TR EMERITUS

1. I like the referendum system used in Switzerland. The citizens are asked to vote on specific issue. The results are used by their Parliament to decide on passing laws or by the government to take policy decisions (on economy, financial, social issues). 2. It is costly to hold a regular referendum in the traditional way. However, using digital technology, the cost can be reduced as follows; a) For each issue to be voted, post in a website a few videos (not exceeding 10 mins) for different experts to argue for or against the issue. b) Citizens are allowed to vote if they have watched the videos. This may take 1 hour or 2 hours. c) If the number of votes comprise of over 5% of the population, the results can be considered to be credible. 3. This method has the following advantage: a) The voting is done by citizens who are informed and interested in the topic. b) The cost of educating the voters and collecting the votes is low, compared to traditional methods.   Tan Kin Lian      Read More →

The Straits Times finally published what skeptics of the Covid vaccine long suspected - that immunity after a natural infection is far stronger than from the vaccine. It quoted The Lancet, a prestigious medical journal, that researchers conducting “one of the largest studies” have found that immunity acquired after a Covid infection is “at least as durable, if not more so than 2 doses of Pfizer’s or Moderna’s vaccine ….. ten months after a natural infection, people still had an 88% lower risk of reinfection, hospitalization and death”. This then begs the question: would it have been better not to vaccinate healthy people, especially the young, given that the probability of them being severely sick or dying after an initial infection is negligible? Besides, it became apparent shortly after the vaccines were rolled out, that they were not effective in preventing infection. Indeed, a group of doctors wrote to the government in 2021 to re-consider its decision to vaccinate teenagers and children but were beaten down. It is understandable that the government need to inspire confidence in a pandemic and that another U-turn would have been disastrous but their insistence, even to the extent of “no jab no job”, did not come without a cost. The Straits Times reported today that the “likely cause” of the death of a 28-year-old Blangadeshi worker 21 days after taking the first dose of the Moderna vaccine is the vaccine itself, and that the government has agreed to pay his family the highest tier compensation of $225,000. As at end 2022, 413 people, excluding the Blangadeshi, have been officially recognized as having been injured, maimed or killed by the vaccine, with the government having paid out $1.8m. I am sure there are more, but these people have difficulty proving a conclusive link to the vaccine and therefore not eligible for compensation. A case in point is the former nurse who was hospitalised for 151 days after receiving her second jab, and was diagnosed with involuntary movement disorder, which left her wheelchair-bound and requiring constant intubation with an oxygen tank. For us, the pandemic may be over and life carries on, but for quite a few of these people, life will not be the same again and indeed, some have ended, ironically, not by the virus, but by the vaccine. P/S: Do note that the ST headline “Covid-19 immunity from infection is similar to jabs” is inaccurate and misleading. It should be “at least as durable, if not more, than the jabs”.   Foong Swee Fong      Read More →

India's Adani Group has lost US$100b in value since the adverse report of short seller Hindenburg last month. Temasek has S$147m (1.2% shares) in Adani Port acquired in 2018. The Hindenburg report has little impact on share price of Adani Port. Singaporeans heaved a sigh of relief the Hindenburg report most likely saved the hides of GIC and Temasek as the Adani Group was in early talks in Oct 2022 with the sovereign wealth funds to raise fundings to the tune of US$10b. Our national reserves came within a whisker of being skimmed. That is, we assume Temasek has not gone ahead with the deal in light of the revelations of their internal fraudulent financial dealings. DBS loans to Adani Group Now the news is out DBS has a S$1.4b exposure to the Adani Group. DBS CEO Gupta was quoted in ST 13 Feb 2023, the bank has no worries and provisions are not necessary as S$1b was loans to acquire Swiss company Holcim's cement business in India, and S$400m were loans to other Adani Group subsidiary companies. The cement business and the subsidiary companies are doing well. The S$1b is participation in a syndicated loan for Adani to purchase Holcim's majority stakes in Abuja Cement and ACC. This is secured against a non-disposal undertaking with the shares controlled by security agent Deutsche Bank HK. Abuja and ACC have slipped 10% and 20% respectively from purchase price. India's cement industry remains positive, so DBS has reasons for confidence. There are no details on S400m loans to subsidiaries. S$1.4b exposure to Adani Group appears massive. It is about 12% of DBS paid up capital of S$11.8b (2021). However, this is still within the MAS limit of 30% cap for lendings to a group. Sale of National Iron Steel Ltd The national steel mill was put up for sale in the market in 2002. DBS held 14.67% which was bidded by a consortium of investors 98 Holdings led by hotelier Ong Beng Seng. His competitor was Singapore tycoon Oei Hong Leong. On 31 Oct 2002. 