CapitaLand chiefs defend strategy

CapitaLand chiefs defend strategy
CEO refutes concerns over exposure in China, says group has strengthened risk management, reports KALPANA RASHIWALA

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AMIDST a raft of downgrades by analysts and a slump in the company’s share price, CapitaLand’s top brass have defended the group’s strategy.

On the prowl: Mr Kee (above) and Mr Liew. CapitaLand is in a position to replenish land supply at more competitive prices as it does not have a huge China landbank
‘We are a company that’s much stronger than when we first started in terms of our balance sheet. We’ve also strengthened our risk management. We have an independent risk management team to countercheck all business initiatives. At the same time, we’ve built up a company with enough liquidity to not only weather the current position but take advantage of it,’ CapitaLand Group president and CEO Liew Mun Leong said in a recent interview with BT.

‘I can’t think of any project that we have invested in during the last two years that is a lemon. I can think of a lot of projects that we have divested and made money (from). That’s because we’re very prudent and paranoid about risk analysis,’ he says.

The property giant set up the strategic corporate development team in May to study acquisition opportunities - especially in China and Japan - to grow the company.

Said CapitaLand’s chief investment officer Kee Teck Koon: ‘To be able to leapfrog your competitors, usually it has to happen during a crisis.’

The current financial market turmoil emanating from the US has its origins in lax macro-economic policies that led to low interest rates, excessive liquidity and high leveraging.

‘Our company, if you check our history, we have not done that,’ Mr Liew stresses. The group had $3.4 billion of cash as at June 30, 2008 and this was not counting recently recycled capital of $2.9 billion from the divestment of properties like 1 George Street and Somerset Orchard in Singapore, the Raffles City projects in China, Capital Tower Beijing and Citibank Menara in KL. On a proforma basis, assuming these divestments were completed on June 30, 2008, and all things being equal, the group’s net debt-to-equity ratio would have been 0.43.

Besides the $3.4 billion cash, the group’s private equity funds had undrawn equity commitments of $2.2 billion and an average gross debts to assets ratio of 0.24 (inclusive of equity bridges) as at end-June 2008.

Mr Liew also refuted market concerns about the group’s exposure in China. ‘Unlike many other Chinese residential developers, we do not have a huge landbank. This leaves us in a position to replenish land supply at more competitive prices.’ The group has a 1.5 million sq metre gross floor area residential pipeline in the Beijing, Shanghai and Guangzhou regions.

Some analyst reports recently highlighted that major Chinese residential developers have been chopping prices, which will put pressure on CapitaLand to do the same. Mr Liew says land for the projects it is marketing now was bought a few years ago, when land prices were lower. As residential land values in China go down, CapitaLand, with its strong balance sheet, will be on the prowl to restock its landbank.

Strong fundamentals

Asian real estate markets have started to tank but Mr Liew maintains that ‘Asian economies and real estate will outperform western economies’, citing strong demand fundamentals. ‘In the Asian context, the buying power and source of funds through capital markets or other sources is still not as seriously affected as in USA, where the thing has completely frozen. The Arabs also have money.’

Mr Kee said German core funds and North European funds have also raised their allocation for Asian real estate over the years.

CapitaLand’s head honchos also dis- agree with the view that the group has increased its risk profile in the past few years by undertaking more development projects, moving away from the earlier stated asset-light strategy underpinned by stable recurring income from investment properties and fund management.

Sharing risks

Despite undertaking more development projects lately, Mr Liew said the group has reduced its exposure by sharing the risks with joint-venture partners or by undertaking the developments through its private equity funds.

The group has also been collecting a steady stream of recurring income from its funds. Its five Reits, with about $16 billion of assets under management as at June 30, 2008, last year generated $124 million distributions to CapitaLand. In addition CapitaLand Financial produced $70 million earnings before interest and tax last year from managing various funds in the group. CapitaLand’s stake in Australand also produced recurring earnings of A$58 million (S$67.5 million) from investment properties in 2007.

Some say CapitaLand has earned handsomely from divesting assets in the past few years but with the choicest ones sold, it may be a tough act to repeat.

