GIC welcomes Swiss government’s 6b-franc injection into UBS

GIC welcomes Swiss government’s 6b-franc injection into UBS

By Nicholas Fang,

SINGAPORE: The Government of Singapore Investment Corporation (GIC) has welcomed the move by the Swiss government to pump some 6 billion Swiss francs into Switzerland’s largest bank, UBS.

UBS has said it would also place US$60 billion of illiquid securities and other assets into a separate fund entity under an agreement with the Swiss National Bank.

The Swiss government will emerge with some 9.3 per cent of UBS’ share capital.

UBS said the move means it has capped future potential losses from illiquid assets and removed a material degree of risk from its balance sheet.

GIC lauded the injection of funds, saying it demonstrates the Swiss government’s commitment to the stability of the Swiss financial system.

GIC invested 11 billion Swiss francs into UBS in December last year by buying mandatory convertible notes that can be converted to around 9 per cent of UBS’ share capital.

The Singapore wealth fund said its percentage interest in UBS will be slightly reduced upon completion of the latest move.

- CNA/so

Source : Channel NewsAsia - 17 Oct 2008

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Govt guarantees all bank deposits

Govt guarantees all bank deposits
The protection, to run until end-2010, is precautionary, following similar steps elsewhere
By Francis Chan

THE Government has guaranteed all bank deposits of individuals and corporates here with immediate effect.
The guarantee, which runs till Dec 31, 2010, will cover all Singapore dollar and foreign currency deposits in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore (MAS).

It will be backed by $150 billion worth of Government reserves, said the MAS and the Ministry of Finance (MOF) in a joint statement yesterday.

The move follows similar steps taken in recent weeks by several other countries including Australia, New Zealand, several European nations and critically, Singapore’s great financial rival, Hong Kong.

It comes amid a worsening financial meltdown that has put banks around the world at risk and left depositors fearful about their savings.

MAS said that the guarantees offered by a few regional jurisdictions have ’set off a dynamic that puts pressure on other jurisdictions to respond or else risk disadvantaging and potentially weakening their own financial institutions and financial sectors’.

‘This is why although Singapore’s banking system continues to be sound and resilient, the Government has decided to take precautionary action to avoid an erosion of banks’ deposit base and ensure a level international playing field for banks in Singapore,’ it added.

Prior to the MAS move, some bankers had been privately concerned that, with other jurisdictions like Hong Kong guaranteeing deposits, money could flow out of Singapore in search of ’safer’ pastures.

Malaysia announced a similar move yesterday, a decision likely taken in step with Singapore. It will guarantee all ringgit and foreign currency deposits in banks, investment banks and financial firms.

Singapore’s guarantee - believed to be the first in its history - significantly expands existing protection, which comes under the Deposit Insurance Scheme administered by the Singapore Deposit Insurance Corporation.

It insured all savings for up to $20,000 but now savers have Government protection on the full amount of their deposits.

And to ensure it is a true blanket guarantee, the Government will also extend protection to deposits placed with credit cooperatives registered with the Registry of Cooperative Societies.

The Government said last night that a guarantee of up to $150 billion will be sufficient to safeguard against liabilities that could arise from the collapse of any financial institution here.

Senior bankers and economists welcomed the move, seeing it more as a confidence-booster after a harrowing few weeks of bank failures overseas, and not an attempt to avert a potential crisis.

‘Given the financial strength of the Singapore banks, this is clearly a precautionary measure,’ said OCBC Bank’s chief executive David Conner.

‘What is important is that Singapore as a financial centre is now at par with the countries that have implemented similar measures.’

Citi Singapore’s country head, Mr Jonathan Larsen, said the move ‘will ensure the continued competitiveness of Singapore as a financial centre during this challenging period…and will reinforce the already strong standing of Singapore- licensed banks here and abroad’.

But OCBC economist Selena Ling also noted: ‘The move came as quite a surprise, because earlier comments did not really suggest that they would do something like this.

‘This suggests that they probably had a long debate over whether to do it or not. But for the long-term future of Singapore as a regional and financial hub, this is a concrete measure.’

Dr Chua Hak Bin, Citi’s head of research for Singapore, said the move is ‘prudent and necessary…and assures all individuals and companies that their deposits in Singapore are safe and sound’.

He also believed it might nudge other Asean nations to quickly follow suit.

