Apr 17, 2008

Temasek And A Black Hole Named Merrill

From CNN Money:

More pain for Merrill Lynch
Wall Street firm's quarterly loss is even wider than expected after billion in writedowns, and it plans to cut 4,000 jobs.
By Tami Luhby

April 17, 2008: 7:04 AM EDT

NEW YORK (CNNMoney.com) -- The pain isn't over for Merrill Lynch & Co.

The investment bank Thursday missed even the drastically lowered estimates for its first-quarter results, reporting a net loss of $1.96 billion, or $2.19 per diluted share.

The company also plans to cut about 4,000 jobs, or about 10% of its workforce, excluding financial advisers and investment associates. It will focus the reductions in its global markets and investment banking division.

Net revenue was $2.9 billion, down 69% from the prior-year period, primarily due to net writedowns totaling $1.5 billion related to asset-backed securities and a downward adjustment of $3 billion related to hedges with financial guarantors.

"Despite this quarter's loss, Merrill Lynch's underlying businesses produced solid results in a difficult market environment," said John A. Thain, chief executive officer, who said the bank remained well-capitalized.

Analysts had projected a $1.99 per share loss on a net loss of $1.4 billion and revenue of $3.7 billion.

Wall Street was prepared for horrendous earnings from Merrill Lynch (MER, Fortune 500). Analysts were almost tripping over themselves to cut profit estimates and enlarge writedowns, suspecting the value of the company's assets had fallen steeply in recent months. Only a month ago, analysts were predicting profit of 48 cents per share. At the start of 2008, the consensus estimate was $1.52 per share.

"Unfortunately, Merrill has significant balance sheet exposures in many of the asset classes that experienced continued pricing pressure in [the first quarter]," wrote Jeff Harte in an April 2 note.

.... Merrill Lynch raised $12.8 billion in capital during the past two quarters and Chief Executive John Thain has said he doesn't plan to raise any more.

Early last year, I came close to accepting a job at Merrill Lynch. It was quite tempting, not only because Merrill Lynch was a brand name organisation then, but also because the job was in a rapidly growing sector - commodities.

The commodities space is still hot - in fact, it's arguably the only thing that's still hot in the financial world. It's not just the usual oil, gas and gold stories - now, even plain old rice has become a hot commodity.

Merrill Lynch is, however, no longer a brand name. Instead, among all the investment banks in the world, it's probably the one that was hardest-hit in the US subprime crisis. Merrill Lynch will take a long time to recover from this mess, if it ever does.

Oh well. Just as well I didn't join Merrill.

It's barely been 4 months since Temasek started buying into Merrill Lynch, and Temasek is already sitting on paper losses of more than half a billion USD dollars. Citizens, are you worried for Singapore yet?


Anonymous said...

Mr Wang, worried?

I gave up long ago. They still have not accounted for Suzhou.

"National interests" are two such meaningless words, when "accountability" was not to be built in.

And for wanting to lock up my CPF "in my interests", I will migrate when nearer retirement. Get all I can from this silly system, and take my money just before they thought they can get it.

I cannot believe the amount of tolerance they expect from us. When they are clamping down with ever more draconian rules "in your best interests". I can take care of myself, thank you.

Anonymous said...

i dont think a lot of singaporeans actually know what is going on.. that's why i read ur blog mr wang!

Anonymous said...

This is highly speculative but...

I think it might have something to do with Merill Lynch's expansion plans in Singapore. If that huge building site near Vivo City was meant to be a major regional HQ for the investment bank, then it would have meant possibly thousands of jobs of the kind that the Republic likes to pull in.

The company began tanking a couple of months ago, putting all such expansion at risk. So, for Temasek to pump in that money, it may not have been just about return on investment; it could also have been to safeguard a major foreign investment that was intended to cement Singapore's position as a financial center. Having a large shareholders' vote could have ensured that Merill Lynch's HarbourFront office would have remained on track.

Anonymous said...

Can we ask to look at the balance sheet that would take 50 yrs to churn out? Even OTC could not get even a glimpse of all that money... Perhaps there might be no surplus afterall. Just an empty shell with a gaping hole that leaks to nowhere... (Conspiracy theory ;) )

Next project Tianjin... Huh!

Forget it. The majority of us have chosen them; the consequences are ours to bear.

Perhaps these irredeemable sheep will continue to bleat till their last moments at the slaughterhouse...

Anonymous said...

It takes guts to buy in a market that seems to be tanking.

Don't be too early to deride them yet - we should look long-term.

Eaststopper said...

On the contrary, I think the investment in Merrill and other banking institutions, though seemingly taking a huge hit in the short term, will reap benefits in the longer term.
First of all, the 'personal' currency generated from this 'venture' will be enormous. Going forward, Singapore's sovereign wealth fund will have a higher chance of success if indeed we want to acquire strategic stakes in the US or Europe.
Secondly, in the investment space currently available to Temasek, investment in US stocks look the most logical. US Treasuries earn a miserly 2% annually - that's not taking into account the foreign exchange fluctuations and inflation.
Thirdly, I think of the potential jobs coming into Singapore. In Merrill's next board meeting to decide which country to offshore or base their Asian headquarters, Singapore will have huge bargaining power to ensure that the jobs do come to us.
My only worry is that having spent so much money, their perception of us is still very poor.
It is also not lost on me that our people will be looking at the millions poured to rescue errand bankers while a part of the population is still trying to make ends meet.

Anonymous said...

Quote: Analysts had projected a $1.99 per share loss on a net loss of $1.4 billion and revenue of $3.7 billion.

not forgetting additionall loses from the dropping US dollar too...

