Our friend, Chris Kuan, appears to have disappeared off the radar screen along with and about the time Richard Wan quit as TRE editor. Well, not to disappoint, he has written a commentary on the recent Standard Chartered Bank’s STG3.3 bil (S$7.1 bil) rights issue.
Isn’t it inexplicable that with Temasek Holdings (TH) playing with our CPF (and other monies belonging to Singapore and Singaporeans) nary a commentary on the rights issue’s implications is published when TH holds a 17.2% stake in SCB?
I guess 70% of voters trust the PAP so blindly, there’s no need for any transparency or accountability of our monies. Read on to understand why you, citizen, should be concerned, very concerned….
That must be painful for Temasek Holdings what happened to its 17.2% stake in Standard Chartered Bank. After earlier this year announcing a “new” strategy of reducing costs and risk weighted assets, which in plain speak means getting rid of loans, securities and businesses that are under-performing or no longer desired. After months of denying the need to raise capital to shore up its balance sheet, the CEO Bill Winters made a U-turn on Tuesday, announcing the bank indeed need to raise capital through a US$ 5.1b rights issue.
Its shares promptly fell 9% on the day, recovering a little at the close of business. In 1 year, the shares had fallen by more than 30% and in 5 years by nearly 65%. All in GBP terms so take note that GBP is still weaker to the SGD by around 25% from 7-10 years ago when Temasek first build its stake. As one Top 10 shareholder said
“It has been a hugely painful ride”.
Certainly, Temasek as a major shareholder would have been sounded out for this change of heart at the top of the bank. Almost certainly Temasek would have, in local parlance, “kow pei kow bu” but in this day and age, regulators rule the day. Those are UK regulators not Singapore’s own do-it-all MAS.
What does it mean for Temasek? Do nothing and its shareholding gets diluted. Maintain its current shareholding of 17.2% means having to divvy up US$877m for the right issue. Throwing in good money after bad? Mind you Standard Chartered has already scrapped its final dividend this year to shore up its capital. However even so, with the dividend cut, the reduction of costs and risk weighted assets and the rights issue, Standard Chartered’s return on equity expects to rise to only 8% in 2018 and 10% in 2020, extremely little for shareholders to get excited when in comparison UBS has already reach 15% this year. Didn’t another of our SWF sold UBS?
What gives for Temasek to hold on? A reluctance to admit it overstayed its investment? Or is it some kind of grand strategy of building an Asian champion by merging Standard Chartered with DBS? If the latter, Singaporeans should be afraid, be very afraid because the Singapore Government will be the lender of last resort since it is rather inconceivable for the government to allow DBS to be domiciled elsewhere. That ultimately means taxpayers bailing out the bank if it gets into trouble with losses even if these occur in other countries.
And those halcyon days of March when in its annual review Temasek announced a 19% rate of return from last year, seems a distant past. What with this Standard Chartered debacle on top of the meltdown in China.
Temasek prides itself a long term investor. An investor who can be patient and wait a long time for superior value to be realized. Or so the narrative went. Of course, the narrative did not say the same investor can also wait a long time for value to be destroyed. As Keynes said,
“In the long run we are all dead”.
Now, would not all those monies better spent investing in better lives for Singaporeans in order to build social capital rather than investing in ever more financial assets in the never ending chase for diminishing returns?