Temasek Sells Bank of America Stake, Looks to China (Update2)
By Chen Shiyin
May 15 (Bloomberg) — Temasek Holdings Pte sold its 3.8 percent stake in Bank of America Corp. at a loss that may total $4.6 billion, as the Singapore state-owned fund shifts bets from Wall Street to emerging markets.
The sale may have raised about $1.27 billion, based on the average price of Bank of America stock in the first quarter. The divestment was completed by March 31, according to a U.S. filing. Temasek declined to comment on the price.
Temasek, whose investments shrank 31 percent in the eight months through Nov. 30, raised its stake in China Construction Bank Corp. this week, and Chief Executive Officer Ho Ching said yesterday the fund would reduce exposure to developed economies. Temasek had spent about $5.9 billion since 2007 buying shares in Merrill Lynch & Co., acquired by Bank of America on Jan. 1 after the stock slid 78 percent last year.
“The belief now is that the world is not so American- centric anymore,” said Melvyn Teo, associate professor of finance at the Singapore Management University. “It’s going to be driven more and more by the Chinese economy and consumer so might as well load up more on Chinese banks than American banks.”
The value of Temasek’s assets fell to S$127 billion ($87 billion) in the eight months to Nov. 30 as the credit crisis drove down the value of stakes in Merrill Lynch, Barclays Plc and Standard Chartered Plc. The drop in the portfolio tracked a 38 percent retreat in the MSCI World Index.
Bank of America Stake
Ho, wife of Singapore Prime Minister Lee Hsien Loong, drove an expansion outside Singapore and increased financial assets to 40 percent of the company’s portfolio. Charles ‘Chip’ Goodyear, the 51-year-old former head of BHP Billiton Ltd. who oversaw a fourfold increase in the company’s stock during his almost five- year tenure as CEO, will replace Ho in October.
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.
At the average price of $6.73 for the first quarter, the stake would have been valued at $1.27 billion. The sale would have been worth $2.14 billion at yesterday’s closing price.
Since the end of March, when Temasek completed the sale, Bank of America has risen 66 percent. The stock dropped 52 percent in the first quarter.
Temasek confirmed it sold its Bank of America shares in an e-mailed response to Bloomberg News queries today. The company declined to say how much it sold the stake for or when the sale was conducted. Mark Tsang, a Hong Kong spokesman at Bank of America, declined to comment.
Raising Capital
“They probably want to turn the page on this one and move on,” said David Cohen, an economist with Action Economics in Singapore. “I suspect they’re telling themselves they should have focused on Asian investments, particularly China. You can’t fault them now. The financial crisis blind-sided a lot of investors.”
Merrill Lynch investors received 0.8595 Bank of America stock for each share held in the U.S. brokerage in the acquisition. The deal meant Temasek received about 188.8 million Bank of America shares, the equivalent of a 3.8 percent stake in the company, according to calculations by Bloomberg.
Bank of America Chief Executive Officer Kenneth Lewis has said he was pressured in December by Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Henry Paulson to complete the Merrill Lynch acquisition amid mounting losses at the brokerage firm.
The Charlotte, North Carolina-based bank has to raise $33.9 billion to boost capital after U.S. regulator stress tests. Its shares have tumbled 69 percent in the past year, outpacing the 37 percent decline in the Standard & Poor’s 500 Index.
Wealth Funds
Bank of America sold part of its Construction Bank stake to a group of investors including Hopu Investment Management Co., a private-equity fund run by Goldman Sachs Group Inc.’s China partner Fang Fenglei, and Temasek, two people with knowledge of the matter said on May 12.
Morgan Stanley acted as an agent for Bank of America in the sale, not Merrill Lynch, the Wall Street Journal reported today, citing people familiar with the transaction.
Bank of America rose 2.7 percent to $11.31 in New York yesterday. It traded between $14.81 and $2.53 apiece in the first quarter.
