Filed under: Stocks Investing | Tags: CDS, Credit Default Swap, Fannie Mae, Freddie Mac, Malaysia, US dollar, us subprime
http://futurefastforward.com/component/content/article/381
Starting Point
The Ponzi Scheme
The crux of the fraudulent Ponzi scheme is the twin pillars of:
1) Fannie Mae & Freddie Mac – the two giant mortgage corporations of USA
2) The Derivative financial tool known as Credit Default Swap (CDS)
Once you have a grasp of these two concepts, you cannot but agree that we are facing total global banking collapse. Why? Because the entire global banking system has been built on these two financial pillars! But the system became irreparable in the last 7 years when CDS became the linchpin in the massive expansion of derivative trading and financial engineering.
The Mechanics
1. Banks became greedy and were unwilling to earn safe and steady profits from mortgages for housing and commercial properties which usually spread over a period of between 5 to 30 years.
2. Banks wanted massive profits in the shortest period of time and the ability to lend massive amounts and not be regulated as to how to do it.
3. The crooks devised a scheme. It was a simple idea.
4. Banks will provide mortgages to all and sundry.
5. I am going to use a simple example and using small numbers to illustrate for ease of calculation. Thus, assuming the Bank gave out US$1 million to finance mortgages, bearing interest at 10%.
6. The bank then sold the mortgages to Fannie Mae and Freddie Mac at a discount. Fannie Mae and Freddie Mac being Government Sponsored Companies (GSCs) are able to get cheap financing to purchase these mortgages as they were assumed to be “guaranteed by the US Government”.
7. Fannie Mae and Freddie Mac then package these mortgages into all sorts of structured financial products and these were sold to investors (private as well governments). Central Banks hold massive amounts of dollar reserves and they need to find a safe haven for them. Hence, and invariably, Central Banks invest their reserves in US Treasuries and financial “mortgage-backed” products issued by Fannie Mae and Freddie Mac as well as other US financial institutions.
8. With the payment of US$ 1 million by Fannie Mae / Freddie Mac, the bank by law, can lend ten times the amount after keeping 10% reserves i.e.US$100,000. Therefore, the bank can lend US$9 million by “creating money out of thin air” i.e. by crediting the borrowers in their loan accounts in amount of the loans extended. These US$9 million loans secured by mortgages are then sold to Fannie Mae / Freddie Mac again.
The cycle keeps repeating and the banks keep creating more and more loans.
It was so easy that the banks decided to create dubious loans called “Liars Loans” whereby the borrower need not state the actual income and or ability to repay.
9. As more and more of these loans were created, investors (government and private) demanded assurances that these loans were good for investments. The rating agencies (e.g. Moodys, Standard & Poor and Fitch etc.) who in collusion with banks, gave AAA ratings to what were essentially junks. This fraud led investors to believe that these financial products were good investments.
10. The rating agencies were only too aware that this scheme needed something more concrete to prolong the fraud and induce the investors to part with their monies.
11. The insurance companies like A.I.G. came into the picture. They were seduced by the idea that if they can insure against risks of accidents, storms etc., they could also insure risks against default by the mortgage holders. Thus was born the financial innovation – Credit Default Swap (CDS). Any financial product with a sound CDS would be rated AAA. It was as good as being guaranteed by Uncle Sam. Assholes the world over, especially central banks, fell for it – hook, line and sinker. Bank Negara was no exception.
12. The scheme works out like this – AIG sells protection – i.e. in the event there is a default, AIG will pay out to the buyer who buys the protection (the CDS) in exchange for the payment of premiums covering the period of protection not unlike your usual insurance policy. It was easy money for everyone.
The banks get to sell their loans and have the liquidity to create more loans.
Fannie Mae / Freddie Mac and other financial institutions get the opportunity to repackage these loans / mortgages and sells them to investors with a tidy profit.
The investors are happy with their so-called guaranteed returns. The insurance companies, investment banks and other players get their premium income for selling protection. It was old fashion mafia loan sharking and protection business dressed up in modern financial jargon and everyone was too arrogant and greedy to see through the fraud.
13. When loans default and continue to be delinquent, the law (depending on each country) provides that if the loan is in default for 90 days or more, it should be declared a Non-Performing Loan (NPL) and banks must provide reserve to cover the loss.
