Singapore AIA executives dismiss speculation of asset sales

Singapore AIA executives dismiss speculation of asset sales

By GENEVIEVE CUA

AIA’s Asian operations are the AIG group’s crown jewels, say AIA executives, dismissing speculation that asset sales could be on the cards.

GUT REACTION
Some 0.1 per cent of policies were cancelled by worried AIA policyholders over the past couple of days
On talk that other insurers are circling AIG’s assets, Mark Wilson, AIG Life Companies regional president (Asia-Pacific) said: ‘The life and general businesses are core holdings - and they remain core holdings. They remain the jewels in (AIG’s) crown - not things considered to be sold.’

In the year to date, new business premiums have grown an estimated 20 per cent in Singapore and in the ‘high teens’ in the region. AIA in Asia has some 300,000 agents and more than 33 million customers.

This week has been a dramatic one for the AIG group, when its parent company AIG Inc teetered on the brink of insolvency. The firm had suffered US$18 billion of losses from guarantees on mortgage derivatives. Ratings downgrades raised the amount it had to post as collateral and threatened its ability to raise capital. The US Federal Reserve stepped in to extend an US$85 billion loan over two years, in return for a 79.9 per cent stake.

AIG Inc’s capital position has since improved, said Mr Wilson. ‘I would be very surprised if we draw down anything like that (amount). It doesn’t make much difference to Singapore, where we always were and remain well capitalised. We do not anticipate putting in more capital (here). We do not need it. There has never been any question of that.’

Since news of the Fed’s loan, Standard and Poor’s has revised AIG’s long-term counterparty credit ratings from ‘negative’ to ‘developing’, providing some relief to its liquidity strain.

AIA regional executives emphasised yesterday that AIA in Singapore has a capital adequacy ratio in excess of 200 per cent, which means that there is more than enough to cover policy liabilities. Some 0.1 per cent of policies were cancelled by worried policyholders over the past couple of days. This works out to about 2,000 out of more than two million policies in force.

Mr Wilson said that the surprise departure of AIA general manager Mark O’Dell was ‘regrettable’. AIA announced his resignation on Thursday night. ‘People will certainly speculate, but look at the facts. The company isn’t about one guy . . . It doesn’t impact operations in any way,’ Mr Wilson said.

Mr O’Dell submitted his resignation on Wednesday. Sources believed that he is joining rival insurer Manulife and will be based in Taiwan. He could not be reached for comment. He is understood to be on ‘gardening’ leave. Kenneth Juneau, executive vice-president of AIA’s regional office, will take over Mr O’Dell’s position in the interim.

Mr Juneau said that the firm will help make the process of policy reinstatement ‘as painless as possible’. The firm has launched a ‘policy conservation’ programme to enable those who cancelled policies to reinstate them without cost or the need to show insurability within a 14-day period. ‘Everyone reacts differently,’ Mr Juneau said. ‘Sometimes just a good cool-down period helps people become rational again.’

Source : Business Times - 20 Sept 2008

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Asian stocks soar on news of US plan

Asian stocks soar on news of US plan

Hang Seng, ST Index erase earlier losses in single-day jump

By CONRAD TAN

STOCKS in Asia soared yesterday, after news that the US government is preparing a plan for a mass rescue of the financial sector and regulators in the US and UK moved to ban the short-selling of stocks.

Hong Kong’s Hang Seng Index jumped 9.6 per cent, erasing almost all its losses earlier this week, led by Chinese banks and insurers that rose more than 16 per cent.

Here, the Straits Times Index ended 5.8 per cent higher after climbing as much as 6.5 per cent earlier in the day, recouping all its losses suffered during four straight days of declines earlier in the week. The jump was the biggest in percentage terms since August 20 last year.

But interbank lending rates here and elsewhere remained unusually high, although they fell from earlier peaks. That suggests strains from the crisis sweeping through global financial markets have not gone away, a day after central banks worldwide flooded the banking system with billions of dollars in additional liquidity in a desperate bid to keep interbank markets functioning properly.

The Singapore interbank offered rate or Sibor for overnight US-dollar loans halved to 3.25 per cent from 6.58 per cent. US-dollar domestic interbank rates for longer maturities also eased, following similar declines in US-dollar interbank rates in Europe and elsewhere on Thursday. But interbank rates in most markets, including Singapore, are still much higher than they were a week earlier - a sign that banks remain cautious about lending to each other amid worries about more financial institutions failures.

