Finance Minister Tharman says Singapore’s financial institutions stable

Finance Minister Tharman says Singapore’s financial institutions stable

By Pearl Forss,
SINGAPORE: Singapore’s financial institutions are well capitalised and regulated by the Monetary Authority of Singapore (MAS), says Finance Minister Tharman Shanmugaratnam.

He was speaking to reporters on Sunday at a community event where he joined Muslims to break fast.

Mr Tharman said: “We are glad that overall, if you look at what is happening in Singapore compared to other financial centres, confidence in the market has been retained.”

But Mr Tharman said a technical recession - defined by two consecutive quarters of economic contraction - is possible in Singapore.

Nonetheless, he cautioned that it is important for Singapore not to have any knee-jerk reactions, and to continue to monitor the global financial situation closely before announcing any plans.

Singapore’s non-oil domestic exports in August fell 13.8 per cent from the same month in 2007, the largest drop in the last year.

And with the current financial crisis, economists expect this figure to fall even further as global demand slows.

After all, the United States is Singapore’s second largest export market after the European Union.

So will MAS adjust the value of the Sing dollar to boost exports?

Mr Tharman said: “The MAS has a time frame for announcing its exchange rate policy. Our next statement will be made in October. We try not to make statements in between. But I would emphasise that we tend to focus on the medium term rather than on having knee-jerk reactions to
short-term developments.”

Mr Tharman also said that the US and Europe economies have stabilised following the actions taken by their governments but problems remain and Singapore will have to watch the situation closely.

- CNA/ir

Source : Channel NewsAsia  - 22 Sept 2008

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Tainted milk scare goes beyond China

Tainted milk scare goes beyond China 

With melamine found in candy, Singapore halts sale of all products that may contain China milk 

By Tessa Wong & Liaw Wy-cin 
  
White Rabbit Creamy Candy became the third product here found tainted with melamine. — ALAN LIM

WHITE Rabbit Creamy Candy, a milk-based treat popular with children and adults here, has been found to be contaminated with melamine.
The candy joins two other brands - Dutch Lady strawberry-flavoured milk and Yili Choice Dairy Fruit Bar Yoghurt Flavoured Ice Confection - on the list of dairy products from China which the authorities here say are adulterated by the chemical normally found in plastics.

The tainted-milk scandal that originated in China is turning into a global food scare, as governments ban imports and retailers unilaterally take China milk products off the shelves (see list).

In China, four children have died from taking contaminated milk and another 12,892 warded for kidney problems.

Yesterday, a Hong Kong girl found with a kidney stone became the first suspected victim outside mainland China.

Farmers are said to add melamine to diluted milk to artificially raise its protein content.

Coming after a string of scares and general approbation over its safety standards, Chinese Premier Wen Jiabao vowed in a state television broadcast to put an end to such scandals.

But the World Health Organisation (WHO) said yesterday that a quick reaction to the problem by Beijing had been hampered by delays in releasing critical information about the contamination of milk supplies.

WHO’s Western Pacific director Shigeru Omi said his group had been helping China to deal with the scandal’s fallout and advised Beijing to improve its safety checking and information disclosure systems.

In Singapore, the Agri-Food and Veterinary Authority (AVA) here is taking no chances: Last night, it made it clear that it was suspending the import and sale of any product containing milk from China.

Besides milk and milk products such as ice-cream and yogurt, confectionery items such as chocolate, biscuits, sweets and anything that could contain milk from China came under its latest advisory.

The Straits Times found on Saturday that a 7-Eleven outlet in Braddell had pulled a list of products from its shelves. The list included Snickers bars, M&Ms, Nabisco Chicken In A Biskit, Dove chocolate bars, Mentos yogurt balls, Oreo wafer sticks, and Want Want Take One Baby Bites.

For consumers, reading labels seems advised: A check by The Straits Times last night found that the Snickers and Dove chocolates sold at a 7-Eleven convenience store in Toa Payoh were made in the United States, but those same chocolate brands sold at a neighbouring minimart were labelled ‘Product of China’.