14. What happened was banks were covering the defaults and kept them on the books for two years or more in the hope that no one would be wiser and interest income from new loans would cover the defaulted old loans – the classic ponzi modus operandi.
15. When the two years default reached critical proportions starting with the sub-prime loans, the fraud began to unravel. Investors began demanding their protection money for the losses arising from these defaults. It has been estimated that the market value of the CDS was in excess of US$60 trillion but the capital of the insurance companies like AIG are only in the billions. It is therefore a physical impossibility to make good the demand for payment for the defaults.
16. If AIG the No. 1 insurer in US and the world is in default, it means the rest are in deep shits. You can take it as a given that no one and no one has good coverage and protection anymore.
17. When there is no coverage and protection, how can there be AAA ratings for new issues of such financial products? Fannie Mae/Freddie Mac etc. cannot package these products for sale to investors and if they cannot sell, they will have no funds to buy more dubious mortgages from corrupt and fraudulent Wall Street banks. With no additional funds, these crooks in JP Morgan Chase, Goldman Sachs, Citigroup, Lehman Bros., Morgan Stanley, Merrill Lynch, Bank of America, UBS, Barclays, HSBC, Deutsche Bank, Credit Suisse, etc. will have difficulty extending new loans.
The “Musical Money Chair” will have to come to a complete halt. The entire system gets into a gridlock.
Given the above explanation, can the US government and the Fed continue to bail out banks and other financial institutions? When US is in deficit in both the budget and current accounts, where else can they get the extra monies except by creating out of thin air (virtually by keying digits into computers) or print more dollars.
If you are a sovereign lender or a private hedge fund, knowing the situation, would you lend more monies to the US Treasury knowing that each dollar issued (whether digitally or in printed notes) are not worth the value stated therein.
These dollars ARE NO BETTER THAN TOILET PAPER.
The bulk of our reserves are in US dollars. Our trade – petroleum products, palm oil and other exports are mainly traded in dollars. When the dollar dives into the cesspool of waste, what then?
This is the impending mess that Malaysia will be facing as early as end of 2008.
Filed under: Stocks Investing | Tags: bursa malaysia, public bank, US dollar, us financial turmoil
1) if financial turmoil not over, US dollar will drop
2) Commodities prices will especially oil will increase to new height again
3) Malaysian Inflation will increase especially with our incapable govt which doesnt understand the situation
4) Bursa will go down (I am waiting public bank to go down to RM9.50 before I make a move)
5) BLR might be increased this time around
6) Malaysia real estate will become buyer’s market as BLR increase. get ready your money to invest.
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SINGAPORE: A Singapore sovereign wealth fund that bought large stakes in banks UBS AG and Citigroup Inc. warned Tuesday that the worst of the U.S. financial crisis may not be over even if Washington implements a US$700 billion bailout plan.
The Government of Singapore Investment Corporation, or GIC, said the current turmoil in the U.S. banking system will likely undermine the future earnings of the fund, which manages more than US$100 billion.
GIC refused to be more specific.
“The proposal put forth by the U.S. Treasury should stabilize the markets to some extent,” said GIC Deputy Chairman and Executive Director Tony Tan at a news conference.
“But we should not assume the worst is over. Financial markets and the economic situation have deteriorated significantly in the last five months.”
GIC also regretted the timing of its investment in the two banks – US$9.75 billion in UBS in December and US$6.9 billion in Citigroup in January – said Chief Investment Officer Ng Kok Song.
“We would have liked the timing of the investments to be better,” Ng said.
“But these are long-term investments.”
http://biz.thestar.com.my/news/story.asp?file=/2008/9/23/business/20080923140539&sec=business
Filed under: Stocks Investing | Tags: alan greenspan, federal reserve, george soros, henry paulson, wall street
George Soros interviewed by French journalist concerning the Financial Mess in the US.
According to him, the mess was caused by:-
1) Alan Greenspan – by letting the rate too low for too long
2) No regulation on the investment banks
Solutions
1) Regulate the financial system
2) Request all banks to have their own funds instead of just selling derivatives.
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George Soros, 77 ans, multimilliardaire et gourou des marchés financiers aux Etats-Unis, livre son analyse de la crise. Spéculateur averti, il dénonce les “intégristes du marché” mais critique aussi la Réserve fédérale (Fed) et le Trésor américain. Il les dit responsables de la formation d’une “super bulle”, qui plonge les Etats-Unis et l’Europe dans la récession.