98 Holdings revised their bid to S$2.00 per share with a "no increase " statement. Under rule 20.2 of the Singapore Code on Takeovers and Mergers this meant the offer was final and could not be revised unless there was a competing bid. On 1 Nov 2021 Oei offered to buy from DBS their 14.67% holdings at S$2.03. On 12 Nov DBS CEO Jackson Tai, requested for a meeting with Oei. They met that day at 4pm at Oei's residence to discuss 'off the record'. There was no discussion of the sale of DBS' shares. Instead Oei was asked if there was a buyer at S$2.03 would he just sell his shares and make a few millions. At 4.03pm 13 Nov 2021 NatSteel shares were suspended from trading. The shrewd Oei smelled a fish and at 4.40pm he quickly sent by fax to DBS a revised offer to buy their shares at S$2.05. Indeed, 98 Holdings had increased their bid to S$2.03 that day. There was no response from Jackson and late that night, DBS announced they had sold their shares to Excel (owned by OBS), one of the members of the 98 Holdings consortium. It did seem DBS had not conducted themselves in their shareholders' best interest. Jackson Tai never faced any queries from major shareholder Temasek or SES. In fact, Temasek subsidiary Tazwell Pte Ltd which held 7.9% of NatSteel and was part of the consortium, also sold their holdings to OBS. South China Morning Post report 15 Nov 2021 : "State-linked DBS Group scrambled yesterday to explain why it had spurned a higher offer for its stake in takeover target Natsteel, the latest twist in the drawn-out battle for Singapore's lone steel miller. DBS said late on Wednesday it had accepted an offer of S$2.03 (HK$8.97) a share for its 14.7 per cent stake in Natsteel tendered by 98 Holdings, a bidding consortium headed by hotelier Ong Beng Seng and supported by DBS's parent, Temasek". SCMP was obviously referring to Oei's offer for S$2.05. Oei had approached Ho Ching for her blessings in case he makes a general offer and she had emphasised that Temasek’s objective was to maximise shareholder value. It is difficult to understand whether SCMP meant Temasek supported OBS bid, or Temasek supported DBS' decision to accept the lower bid. Either way, how does Ho Ching maximise shareholder (Singaporeans) value with DBS accepting a lower bid? Someone could write a good Wall Street type novel based on this episode. As Oei pointed out, he felt there was a conspiracy to enable OBS to take over NatSteel. There was even misinformation by SPH which ended with a libel suit by Oei against SPH and reporter Catherine Ong which the tycoon won. I presented just a snapshot of the episode. The full details can be found in a court judgement in another libel case brought by Oei. Details here. But Oei was right. The well-connected OBS has a knack for buying cheap. In 2015 his wife was able to win the main tenant contract for the Dempsey shopping area even though she wasn't the highest bidder. Purchase of Dao Heng HK In 2001 DBS acquired Dao Heng Bank HK, a purchase that had gone down in infamy. The acquisition was made at US$5.4b, a 60% premium over market share price at the time and 4 times its book value. S&P valued a goodwill component of US$2.7b in the purchase price. One day after the purchase announcement, DBS share price dropped 10% and Dao Heng shares jumped 52%. DBS had also acquired the smaller Kwong On Bank and Overseas Trust Bank. In 2003 the 3 units were merged to form DBS HK. The objective of DBS foray into Hong Kong was to gain a foothold into the huge Chinese market when it opens up. That didn't happen and the bank stumbled on for the next decade. Then there was the embarrassing incident in 2004 when DBS HK accidentally threw away and destroyed 83 safe deposit boxes of customers during a branch office renovation. Jackson Tai sold low (NatSteel) and bought high (Dao Heng) for DBS but was able to remain in the driver's seat till 2006. In the year of his departure in 2006, DBS HK wrote off about HK$5.4b (S$1.1b) of goodwill charge for the Dao Heng acquisition. DBS HK then had only a small market share of HK depositors (under 5%). It remains just as small today. With new management, DBS HK has crawled its way back and is now the 7th largest bank in HK by balance sheet size. In 2022 it won the HK best bank of the year award. The Ulu Pandan Condominium Read : The era of cheap money but no fixed rate housing loans in Singapore. That era has ended and Singaporeans lost out on an opportunity to lock in on cheap rates. The Ulu Pandan Condominium was a project of DBS Realty in 1977. DBS was the major lender with a first time ever fixed rate in Singapore for the first 10 years at 9% pa. When interest rates climbed in the 1980s, reaching an all-time high of 12% in 1981, DBS starred at tremendous losses. In stepped MAS and government to sort matters out. Sanctity of contracts went out the window, borrowers signed new mortgages with more expensive variable rates, and DBS survived. Purchase of POSB The Post Office Savings Bank was a statutory board until 16 Nov 1998 when the Ministry of Finance sold it to DBS for S$1.6b. Today, there is no such thing as an entity called Post Office Savings Bank. POSB is merely a brand name used by DBS. POSB had a different mandate from a commercial bank. It had the lion's share