Sovereign funds, mostly from Asia, have made “substantial losses” on more than $60 billion invested in U.S., Swiss and U.K. banks since the start of the subprime crisis, according to International Financial Services London, an industry lobby group.
Standard Chartered, Barclays
Along with its stake in Merrill Lynch, Temasek also raised holdings in Standard Chartered, the London-based bank that gets almost all its profit from emerging markets, and bought shares in Barclays, the U.K.’s third-biggest bank. The company had earlier said it wants the Organization for Economic Cooperation and Development countries to account for about a third of its investment portfolio.
Temasek will cut its holdings in the so-called OECD countries to 20 percent as it expands in Asia and emerging markets from Latin America to Africa, Ho said in a speech posted on the company’s Web site yesterday.
The MSCI World Index that tracks almost 1,700 stocks in developed markets has risen 0.5 percent this year, compared with a 45 percent gain in China’s benchmark Shanghai Composite Index.
Other Investments
“We have also been re-assessing our long term portfolio balance over the last two years,” Ho, 56, said in the May 12 speech. “As Asia continues to develop, it continues to de-risk. We are increasingly more confident of Asia’s future.”
Temasek was founded in 1974 to foster development of the island’s banks, airlines and ports, and remains the biggest shareholder of six of the 10 biggest Singapore companies by market value. It owns shares of the island’s biggest bank and its largest telephone company.
Temasek’s investments in Asia include Bank of China Ltd. and ICICI Bank Ltd., India’s No. 2 lender.
“We’ve been very heavily overweight in Asia for some years now and leery of the Western financial institutions because Asia is where the growth is at,” said Hugh Young, managing director at Aberdeen Asset Management Plc, which has about $30 billion of Asian assets.
Temasek’s BoA divestment
Let’s not fall into a tell-all disadvantage
May 20, 2009
IT IS refreshing that Mr Ignatius Low, in his commentary last Saturday (’Temasek should clear the air’), and Mr Denis Distant, in his letter on Monday (’Temasek must set example on transparency’), have urged for public clarity by Temasek over its sizeable divestment of Bank of America (BoA) shares.
But their call for transparency should be reasonable – rather than a tell-all stand. The transparency should be restricted to performance reports, broad asset allocation for the prior financial year, a report on performance attribution and perhaps comments on future strategies.
Granted that Mr Low’s estimate of the loss realised for the BoA investment – a consequence of Temasek’s investment in Merrill Lynch which was taken over by BoA – is not a trivial amount, one has to accept that it is part of a portfolio transaction.
We cannot go around pressuring our sovereign wealth funds (SWFs) to explain every single trade.
Our SWFs should be judged on their overall investment targets within the given guidelines.
Succeeding in getting our SWFs to clear the air on single transactions may offer only a false sense of comfort that public accountability and transparency have been satiated.
The undesirable consequence is to turn investment management into a spectator sport, which may have the deleterious effect of turning our SWF managers into playing it ultra safe.
Funds around the world, be they hedge funds or otherwise, are the competition for our SWFs. The competitors do not explain every single transaction to their investors and shareholders.
Let us not force our SWFs into competing with one hand tied behind their backs against equally hefty or even larger entities.
Johnny Heng
May 20, 2009
Temasek’s BoA divestment
Bewildering move needs to be clarified
TEMASEK’S exit from Bank of America (’Temasek sells BoA stake’, last Saturday) is bewildering although some probable reasons for it were suggested by money editor Ignatius Low in a commentary on the same day, ‘Temasek should clear the air’.
One reason was that Temasek did not end up with what it paid for. Its investment in Merrill Lynch ended up with BoA after the two entities merged.
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 US government-backed entity like BoA.
Has the board of Temasek been given an objective assessment of the financial situation in the United States?
Was it that difficult to conclude from the various news sources that BoA would not be nationalised?
Was nationalisation a push factor for the board to dump BoA?