Wall Street s’effondre. Assiste-t-on à la chute de l’empire américain ?
Wall Street ne s’effondre pas, Wall Street est en crise. Les effets de cette crise dépendront de sa durée. La situation n’est pas fatale : nous sommes au bord du gouffre mais nous n’y sommes pas encore tombés. Le marché continue à fonctionner. En revanche, le fait nouveau depuis quelques jours, c’est que la possibilité d’un éclatement du système existe.
Ce qui arrive est incroyable ! C’est la conséquence de ce que j’appelle “l’intégrisme de marché”, cette idéologie du laisser-faire et de l’autorégulation des marchés. La crise n’est pas due à des facteurs extérieurs, ce n’est pas la conséquence d’une catastrophe naturelle. C’est le système qui a causé sa propre perte. Il a implosé.
Le politique a-t-il sa part de responsabilité ? Quid des régulateurs ?
Alan Greenspan (l’ancien patron de la Fed) est responsable, parce qu’il a laissé les taux d’intérêt trop bas, trop longtemps, qu’il a laissé libre cours à l’innovation financière, considérant qu’il y avait plus à y gagner qu’à y perdre. Les autorités de contrôle sont également responsables, pour avoir donné trop de liberté aux acteurs des marchés et laissé se développer un marché du crédit monstrueusement étendu. Regardez le marché des dérivés de crédits ! Il se chiffre en milliers de milliards de dollars. Le résultat de cette politique, c’est une crise financière qui plonge dans la souffrance des victimes innocentes.
Que pensez-vous des interventions, en urgence, de l’administration américaine ? Seront-elles efficaces ?
Henri Paulson (le secrétaire au Trésor), rechigne à utiliser l’argent public. Il a d’abord refusé de signer un chèque en blanc pour sauver Freddie Mac et Fannie Mae, avant d’y être contraint quelques mois plus tard. On a vu les mêmes hésitations sur Lehman Brothers, que les autorités ont finalement laissé tomber, et sur AIG qui, lui, a été sauvé en raison du risque systémique qu’il représentait. II était nécessaire de le faire, la situation serait sinon devenue incontrôlable. Mais ces actions sont lentes et contreproductives. Pendant qu’on hésite, la situation se détériore. Et ces interventions sont curatives et non préventives.
La crise de 1929 est prise pour référence. Est-ce pertinent ?
La grande différence avec la crise de 1929, c’est l’attitude des autorités. Elles ont compris qu’il fallait soutenir le système, même si c’est compliqué et coûteux, et si ce n’est pas dans leur culture de faire intervenir l’Etat.
Que va-t-il se passer maintenant ? Quelles conséquences pour l’Europe ?
La source des problèmes est aux États-Unis mais l’Europe est concernée. Pour elle, l’avenir dépendra de la façon dont les autorités géreront la crise. Du fait de la décrue des prix des matières premières, nous allons entrer en période de déflation. Je pense qu’il serait opportun de baisser les taux.
L’économie réelle sera-t-elle affectée ?
Cette crise va se transmettre à l’économie réelle. Les Etats-Unis sont sans doute déjà en récession, et cela va s’accélérer aux cours des deux prochains trimestres. Les banques ont déjà restreint leurs crédits. Et l’opinion publique américaine a été choquée par ce qui s’est passé cette semaine. Les consommateurs ne vont plus s’endetter. Ils consommeront moins.
Les pays émergents comme la Chine souffriront-ils ?
Compte tenu du ralentissement brutal de l’économie mondiale, les exportations chinoises se réduiront. Les autorités ont les moyens d’agir pour stimuler l’économie grâce à leurs réserves de changes, mais le feront-elles correctement ? La Chine est un Etat bureaucratique et la crise économique pourrait dégénérer en crise politique, comme ce fut le cas en Indonésie en 1998. La crise du capitalisme américain pourrait avoir raison du communisme chinois.
Comment sortir du chaos ?
Tout le système financier américain doit être repensé. Les banques d’investissement devront s’adosser à des banques de dépôt. Il faudra mettre en place de nouvelles régulations. La mission des autorités est d’empêcher la formation de bulles financières. Elles ont des instruments à leur disposition et doivent les utiliser. Le crédit doit être régulé de la même manière que le marché monétaire. Il faut exiger des banques plus de fonds propres. Il faut aussi empêcher les prix de l’immobilier de s’effondrer et limiter les saisies des maisons.