Anonymous said...

Dear Mr Wang,

I am puzzled why everyone is so quick to condemn Temasek's investment in Merrill. Perhaps you can tell me more.

I'm not an investment banker, but from what I understand, Temasek didn't buy Merrill's shares per se; Temasek bought convertible bonds issued by Merrill, with a 9% interest rate.

To me, this is the equivalent of lending moeny to Merrill, and getting back 9% interest repayment each year, until you choose to convert your bonds into shares.

Now, this looks like a pretty good deal to me, compared to our 4% CPF returns (which PAP claims is very very good), and the investment is as good as risk free (I assume US still has to too big to fail mentality wrt big investment banks)

So my question to you is, why should we be worried? If we are worried about capital being locked up, well, 9% returns sounds pretty good. If we are worried that Merrill will be unable to pay in the future, I suppose the US government will always step in to make sure it does. Can you please enlighten me?

BTW, I hope you and your readers understand that I'm not out to make trouble by making this comment. It's a genuine question that's been at the back of my mind for some time, and I'm looking for answers.

Anonymous said...

Micropolis on my mind...

Anonymous said...

新加坡有的是钱。。。我们要为别的外国和外国人民服务, 用我们的钱来扩大外国公司的生意,用钱来赵外国学生.

Anonymous said...

All the good and bad comments aside.

If only the people in charge of temasek were transparent and give detailed accounts of all their dealings over the years, I don't think so many people would so critical of many of their dealings.

It is precisely the path of nontransparency they took years ago that people are wary of them.

They shouldn't be so arrogant. They should be transparent and accountable so long it involves public money. Singapore citizen's money.

Anonymous said...

If Ho Ching had pumped in USD$20B into DBS\UOB\OCBC, that would have created plenty of jobs too. :-)

Why are the likes of Jim Rogers\Warren B so quick to condemn the investments? Dunno. Maybe they know nothing about investing?


Anonymous said...

I believe 9% interest is for UBS (GIC). Is ML paying any interest to Ho Ching?

Hmm.... how do u explain the concept of risk premium to gahmen spin doctors ...


Anonymous said...

Most Singaporeans, I think, have long given up worrying about the money in GIC and Temasek which they have been conditioned to think does not belong to the citizens any more. And even if the investments make high returns, Singaporeans know for a fact that it benefits them little. So, ignorance is bliss, for those who do the investing and for those who know little about the investment and its losses.

Anonymous said...

If you have a few hundred billions what is 1 or 2 billion loss? And even if they made a few billion, what difference does it make to ordinary folks?
But problem is don't know whether they even have a few hundred billion and even late President Ong Teng Cheong could not know.
Just like sub prime losses, the investment banks themselves don't know the exact or final loss yet.
Just hope that our local banks are safe and inflation will not get worse. Worry other things no use.

Anonymous said...

"To me, this is the equivalent of lending moeny to Merrill, and getting back 9% interest repayment each year, until you choose to convert your bonds into shares."

But what you think the Merrill will honour the interest payment given that itself is in the state of dire straits ?

Let's not talk about long term or anything like that when there is no accountability at all. If the Merrill doesn't want to honour the contract of giving 9% every year, ShittyTime will not mention ,and it move on again and everything kept silent ? Will the gov mention anything and what can citizen do about it ?

Are you a apathetic Singaporean who ignorance of what really going on or just some loyal Strait Time reader ?

Take an example, if yourself are so desperate for money, can you really honour the contract of 9% payment over millions own ?

Come on, be realistic...

Anonymous said...

Merill Lynch aside. In any business, one either makes or breaks. The wisecracker would always say buy low (company in bad shape) and sell back high later (when it makes a comeback). It's also economics. If one can predict what is going up or down tomorrow then I guess nobody needs to work anymore, right? This is the commercial world - the real world! On the other hand, we could stash all our money beneath the pillow and wait for it to grown, riskfree. Safer that way. Come to think of it we have not been investing too badly over the decades. I'm yet to hear of anyone not collecting his CPF savings in Singapore when he reaches 55 over the last 40 or so years.

Anonymous said...

They definitely showed poor judgments when they decided to take up the offers from these striken banks. Those in the know will tell you that these banks only go overseas to raise capital when they failed do so in US itself. So what the outsiders get are discarded junks. How can this offers be golden opportunities when it was common knowlege that the subprime crisis can only get worst from when the offers were made ? Jim Rogers said it very well when he commented that his heart bleed when he sees them losing money like that. These smart people are still negative and short on Western banks. Why are Singaporeans going extra long ? The argument that if we hold long enough we will make money is not a good argument. First what if the institution go burst. Second, is there no better opportunities to deploy your capital ? You are just not maximising your opportunities and hence return. That the better ones in America consistently made 20% a year return on huge chunk of capital while you are only making 8% is a good indication as to where you stand in maximising opportunities.

Anonymous said...

"Early last year, I came close to accepting a job at Merrill Lynch. It was quite tempting, not only because Merrill Lynch was a brand name organisation then, but also because the job was in a rapidly growing sector - commodities.

The commodities space is still hot - in fact, it's arguably the only thing that's still hot in the financial world. It's not just the usual oil, gas and gold stories - now, even plain old rice has become a hot commodity."

What a stroke of genius.

Mr Wang chose to reject a job in commodities but instead ended with a job in Credit Derivatives.

Just before the credit market imploded.

What a stroke of genius :)

Gilbert Koh aka Mr Wang said...

Oh, all things considered, I still think I made a good move. It helps that my work experience is quite versatile, so a number of different Plan B's are available to me.

