Wednesday, July 24, 2013

Permission To Panic, Sir

Wait a minute, this has to be deja vu. Barely a week ago, when Moody's Investors Service downgraded the outlook on Singapore's banking system from "stable" to "negative", the Monetary Authority of Singapore (MAS) was quick to come up with an assurance that everything is honky dory. Don't worry about the interest rate hikes, go on buying those properties.

Now (yesterday), MAS is saying the rising household debt in the city state is worrying, and it is “important to act now to limit build-up of leverage”. MAS managing director Ravi Menon reported that 5 to 10 per cent “have probably over-leveraged on their property purchases” — one couple was reportedly granted a new home loan of $400,000 based on a loan repayment schedule amounting to 90 percent of their $6,000 total monthly income. If mortgage rates were to rise by 3 percentage points, MAS warned that the proportion of borrowers at risk could reach 10 to 15 per cent. Which was basically the reason that prompted Moody to revise it's assessment ("Hike in rates and fall in property prices may pose risks to financial stability").

But the house owners are not the only ones holding on to assets founded on shifting sands.

According to its annual report, the MAS had paid-up capital and reserves of S$24.539 billion as at March 31, 2013, down from $35.152 billion of the previous financial year. The Singapore central bank actually made a net loss of S$10.613 billion in fiscal 2012/13, a drastic reversal of fortunes compared to the net gain of S$2.771 billion in the previous financial year. The only saving grace is that its investment returns over the year were more than offset by the strength of the Singapore dollar (which is adjusted periodically by same MAS to "combat imported inflation").

“This is an issue of reporting currency. If we had reported our profit and loss in international currency, it would show a healthy profit,” was how Mr Menon casually explained away the red ink. Whatever. The bottom line is that a big chunk of the MAS paid-up capital and reserves has been chewed off. No MAS official was harmed in the making of the financial report.

Interesting aside: Total MAS assets rose by S$21.21 billion to S$340.405 billion, while current capital and reserves declined to S$24.539 billion, giving total liabilities of S$315,866 billion. Accounting 101 says gearing ratio is debt (total liabilities) divided by equity (capital and reserves). Look, someone else is also highly leveraged.

It looks like the new chairman of Tesmasek Holdings, Lim Boon Heng, may have to stock up on those Kleenex tissues. Temasek and MAS are supposed to be separate entities with distinct roles and mandates, and distinct management teams, but the incestuous links are harder to define.

19 comments:

  1. Moral of the story - never trust what they say. When they tell you not to panic, it's time to sell!

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  2. Very true!
    Play safe.

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  3. Yah... i think a storm is brewing. Dark clouds on the horizon. Where is the pair of steady hands???

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  4. This is shocking! ST got this line "this has led Singapore's debt as a share of GDP to rise from 200% to 270% over the last three years". Are we the most indebted nation now?

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    1. YES WE ARE, at lest of you ignore some African outback regions. In a distant second place is CHINA, that ultimate casino of real estate speculators, and their total debt to GDP is a puny .... 180%. This is a "world-calss" lead which even Mr Sun Xu would concede!

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  5. The Steady Hands
    are steadying their legs
    for a fast run..............
    So no one can catch them.

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    1. Steady hands? What steady hands? They belong to an 89 year old turning 90 in September. You saw him at the tree 'planting'? Could not even hold the watering can. Time to pray.

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    2. That is not a good sign, because who is going to hold PM Lee's hand if things become even more desperate ? No wonder LowTK and Sylvia have been rather accomodating in parliament.

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  6. Are their legs shaky?

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  7. /// It looks like the new chairman of Tesmasek Holdings, Lim Boon Heng, may have to stock up on those Kleenex tissues. ///

    No nid lah - the kleenex was for losing his multi-million ministerial job. Now that he's going to get his millions again, he should stock up on his tooth pick (like Siah Sway) and look at his monthly CPF statement and be happy as a lark.

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    1. When rats start to leave, you know the ship is sinking. I think he needs more than Kleenex tissues [:) He probably needs a life jacket [:(

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    2. Lim Swee Say took over from Lim Boon Heng as Union Chief. Now he can look forward to being at Temasek, to see and count the money himself. No doubt he will be happier than a lark.

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    3. The crybaby ex-Minister, and the toothpick Minister, in the Prime Minister's Office? Toothpick/Zorro pockets the picks, and while at NTUC, picks the pockets of workers? His toothpick lark has turned into a slapstick on himself. I can't imagine a more silly and bone-headed admission, rivalling the PM's "fix the opposition", "mee siam mai hum" or "free smoke and free pork soup in Beijing" joke. Ouch. It appears they are having a lark at the PMO.

      Speaking of PMO, the CPIB, reporting to the same, has it's own corruption, in the person of Edwin Yeo Seow Hiong. Integrity indeed, under the PM's own charge.

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  8. The $10b loss is the price you folks will have to keep paying to maintain that strong Sing dollar policy". Officially its to combat inflation, Unofficially, its the ultimate honey pot to attract hot money into the red dot. And of course the same honey pot is fueling the low interest rates because banks are flooded with this hot money deposits. The whole house of cards hinges on the hot money flows, just like Indonesia and Thailand in 1997.

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  9. what do we expect those talents in mas to say?

    situations are bad???

    understand some of those young punks there inherited/owning multiples properties

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  10. Is there one cause of the middle-class collapse that rises above all others?

    Yes.
    The International Labor organization produced a remarkable study, (Global Wage Report 2012-13) that sorts out the causes of why wages have remained stagnant while elite incomes have soared.

    The report compares key causal explanations like declining bargaining power of unions, porous social safety nets, globalization, new technologies and financialization.

    Guess which one had the biggest impact on the growing split between the one percent and the 99 percent?

    Financialization


    http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_194843.pdf

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  11. Singapore Central Bank Rocked By Losses, Money-Laundering, And Terrorism-Financing

    SOURCE:
    http://www.zerohedge.com/news/2013-07-23/singapore-central-bank-rocked-losses-money-laundering-and-terrorism-financing

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  12. France Used To Torture And Execute Its Finance Ministers For Policies Gone Bad

    Read more: http://www.businessinsider.com/medieval-french-finance-ministers-executed-2013-4#ixzz2ZyITHnPD

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  13. very good article but the debt came from CPF and the monies were invested by GIC. i.e. GIC is losing monies to TH to keep the latter afloat.

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