De Barack Obama ou de John McCain, qui vous paraît à même de mieux réformer ?
Je pense qu’Obama a une meilleure compréhension de la situation.
Avez-vous perdu de l’argent dans cette crise ?
Je n’ai pas perdu d’argent mais je n’en ai pas gagné. Mais je ne vous révélerai pas mes secrets.
Vous êtes le “père” des hedge funds, dont les excès sont au coeur de la crise. Avez-vous des remords ?
Je ne suis pas le père des hedge funds mais l’un d’eux. Si c’était à refaire ? Je spéculerais mieux…
http://biz.thestar.com.my/news/story.asp?file=/2008/9/20/business/2076821&sec=business
THE popularity of MUNCHY’S has seen the Malaysian snack being munched in more than 50 countries around the world.
The business, run by five brothers, started with just a wafer stick machine in 1991.
Today, Munchy Food Industries Sdn Bhd has a monthly output of over 2,000 tonnes of biscuits and wafer products.
“Munchy’s brand mission is to produce all kinds of fun-eating snacks for every home all over the world,” said chief executive officer C.K. Tan. “We are trying to use Malaysia as a base and build Munchy’s into a world brand, instead of seeing more foreign brands coming into our country.”
Tan and his brothers have gone through tough times in bringing up the brand, especially in 1996 when the local market was saturated with many other big brands.
“It took us about 10 years to grow Munchy’s into one of the top brands in Malaysia. Now our mission and vision in the next 10 years is to grow Munchy’s into a world brand,” Tan said.
“We will allocate more funds into marketing to grow each overseas market in a big way in the next 10 years.”
Tan, who foresaw the importance of branding after he joined the company in 1994, started a re-branding exercise in 2002.
The company promptly brought in top branding consultants, who re-designed the logo with the distinctive colours of Munchy’s red and white.
“Munchy’s brand value is to bring fun into people’s lives and this has been our main focus for the past six years.
“Munchy’s is a very catchy name. It comes from the word munch. Our brand is very lively as you can see from our product packaging,” Tan said.
He added that a lot of innovation went into the design and packaging of Munchy’s products.
“I believe everything starts from the product. You have to have a very good product and …we put a lot of innovative ideas into designing the products from the packaging to brand image, the shape and weight of the products, basically from all aspects,” he said.
The Tan brothers believe in continuous product development.
“We spend three years to innovate a product and keep modifying the quality and packaging.
“Until today, we still keep thinking on how to make the existing products better.
“It took us more than 10 years to make Munchy’s Lexus the most saleable biscuit sandwich product in Malaysia,” Tan said.
Export markets
Munchy’s major markets are in Asia with Indonesia, Thailand, Singapore, Taiwan and Japan its key markets. It is also looking to penetrate Vietnam.
Munchy’s products are also exported to Mongolia, Bangladesh and Iraq.
Iraq is a major market; prompting Munchy’s to take a closer look at the Middle East.
“Going forward, we also focus more on the Middle East because with the oil money, people there are willing to spend,” Tan said.
Overseas sales now contribute about 25%-30% of Munchy’s total revenue, with the management aiming to expand it to about 50% of total sales by the end of next year.
With the launch of the new Munchy’s Mini crackers this year, the company is expecting export sales of RM90mil to RM100mil and a total revenue of over RM300mil, against RM250mil last year.
Overseas expansion
Tan said the company would produce 10 new products under the Munchy’s brand this year and planned to build a factory each in Vietnam and Indonesia to increase production.
“Vietnam is a new and emerging market with a population of 80 million while Indonesia has a huge population and is now our second largest export market, which shows that Munchy’s products are widely accepted,” he said.
Tan said the company had invested about RM75mil in new equipment in the last two years that resulted in the production of the new Munchy’s Mini crackers.
source: CIMB Research Report 19/09/2008
Asian stock markets probably witnessed a selling climax yesterday, followed by strong
recoveries later in the day. Led by rebounds in Hong Kong and Singapore, other Asian
markets including Malaysia, Indonesia and Thailand also recovered strongly. After a
pronounced selling climax, markets usually experience a rebound for 5-10 trading days.