The Singapore Exchange said last night that all of investment bank Lehman Brothers’ trading positions here have been settled or transferred to other brokers and that Lehman - which filed for bankruptcy in the US on Monday - no longer has any outstanding financial obligations to the exchange.

Source : Business Times - 20 Sept 2008

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MAS warns against spreading false information

MAS warns against spreading false information

(Singapore)

THE Monetary Authority of Singapore (MAS) yesterday warned market participants against the dissemination of false or misleading information, which includes electronic communications such as emails, commentaries on online forums and blogs.

It reminded them that such an act, either knowingly or without considering the accuracy of the information, to induce the sale of securities or affect their prices, is an offence under the Securities & Futures Act (SFA). This offence carries a fine not exceeding $250,000 or jail term not exceeding seven years, or both.

‘Given the current uncertainty and volatility in the international financial markets, MAS reminds market participants to be responsible in disseminating information to the market,’ MAS said in a statement yesterday. ‘We will not hesitate to take action against any party that creates or spreads false rumours which cause disruption to our financial system.’

Meanwhile, following coordinated action from central banks in key jurisdictions on Thursday, US dollar borrowing rates in Singapore have eased significantly, according to MAS.

Source : Business Times - 20 Sept 2008

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US bans short-selling for now

US bans short-selling for now

Unprecedented curbs on betting against 799 financial stocks till Oct 2 follow similar step in UK

WASHINGTON: United States stock market regulators, in an effort to boost investor confidence in the face of a market crisis, took the unprecedented step yesterday of temporarily banning the trading practice of betting against financial stocks.
The move by the Securities and Exchange Commission (SEC) will temporarily ban what is called short-selling on 799 financial stocks.

What’s short-selling?
In short-selling, investors seek to make money when a stock’s price goes down. The investor sells borrowed stock. When the share price drops, he buys back the shares at the new lower price, returns them to their original owner and pockets the difference. If the price does not fall as expected, the short-seller loses.

In times of market turmoil, short-selling can appear to be a one-way bet and worsen the downward trend of prices, creating a self-fulfilling price fall.
… more
The ban took effect immediately and will last till Oct2. UK regulators also halted short-sales of financial stocks late on Thursday.

The SEC said it would consider measures to address short-selling in other publicly traded companies. SEC commissioners can vote to extend the order beyond Oct2.

Short-selling involves betting against company stocks by borrowing shares, selling them, and then pocketing the difference when the price drops.

The commission said it was acting in concert with the UK Financial Services Authority.

‘The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets,’ SEC chairman Christopher Cox said in a statement.

‘The emergency order temporarily banning short-selling of financial stocks will restore equilibrium to markets.’ The move, he said, would not be necessary in a well-functioning market and was a temporary step being taken as part of the actions by the Federal Reserve, the Treasury and Congress.

Short-selling can contribute to efficiency while adding liquidity to the markets. But a recent wave of the manoeuvres has been blamed in part for the demise of the 158-year-old Lehman Brothers and other big financial companies.

Some British politicians also claimed that short-selling attacks were partly responsible for HBOS’ abrupt takeover by banking rival Lloyds TSB on Thursday amid a sharply falling share price.

Ireland also announced a ban on short sales, while Australia said it would ban so-called naked short-selling starting next Monday.

Morgan Stanley chief executive officer John Mack blamed investors betting on a decline in the firm’s shares for ‘driving our stock down’.

On Wednesday, New York Senators Charles Schumer and Hillary Clinton had appealed to the SEC for a temporary short-selling ban.

New York Attorney-General Andrew Cuomo said his office was launching an investigation into whether some short-sellers had engaged in conspiracy or spread rumours and negative information to drive down the share prices of Lehman, American International Group (AIG), Goldman Sachs, Morgan Stanley and other firms.

‘They are like looters after a hurricane,’ said Mr Cuomo.

‘If you pass a rumour in a normal marketplace, people are calm, they check it out, they do their due diligence,’ he said. ‘When you get the market in this frenzied state and they are on pins and needles, any false information is much more impactful.’

The SEC on Wednesday adopted rules against ‘naked’ short-selling, where sellers do not even borrow the shares before selling them, and then look to cover positions immediately after the sale.

