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The shocking news that the GIC is staring at losses of $10 billion over its investments in Swiss bank UBS is really not that shocking. The way that the GIC has been making its investments was a crisis waiting to happen.
In 2007, when the subprime crisis in the US was just about to cause global financial panic, Western banking chiefs turned to sovereign wealth funds to bail them out. One of these funds they contacted was, of course, the GIC.
It didn’t take these bankers a great amount of effort to convince those who control our CPF savings to agree to a $10 billion deal to help UBS out. Here’s how Bloomberg reported the deal:
European and U.S. bank chiefs made personal pitches to the funds during the height of the mortgage market meltdown. Marcel Ospel, then chairman of Zurich-based UBS, called GIC Chief Investment Officer Ng Kok Song, according to comments they made at the time. Talks began on Dec. 6, 2007, and by the evening of Dec. 9, GIC had committed to make its biggest single purchase at the time.
Yes, that’s three whole days Mr Ng Kok Song took to agree to dive into UBS with $10 billion of our money – at a time when everyone knew that a financial system was hyperventilating.
Shortly, thereafter, UBS fell deeper into trouble and we (meaning us CPF members) were stuck with enormous losses.
Two words call out: due diligence. One analyst commented: “One lesson that all investors, including the sovereign wealth funds, learned from this crisis is that you have to do the due diligence before investing.” Another said: “Once burned, twice shy. If a weak bank came back to them again for capital in the next crisis, the sovereign wealth funds won’t be there.”
So one would have thought that there would at least be a tinge of buyer’s remorse on the part of the GIC. But instead of learning from its mistakes, Mr Ng doubled down and said in 2009 he that he still had “confidence” in the “long-term prospects” of the investment.
This confidence seems quite misguided. It turns out that the UBS is so lax in its controls that a trader lost more than US$2 billion in fraudulent activity that has shaken the bank to its very core. (In 1992, Mr Nick Leeson brought down the Barings Bank with his unauthorised speculative trading that amounted to about the same amount.)
This latest scandal caused the GIC to admonish UBS to take “firm action” to help the bank recover. What was that confidence thing that Mr Ng proclaimed about the UBS just a couple of years ago?
But true to form the GIC continues to this day to maintain that its “view of UBS’s fundamental strength as a well capitalised bank with a strong private wealth management franchise remains unchanged.” (See report below)
Again, due diligence is what is needed. Remember the Shin Corp deal that went horribly wrong and cost us $4.2 billion dollars? This was what The nation reported:
When Ho Ching, who is chief executive of Temasek, decided to buy into Shin Corp last year, she did not insist on Temasek’s financial adviser, in this case Goldman Sachs, conducting a due diligence investigation into the Thai company, then owned by the Shinawatra family.
The UBS-GIC debacle is not a one-off. It is a symptom of a much larger problem which is the lack of transparency and accountability of our national wealth funds. What is worst is that we still have no clue how much we have in the CPF.
In the meantime while these mega-deals involving tens of billions of our CPF dollars are made by the Government, Singaporeans continue to scrape by for a living and retirees continue to see our CPF savings get further and further out of reach.
GIC sitting on US$7.4 bln losses from UBS investment
19 Sep 11
The biggest shareholder of troubled Swiss bank UBS has broken its silence about last week’s $2.3bn alleged rogue trading scandal, criticising the “lapses” in the bank’s controls and expressing its “disappointment and concern”.
Following a meeting with Oswald Grübel, UBS chief executive, in Singapore, the country’s GIC wealth fund – which holds a stake of 6.44 per cent, according to Bloomberg data – issued a rare statement on Tuesday, saying: “[We] discussed the alleged fraudulent trading that led to the large financial loss for UBS. GIC expressed disappointment and concern at the lapses and urged UBS to take firm action to restore confidence in the bank”.
It was also seeking details of how controls would be tightened, the statement said. But GIC stopped short of saying it would seek to sell its shareholding.
GIC is sitting on a substantial loss – close to SFr6.5bn ($7.4bn) – on its UBS stake, acquired for €11bn ($15bn) three and a half years ago. At the time, it signalled its intention to hold the investment for as long as 30 years, though recent events may have given it cause to reconsider that time horizon, some bankers said.
UBS did not respond to the GIC statement, but bank insiders pointed to the investor’s endorsement of the bank’s underlying strength.
“GIC’s view of UBS’s fundamental strength as a well capitalised bank with a strong private wealth management franchise remains unchanged,” GIC wrote.