We must see strong follow-through of the rebound of Asian equity markets over the next
few days. If not, investors can expect weakness to continue once the rebound ends. Our
worry is not about Asian markets but rather the US equity market. We did not expect the
DJIA to break the 11,000 support level this week but the index dropped below 10,600 on
Wednesday. Although the DJIA rallied last night, we would turn positive only if it smashed
its immediate resistance at 11,460. We would be very bearish if the DJIA broke below the
Sep 08 lows in the coming weeks.
Filed under: Stocks Investing | Tags: bank internasional indonesia, maybank
This is how to lose RM400M++ in a bad deal. Someone in maybank must be fired for not having an exit clause. My lesson from here? Never ever bought any GLC for long term investments.
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http://biz.thestar.com.my/news/story.asp?file=/2008/9/16/business/2034034&sec=business
KUALA LUMPUR: Malayan Banking Bhd’s (Maybank) request for Badan Pengawas Pasar Modal and Lembaga Keuangan (Bapepam) of Indonesia to reconsider the terms of its acquisition of Bank Internasional Indonesia (BII) has been rejected.
Earlier this month, Maybank had written to Bapepam to seek reconsideration for an exemption from the requirements of the new takeover rule, which would compel Maybank to sell down 20% of BII, or to allow Maybank to conduct a partial tender offer up to 80% of BII, which would achieve Bapepam’s objective to achieve 20% public free float.
In a filing to Bursa Malaysia yesterday, Maybank said the Indonesian authority did not allow the request as it would “create a negative precedent to the newly introduced regulation and would undermine the whole fundamental and objective of the new take over rule as well as the credibility of Bapepam’s regulatory function.” Maybank said under the terms of the share sale agreement, if any of the conditions precedent is not fulfilled by Sept 26, the agreement would lapse.
An analyst at a bank-backed brokerage said this stand by Bapepam raised the probability that the BII deal would not proceed.
“The market is likely to be relieved (if the deal is off) as there is no more concern over capital raising, capital strain and execution risk,” she told StarBiz.
“When you pay so much to penetrate a market, you’d have to work even harder to generate the return on investments,” she added. Another analyst said even without Indonesia, Maybank would still continue to perform in its existing markets.
“The deal would have been good for Maybank because of the potential in Indonesia. It’s just too bad that the timing of the new ruling happened during this acquisition,” he said.
The Minority Shareholders Watchdog Group (MSWG) chief executive officer Abdul Wahab Jaafar Sidek, in a press conference yesterday, said MSWG maintained its position, which was against the proposed acquisition as the pricing was too high.
Meanwhile, Maybank has already written off RM483.8mil for the deposit placed for the BII purchase in financial year ended June 30, 2008.
The net loss of the deposit was RM290mil as it had made RM193mil in foreign exchange gains from money placed earlier in Singapore to pay for the entire BII acquisition.
warren always pick a good and wise company with rigid internal rules n never gamble the wall street companies..
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http://money.cnn.com/2008/09/10/news/newsmakers/buffett_clayton.fortune/index.htm?postversion=2008091105
(Fortune Magazine) — Not every subprime lender is drowning in red ink. Berkshire Hathaway subsidiary Clayton Homes, the nation’s largest maker and financer of prefab and mobile homes, has been a bright light in a mortgage market that has generated $500 billion in write-downs since the start of 2007.
In 2003, Warren Buffett acquired Clayton, a family-run business based in Maryville, Tenn. In a memo, obtained by Fortune, to Berkshire Hathaway’s (BRKB) board of directors, Buffett pointed out how well Clayton’s loan portfolio has held up, even though 45% of the company’s loans are to borrowers with subprime credit scores.
The company’s loan delinquency rates have been stable: On June 30, 2004, the rate was 3.26%; last year it was at 3.5%; and now it’s 3.82%. (In comparison, the delinquency rate in the traditional housing market is around 6.4%.) Annual credit losses are running steady at a reasonable 1.5% of the loan portfolio. And Clayton’s foreclosures have actually dropped from two years ago, from 5,823 to 4,588.
What’s behind the portfolio’s strength? Clayton is more careful about lending because it keeps all loans on its own books rather than offloading them to others by means of securitization.
As Buffett wrote, “When we make a mistake in making or buying a loan, it costs us money, not some buyer thousands of miles away who ends up with an RMBS, CDO, or (horror of horrors) a CDO squared.”
