Temasek And A Black Hole Named Merrill

From CNN Money:

More pain for Merrill Lynch
Wall Street firm's quarterly loss is even wider than expected after billion in writedowns, and it plans to cut 4,000 jobs.
By Tami Luhby

April 17, 2008: 7:04 AM EDT

NEW YORK (CNNMoney.com) -- The pain isn't over for Merrill Lynch & Co.

The investment bank Thursday missed even the drastically lowered estimates for its first-quarter results, reporting a net loss of $1.96 billion, or $2.19 per diluted share.

The company also plans to cut about 4,000 jobs, or about 10% of its workforce, excluding financial advisers and investment associates. It will focus the reductions in its global markets and investment banking division.

Net revenue was $2.9 billion, down 69% from the prior-year period, primarily due to net writedowns totaling $1.5 billion related to asset-backed securities and a downward adjustment of $3 billion related to hedges with financial guarantors.

"Despite this quarter's loss, Merrill Lynch's underlying businesses produced solid results in a difficult market environment," said John A. Thain, chief executive officer, who said the bank remained well-capitalized.

Analysts had projected a $1.99 per share loss on a net loss of $1.4 billion and revenue of $3.7 billion.

Wall Street was prepared for horrendous earnings from Merrill Lynch (MER, Fortune 500). Analysts were almost tripping over themselves to cut profit estimates and enlarge writedowns, suspecting the value of the company's assets had fallen steeply in recent months. Only a month ago, analysts were predicting profit of 48 cents per share. At the start of 2008, the consensus estimate was $1.52 per share.

"Unfortunately, Merrill has significant balance sheet exposures in many of the asset classes that experienced continued pricing pressure in [the first quarter]," wrote Jeff Harte in an April 2 note.

.... Merrill Lynch raised $12.8 billion in capital during the past two quarters and Chief Executive John Thain has said he doesn't plan to raise any more.

Early last year, I came close to accepting a job at Merrill Lynch. It was quite tempting, not only because Merrill Lynch was a brand name organisation then, but also because the job was in a rapidly growing sector - commodities.

The commodities space is still hot - in fact, it's arguably the only thing that's still hot in the financial world. It's not just the usual oil, gas and gold stories - now, even plain old rice has become a hot commodity.

Merrill Lynch is, however, no longer a brand name. Instead, among all the investment banks in the world, it's probably the one that was hardest-hit in the US subprime crisis. Merrill Lynch will take a long time to recover from this mess, if it ever does.

Oh well. Just as well I didn't join Merrill.

It's barely been 4 months since Temasek started buying into Merrill Lynch, and Temasek is already sitting on paper losses of more than half a billion USD dollars. Citizens, are you worried for Singapore yet?

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More on Town Councils & Their Sinking Funds

I just received an email from an SPH journalist who wished to interview me about town councils and their gigantic sinking funds.

She says that her likely angle will be about netizens expressing their unhappiness about how town councils are using the conservancy and service charges paid by Singaporeans.

I still do interviews with non-mainstream publications, academic researchers, foreign university students etc. But it has been my personal policy for quite some time now to avoid contact with the mainstream media. So I will decline this interview.

However, if any of you netizens out there feel strongly about this matter and are interested in speaking to this journalist, please email me (soknenk@gmail.com) or leave your contact details in the comment section below. And I will ask the journalist if she would be interested in getting in touch with you.

A reader by the name of Coder had earlier left many detailed comments on my town council post and has obviously done some good research into the matter. Coder, it might be particularly interesting for you to speak to the SPH journalist - do consider.

And thanks for your earlier comments.

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Learn, People, Learn.

The Straits Times has an article today about religious charities. It sounds like some churches have been busy trying to avoid being supervised by the Commissioner of Charities under the standard rules applicable to all charities.

ST Oct 5, 2007
No separate watchdog for religious charities
They'll come under office of Commissioner of Charities, but their 'special nature' will be taken into account
By Theresa Tan

SOME churches have urged the Charity Council to let them be governed separately from secular charities, but the council is standing firm.

It told The Straits Times there is 'no need' for a separate administrator to regulate religious charities.

Instead, churches and temples will still come under the Commissioner of Charities (COC) office, said the council, which advises the commissioner.

This is the strongest indication yet that all charities - secular and spiritual - will have to follow a new draft Code of Governance for charities to improve the way they are run.

While the code is not mandatory, charities which do not comply with its guidelines will have to explain why.

