Before I Forget…

Seven former Citibank employees have been charged by the Singapore government with breaking client confidentiality laws in a case that reflects fierce recruitment competition among private banks and Singapore’s need to uphold tough bank secrecy rules.  They were accused of taking information on private bank clients from Citibank, a part of Citigroup, before they joined rival UBS in 2006.  They face a total of 1,223 charges under Singapore’s computer misuse act and bank secrecy law for accessing Citibank’s computers without authority and downloading or printing out client information.

The charges were filed after the Singapore police’s commercial affairs division conducted a year-long inquiry.  The police began their investigation after Citibank filed a lawsuit against six of the former employees in 2006.  That case was settled out of court last year with the payment of undisclosed damages.  Citibank also filed a complaint with the police and the Monetary Authority of Singapore, the city-state’s financial supervisor.  In its civil suit, Citibank alleged that some of the bankers had taken S$50m ($35m) worth of business to UBS by persuading clients to switch accounts.  Only three of the seven are still em-ployed at UBS and have been suspended pending the outcome of the case.  Singapore has some of the world’s strictest bank secrecy laws, which have helped make it the fastest-growing wealth management centre.  This was the first time that the authorities have used the computer misuse act and banking laws to prosecute the disclosure of bank customer information.  The accused face up to 20 years in jail and fines of up to S$125,000.  Most of those indicted were relationship managers in Citibank’s Citigold operation which caters for rich clients.  Jonathan Seah, a former Citibank branch manager who was among the seven indicted, acknowledged in a 2006 interview with the Financial Times and in a court affidavit that he sent client information to his personal e-mail address so he could work from home.  He denied he had forwarded the data to any other party or used it to benefit UBS, and had returned the information when Citibank requested it.  He alleged that Citibank had filed the civil suit to deter others from leaving Citibank to join rival private banks.  Citigroup dismissed such suggestions…..

Reference : http://www.ft.com/cms/s/0/7bbc62ec-cae8-11dc-a960-000077b07658.html

The purchase by the Government of Singapore Investment Corp of a 9% stake in UBS represents the single largest overseas investment by a Singapore state entity.  It also reflects the south-east Asian city-state’s ambitions to take holdings in Asian and European financial groups.  The deal marks a departure for the highly secretive GIC, which normally takes on the role of an asset management fund by investing in equities and bonds.  It is also one of the world’s 10 biggest property investors.  The UBS stake is unusually large for GIC, which manages Singapore’s foreign exchange reserves, budget surpluses and some state pension funds.  GIC, which was established in 1981, has normally kept a low profile, unlike Temasek Holdings, the Singapore state investment company that has pursued an ambitious global strategy of buying stakes in foreign banks and telecoms.  However, GIC is far bigger than Temasek, which has assets of $114bn. GIC will only say that its assets exceed $100bn.  Analysts estimate its true size as much as $330bn based on its average annual return of 9.5% in US dollar terms over the past 25 years.  This would make it the world’s second largest sovereign wealth fund after the Abu Dhabi Investment Authority.  GIC’s board is headed by Lee Kuan Yew, independent Singapore’s first leader, and his son, Lee Hsien Loong, the prime minister.  The younger Lee’s wife, Ho Ching, is the head of Temasek.  GIC’s investment in UBS, one of the world’s largest private banks, will also strengthen the city-state’s ambitions to become the world’s leading wealth management centre after Switzerland.

Reference : http://www.ft.com/cms/s/0/87823f6c-a76f-11dc-a25a-0000779fd2ac.html

The Government of Singapore Investment Corporation has long maintained a low-key presence in global financial and property markets in spite of being one of the world’s three top sovereign wealth funds and one of the oldest.  But the secretive government agency is suddenly receiving considerable attention as other countries, including China, South Korea and Japan, seek to copy its operations in an effort to improve returns on their vast foreign exchange reserves.  GIC was founded in 1981 with assets of around US$5bn and the size of its portfolio has grown to an estimated $140bn (€103bn, £69bn) in 25 years by investing foreign exchange reserves and surplus state budget funds in global equities, bonds, property and other investments…..The fund was the idea of Lee Kuan Yew, independent Singapore’s first leader, who complained the central bank was not investing government reserves for the best long-term returns.  He decided to set up GIC with the help of international advisers including James Wolfensohn, who operated his own investment firm before becoming World Bank president.  “Investing is a hazardous business.  My cardinal objective was not to maximise returns but to protect the value of our savings and get a fair return on capital,” wrote Mr Lee, who has been chairman of GIC since its founding, in his memoir, From Third World to First.  Last year GIC revealed for the first time that it had achieved an average return of 9.5% annually in US dollar terms since 1981 or a 5.3% return over global inflation.  That is seen as a solid return for a large and conservative fund and has persuaded other governments to seek GIC advice in setting up similar vehicles.  Half of GIC’s investments are in equities, 30% in bonds and the rest in property, private equity, hedge funds and commodities.  About 80% of the portfolio is invested in the US, Europe and Japan.  GIC is barred from investing in Singapore because of fears that its huge size would distort local financial markets.  But its foreign activity has stirred much less controversy than Temasek Holdings, Singapore’s other investment company, which has encountered a nationalist backlash in some Asian countries.