Another important fact is that Clayton has banked on homebuyers who can afford their monthly payments and who purchased their houses for shelter, not for speculation. Clayton also avoided the mortgage industry practice of enticing buyers with low initial payments, followed by much higher payments a few years down the road. Most notably, Clayton’s customers aren’t likely to walk away from a house simply because it has lost value.
“If people purchased a house with the idea that it would appreciate substantially in the next few years, they may elect not to make their payment,” Buffett wrote. “Since our borrowers did not come in with those expectations, they will quit making payments only when they can’t make the payment.”
It’s a lesson many banks probably wish they had learned.
I like this story teach us that we must work hard and please our customers to succeed in business.
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From its humble beginnings of a small electronic repair shop to the widely recognised local brand it is today, Vincent Chew shares how it is like growing up with a legend.
WALKING into the Kollektion showroom’s designated wine and cigar room to interview Vincent Chew, group executive director of Pensonic Holdings, one might wonder at a local electrical empire this big. (Pensonic products are now exported to the Middle East and also other Asean countries.)
Vincent, the second of three sons of the founding father of Pensonic Datuk Seri Chew Weng Khak, has big shoes to fill.
I sometimes feel as though it is fated for me to be doing this, says Vincent.Besides its anchor brand Pensonic, the Pensonic Group also imports quality electrical products from all over the world like GE Appliances, Princess and Lebensstil Kollektion under the Kollektion umbrella.
“I remember being really young when my father started out 26 years ago in a small stall in Balik Pulau, Penang. Well, it’s not even a stall but a counter where he fixed electrical goods,” he reminisces.
From there the little ‘counter’ grew into a shop that sold imported electrical items. Chew had worked hard to put Pensonic up to where it is today.
“I remember playing in the shop front as we used to live above the shop. By that time, my father had already started his very own “backyard assembly line” where he had technicians producing electrical goods under the Pensonic brand,” he says.
According to Vincent, his father is also a forward thinking person.
He hired technicians to produce his own electrical goods as he knew there will be no future in his business if he kept selling products he had to buy from someone else.
“Father’s a one man show. He was the salesman, the delivery man and the technician.
There was nothing he couldn’t do,” Vincent says while agreeing that though the rise of Pensonic wasn’t a rags-to-riches story, it wasn’t without its own struggles. Everyone had to do their part and he used to help deliver cooking gas cylinders for his father to earn extra pocket money.
Fatherly advice
Quite typical of the old school of parenting, Vincent rarely spoke to his father, a stern disciplinarian, when he was a child.
“He had a fierce face and was always busy. Me and my brothers feared him to a certain extent but we have total respect for him,” says Vincent.
He also says that the brothers never really gave taking over the Pensonic empire much thought when they were in school as their father only wanted them to concentrate on their studies.
Vincent speaks fondly of the time when his father, no matter how busy, will still bring the family out over the weekends for a movie.
“Those old school cinemas with kuachi all over the floor, gum stuck under the seats and of course, back then people were still allowed to smoke in the cinema. Those were the good old days,” he laughs.
The others eventually left the country to study overseas.
Vincent studied in the US and came back to Malaysia in 1996.
“I was lucky. When I returned, the business was already up and listed. My eldest brother had already started helping out in the factory,” he recalls.
He started working in Penang for another two years and had to travel to Kuala Lumpur once or twice a month regularly.
“That was when I decided to base myself temporarily here in KL. I guess this temporary move turned permanent,” laughs Vincent.
Vincent admits that he and his siblings do seek their father’s advice most of the time when making major decisions for the company.
“We want his feedback and blessing as he is in the industry long enough. But there are times we need to persuade him to open up to new concepts and ideas,” he grins.
“The best advice he gave me are things you can never learn from books,” he shares.
“The way he dealt with customers was unique. His customers trusted him because whatever he promised, he will deliver,” Vincent says proudly.
In dad’s footsteps
Working in the company with family members might be stressful for some but for Vincent, the arrangement works.
“We take care of different departments. My eldest brother oversees the business in Penang while I’m based in KL. My youngest brother is in charge of the marketing and advertising department.”
He can’t recall thinking of doing anything else but to follow his father’s footsteps. Subconsciously this has always been the path for him even before he left the country to study in the States.
“Though my father had never pressured any of us to take over the business, I sometimes feel as though it is fated for me to be doing this,” says Vincent, who evidently has big plans for the group.