It is believed a number of churches expressed concern to the council when asked for feedback on the code. Some points raised were that:

* As spiritual leaders of the church, clergy cannot be excluded from the governing board. The code demands separation of the governing board and management staff, to ensure proper oversight of the charity.

* Rules on fund raising should not apply to churches. This is because church members give voluntarily as part of their religious beliefs and churches say they do not solicit from the public.

After the NKF scandal, I am suspicious of such arguments. The above article instantly reminded of past events such as this one:

Florida priests 'embezzled $8.6m from parishioners'
By Andrew Gumbel

Two Catholic priests in Florida stand accused of embezzling $8.6m (pounds 4.6m) from their parishioners over a 42-year period and spending the money on holiday houses, luxury travel, gambling in Las Vegas casinos and secret girlfriends.

The scandal, at St Vincent Ferrer Church, in Delray Beach, north of Miami, cast yet another embarrassing spotlight on a Catholic diocese that recently lost two bishops to child sex abuse scandals.

According to police who investigated the suspect finances at St Vincent Ferrer for more than a year, Fathers John Skehan and Francis Guinan acted as "professional money launderers" who took money from the collection plate and set up a network of slush-fund bank accounts to which only they had access.

Fr Skehan, 79, was a highly regarded priest whose congregation included many prominent politicians and public figures in southern Palm Beach County. According to the police, however, he also used laundered money to buy himself a condominium near Delray Beach, a cottage on the Cliffs of Moher in Ireland and a pub in Kilkenny, where he was born. The police complaint says Fr Skehan spent $134,075 in church money on a woman described as his girlfriend, another $11,688 on family members, and more than a $250,000 on himself - for car payments, dental work, property taxes and housing fees, and credit card payments.

Fr Guinan, 63, a longtime friend of Fr Skehan who took over the parish in 2003, owns a string of properties in the area. The complaint said he was a gambler who spent lavishly in casinos in Las Vegas and the Bahamas. He was also alleged to have made cash payments to his secret lover, who once worked as a bookkeeper at his old parish of St Patrick's in Palm Beach Gardens, and to have contributed more than $7,000 to the cost of the woman's son's education. He, too, racked up impressive dental bills. The complaint said he spent $15,000 of illicit funds on his teeth.

Suppose Father John Skehan now said: "As a spiritual leader of the church, I cannot be excluded from the governing board. I must be on the governing board and also part of management staff. Screw any potential conflict of interest." How would you feel?

Suppose Father Guinan now said, "Rules on fund raising should not apply to me. This is because church members give voluntarily to my church as part of their religious beliefs and I do not solicit from the public". What would you say?

Learn, people. Learn.

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The NKF Story Goes On

In the comment section of a recent post, I was discussing the duties of directors. Being honest is not enough to escape all potential liability under the law.

For example, a director could be honest and yet lazy and incompetent, and thereby endanger the interests of shareholders. Directors have the duty to exercise reasonable diligence to ensure that the company is properly run.

This article illustrates my point. Understand now, Boon?

ST May 17, 2007
Two ex-NKF directors fined $5,000 each for failing in their duties
By Chong Chee Kin

RICHARD Yong and Loo Say San yesterday became the first of the former National Kidney Foundation (NKF) board members to be convicted on criminal charges, though both men avoided jail terms.

After a trial lasting 13 days, Yong, 65, and Loo, 58, were each fined the maximum $5,000 after a district court found them guilty of failing in their duties while they were directors of the charity.

They could have been jailed for up to one year.

Yong and Loo were charged in March with causing the charity to make excessive payments to software company Forte Systems Inc over a botched and incomplete project for the charity.

Yesterday, a district court found the two men failed to exercise due diligence over the deal.

Yong was NKF chairman at the time, while Loo was the treasurer.

The case centred on a deal between NKF and Forte - a company owned by Mr Pharis Aboobacker, a close friend of former NKF CEO T.T. Durai - to upgrade the charity's computer system.

Forte failed to deliver the software, but still demanded $2.6 million in payment.

Yong and Loo made a counter-proposal and paid the company $1.3 million.

Ruling that both men had been negligent, District Judge Jasvender Kaur spelt out clearly what was expected of company directors:

'Directors must not only act honestly, but also exercise reasonable diligence ... directors also have a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's affairs to enable them properly to discharge their duties as directors...'

She added: 'In this day and age, the demands made of directors are more exacting and the community has come to expect more from them.'

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