UBS: Why GIC may have to take a loss

In Banks, GIC on 20/09/2011 at 7:31 am

The investment bank of UBS “now looks as likely to die as it is to live,” writes Felix Salmon of Reuters. Selling or spinning off the unit don’t look like great options in the current environment, he says.

So there goes GIC thesis of a unique franchise combining wealth mgt and investment banking.

Remember, GIC has a 6.4% interest in this dog with fleas and GIC is down around S$10bn as of Thursday last week. Since then the loss has reduced to S$9.75bn. Even Mrs Goh Chok Tong would not call this sum “peanuts”.

  1. I am not an expert on finance but in your own opinion, is what they say an accurate reflection of investment?

    That while we are fixated with the losses in UBS, GIC is raking in another few billions elsewhere and that in the long haul, we are still looking at healthy profits.

    • They are the experts lah. I’m sure their multi-million dollar salaries told them to hang on and ride the stock down -80% instead of cutting losses earlier. What do we know? We are just daft sheep with no money. No money means no dignity. No dignity means shut up and sit down, or better yet go and clean the toilet.

  2. Yes and No.

    “Yes” is because there will be always be mutts and greyhounds in portfolio. Investments should be judged by the total performance of portfolio.

    “No” is because this was a big, big bet (more than 5% of investee)and a special situation deal (only for GIC), so relying on above portfolio pt is “cheating”.

    To be fair to TT and GIC, when the deal was done, it was seen as “cheating” existing shareholders. They said UBS had given a great deal to GIC. They wanted rights issue.

  3. $10B paper loss is peanuts lah. Govt just need to twist the screws harder on Sinkies — land sales, stamp duties, COE, ERP, special HDB market discount, higher taxes on petrol, ciggies and booze, triple the CPF min sum, add 10 yrs to CPF withdrawal age — can easily earn back $10B within 1 year. After all next GE still 5 yrs away.

  4. “They said UBS had given a great deal to GIC.”

    I have yet to see great deals given to foreigners. It happens rarely. Most of the time, foreigners are suckers. If it were such a great deal, they would have found local buyers (e.g. Buffett). Just look at what SG got for Merrill Lynch-BoA.

  5. When nick leeson lost billions for barings he had to faced condemnation, his countrymen wrath, imprisonment, despair of loss that brought him down with stress related illness. Contrast it with the loss of the country reserves over these bad bank investments which is several times that of baring. Those folks are still sleeping soundly at night and holding the highest offices of the land. Aren’t they thinking that the amount lost is just ‘peanuts’

  6. Thanks Atans1. Cleared up my understanding of the issue a bit. I think most of us in here is furious about the lack of transparency and accountability. Who cares if a bank loses a few billion? But I think as tax payers we care when GIC loses more than a few billion. Whose head is gonna roll for this? None I suspect – which makes working for GIC so cushy. Good times you rake in the bonuses, bad times you blame the market and extenuating circumstances – and still collect your bonuses.

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