The US government has stated clearly that it will not nationalise BoA even though it is technically the largest shareholder of the bank.
What more assurance does the board need?
I agree with Mr Low when he wrote that ‘these are, after all, extraordinary times, and so extraordinary outcomes – and losses – will be expected’.
But, the untimely foray into Merrill Lynch and the ill-timed exit from BoA were not that extraordinary in nature.
The performance benchmark for Temasek and the Government of Singapore Investment Corporation has been raised to the highest level by the Government because, we were told, it had put in place extraordinary men to safeguard our reserves.
Thus far, the investment decisions regarding Merrill Lynch and BoA have been ordinary and incomprehensible.
Png Eng Huat
Temasek: What happened to the ‘long term’?
TODAY Online • Tuesday • May 19, 2009
Letter from Leong Sze Hian
I refer to “What happened to your ‘long-term’ view?” (May 18).
Singapore’s state-owned investment vehicle Temasek Holdings has sold all its Bank of America (BoA) shares in the first three months of this year, resulting in estimated losses of between US$2.3 billion (S$3.4 billion) and US$4.6 billion.
Weren’t Singaporeans told recently, and repeatedly, in the first few months of this year that such investments in US banks were long term and would recover?
Since Temasek sold all its BoA shares in the first three months of this year, were not the “investing for the long term” statements, somewhat misleading?
It is bad enough to lose so much of Singaporeans’ money in such a short time, but I think it may be akin to “rubbing salt into the wound” when Temasek declines to reveal the actual amount lost.
This is not the first time that Temasek has lost so much money.
Isn’t it about time that an accounting of all its losses be disclosed to Singaporeans?
As to Temasek’s last reported disclosure that its net portfolio value dropped in value from $185 billion to $127 billion from March 31 to November 30 last year, a fall of 31 per cent, what is the value now after adjusting for any injections from the Government and the valuation of state assets transferred to Temasek?
To put the amount of US$2.3 billion to US$4.6 billion in perspective, it is about two to four times the last two per cent GST increase.
Business Times – 19 May 2009
COMMENTARY
Team Temasek needs to start scoring
Sound strategy not enough if players don’t adapt to shifts in the game
By WONG WEI KONG
ASSOCIATE NEWS EDITOR
SO TEMASEK Holdings will now line up to a new strategy to play the investment game. But that, in itself, should not be taken as a guarantee of better future returns. Nor should it put an end to the questions being asked of its recent losses – in fact, its chequered track record suggests that the Singapore investment agency should be subjected to more, not less, public scrutiny.
Last week, Temasek revealed that it has tweaked its long-term investment direction to focus more on Asia and emerging markets such as Brazil and Russia, with reduced emphasis on developed countries like the US and Europe.
The approach was dubbed ‘10-20-30-40′ (which should have brought a wry smile to most soccer or sports fans’ faces) – and aims for about 10 per cent of its portfolio allocated to Latin America, Russia and Africa; about 20 per cent to Organisation for Economic Cooperation and Development (OECD) countries, or the developed countries; 30 per cent to Singapore investments; and the remaining 40 per cent to the rest of Asia.
This was a switch from its previous strategy, where Temasek said it would park about one-third of its assets in Singapore; one-third in Asia, excluding Japan; and the rest in OECD countries. That itself marked a change from its earlier strategy, when it invested mostly in Singapore companies.
But, as any soccer pundit will tell you, what ultimately wins games is not whether teams line up in a classic 4-4-2 formation or the now-more-fashionable 3-5-2 or 4-5-1; what’s more important is having the players with the skill and discipline to effectively carry out the given formation. It requires managers who are able to adapt to changing conditions on the ground and react accordingly – for instance, a team that plays a nominally attacking 4-3-3 formation can quickly revert to a 4-5-1 if more defensive muscle is needed.
