Temasek: Where things can go wrong.

[Confuseous]

Credit Suisse analyst Sanjay Jain said in a report last week that he thinks that up to 12% of all of China’s outstanding loans may go bad and non-performing loans may likely account for all of the banks’ equity. Current NPL ratios hover at around 1% or the top Chinese banks.

Ops a daisy. As Temasek has major (and so far very profitable) stakes in two of China’s top four bank, Bank of China (4%) and Construction Bank of China (7%), predictions such as this (and Credit Suisse is not alone, just the latest and most pessimistic) should worry S’poreans.

As Temasek got the initial substantial stakes at bargain prices (courtesy of the Chinese government), selling part or all these stakes requires Chinese approval. At a time when the Chinese government is supporting the shares of the major four banks, such approval is unlikely.

Not another debacle like Shin, ABC Learning, Merrill Lynch or Barclays in the making?

- http://atans1.wordpress.com/2011/10/19/temasek-where-things-can-go-wrong/

 

[borom]

October 20, 2011, 5:00 am
Huntsman’s Warning on ‘Too Big to Fail’

By SIMON JOHNSON(.. former chief economist at the International Monetary Fund....co-author of “13 Bankers.”)


The idea that big banks damage the broader economy has considerable resonance on the intellectual right. Thomas Hoenig, the recently retired president of the Federal Reserve Bank of Kansas City, has been our clearest official voice on this topic. And Eugene Fama, father of the efficient markets view of finance, said on CNBC last year that having banks that are “too big to fail” is “perverting activities and incentives” in financial markets — giving big financial firms “a license to increase risk; where the taxpayers will bear the downside and firms will bear the upside.”
.......................“too big to fail” “is not capitalism; capitalism says — you perform poorly, you fail.”

“Too big to fail” is not a market-based concept; it’s a government subsidy scheme — of the most inefficient and dangerous kind....................

Mr. Huntsman’s position is in alignment with the strongest possible technical thinking, but he has also found a direct and easy way to communicate the right political message. Higher capital requirements for big banks are a great idea; they should help prevent financial disaster. But when such disaster occurs, we need financial institutions that can actually fail — with losses to creditors — without bringing down the entire system. Anything “too big to fail” is simply too big..............

Mr. Huntsman has joined the dots. There are various ways to directly address and remove the implicit subsidies that the largest banks receive. Bloated size and excessive leverage can be effectively taxed. As he said:


Eliminating subsidies would encourage the affected institutions to downsize by selling off certain operations or face having to pay the real costs of bailouts. We need banks that are small and simple enough to fail, not financial public utilities.Fifth, the euro zone is on the verge of calamity in large part because its members built very large banks with huge implicit subsidies, and this facilitated an irresponsible accumulation of public sector debt.................

http://economix.blogs.nytimes.com/2...g-on-too-big-to-fail/?partner=rss&emc=rss

Whilst Temasek is still in love with the ideas of big "world class" banks(eventhough thousands of jobs were lost due to bank mergers in Singapore and billions lost in failed investments), more and more are seeing the folly.