GIC operates like an asset-management fund, with ­little interest in acquiring substantial stakes in com­panies.  “US university endowments have had the biggest influence in our organisation structure and designs,” Roger Sung, a ­senior GIC official, told Tufts University’s Fletcher School last year in a rare public discussion of the fund.  In contrast, Temasek has taken a more activist approach, similar to a ­private-equity fund, by buying big stakes in ­foreign com­panies and seeking some say in management, which has raised its profile and made it a target of political opposition.  GIC has been able to act without attracting much notice by using external fund managers to handle about a quarter of its assets, while making other investments through special purpose companies.  GIC’s reliance on outside asset managers in addition to its own staff of 900 people has meant that Singapore has been able to attract asset management companies to the city-state as part of its ambitions to become a regional financial centre.  The corporation has become a fertile recruiting ground to staff Singapore’s private fund management industry.  It is closely tied to the Singapore government, with all but one of its 13 board members being ­current or former government officials, GIC executives or the heads of state companies.  Mr Sung said the board represented “the de facto inner cabinet” of Singapore and “makes the major decisions for our company”.  While Mr Lee serves as GIC chairman, Lee Hisen Loong, his son and Singapore prime minister, is the deputy chairman and Tony Tan, a former deputy prime minister, is the executive director…..GIC is not required to report to parliament, although it must submit audited accounts to the Singapore president.  The International Monetary Fund has recommended that more transparency would “strengthen further public confidence”.  But the government says increased transparency would make the Singapore currency vulnerable to foreign speculators by publicising details of the city-state’s reserves.  Some analysts have suggested that GIC should give a more detailed accounting of investments made three-to-five years previously to give the public a better understanding of its performance, without disclosing its current strategy…..The secrecy that surrounds the Government of Singapore Investment Corporation and to a lesser extent its sister agency, Temasek Holdings, is not an exception in the city-state, where the government keeps tight control on information…..Secrecy also has its advantages in creating the world’s fastest-growing wealth management hub, with bank secrecy laws stricter than in Switzerland.

Reference : http://www.ft.com/cms/s/0/72305c2a-5b02-11dc-8c32-0000779fd2ac.html

…[Singapore's] birth rate, once one of world’s highest, is flagging.  Young, educated Singaporeans are emigrating to seek better-paying jobs or more freedom from restrictive rules at home.  If present trends continue, the local population could begin to shrink by 2020.  Singapore’s leaders view the situation with alarm.  A declining population would result in economic stagnation.  Their solution is to admit many more foreigners with the goal of increasing the population to 6.5m from 4.5m in the next 20 years.  The main focus: attracting skilled workers from China and India, the countries that provided the waves of immigrants who helped to turn Singapore from a 19th-century swamp into the financial centre it is now.  If foreign-born permanent residents are included, Singapore has Asia’s largest population of foreigners as a proportion of its residents.  They make up more than a quarter of its population and a third of the workforce.  Since 1990 the foreign population has expanded by 7.4% annually to 1.2m against a 1.1% rise for all Singaporeans. 

While Singapore seeks to lure skilled workers with an eye to the future and competing with rival Hong Kong, the reality is that most of those who have arrived in recent years are a rotating underclass of cheap labour from the Philippines, Indonesia and Bangladesh.  Of the 670,000 foreigners working in Singapore, 87% are employed in low-paid jobs as construction workers or domestic maids.  As the government chases skilled workers, “state policy is opposed to long-term immigration [of unskilled foreign workers] and directed at ensuring that this category of migrants remains a transient workforce”, says Brenda Yeoh, a geographer at the National University of Singapore.  Maids and labourers normally receive work permits for one or two years, cannot bring in spouses or children, are forbidden from marrying Singaporeans and are deported if they are pregnant.  The government is hoping to change the foreign population mix by attracting more educated workers needed to fill jobs in service sectors such as private banking and finance, biotechnology and education.  It wants many of them to become citizens or permanent residents, with the goal of having 240,000 of them gain this status in the next five years.  To do so, the government is trying hard to shed Singapore’s dull image in favour of a global city with buzz.  It has eased strict rules governing nightlife and will soon open two of the world’s most expensive casinos.  The development of cultural activities, is receiving attention after years of neglect.  “Singapore is selling itself as a lifestyle centre” to attract more middle-class workers, says Christine Ong, the Singapore country head for UBS, the investment bank.

