an investment, even at a loss, to optimise our risk or portfolio exposure, or if there are better opportunities elsewhere or later," she added.

 

Temasek, which like other sovereign wealth funds, ploughed billions into Merrill Lynch in the early phase of the credit crisis, saw the value of its portfolio plunge 31 percent to S$127 billion between March 31 and Nov 30 last year during the severe market turmoil.

 

KEY QUESTION UNANSWERED

 

Financial investments accounted for 40 percent of its portfolio.

 

"The letter doesn't give the answer that everybody is asking. How much did they lose?," Leong Sze Hian, president of the Society of Financial Services Professionals, told Reuters.

 

The exact losses are difficult to quantify because Temasek had also offloaded about 30 million Merrill shares last year in smaller lots, reducing its exposure to the investment bank by the time BofA took over Merrill.

 

Conraj Raj, editor-at-large at the Today newspaper in Singapore, threw the spotlight on the sovereign wealth fund's stated strategy of taking a long-term view of its investments.

 

"After all, it has been drummed into us ad nauseam that both Temasek and its cousin, the Government of Singapore Investment Corporation, invest for the long term with a time horizon that could stretch for as long as 50 years," he wrote on May 18.

 

"Whatever happened to the sovereign wealth fund's (SWF) strategy of taking a long-term view of its investments?" Singapore's bigger sovereign wealth fund, GIC, on the other hand said it was a long-term investor in Citigroup (C.N) and UBS (UBSN.VX). [iD: SIN463524]

 

"It is difficult to understand why a long-term investor like Temasek was willing to stick with a dud like Australia's ABC Learning centres to the end, but did not try to exercise a little bit more patience with a U.S. government-backed entity like BofA," Png Eng Huat wrote in a letter to Straits Times forum.

 

"The U.S. government has stated clearly that it will not nationalise BofA even though it is technically the largest shareholder of the bank." (Editing by Muralikumar Anantharaman)

Edited May 22, 2009 by Law_ong

[Altivo]

i have this feeling someone will stand up and then say "we should be thankful" that the loss is only USD 3 billion and that we should "move on"

[Drive_carcar]

The explanation is nothing more than doing a roti prata on us, and avoiding the burning question: How much did they lost?

 

What is so difficult about quantifying the losses? Just take the historical cost of acquiring ML, versa what they have got in return after off-loading BoA shares, and there we have it, the total damage. Don't tell me they don't have a record of how much they paid for ML's acquisition?

 

 

[Hub_n_mona]

i have this feeling someone will stand up and then say "we should be thankful" that the loss is only USD 3 billion and that we should "move on"

 

Same here..

they will point to "lookie here, how much did we make elsewhere.." or point to past history of earnings over 5, 10 yrs maybe.

 

should be thankful that it is "only" 3-4 billion..and it's down to brilliant minds at work..time for a raise for minimising losses in these tough times

[Law_ong]

i have this feeling someone will stand up and then say "we should be thankful" that the loss is only USD 3 billion and that we should "move on"

 

erm.... the puzzling concern is this:

 

"invest for the long term with a time horizon that could stretch for as long as 50 years"

 

if this stands....do we need to lose now?

 

[Klinz]

Transparency...??? My Foot!!!

[Altivo]

erm.... the puzzling concern is this:

 

"invest for the long term with a time horizon that could stretch for as long as 50 years"

 

if this stands....do we need to lose now?

 

they took a gamble and they got burnt..... but with this BOA and ABC Learning ctrs loss... tema-sick has really eroded our confidence in them.

[Throttle2]

i have no problems with losses as long as there is accountability and heads roll.

Just like in any corporate situation.

 

some people need to be sacked

Edited May 22, 2009 by Throttle2

[Law_ong]

they took a gamble and they got burnt..... but with this BOA and ABC Learning ctrs loss... tema-sick has really eroded our confidence in them.

 

erm...then dun use the word "long term" leh...

[Law_ong]

i have no problems with losses as long as there is accountability and heads roll.

Just like in any corporate situation.

 

some people need to be sacked

 

poor goodyear, have to be victimised if he can't clear up the s--t left behind.....

 

[Windchoco]

BS but i cnnt do anything bout it so I ST

[Blueray]

 

2 of their investments; ML and ABC, were horribly wrong just a short 6 months after entry, this show that due diligence was very poorly conducted ...

 

I find this simply unacceptable.

 

of course elite group will never admit its their mistake, too much pride and ego at stake.

[Altivo]

erm...then dun use the word "long term" leh...

 

they tried to "smoke" us but failed badly.... guess they had the impressions that we "lesser mortals" are idiots.

[Piyopico]

They can come up with 1001 reasons why they sold but the FACT remains, it is a costly mistake.

 

Then again, if it is made honestly it is fine. Thatz what we are led to believe.

 

[Celicar]

I see nothing at all about the timing of the sale - why then of all days and why all at once?

[Jubilong]

they tried to "smoke" us but failed badly.... guess they had the impressions that we "lesser mortals" are idiots.

 

Why they failed to smoke us?? Because our world class education system is WORKING, we are not stupid!!

[Marquee]

To be fair to them, they have already made the $$ investing CCB.

 

Guys, juz google the news. Let the facts talk and not dick head.

[Starry]

poor goodyear, have to be victimised if he can't clear up the s--t left behind.....

 

Umm...maybe the year is not good for him afterall.