The attendant at the minimart said he had not been told anything about chocolates from China, but the shop had stopped selling White Rabbit sweets and Dutch Lady milk last Friday.

FairPrice, the biggest supermarket chain here, said it will be removing confectioneries made with China milk from their outlets from today.

Food science and technology lecturer Dr Leong Lai Peng from the National University of Singapore suggested that consumers buy only food that may contain milk from countries that are major producers of milk, such as Australia.

Avoiding cheap products is also another way. ‘With cheap products, there is a chance it is made with milk from a country that sells milk cheaply, such as China,’ she said.

Consumers are already wary about processed foods or medicines from China.

Mr Andrew Oh, 38, who works in teleommunications, said: ‘That’s really scary, it really leads to a confidence loss. We’ve already been careful about canned food from China after the luncheon meat food scare, now this.’

Meanwhile, a new mother in Chengdu, Sichuan province, sensing a business opportunity amid the tainted-milk scandal has raised controversy by offering in an online advertisement to breast-feed other children - for a price.

The 32-year-old said she has more milk than her three-month-old son can consume and is willing to sell the surplus in a ‘breastfeeding service’ for 300 yuan (S$63) a day.

Bans and recalls
SINGAPORE: Banned all dairy imports from China on Friday. Yesterday, the Agri-Food and Veterinary Authority said confectionery such as chocolate, biscuits and sweets were also to be recalled.
MALAYSIA: Announced bans on milk products from China though it currently does not import Chinese dairy items.

BRUNEI: Took similar action as Malaysia though not an importer.

HONG KONG: Biggest grocery chains, PARKnSHOP and Wellcome, pulled all liquid milk by China’s Mengniu from shelves on Friday. Products made by Yili Industrial Group recalled a day earlier.

TAIWAN: Consumer watchdog tracked down where 70 per cent of milk products from China’s Sanlu had gone.

JAPAN: Marudai Food recalled five products imported from Yili, a major Chinese dairy firm. Nissin Foods recalled some possibly tainted products from Hong Kong.

SOUTH KOREA: Testing products made with powdered milk from China.

EUROPEAN UNION: Demanded answers from China on slippages in safety checks leading to the scandal.

NEW ZEALAND: Testing dairy products sold in Asian supermarkets for melamine.

UNITED STATES: Food and Drug Administration widened inspections at ports of entry to shipments of food ingredients from Asia that are derived from milk. Warned consumers not to buy milk products from China online.

Source : Straits Times - 22 Sept 2008

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Morgan board meets on Wachovia merger-CHICAGO

Morgan board meets on Wachovia merger-CHICAGO
(CHICAGO) Morgan Stanley’s board was expected to meet over the weekend to discuss a merger with Wachovia Corp, The Wall Street Journal reported on Saturday.
A deal could include sovereign wealth fund China Investment Corp (CIC) taking a significant stake in the combined company, the newspaper said, citing people familiar with the matter.

CIC’s interest may be contingent on Wachovia being able to offload some of its mortgage assets, the Journal said. The CIC discussion has been preliminary and has not been raised with Wachovia’s board, the paper said.

CIC dampened speculation last Friday that it could be ready to increase its stake in Morgan Stanley as a senior CIC official was quoted by the Xinhua news agency as saying that Morgan Stanley and Goldman Sachs were capable of tackling their problems on their own.

However, sources familiar with the plans told Reuters on Thursday that CIC, which bought 9.9 per cent of Morgan Stanley last December, is in talks to raise its holdings to as much as as 49 per cent.

One roadblock to a deal between Morgan Stanley and Wachovia could be how the US government’s rescue plan addresses the mortgage portfolio at Wachovia, the Journal said. Other issues include price and Morgan Stanley’s leverage.

 
In the past week, Morgan’s stock plunged and its debt insurance prices surged amid fears that even large broker-dealers could not weather the current crisis. A series of moves by the US government to limit short sales and to sop up toxic bank assets sparked a rally in financial shares.