Eg I am quite comfortable with debt restructurings; loan workouts etc. If companies really start going bust all over the world, I may make a small fortune. ;)

hugewhaleshark said...

I don't think it is a bad move at all, by Temasek and GIC both.

I always looked at it as an investment which is aimed at protecting the rest of their massive investment portfolios.

Sure, you lose on UBS and Merrill, but by coming in to bail out the financials you inject confidence into the financial system.

If that results even in a 1% rise in the remainder of your $x00 billion portfolio, it's still a net gain.

At that level, your investment decisions become part of the fundamental landscape, and have a big impact on asset values overall.

Anonymous said...

"I'm yet to hear of anyone not collecting his CPF savings in Singapore when he reaches 55 over the last 40 or so years."

said Anon of April 18, 2008 3:41 PM

Dear Anon,

I'm glad to oblige. Please hear it from me.

When you reached 55, they would have moved the goalposts so many times that you do not know what hit you. They are good. They are very good at holding on to your hard earned money.

Legislation after legislation can be fixed at their whims and fancies until you don't even realise that you've been screwed.

I started working more than 40 years ago and the law then was I'd get all my CPF savings when I reach 55 (with interest!). Truth is when I was 55, there were SMRA scams like
-Special Account
-Minimum Sum
-Retirement Account

which prevented me from getting what's rightfully mine.

Now they are having Longevity Noodles, I mean compulsory annuity, which they force you to eat!

The most nauseating part is they claim they are doing it for your own good! According to our high flying Hen minister, if all CPF monies rightfully belonging to men at 55, were returned to them, they will have a "fling here and a fling there"! So he's got to jaga the money belonging to "irresponsible" 55-year-old fogeys!

They may just change the current law again and not even pay out at 65 when Hen feels that 65-year-olds may spend it all on Viagras!

I wonder if they are keeping 55-year-old Singaporean ladies' money because Hen is afraid that our girls may fling on toy boys too?

To those who think that money in GIC and Temasek are Reserves belonging to Singaporeans, please think again.

Since our late president, Mr Ong Teng Cheong's unsuccessful request to know more of our reserves, I have been wondering, "Who's money is it anyway?"

I can't put a finger to it but most likely it belongs to the "The Inner Circle of the ELeetists"!

And the $billions (or $trillions or whatever?) are for them to mess around with as they so damn please!

As Anon of 10:54 wrote, ["I gave up long ago. They still have not accounted for Suzhou.

"National interests" are two such meaningless words, when "accountability" was not to be built in.]



Anonymous said...

No worry Mr. Wang. With a good brain, a kind heart and applicable experiences, u will survive anywhere on this earth. You don't have to glue yourself to Singapore.There are tons and tons of opportunities outside Singapore.I am really amazed why more young Singaporeans are not making the move. Perhaps they are not so well informed.

Anonymous said...

"I'm yet to hear of anyone not collecting his CPF savings in Singapore when he reaches 55 over the last 40 or so years."

But of course you haven't. They just changed the rules this year! Increased minimum sum, and compulsory annualties. Even if you graduated from the top Universities in the world, from the best education system in the world ever (designed by our top scholars). You still have no brains enough to manage your own retirement.

It is just s-t-u-p-i-d.

High net worth individuals who have a lot of CPF money will just migrate, taking the whole bank with them. These stupid rules designed to hold on to our CPF only serves to effectively reduce the CPF pool, by driving those with money away!

How much more stupid can top scholars trained in world's top Universities paid for by our Government funds be?

Anonymous said...

"In Merrill's next board meeting to decide which country to offshore or base their Asian headquarters, Singapore will have huge bargaining power to ensure that the jobs do come to us."

Note I highlighted the key word by bold?

US? I mean seriously.
-> Structured unemployment because we lack local talents.
-> Taking locals with little or no epxerience for those jobs created means higher training costs.
-> So logical cause is? Give more S pass lah!

So "us"? Foreign "talents" more like.

If you remember my darling, 1997? When some goons, scholars no less, had this idea that we better hire Engineers as bankers. They have better analytical skills.

1997 was when the world has an economic meltdown, and fresh grads for the next 3-5 years were basically screwed.

By hiring engineers for banking jobs, these wonders screwed up EDB and MOM's manpower planning. Coupled with the recession, you know how many Business, Econs, Arts grads who were supposed to be admitted to the financial world were left cold? Now they are structurally under-employed. And always displaced by Foriegn trash fresh graduates.

You seriously believe any one after realising this is gonna believe the ML deal will result in a mega OMG orgasm of opportunities for US?

You should try screwing a light bulb.

Anonymous said...

Ah, reminds me of the "grand plan" after the Kuwaiti invasion by Iraq.

Kuwait just threw away USD2 billion of their investment funds based in London which the Iraqis could not touch at the US and British to get their land back. The realisation that even if our land is invaded, we can get them back by throwing our offshore money at mercenaries.

And to train our people to work overseas as consultants. So our economy at home don't matter. At the same time, grow and protect our overseas wealth funds.

Brilliant. And I agree.

But what GIC and Temasek has been doing, was hiring wonderful SAF retiree alumni. Great paper writers, number crunchers, who gave us such wonderful results such as no longer reported Global Crossing. How's that for LONG TERM eh?

And to supplement these people's brilliance, foreigners are hired.

So where's the Singaporean part? The end got lost in the means again.

Where SAF was meant to be made obsolete in a brilliant grand plan of making us global talents, we now become untalented, untrained non-talents by the should-be-obsoleted-buggers-who-need-a-retirement-job.


Darth Solarion said...

