Randomly Noted

A little more than two years ago, the largest sovereign wealth fund in the Middle East made a big investment in Citigroup – Abu Dhabi Investment Authority bought $7.5 billion of mandatory convertible securities that at the time seemed like a great deal. ADIA, as it is known, would be paid an 11% dividend for about 2 1/2  years and it would be required in March of next year to buy Citigroup stock for $31.83 a share.

With Citigroup stock around $3.50 a share today, the deal will cost ADIA dearly. So, it has filed a complaint (we are still trying to find out with whom) alleging “fraudulent misrepresentations” and wants the deal scrapped.

Unless it can be proven that Citigroup did engage in fraudulent activity (which would have huge ramifications beyond Abu Dhabi, one would have to believe), there is no reason for this deal to be torn up.

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Singaporean sovereign wealth fund GIC lost more than 20% of its value in fiscal 2009 – or about 59 billion Singapore dollars according to one person familiar with the matter.

That’s not pretty, but not a disaster, either, given the horror show on global equity markets between their Oct. 2007 peak and the lows hit in March 2009. The run-up in stocks since then and GIC’s exit last week from Citigroup, which reaped S$2 billion-plus in profit, suggest the fund – like pretty much all others – is in for a better year. GIC calculates its annualized gains over the last 20 years at 5.7% – neither the best nor worst place to have put your money.

The financial crisis put the spotlight on SWFs, first as saviours of traditional banks – for GIC, read Citi and UBS – and then, when fear set in again, as another example of how finance had become a shadowy and untethered game played by elites.  Funds run or sponsored by Arab or East Asian states deploying bucket-loads of money to prop up the banks where the average westerner deposited his salary was either a grand exercise in back-scratching or, more nefariously, a takeover bid for the financial system.

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It’s time for Singapore to do something about Temasek’s leadership. Today’s announcement of the investment company’s annus horribilis underscores just how acute the problem is. Ho Ching, the CEO, is an intelligent, capable individual but she and her team haven’t run government-linked Temasek well, making a series of peculiar or ill-timed investment decisions in recent years. What to do? Hire a new boss. Oops! Temasek had Mr. Right, only to ditch him at the altar. The jilted groom aka CEO-designate was Chip Goodyear, a well-regarded former mining and banking industry executive who would have been Temasek’s first non-Singaporean boss. But Temasek’s pooh-bahs couldn’t make it work with the new kid on the block and a parting-of-ways occurred before Goodyear was due to officially ascend to the top job. Needless to say, it’s a rare world-class fund or firm that hires a high-profile executive – amid much hoopla, by the way; Goodyear’s hiring was a robustly publicized event – only to file for divorce within months. Granted, there are cases where an institution would be better off if its leaders had the guts to change their minds about major hires gone awry. But a few too many things have gone wrong at Temasek. Its investing stumbles – including dumping stakes in western banks at just the wrong time (before stocks began rising) – following a rather pricey, problematic and politically charged transaction in Thailand a few years ago and combined with the Goodyear split -they all add up to a need for a shake-up at the top of Singapore’s Temasek.

Singapore’s Temasek Holdings says its designated new CEO, Charles “Chip” Goodyear, won’t take the reins on Oct. 1 as expected. Colleague Costas Paris reports Goodyear – in the heir-apparent role to the investment fund’s current boss, Ho Ching – ruffled feathers by seeking high-level management changes and proposing strategies viewed as too risky. I don’t know if  Goodyear was the ideal boss for the big Singaporean fund. How many bosses – or parents, for that matter – are ideal? Surely Goodyear, with many years of experience running and helping steer some very big companies, was well-equipped to do, at the very least, a good good job as Temasek’s CEO. And if he wanted to bring in some trusted lieutenants while ushering out some of the old guard, that would be time-honored practice. Of course, if Goodyear was trying to put Temasek’s money into risky investments, that wouldn’t sit well with Singapore establishment types. But given the investment fund’s recent lousy track record – including foolish bets on dysfunctional Western banks – it’s hard to imagine what Goodyear’s portfolio management missteps could have been that warranted an abrupt parting of ways. And so Chip Goodyear emerges from his short Singapore sojourn in good shape – he’ll probably have a nice monetary exit package and will find a job in industry or banking from whence he came. Temasek, however, looks silly and shabby for hiring the wrong guy, or hiring the right guy and failing to realize it did. Who’s to blame? The board, headed by Chairman S Dhanabalan,  and Ho Ching herself, for hiring the “wrong” guy. In a way, this episode speaks to Singapore’s broader dilemma. Since its expulsion from Malaysia in 1965 modern Singapore’s evolution has been nothing short of a miracle. And yet the confidence and, sometimes, competence of its contemporary leaders – political and business – seems sometimes to lag behind the needs and expectations of the Singaporean people. Singaporeans won’t look kindly on Temasek’s failure to manage its historic transition to leadership by a foreign professional, coming as it does after bloody investment losses. Look for a growing skepticism and restiveness among the island-state’s otherwise complacent populace.