Goldman Sachs analyst William Tanona has said that Morgan Stanley is sound as an ongoing entity and has no immediate funding issues. He said that he sees significant opportunities for Morgan Stanley to outperform over the next six to 12 months.

Shares of the No 2 US investment bank have fallen more than 30 per cent last week, as investors speculated the fate of financial stocks in a deepening credit crisis.

Although some of the price declines may have been understandable given the issues at Lehman Brothers, Merrill Lynch & Co and AIG , most of the stock’s downward spiral was exaggerated by short sellers, Mr Tanona said.

Morgan Stanley has ample liquidity, no immediate funding requirements and access to a number of alternative funding sources if necessary, he added.

Japan’s Mainichi newspaper said yesterday that Morgan Stanley had approached Nomura for funding. — Reuters, Bloomberg

 
Source : Business Times - 22 Sept 2008

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‘Bigger bailing bucket, but the boat still leaks’

‘Bigger bailing bucket, but the boat still leaks’

By R SIVANITHY
SENIOR CORRESPONDENT

TWO weeks ago, this column discussed the claim that this bear market is the worst since the Asian regional crisis of 1997. The claim was dismissed, because prices now are nowhere near what they were during the crisis. But we also spoke of where a bottom might lie for the Straits Times Index - and hazarded an educated guess that the 2,300 mark, which represents a 40 per cent loss from last October’s all-time high of 3,831, might just be it.
As it turned out, 2,300 was indeed where the support lay - at least during the most recent sell-off last week, when the index touched 2,306 on Thursday but recovered on news of central bank intervention.

The interesting question now, of course, is whether this level will be tested again in the weeks ahead. Despite all the euphoric headlines and Wall Street razzmatazz, the answer is probably yes.

There’s no doubt, though, that a window of opportunity has opened for traders in the next few days, helped in no small part by a ludicrous and ill-conceived ban on short-selling in the US and UK.

But we suspect that a significant part of the bounces last Thursday and Friday were due to unwinding of massive short positions - which admittedly could continue for a while more - than any genuine endorsement of faith in the markets.

This applies particularly to Wall Street, which faltered on Friday despite news of the Fed’s money market guarantees and plans to absorb toxic mortgage instruments.

Amid all the cheer, a few wary and savvy observers have tried to point out that the worst is far from over, with research outfit Ideaglobal delivering probably the best headline in its latest report: ‘Bigger bailing bucket, but the boat still leaks.’

‘The markets have yet to feel anything near the full fury of a long-percolating high-yield default cycle, with the default rate expected to reach 5 per cent by the end of the year and potentially double-digit by 1H09 . . . ,’ the report said. ‘At the end of the day, a lifeline for the financial system is an unambiguous positive in terms of changing the story and reducing near-term fear but when the smoke clears, the markets will still be faced with a contracting global economy, an exploding federal deficit, eroding corporate credit metrics and poor business prospects for banks and brokers. The credit cycle downturn remains in the very early stages.’

BCA Research, while welcoming the latest rescue moves, pointed out that the latest US leading economic indicator was dismal. ‘As the LEI indicates, the US economy is already in recession and is likely to grow at a sub-potential pace for some time. Housing is an ongoing drag for consumers and will not reverse quickly, especially since employment conditions are quickly deteriorating. Both the consumer and corporate sectors will be very cautious for a long time and a prolonged period of retrenchment is underway . . . do not expect a quick turnaround in economic growth.’

Finally, Breakingviews.com’s Edward Hadas and Hugh Dixon, in an insightful report entitled The Perils of a Toxic Relief Fund, said that the total debt of the US financial system is US$15 trillion, and if the ‘few hundred billion’ promised by the Fed turns out to be insufficient, the bailout will have to become even bigger.

One very likely consequence of all this is that the US dollar will suffer renewed weakness, not just because the economy is too weak to support it, but also because the US authorities will have to run its money printing presses into overdrive to meet the obligations which it is taking on.