Mr Liew acknowledged that the investment sales market will slow down for now and possibly next year, but says the group has in the meantime built up a portfolio of investment and development properties in various private equity funds - including the Raffles City mixed development projects in China and a string of malls across China - and through joint ventures, as in the case of Ion Orchard. ‘These were acquired at prices which would still enable us to monetise, at the right time, for good returns to our shareholders,’ he added.

Mr Liew also notes that over the past two years, the group has divested more than $9 billion of assets, double the $4 billion it has invested over the same period. ‘I want to conserve liquidity. My principle is: If you want to buy $1 of assets, you must give me $2 (of divestments).’

Singapore assets divested in the past 24 months include Hitachi Tower, Chevron House and Temasek Tower. ‘On hindsight, we think the divestment of many of our stable assets was nearly perfectly timed. The main point is that we have recycled (capital). We have sold at high prices and bought at low prices. Because of that, every time we do a divestment, we have a gain. It’s no point telling shareholders we have divested at a loss. Then you’re in trouble. We are always selling at a gain. All of them. I’m quite proud of it.’

Looking back, Mr Liew says CapitaLand has emerged stronger from weathering two crises - the Asian Financial Crisis in 1997 and the prolonged economic slowdown from 2001 to 2003 that took place after the group’s formation in 2000 from a merger between Pidemco Land and DBS Land. ‘We’ve emerged as a stronger company, further extended our leadership in the real estate sector and adopted lessons to address this current global financial crisis.’

With its disciplined capital management culture and stronger risk management checks put in place recently, ‘we’re aggressive in our growth as before and not emotional in divesting our mature properties when return targets are reached, generating liquidity for the next business cycle’. ‘This disciplined aggression is the hallmark of our management team,’ says Mr Liew.

Source : Business Times - 30 Sept 2008

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HPL unit to manage Le Meridien

HPL unit to manage Le Meridien

HOTEL Properties Ltd (HPL), through wholly owned HPL Hotels & Resorts, is taking over management of the Le Meridien Singapore hotel tomorrow and rebranding it Concorde Hotel Singapore, in line with plans to establish the brand in more markets.

This is HPL Hotels & Resorts’ fourth Concorde hotel but its first in Singapore, as the other three are in Malaysia. The company is looking to expand the brand in other markets such as Thailand, Indonesia and India.

Le Meridien’s management contract with Starwood Hotel & Resorts Worldwide ends today and the four-star business hotel will carry the Concorde name from tomorrow.

When contacted, a spokesman for HPL Hotels & Resorts declined to comment on the value of the deal, saying only that it was a ’substantial amount’.

The 417-room hotel will undergo renovations in several phases, to minimise disturbance to its guests, starting from November.

The refurbishment works are slated for completion in the first quarter of 2010.

Andrew Khoo, newly appointed general manager, said: ‘These will be exciting and challenging times for the Concorde brand and the HPL group as a whole as we move forward with our plans to expand the brand in Singapore and the region. Guests familiar with the Concorde brand have always associated it with quality and good service.’

HPL Hotels & Resorts is headquartered in Singapore.

Source : Business Times - 30 Sept 2008

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Int’l panel to review Singapore BCA’s green plans

Int’l panel to review Singapore BCA’s green plans

It will examine policies, practices on green building promotion and rules

By JAMIE LEE

THE Building and Construction Authority (BCA) has engaged five international players to review its green building plans and ‘accelerate Singapore’s green building movement’.

The group will study how other countries develop green buildings, recommend new directions for S’pore’s green building efforts.

The panel, which includes researchers from Singapore universities and design experts from overseas, will look at Singapore’s policies and practices on green building promotion and regulation.

It has already started work, will wind up on Oct 2 and present its report at the end of this week.

It will examine how other countries develop green buildings, look at the challenges and potential involved in promoting environmental sustainability for existing buildings, and recommend new directions for Singapore’s green building efforts.

BCA chief executive John Keung said yesterday that the focus will be on ‘greening existing buildings’, after the first masterplan in 2006 and the Green Mark scheme in 2005 brought about 130 green building projects, with another 200 awaiting assessment.

‘We will draw fresh perspectives from the experts, especially in promoting environmental sustainability for existing buildings which are in need of upgrading to improve their energy efficiency,’ Mr Keung said.