I am not sure if anyone has read the news, I'm sure some have, but there is talk that UBS might spun of parts of their business, including their some investment units, which was the whole point of the investment. There is absolute no certainty that Merril Lynch will continue to exist in its current form. So essentially, what Temasek and GIC have done, is bought into companies which may or may not have bottomed out. Now that is a problem. All these stupid analyst projections themselves are bloody highly suspect and also distorted. These are the same morons who said SubPrime wouldn't be a problem and where are we now?

Anonymous said...

MR Wang,

I notice that on this subject you seemed to have avoided commenting about the Temasek's investment strategy. Instead, much of your blog seemed to be about you career choice.

Ok ultimately you did raise a rhetorical question hinting at the wisdom of the investment but you did not give your two-cents worth.

Is there are reason?

Tan Ah Kow

Anonymous said...

To "feedmetothefish" and Mr.Wang,
Please give me your enlightened feedback. It is with great interest that I read your Blog and comments. I am a foreigner currently working in SG on Employment Pass (EP). I've been pondering for several months now whether I should apply for SG Permanent Residence (PR) or not. FYI, as EP holder, I don't need to contribute to CPF. I receive my salary 100%, not a single cent goes into CPF, unlike SG citizens and PR, whose salary is cut by 20% for CPF contribution.
I've been reading a lot of ugly stuff lately in your and other Blogs (I stopped reading ST, it sounds too much like a broken record, i.e. Govt's propaganda machine, and mind you I was only a few months in SG then, it didn't take me long to see through ST as Govt's mouthpiece and propaganda) about GLC and their $billion investment and subsequent losses in failing banks such as Citi, UBS and ML; and to make matters worse, it appears from the many comments here that "accountability" is only wishful thinking with these GLC, e.g. Temasek and GIC. Nobody seems to know for sure what's going on with the country's reserves, i.e. the people's hard-earned money. I even heard your late President, one Mr. Ong had a hard time when he just asked about it, is that right? I thought SG is one of the least corrupt and very open and transparent country in the world? And as the last nail on the coffin, esp. referring to "feedmetothefish"'s last comment about how good the SG govt is at holding on to your hard-earned money through all kinds of legislations at their whims so to ensure they keep holding on to your hard-earned money forever and deny you what is rightfully yours through all kinds of mechanisms, such as the latest "longevity noodle" thing. Now, I know as for now they can do this to SG citizens only as citizens have no choice and nowhere to go (unless they migrate and give up their SG citizenship; but migrating takes a lot of effort and money too). As for PR, I know for now, when a PR gives up his PR and goes back to his own country, he can withdraw all CPF he has contributed (with interest) no matter how old he is. He can basically renounce his PR at age 50 or 60 or 70, whatever age he wants, and still get back his CPF and bye bye SG, go back to own country. Now...I'm just afraid with the continuing trend the GLC is throwing money around to failing investment projects like now, they may very well in the future change this rule and PR may not as easily withdraw their CPF anymore, even when they give up their PR status.
"feedmetothefish" and Mr. Wang, I humbly ask your take on this? How realistic is my "worry"?
I'd like to stay in SG for more years to come, but am 99% sure I'll most likely move on to "greener" pastures such as USA when the time is ripe, or at least go back to my own birth country. I just can't imagine passing my old age in about 40-50 years from now in this small and already very crowded little island with additional 2 million population (to total 6.5 million), seems a horrible idea to me, can't even breathe every morning I take the MRT to work, how with 2 more million people? good Lord...
So, again the question is: do you think my "worry" that I will have problems withdrawing my hard-earned CPF money when I give up my PR is baseless? Given current trend of GLC investments? Should I apply for PR? or better remain EP holder and hold my hard-earned salary without having to contribute one cent to CPF?

Thank you.

Anonymous said...

I think the local Singpost jv with GE gets a better deal lending to locals. I think they charge a double digit interest.
There is always that risk that these banks can file for chapter 7 or 11. In which case it is as good as saying goodbye to your money and shaking hands in the process?
But I guess we have given the govt the mandate to do anything it deems fit since we have voted them in. So the authority comes with the responsibility.
If we think they are not doing a good job, well, few years down the road we can exercise our decision again.

Anonymous said...

Until today, we still do not know how deep is the black hole. I can't help feeling that everything that we need to know is deliberately hidden from us.

We have been told again and again that our country is prospering because of our leader's world class talents. That's why they had to be paid millions in annual salaries, monies which otherwise should have been accrued in our reserves in the name of saving for our future.

Yet on the other hand, there are conflicting signals of our economy. They seem to be screwing the citizens left, right and centre with GST increase; more ERP gantries; means testing; longer CPF withdrawal age, minimum CPF sums and compulsory annuity schemes with the sole purpose of delaying our CPF withdrawals, etc.

If we had so much monies to bail off sick foreign financial corporations, then there should be equally sufficient financial resources to improve the overall standard of living for all of us and this improvement should not be limited to only the ministers or those uncaring elite.

Why is it that we need to be so obsessed with guarding or hoarding our S$ reserves for the future of our generations especially since our future generations including those imported foreign talents are supposedly expected to contribute to the coffers further. Why can't we spend some of these monies for the benefit of our present generations ?

For example instead of letting billions of our hard earned monies going down the drain, why can't we say spend half of it on health subsidies for all citizens to enjoy. It's not as if given a choice, everyone of us would like to choose to be sick or prolong our stay at the govt hospitals. There is a whole list of urgent priorities or benefits which I think the government can afford to dispense with.

If only we had a leader who can give more thought to improving the quality of life for our citizens instead of merely looking at net monetary gains, I believe Singapore would definitely be a much more pleasant place for everyone to live.

