Nice to see someone with unshakable faith in the bounce-back potential of the battered financial industry. After spending billions of dollars at the wrong price for shares in Merrill Lynch, Barclays et al, Singapore’s state-backed investment body Temasek says it still “sees value” in banking stocks in the US and Britain, reports Reuters.
Not only that — Temasek executives said last week they were prepared to invest more in western financial groups (including adding to the fund’s $5.9bn investment in Merrill) if they were convinced the firms would rebound. The qualifier is just as well, perhaps, considering Merrill’s shares plunged 24 per cent from the time of Temasek’s original investment to the end of its financial year on March 31, according to Bloomberg. In the same period, the value of its multi-billion-dollar investment along with China Development Bank in Barclays plummeted 38 per cent.
Already, though, as Bloomberg notes in its Chart of the Day, Singapore’s quarterly economic output exceeded Merrill’s market value for the first time on March 31 and again in the subsequent quarter to June 30. Singapore’s economy grew to S$58.2bn ($41bn) in the second quarter, while Merrill’s market value has slumped about 45 per cent this year to $37bn.
Before anyone can emit a snigger, however, consider: Temasek is definitely doing some things right. The body on Tuesday reported that full-year profit doubled as sales of energy and Chinese banking assets countered slowing returns from stock market investments.
Net income rose to a record S$18.2bn ($12.8bn) in the year to March 31, up from S$9.1bn a year earlier, Temasek said in its annual report released Tuesday. Profits were of course helped by Temasek’s sale of Tuas Power for S$4.2bn in March, not to mention the injection of a cool S$10bn of capital by the body’s only shareholder: the Ministry of Finance.
With assets of S$185bn ($130bn), Temasek is definitely staying on the hunt for overseas investments to further diversify beyond Singapore, where it controls six of the city’s 10 biggest companies by market cap, adds Bloomberg.
The fund said last month it was committing a further $900m in Merrill after it was compensated for a drop in the value of its initial investment. As the FT notes, analysts credit Temasek with protecting itself against risks — well, sort of, even though it ploughed the ‘compensation’ money straight back into moribund Merrill.
In its initial $5bn investment in Merrill last year, Temasek demanded a “reset” clause that would provide compensation if Merrill issued more shares below the price at which Temasek bought them. So now, Temasek is using the $2.5bn so-called reset payment towards buying $3.4bn of Merrill stock.
It’s peanuts, really, considering that Temasek spent S$32bn on new investments in the year and sold S$17bn of assets, up from S$16bn and S$5bn respectively in the previous year. Shareholder return by market value slowed hugely, growing just 7 per cent in the year compared to 27 per cent the year before - but with shareholders like Singapore’s MoF, cheerfully funnelling in cash, and a well-placed CEO (Ho Ching, wife of Singaporean PM Lee Hsien Loong), who cares?
Just for the record, financial services investments made up 40 per cent of Temasek’s portfolio in the year, up from 38 per cent the previous year. Temasek is the biggest shareholder in Merrill, Standard Chartered and local bank DBS Group and also owns stakes in India’s ICICI Bank and lenders in Indonesia, South Korea and Pakistan.
The last word on this should go to Manish Kejriwal, Temasek’s senior managing director for investment, International and India, who said on Tuesday: “The financial service industry is one we believe in…”
We believe you, Manish, we believe you.
Related links:
- Temasek eyes further investment in western banks despite losses - FT story
- Temasek’s profit rises on asset sales as shares drop - Bloomberg
- Temasek ‘media centre’