For the panel, BCA has engaged Professor Joachim Luther, chief executive of Solar Energy Research Institute of Singapore and former director of Europe’s Fraunhofer Institute for Solar Energy Systems.

Joining him are Professor Kazuo Iwamura, a Japanese architect who focuses on urban and architectural research; Kevin Hydes, chairman of the World Green Building Council; Maria Atkinson, global head of sustainability for Australian property group Lend Lease; and Peter Head, director of global design, engineering, planning and business consultancy Arup.

The panel will work with Dr Nirmal Kishnani, senior lecturer at the National University of Singapore, and Associate Professor Raymond Wong from Nanyang Technological University’s School of Mechanical and Aerospace Engineering.

Source : Business Times - 30 Sept 2008

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Investment banks get US$37b from AIG bailout loans -NEW YORK

Investment banks get US$37b from AIG bailout loans -NEW YORK

AIG credit line shows how US$700b bailout may work

(NEW YORK) As much as US$37 billion from federal bailout loans to American International Group (AIG) has gone to investment banks including Goldman Sachs Group, the firm that Treasury Secretary Henry Paulson used to run.

Without the government money, Goldman, Merrill Lynch, Morgan Stanley, Deutsche Bank AG and other firms could have become some of the biggest creditors in a bankruptcy filing by AIG, the world’s largest insurer, because of its billions in losses on sub-prime bonds and corporate debt.

‘It was the biggest crisis ever - if you’re an investment bank,’ said Joshua Rosner, a managing director at investment research firm Graham Fisher in New York. ‘We didn’t just save AIG. We saved the counterparties, the banks. It’s true that it would have been a disaster, but it would have been a disaster for them.’

Goldman, for one, has had to fend off a New York Times report that a collapse of AIG ‘threatened to leave a hole of as much as US$20 billion in Goldman’s side’, saying that its exposure to AIG was ‘not material’.

The firms received cash as AIG borrowed from a Federal Reserve credit line endorsed by Mr Paulson, Goldman’s former chief executive. The insurer had borrowed US$44.6 billion from the credit line as at Sept 25, the Federal Reserve reported that day.

Mr Paulson’s successor at Goldman, Lloyd Blankfein, was the only chief executive at a meeting on Sept 15 at the New York Federal Reserve Bank at which the troubles at AIG were discussed, although representatives of other firms were present, a Fed spokesman said.

The same day, when its credit rating was downgraded, AIG needed as much as US$37 billion to pay collateral calls from Wall Street firms and others because the value of its holdings had declined, Standard & Poor’s said in a report that evening.

‘Mark-to-market losses from mortgage-related investments and swap exposures have placed significant pressure on AIG’s ability to access capital and liquidity,’ the report said.

The next day, AIG began borrowing money - US$14 billion - from the Fed and continued borrowing for three more days, receiving loans totalling US$37 billion, it disclosed in a financial filing on Sept 26. AIG then met its collateral calls to its Wall Street trading partners, S&P analyst Rodney Clark said in an interview.

The payments show how bailouts engineered by Mr Paulson and Federal Reserve chairman Ben Bernanke are beginning to shift money to Wall Street firms involved in sub-prime mortgage trading. As Congress prepares to vote on a broader US$700 billion bailout, the AIG credit line is one indication of how it might work. — Bloomberg, Reuters

Source : Business Times - 30 Sept 2008

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US investment income here Singaore rises 24%

US investment income here Singaore rises 24%

Rate of return hits 22%, highest in 4 years and above Asia-Pac average

By CHUANG PECK MING

ALTHOUGH growth in US direct investments in Singapore is slipping behind elsewhere in Asia, there is no let-up in the returns here - the investment income of US multinationals continues to surge.

US investments in Singapore rose just 5.3 per cent to US$82.62 billion last year. Worldwide, they went up 13.7 per cent.

– US Department of Commerce

Income from US investments here jumped 24.3 per cent from 2006 to a whopping US$18.32 billion (without current-cost adjustment) last year, giving a 22 per cent (income divided by investments) rate of return.

This was the highest return in four years and better than the 15.4 per cent average for US investments in the Asia-Pacific region as a whole.

