3/23/2008

Buying foreign banks a bad deal?

With US$22 b spent on the buying spree for troubled international banks, and with crumbling values as more misdeeds or debt were revealed, many were chuckling in glee. See, supertalents messing up our reserves. Many are waiting at the sidelines hoping for such opportunities to take potshots at the highly paid and highly acclaimed supertalents in our midst. Are the criticisms justified? I was in favour of these acquisitions from the start. And I am still hopefully optimistic that these were good decisions and will bring in good returns in the long run. It is only in difficult times like this that these top banks have to go down on their knees to beg for fund injections. Without such a window of opportunities, we can wait till the cow comes home for them to divest their interests to a sovereign wealth fund like ours. The recent developments seeing these risky investments plunged in their values in the billions surely will bring up the questions of due diligence. Did we go in with eyes wide open or eyes wide shut? Were we told of the full story before parting with our billions? And did we protect ourselves from such an eventuality, or did we know how much risk we are exposing ourselves to? If the decision makers went in fully aware of the possible pitfalls and consequences, and the decision made based on acceptable calculated risk, then the public should not take issues with the short term fluctuation. We only need to fear if we are conned into parting with our billions by the banks that did not fully disclose their full liabilities and debt to us. And if that be the case, hopefully legal actions can recover some of the damages. And rightfully too, the decision makers need to be kicked in the arse. When all due diligence have been taken, and the losses were due to developments that were difficult to foresee, then the public should not be too harsh on their criticisms. We can now hope that everything is within our control and expectations, and in the long run we shall reap the fruits of risk taking and opportunism.

4 comments:

Anonymous said...

It may not be a bad deal, but they certainly bought on a high.

Abao said...

it shouldnt be such a bad deal, since most of the stocks they bought will definitely convert to cash given time , provided those companies survive the crisis.

i only wish they would inform us Singaporeans before they did any major actions, not after they did them, though i'm not really grumbling.

Matilah_Singapura said...

If you want to be a 'good capitalist' and make a lot of money, seek out as many 'problems' as you can and fix them so that whatever you fix is able to 'work' and do what it is supposed to do.

There is nothing wrong with buying 'broken assets'. The challenge is whether or not the buyers have the skills necessary to turn the broken asset into a profit-maker and at the end of the exercise make money.

The wonderful thing about capitalism is that property can be exchanged readily. The value of the property determines its market price. Owners of private property are cautious about one thing overall: never do anything to DIMINISH the value of an asset.

But all humans make errors in judgment and thinking. In fact ALL errors made by humans are simply errors in thinking, as thinking precedes action, or more specifically choice of action, and the choice to act.

When humans make errors which adversely affect the value of their private property, they often get into deep financial trouble. They are usually out of resources to fix the mess, and the market price of their asset has fallen due to the decrease in value. This makes the 'broken' asset attractive to those who think they have the necessary entrepreneurial skills and resources to turn things around and make a nice profit.

BTW, there is no such thing as a "high" or "low" price, referring to "expensive vs cheap" relativism.

There is, in actuality only ONE PRICE: The MARKET price.

redbean said...

abao is talking about transparency and accountability. this is now a blind faith.

and to follow up on one of matilah's point, buying a trouble company and fix it up to good condition. i am afraid this is not going to be the case. we just put money there and hope that the turkeys will put things right or not to repeat their mistakes. we have hardly any management contributions. just a lame investor.

now this may be tricky.