It’s unlikely that the STI’s bounce will extend for much longer. Once investors start to focus on earnings and the grim economic outlook again, weakness will probably set in again. A re-test of 2,300 is likely, possibly within the next 2-4 weeks. So the advice remains the same as it has been for several months now, which is to sell into strength at every opportunity.

Source : Business Times - 22 Sept 2008

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Buying jumps, selling stays subdued as market hits 26-month low

Buying jumps, selling stays subdued as market hits 26-month low

By ROBERT HALILI

THE insider buying and buyback activity rose sharply following the steep fall in the market last week, which saw the Straits Times Index plunge to a 26-month low of 2,419.21 points on Thursday. A total of 84 companies recorded 172 purchases worth $35.7 million based on filings on the Singapore Exchange from September 15 to 19. The figures were sharply higher than the previous week’s 45 firms, 83 purchases, and $10 million. The number of companies, acquisitions, and directors last week were the highest weekly totals since 1999 and were significantly higher than the weekly averages of 18 firms, 35 purchases, and 19.6 directors from 1999 to August 2008. The selling, on the other hand, remained low with only two companies that recorded two disposals worth $670,000 which were consistent with the previous week’s two firms, two trades, and $670,000.

 
The heavy acquisitions by directors last week boosted the buy totals in September to 108 companies, 311 trades, 131 directors, and $53 million based on trades to September 19. The figures are already higher than the 84 firms, 255 purchases, 126 insiders, and $47.3 million in August and there are still seven days of filings that have yet to be reported in September. On the sales side, a paltry three companies, five trades, four insiders, and $1.9 million have been recorded so far this month. The figures are consistent with the previous month’s low sale totals of five firms, eight disposals, five directors, and $2.4 million. Investors should note that the number of transactions so far in September represents a buy/sell ratio of 62.0, sharply higher than the past six months’ average of 16.6 and past 24 months’ average of 6.9. In terms of number of directors, the buy/sell ratio is 32.8, sharply higher than the past six months’ average of 11.0 and past 24 months’ average of 5.1. The current ratio is also significantly higher than the average in the month of September from 1995 to 2007, which was 1.8. With buyers outnumbering sellers by 33 to 1 so far this month, the insider sentiment in September is clearly bullish.

The buyback activity also rose last week with 32 companies that posted 132 repurchases worth $31.3 million. The number of firms and trades were higher than the previous week’s 24 companies and 113 transactions, but the buy value was lower than the previous week’s turnover of $54.8 million. Although the buybacks surged last week, the heavy trading was not unusual as the repurchase activity has been high since the beginning of this month. The trades last week boosted the buyback totals this month to 40 firms, 332 trades, and $124 million. The number of companies and transactions are the highest monthly totals since buybacks were introduced by the exchange in June 1999 and there are still seven days remaining this month. An average of only 7.2 firms and 65.5 transactions were recorded per month prior to September. The value, on the other hand, is the highest monthly total since April and will likely exceed the current year’s high of $125.6 million in March.

On the funds side, institutional shareholders were also mainly positive last week as they used the recent downturn to average down on their acquisitions. Janus Capital Management resumed buying shares of CapitaLand Limited, while Third Avenue Management recorded its first purchase in publisher Yellow Pages (Singapore) Limited since November 2007 at sharply lower prices. The steep correction in the market also did not deter US-based private equity group Shah Capital Management from increasing its stake in Bio-Treat Technology Limited to 6.2 per cent last week. Not all fund managers averaged down on their acquisitions - Newton Investment Management unloaded more shares of Indofood Agri Resources at sharply lower prices.