New rules also took effect on Thursday restricting but not banning short-selling by, for example, shortening the required time for short-sellers to deliver the stocks underlying the sale transactions.

Former SEC chief economist Lawrence Harris said banning short-selling was a ‘highly politically motivated attempt to stop reality’.

‘To ban short-selling is to in effect say that the government is going to try to determine what stock prices should be.’

TD Ameritrade Holding Corp chief executive Joe Moglia told CNBC that the investor community was entitled to engage in short-selling but acknowledged emergency action was needed in turbulent times. ‘This is an emergency mode. This is a crisis mode,’ he said. ‘So, for Congress and regulatory bodies to be able to step up and say at least temporarily we think we need to do this and move quickly, I support that.’

ASSOCIATED PRESS, BLOOMBERG, NEW YORK TIMES

Source : Straits Times - 20 Sept 2008

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Singapore MAS warns against reckless rumours

Singapore MAS warns against reckless rumours

By Yang Huiwen

THE Monetary Authority of Singapore (MAS) warned yesterday about the penalties of disseminating reckless market rumours.
Singapore’s financial regulator stated: ‘We will not hesitate to take action against any party that creates or spreads false rumours which cause disruption to our financial system.

‘Given the current uncertainty and volatility in the international financial markets, MAS reminds market participants to be responsible in disseminating information to the market. This includes electronic communications such as e-mail, commentaries on online forums and blogs.’

The Securities and Futures Act outlaws disseminating false or misleading information, either knowingly or without considering its accuracy, to induce the sale of securities or affect their prices.

Fines of up to $250,000 or jail terms of up to seven years could await those convicted.

A former stock trader was jailed for six months in March for contravening the law. He short-sold an IT firm’s stock minutes before posting rumours on a popular stock-market forum. He then bought back the shares to cover his short position.

But he was convicted of recklessly posting information online about the company, and not because he profited from his actions or that he fully knew the information was false.

In its assessment of market conditions, MAS said the domestic money and foreign exchange markets ‘have functioned in an orderly fashion throughout the week’.

It sees ‘no need for extraordinary measures’, given that sufficient liquidity was maintained in the banking system.

MAS added that it is in close contact with a range of financial institutions and continues ‘to be in regular communications with other central banks and stands ready to take any action necessary to safeguard financial stability’.

Source : Straits Times - 20 Sept 2008

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Stocks soar on plan for US$500b lifeboat

Stocks soar on plan for US$500b lifeboat
Singapore market sees its second-biggest one-day rebound
By Goh Eng Yeow, Markets Correspondent

ONE of the biggest one-day rallies in stock market history rolled across global bourses yesterday as investors bet on a US$500 billion (S$717 billion) United States plan to fix the credit crunch crisis.
The plan, dubbed the largest bailout ever, involves buying toxic bank assets in the hope of freeing up credit markets. It triggered an astonishing share price rebound that left old market hands shaking their heads in disbelief.

Singapore’s benchmark Straits Times Index staged its second-biggest one-day point gain in history, closing 139.86 higher at 2,559.07 after a 5.8 per cent surge.

Hong Kong trumped that easily, up 9.61 per cent, while Shanghai rose 9.46 per cent. London, Paris and Madrid were all up more than 8 per cent in late trading while Wall Street opened 430 points up.

Things turned farcical in Russia, where the market soared over 20 per cent, forcing the authorities to halt trading. When it resumed hours later, the index quickly rose 30 per cent. Trading was halted on Wednesday when shares fell too fast.

Financial stocks, recently bloodied by frightening price plunges, staged spectacular comebacks that also defied belief.

At one point in London, Lloyds TSB was up 65 per cent. Australia’s Macquarie closed 37 per cent up. In Hong Kong, ICBC, Bank of China and China Construction Bank all rose by 16 per cent or more. Financial stocks in other markets, including Singapore, also recorded stunning rises.

‘Blue chips that went begging for buyers a few days ago are now being snapped up,’ said local remisier Thomas Lee.

The drivers came from three directions. In London, Sydney and New York, regulators have imposed wide-ranging bans on short-sellers, blamed for aggravating the global market meltdown. They sell shares they do not actually own, hoping to cash in on falling prices.

The US government also boosted confidence with a plan to protect investors with a payment guarantee on money market funds. But more crucial were US moves to create a US$500 billion special vehicle - dubbed a lifeboat by one analyst - to soak up the toxic assets that have been poisoning the financial system.

