MM got it right, Temasek got it wrong

As this article shows, Temasek shld not have been so hasty in selling its stake in BoA, which it got after BoA bot Merrill Lynch where Temasek had a big investment. BOA is doing the things that attracted it to spend US$5.9 bn buying shares in Merill Lynch. Temasek lost US$4.6 bn, it was reported.

Shortly before Temasek sold, MM had said that S’pore Inc’s investments in Citi, UBS, and Merill Lynch had a time-frame of 30 yrs. Temasek held its ML investment for over a yr. GIC still owns shares in Citi (profitable), and UBS (big loss).

(Aside so why should the young listen to him, when Temasek doesn’t? Other instances). Neither does it seem does the local media)

Bank of America is headed for its best year [2011]advising on mergers and acquisitions in Asia-Pacific since 2005, and arranging initial public offerings since 2007, data compiled by Bloomberg show. The combined companies have generated 30 percent more revenue from traditional investment-banking businesses in the region than they did as separate entities …

Where value investing can go wrong

“A study by Standard & Poor’s, one of the world’s leading credit rating agencies, has raised questions over the financial strength of some of the biggest banks ahead of new rules that could require them to raise more funds.

‘The analysis by S&P showed that HSBC is the best capitalised bank in the world, while Switzerland’s UBS, Citigroup of the US and several of Japan’s biggest banks are among the weakest.”: an excerpt from the FT.

No the purpose is not to show that highly paid managers at GIC goffed, or how smart I am. I have been a shareholder of HSBC since the 1980s. Even during Green’s (Christian + McKinsey, a lethal combination that always leads to problems) tenure as CEO, I kept the faith.

Now that the CEO is a man who joined the bank as an International Officer from a minor public school with I think A-levels, and he is basing himself in HK, one can only expect the return to the values that made HSBC great during the tenures of Sandberg, Purvis and Bond. Oh Purvis won the Military Cross in Korea, when he disobeyed orders to withdraw. He claimed he couldn’t hear the radio messge.

Sorry I am digressing. When Temasek bought into Merrill Lynch and Barclays and  GIC into UBS and Citi, I realised that they were buying into highly efficient banking machines. There was just enough capital for regulatory reasons and to provide a buffer for some things going wrong.  They needed a bit more cushion and GIC, Temasek were providing it.  Risky but history was on their side.

When the world recovered from the credit crunch of 2006, 2007, GIC and Temasek would reap the rewards of these finely tuned cash machines. They were the equivalent of the best of the best F1 cars.  I thought we had smart boys and gals. And that the risk would pay off.

But then came Bear Sterns, Lehman Brothers and AIG, and the rules changed. The winners were the better capitalised banks. If HSBC had as little capital as Citi, I’d be a poor man. The amounts it had to write-off on US sub prime would have shmed Citi. But it had capital.

So value investing doesn’t always pay off.