of retail deposits which it served extremely well with a large network of branches and ATMs. This move was certainly never planned by POSB which was at the time in the midst of proposing a new headquarter space. DBS labelled the acquisition in line with the government's call for local banks to merge so as to create fewer, but larger and stronger banks that are able to compete on the international stage. Obviously, POSB, and it's customers we the people, had no say. It's crystal clear the government paved the way for DBS to capture the massive depositor funds that helped in their thrust into HK. Overflowing with funds, Jackson Tai had no whims to paying over the roof for Dao Heng. 1MDB In the 1MND scandal involving ex-Prime Minister of Malaysia Tun Najib, US Dept of Justice claimed US$3.5b were misappropriated. The trail of funds flow involved 5 banks in Singapore - DBS, UBS, Standchart, Falcon and BSI. Following regulatory investigation by MAS the general manager of Falcon's Singapore branch was arrested. Falcon was fined S$4.3m and ordered shut down. BSI was fined S$13.3m and lost their licence to operate in Singapore. DBS , USB and standard were fined S$1m, S$1.3m, and S$5.4m respectively. Disruption of Bank's digital services Customers were unable to access online services for 2 days in Nov 2021. Multiple-day digital outage is consider a serious disruption. The penalty for this is an increase in its risk-weighted assets for operational risk. MAS increased this to 1.5 multiplier. This translates to an additional increase in capital of almost S$1b in June 2022. DBS had a similar disruption of digital service in 2010 when MAS had applied a multiplier of 1.2 times to the bank's operational risk weighted assets, which translates to additional regulatory capital of S$230m. Takeover of Laskmi Villas Bank In Nov 2020 the Indian Reserve Bank (IRB) approved the DBS takeover of Laskmi, the first time a foreign bank is allowed to acquire a local bank. Laskmi bank was running out of cash and headed for liquidation. Essentially it was a DBS rescue. The arrangement was a total write-off of capital (means share holders got nothing) and DBS to pump in fresh capital of S$442m. Just before the takeover, RBI had ordered the write-off of Tier 2 bonds. Under Basel II agreement, the central bank can write off such bonds in a liquidation situation. The bond holders has since sued DBS. The bonds aggregated S$4.2b. The investors actually sued RBI as a primary respondent for ordering the write-off of the Tier 2 bonds. DBS is the secondary respondent. DBS does not see this as an issue and has indicated there are no other external risks for which they need to make a provision. Laskmi has now merged into DBS India. With this, DBS has expanded its reach to over 563 branches across 19 states. This works out to S$785,000 per branch which seems like a good deal. On a personal note Fair is fair. I need to put this personal episode with DBS on record. About 8 years back, I was stationed in Philippines. I had some physical problems with my Visa card which I used to access ATM. I had a hard time going back and forth with their call centre customer service. The problem was I was not physically present in Singapore to complete the card change. This went on for weeks. Exasperated, I emailed the CEO Mr Gupta directly. Couple of days later their Customer Services Manager (a Filipino) called me and my problem was solved immediately. He arranged for my new card to be couriered over to me in a couple of days, all free-of-charge. Kudos for that. Addendum : Lehman Bros Structured Notes (I left this out. But it's a big item, so I thought it's better I add it in as an addendum) Lehman Bros had come up with some very complicated investment products in mid 2000s. It's pretty complicated but in simple terms it's like this. They take some assets and they structured a derivative on these products, Investors buy the derivative which is a structured note. These products are structured in such a way investors receive a regular stream of interest coupon until maturity. It paid considerably higher interest rates than fixed deposit rates and the notes were eagerly taken up by investors. On maturity the notes can be redeemed at the amount as described in the terms and conditions of the product. These structured products have multiple risk exposure that retail, or even well-educated investors, do not comprehend. Foremost, they don't even know what are the underlying assets for those Notes. Next Lehman themselves was the swap counter-party, which means if the investment bank falls, they will default on the scheduled interest payments. That would trigger a mandatory liquidation of the underlying assets. Lehman collapsed in 2008 in the midst of the global financial crisis. The underlying assets became valueless. When they unwind the assets, there was nothing left to payoff investors. DBS was an active arranger and sold the product to thousands of customers in Singapore and HK in 2008. Long story short, MAS investigation found DBS to mis-sold the complex financial product. DBS SG had to compensate S$80m to customers in Singapore while DBS HK paid up HK$424m to HK residents. DBS, together with other institutions involved, were banned from selling structured products for about 2 years.   Patrick Low * Article first appeared on Down The Rabbit Hole.      Read More →