At the same time, US investments in Singapore rose just 5.3 per cent to US$82.62 billion last year, according to the latest figures released by the US Department of Commerce.

That is less than half the rate for US total investments in the region, which climbed 12 per cent to US$453.96 billion.

Worldwide, US investments went up 13.7 per cent from 2006 to US$2.79 trillion last year, with much of the increase going to Europe.

Investment income rose 12.9 per cent to US$348.79 billion - a 12.5 per cent rate of return.

Non-bank US holding companies in Singapore made over two-thirds - US$12.89 billion - of US investment income here last year.

A sizable US$2.32 billion of this income was posted by US manufacturers.

US finance houses and insurance companies in Singapore, excluding banks, also received significant returns amounting to US$902 million.

US wholesale traders scored US$677 million in investment income.

US investment income from Japan, host to the most US investments in the Asia-Pacific region, dipped from US$8.72 billion in 2006 to US$8.31 billion last year. US investment income also fell in Australia and Malaysia.

Thanks largely to the spike in global commodity prices, US multinationals in Indonesia got the best returns in Asia-Pacific last year - 34.2 per cent. The US has US$10.05 billion sunk there.

Malaysia offered US the second-highest return, although the rate slipped from 25.4 per cent in 2006 to 23.3 last year.

At 22.2 per cent, US multinationals got a more attractive return in Singapore than in China (21.1 per cent) and India (20.1 per cent) - the two hottest emerging markets in the region.

But US investment income from China and India are rising fast - up 29.7 per cent and 62.1 per cent respectively last year.

US multinationals also saw investment income surge in Hong Kong last year - from US$6.05 billion in 2006 to US$8.5 billion, an increase of 40.5 per cent.

But given the huge US investments there - US$47.42 billion - the rate of return was 17.9 per cent, or just above the region’s average.

Source : Business Times - 30 Sept 2008

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US bailout plan fails to relieve bourse panic

US bailout plan fails to relieve bourse panic

Mood is dour with more news of contagion spreading

By ANDREW MARKS
NEW YORK CORRESPONDENT

WALL Street may be breathing a sigh of relief over the US government’s tentative US$700 billion plan to bail out the financial sector, but it is hard to hear that amid the chaos that continues to roil the global financial system.

Even after Congressional leaders hammered out a rough deal for the rescue plan in round-the-clock negotiations over the weekend, investors were hardly dancing in the streets on the week’s first day of trading in reaction to the news.

‘The bailout, assuming it happens, removes some of the uncertainty that’s rattling the stock market, but at this point, investors are still asking ‘what do I do?’ and the prevailing sentiment is caution until things settle down everywhere,’ said Charles Crane, chief investment strategist at Scotsman Capital Management, which runs nearly US$1 billion in client money.

Those ‘things’, however, hardly seemed close to settling down when the opening bell sounded on the NYSE yesterday, as US stocks tumbled early in the face of a slew of unsettling news that countered relief over impending approval of the bailout.

The Dow fell 291 points, or 2.61 per cent, to 10,851 within the first 10 minutes of trading in reaction after the Federal Deposit Insurance Corp announced Wachovia has been forced into a shotgun wedding with Citigroup, and fresh evidence that the credit crisis was spreading turmoil abroad.

European governments early yesterday arranged rescues of Bradford & Bingley, Fortis and Hypo Real Estate, sending stock markets in Asia and Europe spiralling into steep losses.

Investors reacted to the steep sell-off overseas with their own in New York. The bluechip index’s tumble was almost minor compared to the broader S&P 500, which was down a whopping 39.25 points, or 3.25 per cent, at 1,173.76, and the Nasdaq Composite’s 87-point, or 4 per cent, fall to 2,097 at 10:15 am.

‘Even though valuations appear attractive in many strong companies, there are just too many unknowns swirling around right now for us to feel confident in putting our clients’ money back to work at this point,’ said Mr Crane, who is overweight in cash and holds not a single individual financial firm in his clients’ portfolios right now.

Indeed, investors everywhere appeared close to coming unhinged with fear that the global financial system could still implode despite the efforts of the US government and central banks throughout Europe to stem the spreading tide of collapse yesterday morning.

