MAS' $9.2 billion net loss won't crimp expenditure plans

DESPITE its conservative stance, the Monetary Authority of Singapore's (MAS) investment portfolio suffered a net loss of $9.2 billion for the fiscal year ended March, it revealed yesterday.

Like the other two managers of Government assets - Temasek Holdings and the Government of Singapore Investment Corp (GIC) - the central bank was rattled by the turbulence in the financial markets.

So heavy were its losses that they wiped out about 80 per cent of MAS' combined gains of $11.29 billion in the preceding two profitable years, said the Authority, which invests all of the official foreign reserves. "For this financial year, there will be no contribution to the Consolidated Fund, nor return of profits to the Government."

Last year, after enjoying a net profit of $7.44 billion, the statutory board ploughed 18 per cent or $1.34 billion into the Consolidated Fund, which comprises all revenues of Singapore not allocated to specific purposes by any written law; it also returned profits of $2.53 billion to the Government.

Will the MAS' non-contribution this year crimp national expenditures? When asked, a spokesperson of the Ministry of Finance said: "In estimating our revenues and planning our expenditures for FY '09, we have already taken this into account. Hence, our expenditure plans will not be affected."

Thankfully, the months since April have been rosier. "With the broad-based upturn in financial markets after the close of the financial year, the valuation of MAS' foreign assets has improved and more than half of the losses have been recovered," managing director Heng Swee Keat told the media.

"The extent of loss has been mitigated as we raised the liquidity profile of our portfolio in the early part of 2008, in the face of greater uncertainties," he added. This could have included converting investments into cash.

Arguably, the losses could have been greater if not for the MAS' investment approach: It is conservative, compared to Temasek's higher-risk-higher-return style and GIC's slightly conservative stance, Finance Minister Tharman Shanmugaratnam had said in May.

MAS, said Mr Heng, invests largely in "highly liquid assets with a large proportion in bonds, with small exposures in equities - and almost all of these are invested in developed markets in the US, Europe and Japan".

MAS bars 10 firms from selling new structured notes

THE Monetary Authority of Singapore (MAS) has barred 10 financial institutions (FIs) here which sold toxic credit notes linked to the collapsed US investment bank Lehman Brothers from selling new structured notes for between six months and a minimum of two years.

The unprecedented MAS directive followed its investigations into complaints of mis-selling of the Lehman-linked structured notes from investors in Singapore who lost money last year in the aftermath of the Lehman Brothers collapse.

The central-bank probe found the 10 FIs had in place procedures and controls for the approval and sale of the notes.

However, the level of internal controls differed. As a result, there were various forms of failings on the part of the FIs in the sale of the notes, said MAS, which released the findings of its investigations yesterday.

Some of the failings include assigning inconsistent risk ratings in sales prospectuses and pricing statements, taking insufficient steps to ensure sales staff were properly trained to sell the notes and weaknesses in how some FIs equipped staff with accurate and complete information about the products.

MAS has ordered the 10 FIs to stop selling new structured notes for periods ranging from a minimum of six months to a minimum of two years from July 1.

Hong Leong Finance received the heaviest penalty it cannot sell new structured notes for a minimum of two years.

OCBC Securities was ordered by MAS to stop using introducers to provide advice for new structured notes, for one year.

Over 10,000 people invested in products linked to Lehman, with more than $660 million invested. As of May, compensation of some $105 million was offered to investors who complained of mis-selling.