CIMB-GK economist Song Seng Wun said that it was clear that Singapore and Malaysia were in discussions before the announcements but maintained that the measures are pre-emptive and precautionary in nature rather than out of necessity.

What’s covered and what’s not
THE Government will guarantee all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore (MAS).
Guaranteed deposits include:

Savings accounts

Fixed deposit accounts

Current accounts

Bank accounts under the Supplementary Retirement Scheme (SRS)
Unprotected deposit accounts are:

Structured deposits as defined in the Financial Advisers Act (Cap. 110); and

Any deposit that is pledged, charged or secured as collateral.
Source: MAS

Source : Straits Times - 17 Oct 2008

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$1b sales from Mid-East projects: CapitaLand

$1b sales from Mid-East projects: CapitaLand

By ARTHUR SIM

CAPITALAND has made about $1 billion worth of sales in two projects in the Middle East.

In a statement yesterday, the company said that it had sold 849 units out of a total of 1,559 units in the two developments since June.

The developments are the 691-unit Raffles City Bahrain and the 868-unit Rihan Heights in Abu Dhabi.

Raffles City Bahrain is owned and developed by the Syariah-compliant Raffles City Bahrain Fund, which is managed by CapitaLand, while Rihan Heights is the first phase of CapitaLand’s 49 per cent-owned associate company Capitala’s US$5-6 billion flagship integrated development Arzanah.

Liew Mun Leong, president and CEO of CapitaLand Group, said: ‘Besides our core markets of Singapore, China and Australia, CapitaLand is now seeing contributions from its fourth engine of growth, namely the new markets of the Gulf Cooperation Council (GCC) countries, as well as Asian countries like Vietnam, Thailand and India.’

CapitaLand said that it had launched 750 residential units of its 80 per cent-owned The Vista, Vietnam and 590 residential units of its 49 per cent-owned The Orchard Residency, India.

While The Vista units have been fully booked, 309 units at The Orchard Residency have been sold. In Thailand, TCC Capital Land, CapitaLand’s 40 per cent-owned joint venture with TCC Land, has sold or booked over 2,400 residential units to date.

Raffles City Bahrain, in the country’s capital city of Manama, will be an integrated project comprising residential, retail and serviced residence components.

The average sale price of the residential units achieved was about $615.67 psf. CapitaLand said that this was higher than the average price of $474.92 psf for similar residential apartments in Bahrain.

Rihan Heights is part of the Arzanah integrated development which is located on a prime 1.4 million square metre waterfront site surrounding Zayed Stadium on Abu Dhabi main island.

The average sale price achieved ranged from about $902.74 psf to $976.78 psf, depending on the size, level and orientation of the unit

Source : Business Times - 17 Oct 2008

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High volatility making oil hedging tough

High volatility making oil hedging tough

Big oil consumers also face problem of fewer counterparties

By RONNIE LIM

(SINGAPORE) The heightened volatility in oil prices - with the New York benchmark plunging on Wednesday to a 13-month low of US$73 a barrel, or half of July’s peak of over US$147 - is making it harder for big consumers such as refiners, airlines and power companies to manage such fluctuations.

It can be very costly if the wrong bet is taken on say, oil prices heading further south, when the market rebounds instead.

‘It’s getting harder to manage the volatility. Besides, there are also fewer players to hedge with, as there are not only fewer counterparties in the game, but also riskier ones,’ one refining official admitted.

Oil refiners here - including Shell, ExxonMobil and Singapore Refining Company - usually buy their crude feedstock on term contracts, although pricing is fixed at the time when the cargo is loaded onto the VLCC.

‘It takes about two to three weeks before the oil arrives here, and then you’d need to refine the crude into final products like gasoline, jet fuel and diesel, which means roughly five weeks in all,’ the official added. ‘But if oil product prices fall (faster than crude prices) during that time, then the refiner may take a hit.’

Energy consultant Ong Eng Tong said that the problem with the current volatility is that if airlines, for instance, hedged their jet fuel purchases for the rest of this year by buying in the last three months, they would have paid around US$100 a barrel, whereas jet fuel prices have now dipped to around US$80.

He said that it was a case of damned-if-you-do and damned-if-you-don’t, as jet fuel had shot up to as high as US$170 a barrel recently.

Mr Ong agreed that many of the investment banks such as Lehman, Goldman Sachs and Morgan Stanley are no longer in the oil game.

‘It’s hard to find counterparties and those who want to hedge cannot find buyers for their physical and paper products,’ he added.