His siblings however have decided that they want to do other things and so, if things go as planned, they will hire professionals to run the business.
Being in touch
Vincent travels back to his hometown in Penang regularly to attend meetings and more importantly to see his family.
He tries to arrange his meetings on Fridays or Mondays so that he gets to spend more time with them.
He raves about Penang hawker food like any other Penang local and is a fan of Japanese and Korean cuisine. Besides working hard, Vincent also takes some time out to have some fun with his high school mates.
Though he left the country after high school, they still do keep in touch.
“With the wonders of Internet and emails, they are just an email away!,” he laughs.
These old time buddies make it a point to go for a holiday once every year.
According to Vincent, they have a savings plan for that yearly trip. Every month, everyone will bank in a set amount of money into a bank account and by the end of year their holiday is already paid for.
“We usually travel to places where we can afford to that year. Doesn’t matter if it’s local or overseas,” says Vincent whose favourite holiday destination is Tokyo, Japan.
“It really doesn’t matter where we head to, as long as we’re going there together,” he says.
Maybank records FY08 profit after tax of RM2.9 billion
- Announces holistic performance improvement programme
The Maybank Group today announced Group profit after tax and minority interest of RM2.93 billion for the financial year ended 30 June 2008, 7.9% lower than the RM3.18 billion recorded in the previous financial year.
Group pre-tax profit was also lower by 6.4% at RM4.09 billion compared with RM4.37 billion recorded in the previous financial year.
The results translate into a net return on equity of 17.3% after deducting for deferred taxation while earnings per share stood at 60.08 sen.
Dividend
The Board of Directors has proposed a final dividend of 20 sen per share less 26% income tax to be paid on 21 October 2008, bringing the dividend payout ratio for the year to 60.4% of Group net profit.
Overview of Results
Maybank Chairman Tan Sri Mohamed Basir Ahmad said the results of the Group are satisfactory given the more challenging business environment and was in line with expectations. While revenue for the period rose by 6.4% to RM16.2 billion from RM15.2 billion last year, operating profit grew marginally by 6.1% to RM5.38 billion compared with RM5.07 billion previously. This was mainly due to two factors namely the rising costs on the back of one-off staff compensation adjustments, higher marketing expenses, IT investments and the provision of RM 483.8 million for the non-refundable deposit paid for the acquisition of up to 100% equity in Sorak Financial Holdings Pte Ltd, the controlling shareholder of PT Bank Internasional Indonesia Tbk following the revocation of approval by Bank Negara Malaysia on 29 July 2008. The impact of the RM483.8 million provision is particularly mitigated by the gain on foreign exchange of RM193 million SGD funds placement in relation to the balance purchase consideration for the acquisition of Sorak.
Tan Sri Mohamed Basir said the Group decision to make the provision was consistent with Maybank’s stringent provisioning policy and prudent risk management.
Net interest income grew by RM293.9 million or 5.7% compared to the previous year. Net interest margin remained stable at 2.71% compared with 2.73% in the previous year. In particular, the deposit mix improved slightly with demand and saving deposits representing 36.3% of our total deposit base compared to 35.9% last year. Non-interest income grew by RM375.8 million, or 13.1% as a result of higher income from commissions, transactional fees and foreign exchange gains.
Income from Islamic Banking operations grew 12.5% to reach RM964.6 million from RM857.6 million previously. The Group remains a leader in Islamic banking with a 27% market share in assets, 23% in overall financing and 18.2% share in deposits.
Gross loans for the Group increased by RM23.7 billion or 16.1% for the financial year, with growth from both the consumer and business sectors.
For the Malaysian operations, overall loans growth was 12.1%. Consumer loans as a whole grew 8.8% with a 28% increase in automobile financing and 21% rise in credit card receivables. Business loans also grew by 15.3% while SME loans increased by 21%.
The Group’s investment banking business was impacted by the challenging market conditions which resulted in fewer business opportunities for the Group. In addition, the previous corresponding period had included the sum of RM52.5 million which was received for the surrender of the licence of Mayban Discount.
The insurance arm of the Group recorded an improvement in profit before tax of 18% to RM339.7 million on the back of higher investment income as well as from cost efficiency benefits arising from the merger under the Etiqa brand.
The Group’s international operations continued to record strong growth with pre-tax profit rising 18% to RM879.7 million from RM744.5 million previously, with the Singapore operations contributing 64%.