Anonymous said...

Talking about the money to be retained in CPF either as minimun sum, medisave, retirement account etc, they will obviously be raising the minimun amount as time goes by. That is a safe bet.

The argument that no one over 55 has yet not collected his CPF over the last 40 years may be true, but the gospel truth is, do most people really have anything to collect at 55 with all the new schemes to hold on ever more money in the CPF.

We are now in a situation that is even more unpalatable than extending the CPF withdrawal age from 55 to 65. And making that choice was really 'out of the frying pan into the fire'.

Why do you think they gave up the idea of extending the withdrawl age so easily, given their doggedness in implementing other things? Well, they can now hold on to your CPF money much longer, just by making use of the minimun sum scheme, and there is no telling how high this minimun sum will go.

This is, in fact, an even better solution than extending the CPF withdrawal age, because extending the withdrawal age to, say 65, means you can still withdraw your money upon reaching that age. But the minimun sum is there almost permanently and you cannot withdraw any lump sum, not at 65 or 85.

Ghost said...

Remember, the sub-prime crisis is still not over in America. These losses by Merrill could still go up.

Anonymous said...

Is the same principles discussed here being applied to NTUC Income policyholders' interests. Is there a black hole in NTUC Income recent move to defer the bonuses earned to maturity of the policies which in most cases of whole life means till the day the policyholder dies?
Are we being screwed left, right and centre by the new NTUC Income management now? I get these feelings after reading the blog by the former NTUC Income CEO who has been with the co-operative for the past 30 years. He must know what is happening that is why I am so worried as I hold many NTUC Income policies.

Anonymous said...

Hi Mr Wang,

I am very dissappointed. I am not sure whether bloggers like yourself and your readers suffer from political illiteracy or financial illiteracy or both. Let me point out why and suggest improvements for your future posts.

Firstly, your point is not clear and does not point to a clear and focused direction for discussion.
Your post heading is alarming and your ending question asked whether one should be worried about this "black hole".

In between, there is a wholesale article from CNNMoney dated 17Apr08 and your brief (quite irrelevant and unsupported) points on ML.
Your penultimate and supporting point on Temasek sitting on more than half a billion USD paper losses is from another news article dated 16Apr08.

I did not see a "black hole" for Temasek. Where? US$0.5bn/US$5bn = 10%, is that the "black hole"? Or is this REALLY a "black hole"? More on this below.

Secondly, the issues discussed or raised by readers are way off the point. You should encourage your readers to stick to the point or point this out to them as a note to their response. This would give other readers and yourself a better perspective on the issue discussed.

Thirdly, your facts are wrong and thus misleading. Instead of just relying on secondary reports as correct you should do some basic facts checking first.

Even some of your readers commit this same fundamental error (eg. Temasek's investment in Merrill Lynch is a direct share purchase).

The crux here is the US$4.4bn share purchase by Temasek in Merrill Lynch in Dec 2007 and the additional US$600m purchase end Mar 2008 (ie. US$5bn in total).
Primary information on this investment can be obtained from Merrill Lynch's website at http://www.ml.com/index.asp?id=7695_7696_8149_74412_86378_87784

Temasek paid US$48 per share for both tranches in Dec07 and Mar08 (a discount and a premium compared to market prices then of US$55.54 and US$39.93 respectively in Dec07 and Mar08). On 15, 16, 17 & 18 Apr08, ML share prices closed at US$43.34, US$44.89, US$46.71and US$47.35. You could get all these prices from the same website.

So, if you mark-to-market on these 4 days, Temasek's original US$5bn investment in ML has a market value from US$4.515m to US$4.932m.
Hardly a "black hole", which you have not made a case for it. The alarming decision is Temasek's additional purchase of US$600m at US$48 per share vs US$39.94 per share market price end Mar08 (a 20% premium). Not surprisingly, this was reported two weeks later. However, if ML's share price moves
above US$48 per share next week, there is no "hole" to say the least.

Finally, the end result we get from your post and readers' comments is a mishmash of many unrelated issues.

This does not help to educate readers politically and/or financially on the subject matter. It could instead confuse and mislead.

I hope you could take the above positively and improve.


(P/S Despite my ranting above, I am not a supporter of the above investment. But, that is another story altogether.)

Gilbert Koh aka Mr Wang said...

Actually if you pay $x for shares which have a market value of $55.54 at that time, then according to accounting principles, you have to account for the shares at $55.54. Not at $x.

If the market value of the shares then fall to US$44, then you have to calculate your paper losses based on USD $55.54 minus US$44.

So no, I do not think that CNN Money or Reuters or Financial Times were wrong to report the story the way they reported it. They were quite right - Temasek IS sitting on paper losses of half a billion USD dollars.

Also noteworthy is the collapse of USD versus SGD in the past few months. If you use SGD as Temasek's base currency, Temasek's paper loss is even greater.

However none of the above is the real reason why I referred to "black hole". I use the term mainly because I don't think the worst is over for Merrill, and that no one (not even Merrill's own senior management) can really know when the sinking ship will stop sinking. A huge unknown - hence I used the term "black hole".

As for the "irrelevant" points in my post - I agree that if the post was a news article in the FT, I shouldn't be talking about my personal career moves and plans etc. However, this is my personal blog, and many of my longtime readers are interested to know a little from time to time, about my personal life etc. Hence I do intersperse my posts with comments about my own career, personal interests, family etc (eg see previous post).

Anonymous said...