If any reminder was needed that strategies alone do not produce winning outcomes, it came – just two days after Temasek revealed its new approach – in the form of news that Temasek had cut its losses in Bank of America (BOA). The Singapore investment agency sold its 3 per cent stake in the bank, resulting in an estimated loss of about US$3 billion. Temasek had invested a total of US$5.9 billion for a 14 per cent stake in Merrill Lynch since December 2007 – under its previous strategy to buy into global banks – before Merrill was taken over by BOA on Jan 1 this year. Some have cast the sale as the result of the shift now in investment strategy. But an equally plausible reading, given that it had insisted it was invested for the long term, would be that Merrill/BOA was simply a bad, mistimed investment, and Temasek decided to bail out before it lost even more money.
It should be remembered, too, that it’s one thing to change the asset allocation to expose more of the portfolio to growth and less of it to risk, and another to actually achieve the desired performance.
Examples can be found within Temasek’s own portfolio. By most accounts, Temasek has done well with its investments in Chinese banks, including China Construction Bank and Bank of China; and its investments in the Indonesian banking sector, as well as its Indian investments, have also yielded good returns. Yet, China, India and Indonesia would seemingly be high-risk emerging markets. On the other hand, Australia would appear a low-risk, mature market. However, it is also the scene of one of Temasek’s worst investments, which saw it paying A$401.5 million to take a 12 per cent stake in ABC Learning in May 2007, only to see the world’s biggest childcare operator collapse under nearly A$1 billion (S$1.1 billion) in debt last November and its assets seized by lenders. So, strategy aside, it’s really down to execution and making the right call for each investment.
And achieving the desired outcomes under the ‘10-20-30-40′ strategy would require that, as well as the right people and processes. Some 350-strong, Temasek takes pride in having about two-thirds of its people below the age of 40, and with more than 40 per cent of its senior management team coming from outside Singapore. More than half of its people have prior experience in the financial services industry – with the firm attracting ‘Wall Street types’ in the past few years. But given the recent track record, does this mix need to be changed? What about the internal processes that frame their work?
Hopefully, these issues will not escape Temasek’s attention, even as it presses ahead with a new game plan in hand. Successful teams use the off-season to change their mix and rebuild for games ahead. So too should Temasek, as it takes a breather from the breakneck speed of investments in recent years. And with new chief executive Chip Goodyear taking over from Ho Ching, it really is a window of opportunity for Temasek to take stock. Ultimately, Singapore needs Temasek to win – not draw or lose.
The Straits Times
May 16, 2009
Temasek should clear the air
It must not shrug off BoA losses as a blip if it is to emerge stronger
By Ignatius Low, Money Editor
What is one to make of Temasek’s decision to sell its entire stake in Bank of America (BoA)?
The move has resulted in one of the largest-ever realised losses from a single investment in Singapore’s history. The number is so large – at least US$2.3 billion (S$3.4 billion) – that one has to wonder exactly what it was that compelled Temasek to bite the bullet.
After all, outgoing CEO Ho Ching reiterated this week that the investment fund takes a long-term view, at least 10 years and up to 50 years. So it could have well waited a few years for the global economy to recover and cash out then.
Instead, it will now face the wrath of the Singapore public, already shaken by news that Temasek’s portfolio shrank 31 per cent in the wake of the financial crisis and its recent $401.5 million investment in Australia’s ABC Learning Centres has likely lost most of its value.
There are probably three reasons why Temasek chose to cash out.
The first has to do with the fact that, unlike the Government of Singapore Investment Corporation (GIC), which invested in UBS and Citigroup, Temasek did not end up with what it paid for.
Temasek’s original US$5.1 billion investment was in Merrill Lynch, a truly global business engaged in high-yielding activities like corporate finance and private banking. BoA, on the other hand, is focused on more traditional businesses like consumer and corporate lending.
More importantly, Temasek owned as much as 13.7 per cent of Merrill. But after BoA’s takeover, it owned only about 3 per cent of the merged entity. In other words, Temasek went from owning a major stake in a global investment bank to a minor stake in a gigantic US lender.