Loans growth was robust at 27%, with key contribution from the Group’s Singapore operations which saw a 32% rise, mainly owing to an increase in mortgages and automobile financing as well as construction loans. Other strong growth locations were Vietnam (which saw profit before tax quadrupled on the back of a 40% growth in loans), Philippines (profit before tax grew 174% and loans were higher at 12.3%) and London (profit before tax grew 82% and loans by 50%).
“The strong performance of our international business echoes our aspirations to become a regional financial services leader and clearly reflects the robust infrastructure that has been in place over the years for regional expansion and to compete globally,” Dato’ Sri Abdul Wahid said.
Pre-tax profit from international operations increased to over 21% of Group profit compared with about 17% last year, well ahead of the target of 20% set for international operations’ contribution to the Group by 2009/2010. Loans from international operations also increased, reaching 29% of total Group loans, from 26% previously.
Total assets of the Group increased 4.8% to RM269.1 billion compared with RM256.7 billion in June last year while total deposits from customers rose by RM23.4 billion to reach RM187.1 billion.
Group asset quality continued to improve steadily with total non-performing loans declining by RM1.79 billion to RM6.47 billion from that at 30 June 2007. The net NPL ratio of the Group as at 30 June 2008 fell to 1.92% compared with 3.03% in June 2007. Loan loss coverage rose further to 99.2% against 80.3% in June 2007. The risk weighted capital ratio of the Bank as at 30 June 2008 (after payment of dividends) stands at 12.09%.
Prospects and Strategy Forward
The prospects of rising inflation coupled with slower economic growth amid a moderation in external demand present a challenge for the banking industry in Malaysia and other regional economies where Maybank is expanding its overseas presence. However, with its well-established risk management framework and prudent business practices, the Group is expected to leverage on its strengths to cope with these challenges. By entrenching its dominant presence and working towards adding value to its overseas businesses, the Group expects to record a stable performance for the financial year 2008/2009.
To secure its leadership in this increasingly challenging and competitive environment, the Group is pleased to announce that it is embarking on a holistic performance improvement programme to realign operations, processes and people resources.
This programme is aimed at further strengthening the Group’s market position across all core business segments and to lay a strong foundation for the Group to achieve its aspiration to be a leading regional financial services company by 2015.
The Group has completed an intensive reassessment of its business and operations to identify gaps and challenges in the operating model and environment. Taking into consideration macro-economic factors such as intensifying competition, heightened customer sophistication and therefore changing operating requirements, the Group will launch a group-wide change initiative focused on 3 strategic thrusts:
1. Secure Maybank’s position as the undisputed leader in financial services in Malaysia.
2. Strengthen its regional presence through enhancing operations in 7 out of 10 Asean countries that it is already operating in while continuing to look for opportunities in lucrative growth markets in the region.
3. Maybank to become a talent and execution focused financial services organisation.
Outlining the strategic plan to the media today, Dato’ Sri Abdul Wahid Omar said, “We firmly believe that the aspiration to be a leading regional financial services group is built on the premise that you must first be the undisputed domestic leader. Maybank is Malaysia’s financial services leader and we are excited with the prospects we have ahead of us.”
“Key to our success will be our ability to move fast and turn around critical areas which need improvement and to efficiently optimize our best resources and talent to successfully deliver innovative financial solutions and service excellence to our customers,” he added.
Set to be launched in September 2008, the programme will be implemented in two horizons right up to the year 2015. In the first horizon reaching up to 2011, the focus will be on thirty initiatives touching upon all of Maybank’s major business sectors, including consumer, enterprise, Islamic and investment banking, operations and talent development.
This programme named Leap 30 will include 17 business initiatives, 6 talent initiatives and 7 enabling initiatives. The initiatives will be rolled out rapidly with results consistently tracked and measured to ensure continuous innovation and change in current practices. The business initiatives are targeted at significantly improving revenue growth in priority segments and to enhance cost and capital efficiency of the Group. In the area of human capital development, the Group has set its sights on upgrading its talent pool and continuing to strengthen its performance culture. Top priority among the enabling initiatives will be the re-emphasis on being customer focused in all areas of operations and to take customer service to a greater level of excellence.
The Group will review quarterly its progress in this initiative and report on key milestones and achievements.
27 August 2008