CapitaLand

Janus Capital Management LLC acquired more shares of property developer and hotel operator CapitaLand Limited at a lower price with 57.5 million shares purchased from September 5 to 16 at an estimated price of $4.11 each. The trades, which accounted for 30 per cent of the stock’s trading volume, increased its direct holdings by 34 per cent to 227.2 million shares or 8.1 per cent of the issued capital. The group previously acquired 26.2 million shares on August 14 at an estimated price of $5.00 each. Janus Capital reported an initial filing on July 2 of 5.9 million shares at $5.66 each, which raised its interest to 5.1 per cent. That initial filing was made on the back of the 17 per cent drop in the share price since May from $6.79. Overall, the fund manager’s stake is up by nearly 84 million shares or 58 per cent since that initial filing in July. The stock closed at $4.10 on Friday.

Yellow Pages (Singapore)

Third Avenue Management LLC resumed buying shares of telephone directories publisher Yellow Pages (Singapore) Limited at sharply lower than its acquisition prices from 2006 to 2007 with 5 million shares purchased on September 17 at an estimated price of 45 cents each. The group previously acquired 24.9 million shares from November 2006 to November 2007 at estimated prices of $1.02 to $1.42 each. Third Avenue Management became a substantial shareholder in November 2006 following the purchase of 833,000 shares at $1.02 each, which raised its interest to 5.2 per cent. Overall, the fund manager’s stake is up by 29 million shares or 353 per cent since that initial filing in 2006.

Also positive earlier this year were non-independent & non-executive director Stanley Tan Poh Leng and Marathon Asset Management LLP. Mr Tan purchased 320,000 shares from January 16 to 17 at an average of 97 cents each, which boosted his stake to 30.6 million shares or 19.4 per cent. He previously acquired 3.1 million shares from August to December 2007 at an average of $1.06 each. Marathon Asset Management, on the other hand, reported a purchase-related filing on February 29 of 324,000 shares at 89 cents each, which increased its deemed stake to 11.1 million shares or 7.04 per cent. The group previously reported a disposal-related filing on December 6, 2007 of 70,000 shares at an estimated price of $1.05 each. The stock closed at 40.5 cents on Friday.

Bio-Treat Technology

US-based private equity group Shah Capital Management became a substantial shareholder of mainland wastewater treatment systems specialist firm Bio-Treat Technology Limited after it raised its direct interest from under 5 per cent to 5.9 per cent of the issued capital on September 11 at 29 cents each. The fund manager acquired a further 2.8 million shares on September 16 at an estimated price of 15.5 cents each, which increased its holdings to 55.3 million shares or 6.2 per cent. The acquisitions were made on the back of the sharp decline in the share price since October 2007 from 91 cents. Bio-Treat Technology announced its year-end results on August 29 with net profit down by 62 per cent to 125.4 million yuan (S$26.2 million) for the 12 months to June 30, 2008. The counter closed at 15 cents on Friday.

Indofood Agri Resources

Newton Investment Management Ltd unloaded more shares of agribusiness firm Indofood Agri Resources at a price sharply lower than its sale price in August, with 16.3 million shares sold on September 15 at an estimated price of 71 cents each. The trade reduced its direct holdings by 16 per cent to 83.8 million shares or 5.8 per cent of the issued capital. The group previously sold 2.1 million shares on August 12 at an estimated price of $1.17 each. The trades since August were the asset manager’s first disposals since it became a substantial shareholder (for the second time) in April. Prior to the sales, the group acquired 27.6 million shares from April 23 to June 24 at estimated prices of $2.43 to $2.87 each.

Newton Investment Management reported an initial filing (for the second time) on April 11 at $2.39 each, which raised its interest to 5.2 per cent. Investors should note that CEO Mark Julian Wakeford resumed buying shares in July at a price higher than his acquisition price in January, with 100,000 shares purchased from July 8 to 10 at an average of $2.25 each. This increased his direct holdings by 50 per cent to 300,000 shares. Mr. Wakeford also has deemed interest of 200,000 shares. He previously acquired an initial 200,000 shares from January 21 to 22 at an average of $1.85 each. Although the CEO resumed buying in July at a higher price, the purchases were made after the stock fell by 22 per cent from $2.87 on June 24. The stock closed sharply higher from Newton Investment’s last sale price to 90 cents on Friday.