The focus on foreign talent has provoked a backlash, with the income gap widening to its greatest since independence in 1965.  A newspaper poll found 43% of Singaporeans believed the government cared more about foreign professionals than the local population, with their biggest worry the loss of jobs to outsiders.  Officials say the influx will help job creation by developing service industries and start-up companies that can hire local workers.  But some economists suggest that Singapore should cut the number of low-skilled foreigners to promote local hirings and higher wages.  As one of the most densely populated countries, the addition of 2m people threatens to strain resources.  It is likely to increase Singapore’s dependence on imported food and water, while raising prices for housing, transport and public services that would undermine the government’s strategy of making the city-state cost competitive.  Housing prices, for example, are already expected to go up 30% this year while rents for office space in the prime business district have doubled in the past year.  The biggest challenge that Singapore may face in the long term is to maintain the social stability that the government has always prized.  “Foreign labour policies might be tightened if political stress emerges in the future,” says Chua Hak Bin, regional economist at Citigroup in Singapore.  “Such a risk cannot be dismissed as foreigners could reach half of the total population.”

Reference : http://www.ft.com/cms/s/ad489ffc-4045-11dc-9d0c-0000779fd2ac.html

…..Temasek’s rising regional prominence is the main achievement of Ho Ching, who marks her fifth year as the group’s chief executive this month.  Temasek’s shareholder equity has climbed from S$75bn ($49.5bn) in early 2002 to S$129bn as of March 2006, the latest period for which Temasek has released data.  With Singapore’s Straits Times Index, which mostly consists of Temasek companies, having risen by 25% since then, analysts expect Temasek’s value has increased to at least S$150bn.  The group’s expansion strategy is being studied and copied by other Asian governments - including China, Japan, South Korea, Taiwan and Thailand - which are planning to set up similar organisations that will use swelling foreign exchange reserves to make overseas corporate investments.  Until Ms Ho’s appointment, Temasek’s main focus was Singapore.  Founded in 1974, the agency was created to gather together state businesses controlled by the finance ministry, which is still Temasek’s sole owner.  Over the next two decades, it fostered the growth of its local businesses - including Singapore Airlines and DBS Bank, and created new ones, mainly in the telecoms and IT sector.  By the early 2000s, Temasek companies were reporting sluggish returns on investment that made them targets for restructuring.  The market value of the group’s holdings fell from about S$100bn in 2000 to S$60bn by March 2003 before Ms Ho’s reforms took effect.  The naming of Ms Ho as Temasek’s chief was controversial. A former head of Sin-gapore Technologies, a Tem-asek subsidiary, she is also the wife of Lee Hsien Loong, Singapore’s prime minister and finance minister.  Her position close to political power was seen as giving her vital clout in overhauling Temasek.  She established performance benchmarks and introduced a measure of accountability and transparency into the secretive organisation.  “She shook up the estab-lish-ment, replacing management that was not focused on shareholder value and forcing Temasek companies to let go of marginal businesses,” says a strategist at a foreign investment bank in Singapore.  Analysts believe that Singapore’s stock market boom is also the result of Temasek companies raising dividend payments, which has attracted investors but also provided cash for Temasek’s accelerated overseas expansion.  Ms Ho decided that Temasek must play a direct role in an effort to reduce its dependence on a maturing home market.  She identified banking, telecoms, energy and healthcare as among several industries that would grow on the back of a rising Asian middle-class, while setting a target that two-thirds of Temasek’s total assets should be foreign, up from less than half when she arrived.

It is in the banking sector that Temasek has made its biggest impact, beginning with the takeover of Indonesia’s BII and Danamon banks in 2003.  It emerged as the single largest foreign investor in China’s state banks, with stakes in Bank of China and China Construction Bank.  Last year, it concluded its biggest single deal by buying a 11.5% stake in Standard Chartered Bank for an estimated $4bn.  The banking investments have produced large paper profits and are seen as one reason why Temasek reported an average 28% rise in total shareholder returns for each of the past three fiscal years…..The biggest black mark on Ms Ho’s record was Tema-sek’s troubled $3.8bn purchase of the Thai telecom group Shin Corp from the family of former Thai prime minister Thaksin Shinawatra last year.  The deal triggered a political crisis that led to Mr Thaksin’s ousting by the military, while the value of Temasek’s investment was nearly halved.  The episode showed that Temasek faces greater potential risks overseas than in its stable home environment.  An adviser to the group believes it is underestimating the pitfalls in its international strategy.  “I’m surprised how little Temasek knows about the countries in which it invests,” he says.  The true test for Ms Ho will be when regional markets turn sour.

Reference : http://www.ft.com/cms/s/383dd364-0349-11dc-a023-000b5df10621.html