Temasek Likes Banks Even After Barclays, Bank of America Losses
2009-09-17 16:00:35.0 GMT
By Joyce Koh
Sept. 18 (Bloomberg) -- Temasek Holdings Pte, the Singapore state investment company, said it’s still interested in investing in banks after losses on Bank of America Corp. and Barclays Plc triggered a record profit decline.
Temasek will target financial institutions that benefit from economic growth or mergers and acquisitions, Ho Ching, chief executive officer of the $122 billion company, said yesterday. The worst of the global meltdown has passed, she said.
“We look at some of these financial institutions as proxies for the economy as a whole,” Ho said. Temasek will also look at companies “where they may be doing a transformational deal, or where they themselves might be in transformation or at an inflexion point.”
Ho, 56, is shifting Temasek’s focus to Asia and other emerging markets after the company reported a 66 percent drop in profit in the 12 months to March 31 on losses from the sale of its stakes in Bank of America and Barclays, part of S$16 billion
($11.3 billion) of divestments last fiscal year.
As of March 31, 43 percent of the company’s investments were in Asia, 31 percent in Singapore, 22 percent in nations within the Organization for Economic Cooperation and Development, and 4 percent in Latin America.
“We believe that as Asia progresses, it will continue to de-risk,” Ho said. “We are also adding exposures to other growth regions like Latin America. Our portfolio exposure today is almost equally balanced between the more developed economies and the newer growth regions.”
Bank Stakes
Temasek, wholly owned by Singapore’s Ministry of Finance, has been an active investor in banks since its inception in 1974 when it took over the government’s 28 percent stake in DBS Group Holdings Ltd., the region’s largest bank by assets.
The investment company has shareholdings in eight major banks, including 19 percent of Standard Chartered Plc, the London-based bank that makes most of its earnings in emerging markets; 8 percent in ICICI Bank Ltd., India’s second-largest lender; and 68 percent of PT Bank Danamon Indonesia.
“They’ve been hurt by their investments in U.S. banks,”
said Brayan Lai, a credit analyst at Calyon in Hong Kong.
“Their investments in Asian banks are doing well. The low funding and improving economic environment is very conducive for the banks.”
While Temasek is comfortable in being overweight on Asia, there are risks of asset bubbles in the region, and the company “maintains full flexibility to shift our stance,” said Ho, who is also the wife of Singapore’s Prime Minister Lee Hsien Loong.
There is investment potential in China and India in the long term, she added.
Watching U.S.
Temasek “did not anticipate the speed and ferocity” of last year’s global financial crisis, Ho said. “We were looking at the triggers in the wrong places and part of the reason is because we made the assumption that the developed economies, particularly the large economies, are well-managed and the regulatory risks are low, and hence we did not pay that much attention.”
The company now pays “a lot” of attention to “what is being said and done in the U.S.,” even though it does not have a large exposure to the country, Ho said.
Net income at Temasek declined to S$6.2 billion in the 12 months to March 31, down from a record S$18.2 billion a year earlier, Temasek said in its annual report yesterday. The value of investments, which plunged S$55 billion in the period, has since rebounded to S$172 billion as of July 31.
Along with Kuwait Investment Authority and China Investment Corp., Temasek was among sovereign funds that helped struggling U.S. investment banks replenish capital.
Clean Slate
In the first three months of this year, Temasek sold the
3.8 percent stake in Bank of America that it received after the U.S. company bought Merrill Lynch & Co. at a loss that may have totaled $4.6 billion. It also sold its 2 percent stake in London-based Barclays.
The company didn’t detail the size of those losses in its annual report. Shares of Bank of America have climbed 23 percent this year, after a 66 percent slide in 2008, while Barclays has more than doubled, following a 69 percent plunge last year.
“The timing of the purchase and sale of Bank of America/Merrill Lynch and Barclays could have been better for Temasek, but by exiting from these positions prior to March, Temasek can start its new financial year with a clean slate,”
said Melvyn Teo, an associate professor of finance at Singapore Management University who holds a Ph.D. in economics from Harvard University.
For Related News and Information:
Financial company news: FTOP <GO>
Most-read sovereign wealth-fund stories: MNI SWF <GO> Asia wealth funds: TNI SWF ASIA <GO> Top wealth fund stories: TNI SWF WWTOP <GO> Temasek news: TMSK SP <Equity> CN BN <GO>
--With assistance from Jonathan Burgos in Singapore. Editors:
Andreea Papuc, Chitra Somayaji
To contact the reporter on this story:
Joyce Koh in Singapore at +65-6212-1170 or
[email protected]
To contact the editor responsible for this story:
Philip Lagerkranser at +852-2977-6626 or
[email protected]
