Monday, January 21, 2008

Singapore Sees Good Long-Term Bank Investments

Singapore State Funds See Stakes in Western Banks As 'Good Long-Term Investments'.

Singapore's two state investment agencies rigorously studied the risks involved in investing billions of dollars in troubled Western financial institutions before deciding the deals would be valuable, the government said Monday.

The state-run Temasek Holdings and Government of Singapore Investment Corporation, or GIC, were approached by cash-strapped banks such as UBS AG, Merrill Lynch &Co. and Citigroup Inc. for capital infusions amid large write-downs of their assets, the city-state's Finance Minister Tharman Shanmugaratnam told Parliament.

Temasek and the GIC "assessed the proposals rigorously" before concluding "that these were good, long-term investments and valuable additions to their overall portfolios," Tharman said. "They considered each of the banks as having a strong business franchise, and good long-term growth potential across multiple businesses and multiple locations," he said, responding to a parliamentarian's question on the rationale behind the recent deals.

Temasek and GIC, which each have assets of more than $100 billion according to their Web sites, are among the world's largest so-called sovereign wealth funds. Such funds from the Middle East, Singapore and China have been investing in major Western financial institutions that have lost billions of dollars on bad bets in the U.S. mortgage market. Rising delinquencies and defaults among mortgages have forced banks to write down the value of bonds and debt backed by the troubled loans.

GIC invested $9.75 billion in UBS, the Swiss bank said in December. Later that month, Merrill Lynch said Temasek had bought a stake of less than 10 percent for at least $4.4 billion and up to $5 billion. Last week, Citigroup said it would receive $6.9 billion from GIC for a 4 percent stake in the U.S. bank.

Tharman acknowledged that the investments were large and involved risks, but said it was not the government's position to second-guess the individual deals struck by the two investment agencies.

The government says that the GIC and Temasek make investment decisions independent of the state. The two funds operate on an understanding with the government as to its overall risk tolerance.

"There will be some downside risks. It is up to GIC and Temasek to assess this risk and decide if it's acceptable. Their responsibility is to accept prudent risks in order to earn good returns on their overall portfolio," Tharman said, stressing that the government is keen to avoid influencing the two funds' decisions.

Officials from Temasek Holdings and the GIC could not be reached for comment Monday. Temasek holds stakes in many of the city-state's largest companies including Singapore Airlines and Singapore Telecommunications. Most of its investments are in Asia. The GIC was established in 1981 to manage Singapore's foreign reserves.

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