What worries me is that adding GIC's UBS investments to Temasek's in the financial sector we have probably gone against one of the cardinal tenets in investing. That is diversification of assets. The recent attempts by Temasek to sell off some of their earlier investments ( CCB etc ) but perhaps at the wrong time and at the wrong price may be an attempt to remedy this this or to raise additional funds to particiapte in later refinancings by these troubled investments or both...whatever the case on hindsight it does appear that there was indecent haste in the earlier decisions to invest. A case of no proper due diligence being carried out ?.. suggests

Anonymous said...

mr wang, i am aware that this topic is not related to this post, but would you like to comment on the "Reform Party" that is going through approval? do you think they will be approved? and what do you think of their chances in their political endeavours?

Anonymous said...

You wrote as if you are a principal, censuring this, censuring that. Sprouting nonsense about others not being politically literate and/or financially literate.
Wake up to the real world of blogging. This is not a school where we all have to pass certain grades and wear uniform to be able to participate in.
Anyone can come in, yes, including you, but be advised that we should not talk down or make insinuations about the participants relevancy, especialy Mr. Wang, whom we hold in high esteem here.
Even if you a real-life principal, please be humble and address Mr. Wang courteously if you expect others to address you as Madam.
As Mr. Wang has rightly pointed out, this is HIS BLOG and like any guest who goes into other people's house, you should know your position and not act as if it is your house.
We can all understand Mr. Wang's meaning of Black Hole. If you cannot understand, then kindly request for Mr. Wang to enlighten you, and I think he had.

Mercia said...

I'm going to disagree with your analysis on Merrill's loss of reputation. They're still pretty okay on the street, and there's always Citi as a good whipping boy. Not that it's a good comparison, but save Goldman (whose current holdings of type 3 investments are kinda.. questionable, IMO), none of the banks have not had their name dragged through the mud.

Time is very forgiving, and unless Merrill decides to go arse-up for any reason, someone will snap them up for their brokerage house. We'll just have to wait for the next bull run. Note that I'm not working in an investment bank... yet, but this is the consensus. Seriously, if Thain can't carry ML through, then we've got to start worrying about Lehman and the smaller shops about.

Also Mr. Wang, how are the things in Singapore, with regards to the already dismal investment banking sector?

Anonymous said...

On reputation.

Lets suppose that within a circle of HNWIs, 20% of them have a relationship with Merrill, and suppose that 10% of the 20% have seen their net worth lynched/diminished by whatever systemic/endemic mistakes made. That's 2% within a small exclusive circle.

It does not take much to tar a reputation.

Anonymous said...

Hi Mr Wang,

I applaud you for printing my earlier comments in full.

For Temasek's equity investment in ML, the relevant information is the costs of acquisition, date of purchase and carrying costs. Temasek paid US$48 per share for ALL of its US$5bn in ML. For any calculation of UNREALIZED gains or losses (after the initial purchases), surely the original purchase price of US$48 per share is the relevant base. One cannot just look at unrealized loss and ignore unrealized gain as you had illustrated. (I have not touched on accounting principles here).

Paper losses was mentioned only in the 2nd news article; "Temasek now has paper losses of $540m on its stake in Merrill, whose share price has fallen 11% below the purchase price." Both figures are wrong. Hence, my caution that one should counter-check the facts.

As for FX exposure, in all likelihood Temasek would have borrow the full amount in US$ for the share purchase. And its total portfolio in US$ would have been rebalanced to reflect its desired US$ exposure vis-a-vis the S$.
In short, whether Temasek invested in ML or not, it would still have US$ exposure in its portfolio.

I know of only two definitions of "black hole", one is astrological and this one "a place where money apparently disappear without trace". I can accept your less extreme definition as stated. However, if ML went bust tomorrow shareholders would lose just over US$50bn (current market cap)- US$5bn forTemasek - both limited. Whose "black hole"? US or Singapore taxpayers?

With all due respect to your blog, I have no intention of dragging on on this issue. I thank you in advance for allowing me to respond.


(P/S I am not a supporter of Temasek's purchase of ML).

Anonymous said...

"However, if ML went bust tomorrow shareholders would lose just over US$50bn (current market cap)- US$5bn forTemasek - both limited. Whose "black hole"? US or Singapore taxpayers?" - MadamG

This assessment is superficial and does not correctly reflects the gravity of the situation from the Singaporean's angle.
1. The US$5 billion is Singaporean public funds managed under trust by Temasek. Most of the other US$45billion is most likely private wealth. I don't care a dam about wealthy people losing all their wealth but I am extremely concerned about exposing Singaporean public funds to such high risks.
2. US$5 billion to a country the size of Singapore is huge.

Anonymous said...

Mdm G,

Whoever you are, you gave me the impression that you seem to have a lot of insider information pertaining to GIC or Temasek's investments.

You also gave me the impression that you are trying to rebut Mr Wang's points of argument in the same cannot-lose-at-all style of LKY.

If you have nothing to hide, why don't you reveal your true identity so that we would be in a better position to understand where you are coming from and why you seem to be so offended by this particular blog of Mr Wang and the comments as raised by various readers ?

Anonymous said...

I'll have to agree with Mercia in this case. It's not like ML will go belly up suddenly. As long as Temasek doesn't panic and sell the shares, it stands a chance of recouping the losses.

Anonymous said...

"As long as Temasek doesn't panic and sell the shares, it stands a chance of recouping the losses."

And what about the opportunity costs of having $5 billion stuck on unmovable paper loses?

Anonymous said...