A power generating company (genco) official here told BT: ‘We don’t take forward positions but manage the oil price volatility through hedging. But we still have to manage risks, like assessing which counterparties to deal with.’

‘Typically, Singapore gencos spread their hedging risks by using as many as 10 counterparties, whether oil traders, investment banks or others,’ he said, adding that this helps to limit exposure, ‘especially if, for instance, you were exposed to someone like Lehman (which collapsed last month).’

While the gencos here mainly use natural gas as feedstock, this is still pegged to high sulphur fuel oil (HSFO) prices, which move in tandem with crude prices.

Those with more than one gas supplier - such as SembCorp and Gas Supply Pte Ltd - can hedge by getting their gas supplies from one supplier based on current-month HSFO prices and from another based on the previous month’s HSFO prices.

Every quarter, gencos also hedge their electricity vesting contracts by calculating the fuel needed to fulfill their contractual electricity supplies, at a specific price, to the Singapore grid. So, for instance, this month, they will hedge for the Jan-Mar 2009, he said. In between, gencos also need to hedge their other contracts, like those with large corporate customers.

The official explained that with deregulation, electricity consumers here are now exposed to the full impact of oil price changes - like this quarter’s 21 per cent hike.

Previously, the PUB uses a ‘fuel equalisation account’ to adjust electricity tariffs when oil prices moved.

Source : Business Times - 17 Oct 2008

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Wall St sees gloom on the other side of the rainbow

Wall St sees gloom on the other side of the rainbow

Stock plunge looks like over-reaction to awful data for Sept

By ANDREW MARKS

NEW YORK CORRESPONDENT

IT didn’t take long for Wall Street to put away its party hats. Within 48 hours of Monday’s massive relief rally in the face of unprecedented measures taken by the US, European and Asian governments and their central banks to prop up beleaguered banks and thaw frozen credit markets, the US stock market plunged on Wednesday.

‘Investors are so ready to sell at a moment’s notice that the stock market simply can’t handle any bad news without a big sell-off. They can’t see any light at the end of what’s become a deep and dark tunnel.’

- Ethan Harris,
a senior economist at Barclays Capital

Much of the 11 per cent gain the Dow Jones Industrial Average registered on Monday was wiped out, as investors worldwide turned their attention from one nightmare - the credit crisis - to the next - the growing severity of the economic slowdown both in the United States and across the globe.

A deep gloom fell like a 10-tonne rock on the stock market on Wednesday when the government reported the worst retail sales numbers for the US economy in three decades, leading investors to once again race for the exits as the reality of the economy’s dire situation settled in.

‘The implications for the US and the world’s economies of the retail sales data are obviously pretty awful,’ said Ethan Harris, a senior economist at Barclays Capital. ‘For more than 20 years now, the US consumer has been the bedrock of the economy and the chief engine of growth for global markets as well, and now it looks like we’re seeing a significant retrenchment in US consumer spending which if it is prolonged will surely produce several deeply negative quarters of economic contraction.’

Still, the stock market’s plunge appeared to be an over-reaction to the awful retail data for September, as it comes after months of warning of a severe slowdown and anticipation of a recession. ‘It often seems that the stock market is only able to pay attention to one thing at a time, and investors have been so tightly focused on the credit freeze and whether that will be resolved, that it’s only now, with the worst of the panic over the possibility of a collapse of the world financial system out of the way, that the market is turning its attention to what could be the worst economic downturn since 1980,’ Mr Harris said.

Economic data showing restrained inflation and surprisingly positive job numbers released yesterday morning before the opening bell on the New York Stock Exchange gave investors some relief from doomsday scenarios produced by Wednesday’s retail numbers that squeezed any nascent bullishness out of the market.

The Dow bounced back modestly from its 733-point tumble on Wednesday, gaining 1.2 per cent in the first minutes of trading, as consumer prices for September came in flat from the prior month and core CPI ticked up just 0.1 per cent. Both numbers were one-tenth of a percentage point better than expected.

Meanwhile, weekly jobless claims fell by 16,000 to 461,000, much lower than the 475,000 expected.

By 1015 am yesterday in New York, however, a disappointing industrial production number and sobering earnings news from Citigroup, Merrill Lynch and Bank of New York, all of which missed consensus estimates as they continued to write off billions in bad loans, had stocks back on the retreat. The Dow was off 111 points, or 1.2 per cent, to 8,466.4, while the S&P 500 was down 13.4 points, or 1.5 per cent, to 894.4, and the Nasdaq Composite had slipped 7.1 points, or 0.44 per cent, to 1,621.