Standard & Poor’s Rating Service may have recently shifted to a negative outlook on the United Kingdom’s Triple-A sovereign rating, but Moody’s Investors Service let us know today it’s quite comfortable with the top rating for the United States.

As this blog has noted, the S&P UK move served up the inevitable chatter about whether the U.S. would be next. There were good reasons to say no, despite the huge debt being taken on by the U.S. to revive the economy and to stabilize the financial system.

America’s  Triple-A seems quite secure, though there’s no doubt the nation is weaker financially than it was a couple of years ago.

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Burned by foolish bets on Western financial institutions, sovereign wealth funds are looking elsewhere for new opportunities. The latest example: Singapore’s Temasek Holdings will reduce its exposure to countries within the Organization for Economic Co-operation and Development to 20% of its portfolio from 30%. This from Ho Ching, Temasek’s departing chief executive officer and wife of Singapore Prime Minister Lee Hsien Loong. Shying away from the OECD’s Western members, Temasek will put money into Latin America, Russia and Africa, where its collective exposure will be 10%. Asia (not including Singapore) will stay at 40% and Singapore at 30%, AFP reports. My two cents: build up Latin America big-time, especially Brazil, where durable political stability, rich natural resources, and a robustly rising standard of living provide remarkable investing opportunities – although it may already be too late (pricey) in some sectors. Avoid Russia – any potential gains are offset by vast political risk. Africa’s interesting: Temasek’s incoming boss, Chip Goodyear, has heaps of mining and resources experience from prior corporate gigs. Political risk is subsiding in a few intriguing sub-Saharan African countries. An interesting time to play there, especially with Singapore’s ally, China, entrenched across the continent.

Not a great day for Bank of America Merrill Lynch. First blow: DJN’s Amy Or discloses that Merrill Lynch didn’t get the mandate to handle all those China Construction Bank shares its parent, Bank of America, sold this week. You’ll recall Bank of America dumped about $7.3 billion of CCB shares as part of its urgent fund-raising efforts. It would make sense for BofA to hand the task of selling millions of CCB shares to its recently acquired in-house investment bank, Merrill Lynch. But Morgan Stanley got the gig. As Amy writes, “By crossing the shares, the U.S. investment bank assumed a market maker role and acted as the agent in both buy and sell sides of the trade.” Her story is headlined “Morgan Stanley Was Agent For Both Sides In CCB Deal -Sources.”  Continue reading…

The horse-trading over Bank of America’s $9 billion stake in China Construction Bank has begun in earnest. Today, Temasek Holdings, a plausible buyer, signaled that CCB looks a bit pricey – surely a ploy by the Singapore sovereign wealth fund to make a stake in the Chinese bank a bit more affordable. Check out the DJN story by Nisha Gopalan: “BofA Approached Temasek To Buy CCB Stake-Sources.” After rising more than 10% in recent days, CCB shares slid 6.3% today in Hong Kong.  The WSJ reports China’s sovereign wealth fund, China Investment Corp. (CIC), is unlikely to take some of Bank of America’s 16.7% stake in CCB – if only to avoid the perception that China’s government is helping bail out a troubled U.S. bank. by buying CCB shares well above where BofA acquired them. Indeed, the main reason BofA wants to flip its CCB shares at the earliest possible moment is to meet Washington, D.C.’s capital sufficiency criteria.  Have a look at the WSJ piece: =WSJ UPDATE:Buyers Sought For Part Of BofA’s CCB Stake-Sources.”