The already sky-high CBOE Volatility Index, widely viewed as the best gauge of fear in the market, shot up to about 38 yesterday; a reading of 30 is considered extreme uncertainty. If the VIX hits 40, analysts said, it would spell panic.

‘We’re going to be in this ‘keep your money under your mattress’ mode until some sense that this wild ride is slowing down a little, and that’s not going to happen until investors stop getting these shocks to the system with bank failures and emergency rescues,’ said Joe Battipaglia, chief investment strategist at Ryan & Beck.

Source : Business Times - 30 Sept 2008

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Europe scrambles to fight financial fires

Europe scrambles to fight financial fires

Markets reel as European financial institutions are pushed over the brink; central banks pump in massive amounts of funds to boost liquidity

(WASHINGTON/BRUSSELS/FRANKFURT/LONDON) A swathe of bank rescue deals was mounted in Europe yesterday as several major financial institutions were tipped over the brink by the growing global credit crunch.

‘Investors are fearful, frenetic, especially when it comes to banking shares. They want to get out now and see the after-effects from afar.’

- Frank Geilfuss,
head analyst at Bankhaus Loebbecke

Compounding the fears were anxiety over whether a tentative US$700 billion bailout of the US financial system will actually be sealed when lawmakers in Congress get down to a vote.

Even as investors took in the implications of events in Washington over the weekend, central banks in Asia and Europe pumped in huge amounts of liquidity into their financial systems yesterday to persuade fearful financiers to lend to each other.

The MSCI All-Country World Index of 48 nations lost as much as 4.4 per cent, the steepest plunge since the Asian financial crisis 11 years ago.

European shares dropped to a three-and- a-half year closing low yesterday, with banks weighing on the benchmark index amid persistent worries about the health of the financial industry on both sides of the Atlantic.

The FTSEurofirst 300 index of leading European shares ended unofficially down 4.95 per cent at 1,050.12 points - its lowest since January 2005. The benchmark index also notched up its biggest one-day percentage fall since Jan 21 this year.

‘Investors are fearful, frenetic, especially when it comes to banking shares. They want to get out now and see the after-effects from afar,’ said Frank Geilfuss, head analyst at Bankhaus Loebbecke.

News of the takeover of the US Wachovia Corp’s bank operations by Citigroup and the part nationalisation of two major European banks battered banking stocks, with Royal Bank of Scotland falling 16.8 per cent, Swiss bank UBS losing 13.6 per cent and UniCredit slipping 10.2 per cent.

‘This credit crisis is pretty deep and it’s pretty deep throughout the financial industry,’ Jason Pride, who helps oversee about US$6.5 billion as director of research at Haverford Trust Co in Radnor, Pennsylvania, told Bloomberg Television.

In Europe, the governments of Belgium, the Netherlands and Luxembourg moved to part-nationalise Belgian-Dutch group Fortis with an injection of 11.2 billion euros (S$23 billion).

The banking and insurance company, which has 85,000 staff worldwide will sell the parts of Dutch bank ABN Amro it bought last year to Dutch rival ING in a deal expected to be finalised within two weeks.

British mortgage lender Bradford & Bingley was brought under the government’s wing and Santander stepped in to buy its deposit book and branches, adding to its planned takeover of Alliance & Leicester.

German lender Hypo Real Estate, whose shares plunged more than 60 per cent in morning trade, secured a credit line from the German government and banks of up to 35 billion euros.

‘The purpose of the whole operation is to allow an orderly winding down of Hypo Real Estate,’ a German finance ministry spokesman said.

Shares in French bank Dexia tumbled 30 per cent on a report it might need emergency capital, and bank rescue deals emerged in Iceland, Russia and Denmark too.

‘The nationalisations have an incredibly negative read across the sector,’ said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton. ‘The contagion is spreading to mainland Europe and everyone’s asking: who’s next?’

As a whole, investors remained sceptical of the US efforts to stave off the crisis sparked last year by defaults on home loans.

‘The contagion is spreading to mainland Europe and everyone’s asking: Who’s next?’