The stock market’s new retreat is a sign not just of recognising the severe weakness of the economy, said analysts, but also of the continued psychological fragility of the market. ‘Investors are so ready to sell at a moment’s notice that the stock market simply can’t handle any bad news without a big sell-off. They can’t see any light at the end of what’s become a deep and dark tunnel,’ Mr Harris noted.

Indeed, the only light Wall Street’s seeing through the deep gloom is of the red, warning variety, the kind that signals danger ahead. While the coordinated actions of European, US and Asian governments and their central banks to intervene in the financial markets on an unprecedented scale is likely to get the credit markets moving again, the effects of the thawing will take some time to be seen.

In the meantime, investors have to deal with the first wave of post-credit crisis economic data, which led Federal Reserve chairman Ben Bernanke in a speech in New York on Wednesday to warn that it would take time for the country’s economic health to mend even if badly needed confidence in the US financial system returns and roiled markets stabilise.

‘Stabilisation of the financial markets is a critical first step, but even if they stabilise as we hope they will, broader economic recovery will not happen right away,’ he said following the release of the Fed’s Beige Book on economic activity for September, which showed the country has sunk deeper into an economic rut, with weakness in all of the Fed’s 12 regional districts. Consumer spending - which accounts for more than two-thirds of economic activity - slumped in most Fed regions, as did manufacturing.

‘The global policy response to the financial crisis has been big and decisive, and should eventually work, but that’s no help to the market right now, because investors can’t look beyond today,’ Mr Harris said.

Source : Business Times - 17 Oct 2008

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A black mood seizes markets worldwide

A black mood seizes markets worldwide

Gloomy outlook for major economies sends equities into violent tailspin

By CONRAD TAN

(SINGAPORE) Stocks in Asia went into free-fall yesterday as gloom replaced hope and more banks in Europe turned to governments for funding.

Nail-biting finish: Fears that major hedge funds could fail after being overwhelmed by huge losses in the past few weeks added to the strain in equity markets after US equities suffered a near meltdown on Wednesday
UBS, Switzerland’s biggest bank, received nearly US$60 billion in support from the Swiss government, while its smaller rival Credit Suisse raised 10 billion francs (S$12.9 billion) from other investors including Qatar’s sovereign wealth fund, avoiding a state bailout.

Both banks suffered massive losses in their investment banking divisions, which they blamed on the extreme turbulence in financial markets over the past few weeks.

UBS made further writedowns of US$4.4 billion in the third quarter, while Credit Suisse wrote down 2.4 billion francs.

Banks worldwide have suffered some US$650 billion in asset writedowns and credit losses since the start of last year, according to Bloomberg estimates.

The news compounded fears that the trillions of dollars committed so far to rescue financial institutions in the US and parts of Europe may not be enough to recapitalise the banking system, given the enormous losses that banks still face.

Analysts warn that banks worldwide could suffer further losses from their exposure to the vast credit-default swaps market, as well as losses from ordinary loans to businesses and consumers, as major economies in the US and Europe plunge into recession.

Japan’s Nikkei-225 index was the biggest loser in the region yesterday, plummeting 11.4 per cent by the end of trading. The fall snapped a two-day rally in which the stock benchmark rose 15.4 per cent.

On Wednesday, US equities suffered a near meltdown as fears of a severe economic downturn sent shares into a tailspin.

Stocks there were savaged after retail sales data signalled a slump in consumer spending, feeding fears that the consumer-driven US economy could be facing its worst recession in decades. In the UK, a jump in the unemployment rate suggested that the outlook for other major economies is also bleak.

Fears that major hedge funds could fail after being overwhelmed by huge losses in the past few weeks also added to the strain in equity markets.

Here, the Straits Times Index finished 108.19 points, or 5.25 per cent, lower at 1,951.20. Yesterday’s decline extended the stock benchmark’s two-day loss to 8.3 per cent, erasing almost all its gains earlier in the week.

Hong Kong’s Hang Seng Index slumped 4.8 per cent, after sliding 8.8 per cent earlier. The benchmark has lost 9.5 per cent since Tuesday’s close, though it is still up for the week.

All other major share indices in Asia also ended lower.