"As for FX exposure, in all likelihood Temasek would have borrow the full amount in US$ for the share purchase. And its total portfolio in US$ would have been rebalanced to reflect its desired US$ exposure vis-a-vis the S$.
In short, whether Temasek invested in ML or not, it would still have US$ exposure in its portfolio." MadamG

Unless you have access to inside information, it is difficult to know whether Temasek had borrowed the full amount. If it had as u believed then there will be no additional FX risk.
The important thing with regard to this particular investment is not whether Temasek has US$ exposure but did the US$ exposure increas as a result of this undertaking. Perhaps a statement from Temasek could be in order to allay Singaporeans' apprehension. I only hope that the overall size of Temasek US$ exposure is not too large. With the fast declining US$ the lost from this angle could be substantial.

Anonymous said...

"""Finally, the end result we get from your post and readers' comments is a mishmash of many unrelated issues.

This does not help to educate readers politically and/or financially on the subject matter. It could instead confuse and mislead.""" From MadamG

But my dear MadamG, for all your wisdom, the moment pulic money is involved, everything is related. These are not private funds that the PAP are investing.

Whether the PAP should use public money help the poor in health care, utilities charges, children's education or sometimes simply just to put 2 meals on the table per day. Why huge amount of public funds were being used to rescue(yes! rescue,help,provide aid, financial assistance) to foreign financial institutions. Whether taxes should be reduce to ease the burden of the people. They are all related to the public funds that the PAP are using now.

You seems to be well versed with financial matters. I don't consider myself proficient. But I do know that nothing is guaranteed in investments. Nothing. From Barings to Enron, (and closer to home)Promet to Pan-El, and a whole host of previously considered to be blue chip stocks before 1997 financial crisis. There are no guarantees. Can you guarantee that these institutions would still be around during a down turn in the next 3 yrs, next 5, next 7 yrs?

Then there are the annual dividends to MUST be factored in investment decisons. The opportunity costs in not investing in others. A investment decision don't just consider on POSSIBLE captital gains alone.

In my view, if an investment is down 10% - 15% within 3 months it is considered ill-timed. Down 15% to 30% within 3 months it's a already a bad investment. Down more than 30% - 45%, within 3 - 6 months, someone has to take resposibility. So far from Suzhou Ind Park, Shin Corp up to current times nobody seems to be responsible.

Anonymous said...

Mr Wang

Per Accounting IFRS 39, the book value should be recorded at the cost not the market value at the time.

At the end of each fiscal period, you would than mark to market,and charge either to Profit & Loss or to Equity, the gains or losses from the revaluation.
Since this are Convertible bonds, the losses/gains would need to be charged to Equity.
It should only be charged to Profit & Loss upon conversion.

Accounting Wise

Gilbert Koh aka Mr Wang said...

Thank you for your comment. However, merrill didn't issue any convertible bonds to temasek. Not sure why some people are having that idea.

Anonymous said...

Hi Mr Wang

in what kind of role were you considering, in the commod-deriv space, trading/sales/structuring?

Interests aside, what do you think a junior(1st yr associate) should pick(trading/sales/structuring)?..if he had a choice to join a commod-deriv desk in one of the better tier2 shops...

Anonymous said...

It ain't a black hole till it's called one. What has not happened has not happened. It is probable that SWFs will sit it out for the long haul. While the timing leaves a lot to be desired, the rationale does not.

Existing shareholdings may become diluted / diminished / lynched, it is improbable for ML to end up in liquidation. Should it happen, there will be other way bigger things to worry about.

BSC was not allowed to fail. In the same way, ML will not be allowed to fail, lest it brings down the house. Provisio being that ML does not become majority owned by foreign interests. sic. Shin Corp.

A separate note on blogs.

While I enjoy the alternative online voices, I sense a tendency to berate the negatives. While there may be good reason to do so, this lends itself an adversarial tone. sic. Obama

Various parties will have various ideas of how things should be or what should be done. Underlying this, I believe that all parties share a common interest, which is for the betterment of Singapore's future, that of its people and that of its children. sic. national pledge

It is my belief that the way forward is for the press to be de-coupled from the system, and truly serve its intended purpose as a mirror upon which society can reflect upon, rather than a poster.


Gilbert Koh aka Mr Wang said...


Actually, the role was to be an inhouse legal counsel dedicated to the commodity derivatives business. One disadvantage for me would have been that many commodity derivative products are exchange-traded (as futures), as opposed to being OTC (over-the-counter). In general, whatever type of derivatives you're talking about, lawyers are much more needed in the OTC space than in the futures space.

Anonymous said...

As a layman Singaporean, I have only the followings to say.
First, as many Singaporeans are facing problems of rising costs of livings and financial problems leading to suicides and bankruptcies, why are money thrown to help failing foreign banks and not the Citizens?

Not only that the investments in Foreign Banks doubted for their profitabilities, they are at best going to take some(long) time to be profitable. Like what many Experts in Cyberspace have said, there are other places to invest for better and faster returns.

Anyone faulting Mr Wang for this post must be thinking they are better than Mr Wang if not the Rest of the Population. Are You that good?


Gilbert Koh aka Mr Wang said...

Well, only time will tell for certain, but you know what investment guru Jim Rogers said about Temasek's investment in Merrill.

"It grieves me to see what Singapore is doing. They are going to lose money ..."

Anonymous said...

Warren Buffett bought into profitable Swiss Re at a time when many US financial companies are making huge losses, and set up own bond-reinsurer company to compete with Ambac, etc.

He once said when the tide becomes low, it becomes clear who has been swimming naked. The past few months represented a good low tide for all to see which companies have been swimming naked.

Unknown said...

MadameG said:
I know of only two definitions of "black hole", one is astrological and this one "a place where money apparently disappear without trace".