- Mark Sartori,
head of European sales trading at Fox-Pitt, Kelton

‘A rescue plan worth US$700 billion is simply not enough to overcome the crisis for the foreseeable future. If anything, all the real economy problems will escalate as a result in the foreseeable future,’ said Carsten Klude, strategist at MM Warburg.

Money markets remained frozen with banks refusing to lend to each other for all but the shortest periods.

Crude oil slumped almost US$7 a barrel, while copper, lead, corn, silver and rice all dropped, leading the S&P Goldman Sachs Commodity Index to a 5.2 per cent decline.

Energy and materials shares in the MSCI All-Country World Index retreated more than 6 per cent as a group.

The only gainer in the market was gold, which climbed 3 per cent as fresh worries over the health of the global financial sector sparked buying of safe-haven assets such as bullion.

In euro terms, gold was up nearly 5 per cent.

‘Gold was weaker earlier on, but it has bounced back,’ said Stephen Briggs, metals analyst at RBS Global Banking & Markets.

‘For the moment, it is breaking away from its slavish attachment to the dollar. It doesn’t look as though the financial problems are going to pass quickly, so this is gold’s moment in the sun,’ he said. — Reuters, AFP, AP, Bloomberg

Source : Business Times - 30 Sept 2008

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Singapore Thomson collective sale back on track after SLA appeal

Singapore Thomson collective sale back on track after SLA appeal

THE collective sale of five small estates in Thomson Road is back on track after getting stalled two months ago.
An appeal by buyers Mergui Development has been granted by the Singapore Land Authority (SLA), to reduce the price of a 1,000 sq m section of a road needed for redeveloping the project.

Developer KSH Holdings, the parent company of a firm in the Mergui Development consortium, told the Singapore Exchange yesterday that the SLA had cut the land premium payable from $16.74 million to $8.37 million.

KSH project manager Richard Tham said the SLA’s revised offer was more in line with the price ‘initially expected’. The buyers were caught off guard by the initial $16.74 million land premium, which is believed to have delayed the completion of the $120 million sale.

Owners at the five estates - Norfolk Court, Mergui Lodge, Northern Mansion, Mergui Court and The Mergui - were said to be considering walking away with the 10 per cent deposit of $12 million because buyers had failed to complete the sale, despite a two-month deadline extension.

Both sides have since agreed on a deadline extension until November, but this involved paying a further $3 million deposit to the 88 sellers.

The SLA said it had originally priced the land ’similar to that offered by the developer to the existing land owners along Mergui Road’. However, on review, it noted the land had some development constraints and considered the revised price ‘in order to facilitate the development proposal’.

Mergui Development is a joint venture between Bursa-listed IOI Properties unit Multi Wealth Singapore, a local private firm LBH, and KSH unit Kim Seng Heng Realty, which holds 35 per cent.

The strip of land is needed so the five estates near Rangoon and Moulmein roads can be combined and developed into one project. This will give a land area of 74,355 sq ft and a gross floor area of 208,196 sq ft. It will allow a high-rise block with about 140 luxury flats each measuring 1,250 sq ft on average.

JESSICA CHEAM

Source : Straits Times - 30 Sept 2008

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Concorde Hotel checking in again

Concorde Hotel checking in again

By Michelle Tay

The 417-room Le Meridien Singapore will be turned into Concorde Hotel Singapore from tomorrow. — ST FILE PHOTO

THE hotel arm of Singapore-listed HPL Properties has taken over an Orchard Road hotel and will make it part of its Concorde chain.

HPL Hotels and Resorts Group will take over the management of Le Meridien Singapore from tomorrow and turn it into Concorde Hotel Singapore.

The multimillion-dollar rebranding and ‘major refurbishment’ works will make the Concorde a four-star business hotel.

Updated suites and rooms will boast ‘more spacious lodgings, larger desk space and upgraded amenities’, complete with a sleeker and more chic design, said HPL.

HPL added that the revamp, which will be completed in early 2010, will cause only ‘minimal inconvenience’ to guests.

The hotel, which is on the main shopping belt and a stone’s throw away from the Istana, will be the fourth Concorde managed by the group. The other three are in Malaysia.

The 417-room Le Meridien was managed by Starwood Hotel and Resorts Worldwide, whose management contract ends today.