In Europe, equity benchmarks also fell sharply. The FTSE 100 index staged the biggest two-day decline since October 1987, sliding 218.2, or 5.4 percent, to close at 3,861.39.

One bright spot was the money markets. Interbank lending rates in most major economies in Asia and Europe fell for the fourth straight day, a reassuring sign that the trillions of dollars committed by governments worldwide to support the banking system is slowly restoring confidence among financial institutions. But indices tracking credit-default swap spreads - a measure of the perceived risk of debt defaults by big companies or governments - rose in Asia and Europe for a second day, after easing earlier in the week.

Nicholas Kwan, Asia regional head of research at Standard Chartered Bank in Hong Kong, warned that ‘what we have experienced is far from the end’.

‘Usually, the outbreak of a crisis is the most shocking time, but the most challenging time comes some time later, when damage to the economy bites deeper,’ he said in a note.

The top priority for governments in the region should be to unblock money markets, reinforce confidence in their respective banking systems, he added.

Last night, the Singapore government said that it would guarantee the full amount of all Sing-dollar and foreign currency deposits of individuals and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore, following similar moves in Hong Kong and Europe.

Source : Business Times - 17 Oct 2008

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Swiss bailout for UBS dilutes GIC stake-Singapore

Swiss bailout for UBS dilutes GIC stake-Singapore

By CONRAD TAN

(SINGAPORE) Switzerland’s government yesterday announced a sweeping rescue of its entire banking sector, including emergency cash infusions from the public purse for its biggest bank and a toxic-asset dump for removing troubled assets from banks’ balance sheets.

Cash and cover: UBS has received a big cash injection and state backing for its soured debt securities
UBS, the country’s biggest bank, received some US$60 billion in support from the Swiss government, comprising US$54 billion in state backing for the bank’s soured debt securities, and a direct capital injection of six billion Swiss francs (S$7.86 billion). The move effectively dilutes the stakes of existing shareholders, including the Government of Singapore Investment Corp (GIC), which pumped 11 billion francs into UBS last December.

Credit Suisse, UBS’ smaller rival, avoided a Swiss government bailout and instead raised 10 billion francs from other investors, with the biggest contribution from a unit of the Qatar Investment Authority.

The two largest Swiss banks also announced estimates of their third-quarter results, ahead of their scheduled earnings reports. UBS said it made a small net profit of 296 million francs - in line with its earlier guidance and reversing a net loss of 358 million francs in the second quarter. But the group suffered massive outflows of money as private banking customers and other clients withdrew funds or closed their accounts completely.

Its wealth management and business banking division continued to bleed badly, with net outflows of 49.3 billion francs for the three months to end-September, more than double the 19.3 billion francs recorded in the second quarter. Its global asset management division also saw net outflows of 34.4 billion francs, up from 24.5 billion in Q2.

‘With today’s measures, in addition to its earlier steps, UBS is confident that it has created the conditions necessary to reverse the outflow of client assets,’ said the bank in a statement.

Credit Suisse expects a third-quarter net loss of about 1.3 billion francs compared to a Q2 profit of 1.2 billion francs - a result that is ‘clearly disappointing’, but ‘understandable’ given the turbulence in markets, said Brady Dougan, its chief executive.

Profits from its private banking business were dwarfed by losses from its investment banking division, which recorded a pretax loss of 3.2 billion francs, after suffering further writedowns of 2.4 billion francs. Its private banking business grew strongly, even as rival UBS faltered.

Credit Suisse said its wealth management division saw net inflows of 11 billion francs in new money during the quarter, while its Swiss corporate banking and retail banking business recorded net inflows of three billion francs.

Under yesterday’s agreement, the Swiss government will buy six billion francs of mandatory convertible notes issued by UBS. That translates into a 9.3 per cent equity stake in the bank on conversion, which would make the Swiss government the biggest shareholder in UBS.

UBS will transfer as much as US$60 billion in mortgage-backed securities and other troubled assets to a special fund backed by the Swiss central bank, which has pledged to lend UBS up to 90 per cent or US$54 billion of the fund’s value. That will reduce UBS’s exposure to such assets to nearly zero, said Marcel Rohner, its chief executive. ‘UBS has emphatically eliminated the issues that have been affecting it as a result of its exposure to US residential real estate securities and other illiquid risk assets,’ he said.