That's ASTRONOMICAL, not astrological. The only astrological "black hole" I know of is the one on Orion's backside! Ha ha. And it's "apparently disappearS", not "disappear". Considering you seem to think it okay to correct the rest of us mortals with such impunity, I thought I'd do the same.

As for the idea that Temasek investmentments will build a better, future environment in SG, that's just wishful thinking. Banks are businesses and they will always go to where they can maximise profit. They may take money from SG, but nothing stops them from then setting up some kind of infrastructure in Goa, e.g. . (Look at all the high-tech companies now setting up in Romania. I mean, Romania!) It's business, not a friendship club.

Anonymous said...

Mr Wang

Please refer to the term sheet below:

Not sure where your figures come from but the earlier statement of loss is incomplete since cost is US$48 per term sheet below

Temasek Holdings - Select Investment Terms
Initial Investment Amount $4,400,000,000
Security Common stock
Price per Share $48.00
Settlement Dates December 28, 2007 (60%) and January 11, 2008 (40%)
Issuer Merrill Lynch & Co., Inc. or the “Company”
Lock-Up Subject to the ability to sub-sell up to 50% of its investment to
purchasers that take subject to the lockup, Purchaser is not permitted
to sell, transfer or hedge, directly or indirectly, its investment in the
common stock at any time during the one-year period following the
closing. Any purchaser acquiring more than $250,000,000 in
common stock is required to be approved in advance by the
Standstill Customary standstill provisions, including a prohibition on
acquisitions of additional voting securities that would cause
Purchaser to own 10% or more of the Company’s common stock.
Price “Reset” If Company sells or agrees to sell any common stock (or equity
securities convertible into common stock) within one year of closing
at a purchase, conversion or reference price per share less than $48,
then the Company must make a payment to Purchaser to compensate
Purchaser for the aggregate excess amount per share paid by
Purchaser. At the Company’s option, the Company may issue
additional shares of common stock in lieu of cash to Purchaser with
a market value equal to such excess amount.
Purchase Option Subject to (1) Purchaser owning less than 10.0% of the Company’s
common stock, and (2) the receipt of certain regulatory approvals,
Company agrees to grant Purchaser an option good through March
28, 2008 to purchase up to an aggregate of $600,000,000 of
additional shares of common stock (the “Option Shares”).
The purchase price for the Option Shares shall equal $48 (if the
option is exercised on or before the earlier of (x) two weeks after
obtaining regulatory clearance and (y) January 31, 2008) and after
such date the greater of $48 or (x) 90% of the then current market
price per share of the common stock.
Registration Customary registration rights.

Further, since price is averaging between US$47 - US$50, may I ask where is the loss except for the US$1 difference which is subjective and transitory. Unless Merrill goes belly up tomorrow. Having been on the different sides of deals, I am unable to understand why this particular investment is a black hole since there is also compensatory terms in the terms


Gilbert Koh aka Mr Wang said...

Thank you for the comment. I got curious and did a bit of checking. So I think it goes like this:

The press first reported temasek's second purchase on 15 April. In calculating the paper losses, they would have looked at Merrill's share price on 14 April (which closed at $42.88). $42.88 is indeed 11% below the purchase price of $48.

48 - 42.88 equals 5.12. Temasek holds a total of (4.4 bn / 48) + 12.5m shares in Merrill = 1.041666667 shares.

On 15 april, paper losses would be reported at 1,041666667 x 5.12, which is more than half a billion dollars.

What do you think?

Anonymous said...

Mr Wang

Noted on the calculations which is valid on Apr 14 and referring to the Washington Post. Hence, I had referred to the price of US$47 per today Apr 22 and past averages.
All I can say is, will have to wait till the end of the period unless we have a crystal ball which is that accurate and also noted on the compensation terms which still applies.


Anonymous said...

What ? Half a billion of our taxpayer's monies gone done the drain.

And our Gahmen just announced that they are expecting the worst US recession to come soon. So it will mean the paper losses is going to snowball.

The fact that it has already become a paper loss means a wrong investment decision has been made. One does not put in good money & expecting it to turn bad in a couple of months.

And yet these idiots have the guts to tell us it is for the long term. What a bloody excuse!

Anonymous said...

Why didn't they buy the Bank of America shares instead? Warren Buffet bought those. Surely idiots knows Warren Buffet don't waste his money like that.

Anonymous said...

if I am not wrong, pls correct me if I am - usually prudent investors buy convertible bond ideally because of healthy reasons given by the issuers for example seeking funds for expansion in the proven business.

Anonymous said...

Merrill share price fluctuate everyday. For an idea of how it has moved look here :
Yesterday's closed was 44.91.

Anonymous said...

I am of the idea that wealth should stay with private individuals more so than with government (national institutions) - therefore minimum direct / indirect taxation.

Any direct / indirect taxation should be for the sake of purely cost recovery for services / infrastructure provided, etc (not with some arbitrary profit element not subject to real market competition).

Private individual failures are isolated in nature and it does not affect too many people except maybe those close family members and friends.

On the other hand, big national institutional failures (those dealing with financial instruments / investments which are known to be very uncertain by anyone with some decent level of knowledge on how high finance works in the real world) will affect a lot of people - e.g with the costs being further democratised / socialised in the form of further direct / indirect taxation.

DomPerrier said...

With the current value of Barclays bank, which Temasek bought near the peak at 720p last year, plus the conversion price for UBS, plus the Citigroup investment, the sum is actually closer to S$11 billion.
This is not factoring in the blunder on Shin Corp.

Wake up, you sheep who hide your heads in the sand!