‘Almost the entire rally is based on hopes that the US will take decisive action,’ Mr Ajay Kapur, the chief global strategist at South Korean bank Mirae Asset, told the New York Times.

The rally in Asia was primed to go before the opening bell, given the 410-point overnight surge on Wall Street triggered by talk of the US plan. Traders were confident stocks would open sharply higher - as they did when news came through that the plan looked like a done deal.

Under the plan, an entity loosely based on the Resolution Trust used to clean up a mortgage mess in the 1980s will be formed to buy distressed assets from banks. Many traders see this as a more comprehensive way to end the crisis than the ad hoc approach so far. But some local observers are more cautious. ‘We are closer to the bottom, but not quite there yet,’ Kim Eng Research said yesterday.

A ’significant’ number of tax dollars will be used to bail out the struggling US financial system, US President George W. Bush said yesterday, but he expects that they will be paid back.

US Treasury’s Paulson on asset relief plan
The following is the text of a statement by US Treasury Secretary Henry Paulson released on Friday:

Last night, Federal Reserve Chairman Ben Bernanke, SEC Chairman Chris Cox and I had a lengthy and productive working session with Congressional leaders.

We began a substantive discussion on the need for a comprehensive approach to relieving the stresses on our financial institutions and markets.

We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to AIG so it can sell some of its assets in an orderly manner.

And this morning we’ve taken a number of powerful tactical steps to increase confidence in the system, including the establishment of a temporary guarantee programme for the US money market mutual fund industry.

Despite these steps, more is needed. We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system’s stresses.

The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded.

These illiquid assets are choking off the flow of credit that is so vitally important to our economy. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs.

As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy.

As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford. We are seeing the impact on homeowners and neighbourhoods, with 5 million homeowners now delinquent or in foreclosure.

What began as a sub-prime lending problem has spread to other, less-risky mortgages, and contributed to excess home inventories that have pushed down home prices for responsible homeowners.

A similar scenario is playing out among the lenders who made those mortgages, the securitisers who bought, repackaged and resold them, and the investors who bought them.

These troubled loans are now parked, or frozen, on the balance sheets of banks and other financial institutions, preventing them from financing productive loans.

The inability to determine their worth has fostered uncertainty about mortgage assets, and even about the financial condition of the institutions that own them.

The normal buying and selling of nearly all types of mortgage assets has become challenged. These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions.

As a result, Americans’ personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted.

To restore confidence in our markets and our financial institutions, so they can fuel continued growth and prosperity, we must address the underlying problem. The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy.

This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible.

The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars.

I am convinced that this bold approach will cost American families far less than the alternative - a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.

I believe many Members of Congress share my conviction. I will spend the weekend working with members of Congress of both parties to examine approaches to alleviate the pressure of these bad loans on our system, so credit can flow once again to American consumers and companies.

Our economic health requires that we work together for prompt, bipartisan action. As we work with the Congress to pass this legislation over the next week, other immediate actions will provide relief.

First, to provide critical additional funding to our mortgage markets, the GSEs Fannie Mae and Freddie Mac will increase their purchases of mortgage-backed securities (MBS).

These two enterprises must carry out their mission to support the mortgage market. Second, to increase the availability of capital for new home loans, Treasury will expand the MBS purchase program we announced earlier this month.

This will complement the capital provided by the GSEs and will help facilitate mortgage availability and affordability.

These two steps will provide some initial support to mortgage assets, but they are not enough. Many of the illiquid assets clogging our system today do not meet the regulatory requirements to be eligible for purchase by the GSEs or by the Treasury program.

I look forward to working with Congress to pass necessary legislation to remove these troubled assets from our financial system.

When we get through this difficult period, which we will, our next task must be to improve the financial regulatory structure so that these past excesses do not recur.

This crisis demonstrates in vivid terms that our financial regulatory structure is sub-optimal, duplicative and outdated. I have put forward my ideas for a modernised financial oversight structure that matches our modern economy, and more closely links the regulatory structure to the reasons why we regulate.

That is a critical debate for another day.

Right now, our focus is restoring the strength of our financial system so it can again finance economic growth. The financial security of all Americans their retirement savings, their home values, their ability to borrow for college, and the opportunities for more and higher-paying jobs depends on our ability to restore our financial institutions to a sound footing.

Source : Straits Times - 20 Sept 2008

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