‘Our client businesses in Asia-Pacific continue to perform well,’ said Rory Tapner, UBS Asia-Pacific chairman and chief executive.

‘We applaud this move as it should relieve fears about further writedowns and eventually stem money outflows in its core wealth management franchise,’ Pangiotis Spilopoulos, an analyst at banking group Vontobel, told Reuters in Zurich.

Kai Nargolwala, Credit Suisse’s Asia-Pacific chief executive, told BT that a similar offer to offload soured assets into a state-backed fund and receive a capital infusion from the government was also offered to the bank, but it felt no need to take it up as it could still attract investments from other sources. ‘The offer remains with us, but we don’t see the necessity to do so.’

Yesterday, GIC said it welcomed the latest action by the Swiss government, which ‘demonstrates the Swiss government’s commitment to the stability of the Swiss financial system’.

‘GIC is comfortable with our present investment in UBS,’ said GIC, in response to questions from BT as to whether it would raise its stake in UBS, now diluted by the Swiss government’s cash injection.

Source : Business Times - 17 Oct 2008

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Bank deposits get govt seal of guarantee

Bank deposits get govt seal of guarantee

Singapore ensures level playing field for its institutions; M’sia gives similar assurance

By SIOW LI SEN

(SINGAPORE) The Singapore government will, with immediate effect, guarantee all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks.

The government’s guarantee will cover deposits in any currency held in savings accounts, fixed deposits, current accounts and under the Supplementary Retirement Scheme. But it does not include any structured deposit and any deposit which is pledged, charged or secured as collateral.

The Monetary Authority of Singapore and the Finance Ministry said in a joint statement yesterday that the guarantee would be in place until Dec 31, 2010, and will be backed by $150 billion of government reserves.

The statement noted that in the last week, ’several jurisdictions have taken extraordinary measures to stabilise financial markets and restart the flow of credit’. ‘In particular, recent plans by the European and US governments to recapitalise their banking systems and guarantee bank borrowings in the wholesale markets have improved confidence.’

It added that while the Singapore banking system remains stable and is functioning well, the absence of such a guarantee may disadvantage financial institutions here. This was because a new dynamic has been introduced by regional jurisdictions issuing similar guarantees.

In the region, Hong Kong gave a similar assurance earlier this week to reassure jittery depositors there and shore up confidence in the banking system, while Malaysia did so last night. Australia, New Zealand and Indonesia have already guaranteed deposits.

MAS said that all this ‘puts pressure on other jurisdictions to respond or else risk disadvantaging and potentially weakening their own financial institutions and financial sectors’. ‘This is why although Singapore’s banking system continues to be sound and resilient, the government has decided to take precautionary action to avoid an erosion of banks’ deposit base and ensure a level international playing field for banks in Singapore.’

In Europe, when Ireland became the first country to guarantee bank deposits during the current crisis, other European countries had to follow suit on fears that money from all over Europe would otherwise flow to Ireland.

The government’s guarantee will cover deposits in any currency held in savings accounts, fixed deposits, current accounts and under the Supplementary Retirement Scheme. But it does not include any structured deposit and any deposit which is pledged, charged or secured as collateral.

It will also be extended to deposits placed with credit cooperatives registered with the Registry of Cooperative Societies. Currently, there are 41 credit co-ops with more than 200,000 members.

Also covered are all depositors, big and small, corporate and individual, including those under the current Deposit Insurance Scheme administered by the Singapore Deposit Insurance Corporation, which will now enjoy protection on the full amount of their deposits.

Given that Singapore’s financial sector is sound and robust, the government has assessed that a guarantee of up to $150 billion would be well in excess of possible liabilities arising from the failure of any financial institutions, it said.

Total deposits in the banking system are said to be about $700 billion.

‘The president has given his concurrence for the government to provide such a guarantee.’

Under the Constitution, the president’s concurrence is required on matters concerning the reserves.

The MAS cautioned financial institutions not to misuse the guarantee to take on risky activities.

Analysts and bankers welcomed the move.

‘It’s a prudent and necessary move to assure all individuals and companies here that their deposits are safe,’ said Chua Hak Bin, Citigroup analyst.

Alvin Liew, Standard Chartered Bank economist, said that it’s unlikely the guarantees by Malaysia and Singapore will be used.

‘The banking sector in South-east Asia is much more heavily regulated and in times like these, it serves to be heavily regulated,’ said Mr Liew.

Source : Business Times - 17 Oct 2008

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