HPL said in a statement that it will be ‘taking this opportunity to re-establish the Concorde brand in Singapore’, with ‘plans of possibly bringing the brand name to countries such as Thailand, Indonesia and India’.

The first Concorde Hotel here was in Havelock Road and owned by HPL managing director Ong Beng Seng through his privately held company Avant Hotels.

But in January 2005, it was renamed the Holiday Inn Atrium and managed by InterContinental Hotels Group Asia Pacific.

HPL also said it has appointed Mr Andrew Khoo as general manager of the new Concorde.

Source : Straits Times - 30 Sept 2008

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US$700b bailout plan rejected - WASHINGTON

US$700b bailout plan rejected - WASHINGTON

WASHINGTON: US lawmakers overwhelmingly abandoned their president this morning by voting against his US$700 billion (S$1 trillion) bailout plan, sending US stocks into a precipitous tailspin.
The unexpected rejection of the plan in the US House of Representatives ravaged financial markets, sending the Dow Jones Industrial Average down as much as 705 points.

US crude oil sank more than US$10 to below US$97 a barrel, its single biggest fall in almost seven years.

Stocks plummeted on Wall Street even before the 228-205 vote to reject the Bill was announced on the House floor, as Congressmen ignored urgent pleas from President George W. Bush and bipartisan congressional leaders to quickly bail out the staggering US financial industry.

As at press time, the Dow was down more than 500 points at 10,611.

When the critical vote was tallied, too few members of the House were willing to support the unpopular measure with elections just five weeks away. Ample ‘no’ votes came from both the Democratic and Republican sides of the aisle but more Republicans than Democrats rejected the bailout.

A disappointed Mr Bush said he would meet his economic team to determine the next step to prevent a financial meltdown.

The vote had been preceded by unusually aggressive White House lobbying, and spokesman Tony Fratto said that Mr Bush had used a ‘call list’ of people he wanted to persuade to vote yes as late as just a short time before the ballot.

Earlier in the day, it was bad news and more bad news coming out of Europe.

European currencies fell while the US dollar, gold and government bonds surged as the Belgian, Dutch and Luxembourg governments rescued financial firm Fortis to prevent a domino-like spread of failure.

Hours later, the British government said lender Bradford & Bingley’s branch network would be sold to Spanish bank Santander and the remainder of the group would be nationalised.

Then, Iceland’s government bought a 75 per cent stake to take control of Glitnir after the bank’s funding position deteriorated in recent days, knocking the crown currency to record lows against the euro.

German lender Hypo Real Estate struck a last-minute deal with the government and a consortium of lenders to resolve a refinancing squeeze. Russia and Scandinavia also had to rescue their banks.

‘One sees now, that not only American but also European banks are affected and that the crisis is after all global,’ said Mr Carsten Klude, a strategist at MM Warburg.

The US banking system itself faced more upheaval. Its bank regulator announced last night that Citigroup will acquire the bulk of Wachovia, the country’s sixth-largest bank by assets.

This sent Wachovia shares plummeting more than 90 per cent, even as the regulator stressed that the bank ‘did not fail’.

Major central banks meanwhile tried to stem the growing credit crisis as commercial banks hoarded cash and refused to lend to one another for all but the shortest periods.

The US Federal Reserve and its counterparts in Canada, Europe and Asia pumped another US$630 billion into the lending system, flooding the banks with cash.

‘They are throwing billions around, but things seem to be getting worse, said Mr Joe Saluzzi, co-manager of trading firm Themis Trading. ‘There’s a monster amount of fear out there.’

Currency markets also felt the chills, with the euro falling more than 2 per cent to US$1.4301.

The British pound dropped more than 2 per cent to US$1.7962, heading for its steepest one-day loss since mid-1993.

Gold rose above the US$900 threshold, climbing 2.4 per cent to US$909.50 an ounce as investors fled to safety while oil fell more than US$6 a barrel to US$100 on fears of slowing economic growth.

Similar worries drove losses across stock markets in Asia earlier in the day as concern grew that the US bailout would fail to prevent the credit crisis from spreading.

REUTERS, BLOOMBERG, AGENCE FRANCE-PRESSE

Source : Straits Times - 30 Sept 2008

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