The writer is managing director at Asia Insider Ltd

 
Source : Business Times - 22 Sept 2008

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Singapore Jurong Tech sets up new business unit

Singapore Jurong Tech sets up new business unit

Microfab to provide mechanical contract mfg for semicon, biotech industries
By EMILYN YAP
JURONG Technologies Industrial Corporation has set up a new business unit to provide mechanical contract manufacturing (MCM) services for the semiconductor, industrial control system and biotechnology industries.
 
Microfab is expected to account for up to 15-20 per cent of Jurong Tech’s revenue for FY ending Dec 31, 2008
 
 
 
The unit, Microfab Holding Pte Ltd, is expected to account for up to 15-20 per cent of Jurong Technologies’ revenue for the financial year ending Dec 31, 2008.

To acquire new manufacturing capabilities and expand its product and service offerings, Jurong Technologies has been undertaking several joint ventures and acquisitions over the past year. Microfab is the result of these moves, and will bring together assets from various subsidiaries in China and Malaysia.

The new unit comprises Priver Electric (BVI) Co Ltd, which provides heat dissipation components, metal stamping and mechanical assembly services; Microfab Innovation Pte Ltd, which specialises in high precision machining, new product introduction, and system integration; and Microfab Innovation Sdn Bhd, which is in high precision engineering.

As a fully integrated MCM business unit, Microfab will ‘complement the group’s existing competencies in electronic manufacturing services and original design manufacturing services,’ Jurong Technologies said in a statement on Friday last week.

The formation of the new unit came on the heels of a joint venture agreement with US-based technology firm Spirit Solutions. Announced on Sept 10, Jurong Technologies said that the joint venture would design, develop and manufacture a revolutionary breast cancer screening system.

Hit by slower sales, fixed depreciation expenses and higher wage costs, Jurong Technologies reported a 70 per cent year-on-year dive in net earnings to $4.1 million for the second quarter ended June 30.

Revenue also fell 36 per cent from a year ago to $125.5 million for Q2 as the group withdrew from lower-margin businesses.

In a statement in August, Jurong Technologies said that it would focus on cash flow management and debt reduction as it builds up a more diversified and stronger earnings base.

Jurong Technologies shares closed four cents higher at 21.5 cents on Friday last week.

Source : Business Times - 22 Sept 2008

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Short-sellers hit by oath threat-NEW YORK

Short-sellers hit by oath threat-NEW YORK
(NEW YORK) The US Securities and Exchange Commission (SEC), seeking to jumpstart a hunt for suspected manipulation of financial stocks, will require hedge fund managers, brokerages and institutional investors to describe under oath their bets on the firms.
Investors with ’significant’ trades in the companies’ securities or credit default swaps must disclose their positions and provide ‘certain other information’ in written statements, the regulator said on Friday.

SEC spokesman John Nester declined to say who would receive the requests.

The SEC issued a series of emergency measures, rules and warnings to hedge funds this past week as lawmakers including Senate Banking Committee chairman Christopher Dodd and executives such as Morgan Stanley CEO John Mack said traders may be spreading misinformation and using abusive tactics to attack companies.

On Sept 17, the agency said it may also force funds to hand over their communications.

‘This is the SEC saying it’s going to get tough,’ said Barry Barbash, a former attorney at the agency now at Willkie Farr & Gallagher LLP, whose clients include hedge funds. ‘By emphasising that it’s under oath, they’re trying to say, ‘Don’t think it’s going to blow past us. Don’t try to fast-talk us. We’re taking a close look at what’s going on’.’

 
 
The regulator, which typically relies on subpoenas to acquire information, has resorted to sworn statements in some of its most prominent probes, such as its initial inquiry into the fraud that toppled WorldCom Inc in 2002. In that case, investigators gave the company five days to describe what led it to restate earnings.

‘I’m sure they’ll have a very short return date for those sworn statements,’ said Gregory Bruch, a former SEC attorney who is a partner at Willkie Farr & Gallagher LLP in Washington. ‘It’ll give them a tremendous amount of information quickly.’