If BoA did not fit into Temasek’s strategy, it was entitled to exit the investment. If Merrill had been bought by a similar type of institution, say JP Morgan or Goldman Sachs, Temasek would not have been in such a dilemma today.
Secondly, there were very real fears a few months ago that major US banks could be nationalised.
If a bank like BoA was nationalised, the value of its shares would likely plunge to zero or near-zero. That risk was enough to prompt many other shareholders to rush to exit their investments early this year, however painful the loss.
Finally, BoA is showing some signs of distress. A recent US government stress test showed that 10 US banks needed US$74.6 billion more in capital, with BoA making up almost half that amount at US$33.9 billion.
Leadership problems have also emerged. Once hailed as a hero, chief executive Kenneth Lewis was recently ousted as BoA chairman. His position as CEO is now in doubt, and the US government has urged BoA to revamp its board.
So if one is inclined to take a charitable view, Temasek’s action is similar to that of an investor cutting his losses and trying to recoup his money by betting on winners somewhere else. But such arguments are unlikely to assuage Temasek’s critics.
There is just no running away from the fact that the investment fund has lost as much as US$4.6 billion of the nation’s reserves (the topmost end of the loss range) from a single investment in just over a year.
Here, Temasek will need to clear the air on two major issues. The first is the timing of the sale.
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?
Just three days ago, US Treasury Secretary Timothy Geithner was quoted as saying that the US financial system has completed a big part of a painful adjustment away from its excessively leveraged state, and was ’starting to heal’.
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.
The comparison with GIC is illustrative. GIC invested US$6.88 billion in Citigroup just one month after Temasek’s investment in Merrill Lynch. But GIC’s investment came with a protection clause: It could opt not to convert its investment into shares should the stock price dip, and instead receive 7 per cent in coupon interest in perpetuity.
That clause came in handy when it was asked by the US government to convert its investment into shares three months ago. To give up its right to that coupon interest income, Citigroup was forced to offer GIC and other similar investors a fairly low conversion price of US$3.25 a share – so low that other Citigroup shareholders complained.
As a result, GIC is not in Temasek’s position. It is, in fact, sitting on a small paper gain today, going by Citigroup’s closing price of US$3.55 yesterday.
To be fair, neither Temasek nor GIC – or any shrewd investor – could have predicted the ferocious market meltdown that occurred in September last year. These are, after all, extraordinary times, and so extraordinary outcomes – and losses – will be expected.
Still, Temasek should not shrug off the loss as yet another wiggle in the curve it had no control over. It must not stop doing what it does best, which is to continue to be aggressive and obtain the best possible returns for the people of Singapore.
But some serious soul-searching is in order at the 35-year-old institution so it can emerge stronger and better-equipped for the job ahead.
ignatius@sph.com.sg
May 18, 2009
SALE OF BoA STAKE
Temasek must set example on transparency
I REFER to last Saturday’s column, ‘Temasek should clear the air’, on the massive loss arising from Temasek Holdings’ sale of its stake in Bank of America (BoA).
Temasek is neither a private equity fund nor a hedge fund, but it handles billions of dollars which belong to Singaporeans.
BoA’s share price ranged between US$2.53 and US$14.81 during the period Jan 2 to March 31, when the sale is believed to have been made. This makes it well-nigh impossible to guess the size of the loss, except that it must be in billions of dollars.
After being told that the investments were for the long term – when the markets in the United States crashed after Temasek had invested heavily in US financial stocks – Singaporeans expect Temasek to explain the timing of the sale and the reasons for it. Do the reasons relate specifically to BoA or generally to the US stock market? Surely it cannot be due to diversifying the geographical distribution of future investments.
Temasek must give the lead and be transparent if other listed companies on the Singapore Exchange are expected to do so.
Denis Distant
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