The New York Stock Exchange’s regulatory arm and the Financial Industry Regulatory Authority, which polices almost 5,000 brokerages, will conduct a parallel probe into short sales, including on-site visits to firms, the SEC said.

Large declines in brokerage shares this month were often accompanied or preceded by moves in credit default swaps tied to those firms, The Wall Street Journal reported on Saturday.

‘Abusive short selling, market manipulation and false rumour-mongering for profit by any entity cuts to the heart of investor confidence in our markets,’ said Linda Thomsen, the SEC’s enforcement chief. ‘We will root it out, expose it, and subject the guilty parties to the full force of the law.’

Among the SEC’s other measures aimed at shoring up investor confidence last week, the regulator said it will force hedge funds and investors managing more than US$100 million in securities to disclose their daily short-sale positions.

The regulatory efforts are already attracting criticism from investors. — Bloomberg

 
Source : Business Times - 22 Sept 2008

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Short-selling ban stuns hedge funds - LONDON

Short-selling ban stuns hedge funds - LONDON

Many lose a fortune and could fold up in the coming months
By NEIL BEHRMANN
 
IN LONDON
HEDGE fund short sellers, caught in Friday’s bear squeeze, are believed to have lost fortunes. Many of them are expected to close down in coming months, analysts say.
Although a minority of hedge funds and traders made fortunes when Wall Street, London and other global markets soared, bears were caught unawares by the dual action of the US Securities and Exchange Commission (SEC) and the UK’s Financial Services Authority (FSA). Both regulators, followed by Ireland and other European countries, clamped down on short selling.

Hedge funds, investment proprietary traders and other speculators had borrowed shares and sold them, aiming to profit from further price declines. Futures, options and other derivatives were also used to profit from a further market slide.

Instead, the short-selling ban caused an acute bear squeeze, forcing hedge funds and other bears to buy back shares.

Prices opened sharply higher as selling dried up and the bears scrambled to cover their short positions. Banks, insurance companies and other financial shares rose between 30 per cent and 60 per cent at one point, before falling back when the market began to settle down.

The bear squeeze and exceedingly volatile markets in recent weeks have now placed a question mark on the viability of some hedge fund businesses.

 
 
George Ball, chairman of Sanders Morris Harris Group, a large American asset manager, is predicting that 1,000 hedge funds will fail in the coming 12 months. This follows 350 failures in the first half of the year. The regulatory restrictions will crimp the flexibility of hedge fund managers, he says.

Hedge funds are likely to be under severe pressure for several reasons:

First, performance has been poor. In the year to Sept 18, before the huge rally on Friday, Hedge Fund Research’s HFRX daily global hedge fund index was already down 9.7 per cent.

Relative value hedge fund strategies had fallen by 17 per cent while the HFRX long short hedge funds had declined by 11.6 per cent. Macro hedge funds, that trade all the markets, were still up by 4.6 per cent because of a good first half.

Second, withdrawals are accelerating and risk-averse investors have reportedly given hedge funds notice that they intend redeeming their investments by the end of the year.

Third, short-selling restrictions, tighter regulation and deleveraging are limiting hedge fund manager flexibility and trading.

Fourth, banks and prime brokers are expected to reduce loans to hedge funds. The borrowing and consequent leverage helped them profit in dull markets.

The regulatory moves to curb short selling received praise from companies and the expected criticism from AIMA, the hedge fund industry body. The regulators were accused of creating false markets in banking shares, but they countered that in the current crisis something had to be done to underpin faltering banks.

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

The SEC said it had banned short selling in 799 financial companies until Oct 2, while Britain’s FSA has placed 33 companies on its banned list.

Ireland also outlawed short selling of its biggest banks but said the ban would be kept under ‘continuous review’.

The Committee of European Securities Regulators warned further short-selling restrictions could be imposed across its 27 member states.

Source : Business Times - 22 Sept 2008

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Paulson seeks US$700b and a blank cheque - WASHINGTON

Paulson seeks US$700b and a blank cheque - WASHINGTON

Bailout package moots total power for Treasury to buy assets unchecked by courts
(WASHINGTON) The Bush administration has formally proposed to Congress what could become the largest financial bailout in US history, requesting virtually unfettered authority for the Treasury to buy up to US$700 billion in mortgage-related assets from financial institutions based in the United States.

 
The proposal was stunning for its stark simplicity: less than three pages, it would raise the national debt ceiling to US$11.3 trillion. And it would place no restrictions on the administration other than requiring semi-annual reports to Congress, allowing the Treasury to buy and resell mortgage debt as it sees fit.

Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world’s largest economy to a standstill. The Bill would prevent courts from reviewing actions taken under its authority.

‘He’s asking for a huge amount of power,’ said Nouriel Roubini, an economist at New York University. ‘He’s saying, ‘Trust me, I’m going to do it right if you give me absolute control.’ This is not a monarchy.’

As congressional aides and officials scrutinised the proposal, the Treasury clarified the types of assets it would purchase. Mr Paulson would have authority to buy home loans, mortgage-backed securities, commercial mortgage-related assets and, after consultation with the Federal Reserve chairman, ‘other assets, as deemed necessary to effectively stabilise financial markets’, the Treasury said in a statement.

 
‘Paulson (above) is in effect becoming the dictator of the American financial system for a few months, subject to congressional oversight.’
 
- Wall Street historian John Steele Gordon, 
author of a book about the US national debt 
 
 
 
The Treasury would also have discretion, after discussions with the Fed, to make non-US financial institutions eligible under the programme.

In fact, Mr Paulson categorically said yesterday that foreign banks will be able to unload bad financial assets under the proposal.

‘Yes, and they should. Because . . . if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution,’ Mr Paulson said on ABC television’s This Week with George Stephanopolous.

The plan would raise the ceiling on the national debt and spend as much as the combined annual budgets of the Departments of Defense, Education and Health and Human Services. Mr Paulson is asking for the power to hire asset managers and award contracts to private companies. Most provisions of the proposal expire after two years from the date of enactment.

But party politics could still come in the way of the Bill which Congress is expected to pass as early as Sept 26.

Congressional Democrats want to use the rescue plan for US financial companies to curb executive pay, spur the economy with infrastructure spending and help people avoid foreclosures.

Republicans object to adding extras to Mr Paulson’s proposal, which would authorise the administration to spend an amount almost 50 per cent larger than the Pentagon’s annual budget to buy banks’ bad mortgage debt.

Mr Paulson himself resisted the Democratic push, saying that there is an urgent need for Congress to act quickly without adding other measures that could slow down passage. ‘We need this to be clean and to be quick,’ he said.

House Speaker Nancy Pelosi said, meanwhile, that Congress would ensure more accountability than in the Treasury plan by ‘implementing strong oversight mechanisms, and establishing fast-track authority for the Congress to act on responsible regulatory reform’.

The Treasury may hire managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, it said. The document specifies that the Treasury may buy only assets issued or originated on or before Sept 17.

The ban on legal challenges of actions by the Treasury is ‘distasteful, it’s unfortunate and it’s bad precedent, but this is an emergency and you have to act’, said Jerry Markham, a law professor at Florida State University. ‘What you don’t want to happen is to have lawsuits that will slow things down and cause problems,’ he said.

A US$700 billion expenditure represents more than US$2,000 for every man, woman and child in the United States.

Mr Paulson said that ‘it pains me tremendously to have the American taxpayer put in this position, but it is better than the alternative’.

‘It’s a big-picture package because it’s a big problem,’ President George W Bush said on Saturday at a news conference, after meeting with President Alvaro Uribe of Colombia. ‘The risk of doing nothing far outweighs the risk of the package.’ But while the administration sent over a streamlined proposal, it is unlikely to stay at just two-and-a-half pages. — NYT, Bloomberg, AP
Source : Business Times - 22 Sept 2008

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