Thursday, 30 May 2013

Malaysia in the same category as Nigeria?

An article appeared in the NY Times: Online Currency Exchange Accused of Laundering $6 Billion.

The operators of a global currency exchange ran a $6 billion money-laundering operation online, a central hub for criminals trafficking in everything from stolen identities to child pornography, federal prosecutors in New York said on Tuesday.

The currency exchange, Liberty Reserve, operated beyond the traditional confines of United States and international banking regulations in what prosecutors called a shadowy netherworld of cyberfinance. It traded in virtual currency and provided the kind of anonymous and easily accessible banking infrastructure increasingly sought by criminal networks, law enforcement officials said.

In it the following observation:

The exchangers, the indictment said, “tended to be unlicensed money-transmitting businesses without significant government oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam.”

It is really a shame that Malaysia is named in the same sentence as a country like Nigeria with its rather infamous repuation.

The first hit that I get when I google "Liberty Reserve Malaysia" is this website.

In the top it says:

"Urgent News: Due to the closure of, we now can no longer provide exchange service for Liberty Reserve."

In the bottom however it seems to contradict itself:

"Disclaimer: is in no way affiliated nor endorsed by"

I can't seem to find Liberty Reserve on Bank Negara's website of fraude alerts.

But this blog entry seems to indicate that they were included on the list of illegal investment companies.

Malaysia really should step up hugely its efforts in enforcement.

Three articles from the "Baker Institute Blog", dealing with the issue of corruption:

What’s the problem, Malaysia?
Malaysia: At election time, corruption remains a central issue
Malaysia: Looking forward

Monday, 27 May 2013

"Handshakes" system joins the dots in the capital market

".... the executive chairman and CEO of [Singapore listed] Ocean Sky Edward Ang Boon Cheow and independent director Albert Ng Ya Ken, who sits on the audit and remuneration committees, are brothers-in-law"

One of the amazing findings of "Handshakes" (giving a new meaning to the word "independent"), a system developed by two ex-Singapore Exchange regulators that promises to bring a whole new level of transparency to the capital market in Singapore. The website can be found here, it's credo:

"From forgotten IPO prospectuses to daily announcements, Handshakes draws relationship maps that connect People, Listed Companies and Major Financial Transactions, all in one browser window."

Another example of a finding:

"Type in China Sky and Fiberchem, and one is able to find out that besides sharing the same principal banker, Quanzhou City Commercial Bank, they also shared the same audit partner from Deloitte & Touche, and that a Chinese entity - Deluxe Dragon International - which used to own Fibrechem pre-IPO and was its top 20 shareholder, ended up as a subsidiary of China Sky in 2008."

Mr Neo and Mr Poon (right) see Handshakes driving the Singapore capital market into a more advanced state than the rest of the world.

The above information comes from a frontpage article in the The Business Times (Singapore), which continues:

"Handshakes" has electronically uploaded information disclosed in some 16,000 documents going as far back to 1997. It is able to show all the past and current associations any entity or person has with others.

The idea came about while both were toiling at their jobs in SGX, trying to enforce compliance by listed companies with the listing rules. For example, they had to ensure the suitability of directors and ascertain that placements and purchases of assets to and from related parties were disclosed.

The company now has 10 people in Singapore and another 10 people in a neighbouring country [I hope Malaysia] doing the data entry. Some 700 new documents are added every day, said Mr. Neo. It adopts a maker-checker system to ensure data accuracy.

The service costs money, a simple report S$ 500 while a more extensive search may cost S$ 1,000 to S$ 2,000. Understandable, the website is run by a for-profit company. David Webb delivers a similar service free of charge, as a way to give back to society.

Hopefully regulators, researchers and journalists (both in Singapore and Malaysia) will be subscribers to this service, and many nuggets of information will be found and revealed to the public.

Sunday, 26 May 2013

AirAsia and AirAsia X

[1] AirAsia announced its quarterly results. They were not that great, but also not that bad, increased spending on fuel was a drag. Revenue was up by 11%, operating profit by only 3%. PBT was down since the previous gain on foreign exchange was this time reversed in a loss.

My worry, about which I have written before, is the very aggressive growth plans that this company has. Its capital commitments are simply unbelievable:

RM 64,829,008,000.00

As if this was not yet enough, "AirAsia still wants jets after record orders".

Simply unbelievable ....

Of course, when all goes well, this could work out very nicely for its shareholders.

But what if competition heats up (as is happening at this very moment), or a recession strikes, fuel prices / exchange rates or interest rates fluctuate wildly, the company runs into regulatory problems, etc. or a combination of these (when it rains it pours)?

The airline industry has not exactly been a bed of roses for its investors, it is a cutthroat industry where many companies having gone bankrupt.

[2] AirAsia X filed a new IPO draft document on the SC website, I wrote before about the first draft (unfortunately it has been taken of the website).

AirAsia X managed to book a profit over 2012, but only with the help of deferred tax accounting and gains on foreign exchange, without these 2012 would also have been a loss (like all previous years). To me, it completely hasn't proven its business model on the long haul flights.

Since the results of AirAsia X were not exactly rosy, the company also published its EBITDA numbers (Earnings Before Interest, Tax, Depreciation and Appreciation), showing profits every year.

Charles Munger has a very clear opinion about EBITDA:

"Every time you see the word EBITDA in a presentation, you should replace it with BULLSHIT EARNINGS, because that's what they are!"

And Warren Buffett added:

"Yeah, why not put all expenses in the footnotes and say that "sales equals profits". Depreciation is real and it's the worst kind of expense. They will, as depreciable assets, need to be replaced."

Let's take AirAsia's as an example, the yearly depreciation is about RM 600 million, interest payments about RM 400 million, for a total of more than RM 1 billion. Not counting these huge amounts, well, let's say I full agree with what Munger said.

EBITDA is one of those financial engineering inventions from the US that better is left alone.

[3] On a side note, AirAsia X's CEO Azran Osman Rani spoke out (or rather: twittered) against racism, for which he ran into troubles. Needless to say, what he did was excellent, and it is a pity not more Malaysian VIPs speak out on important, national issues like racism, corruption and cronyism, controlled mainstream media, the persistent budget deficit, etc..

Saturday, 18 May 2013

Court acquits Genneva directors

I was rather surprised when I read this article on Malaysian Insider's website:

Four gold traders from Genneva Sdn Bhd walked free today after being acquitted of 224 counts of money laundering and illegal deposit-taking said to be worth over RM141 million.

Sessions Court judge Rozana Ali Yusof ruled that the accused — directors Datuk Ng Poh Weng, 63, Datuk Marcus Yee Yuen Seng, 61, Datuk Chin Wai Leong, 37, and former director Liew Chee Wah, 59 — had conducted a genuine gold trading business.
According to The Star Online, the judge said the buy-back concept was found to be nothing but a marketing strategy employed by the company to assure the buyer that the gold bars were genuine gold.

“That is why Genneva is willing to buy back the gold,” Rozana was quoted as saying in her judgment.

According to this article Bank Negara Malaysia will file a notice of appeal.

I wrote about Genneva before.

Next to the court case against Genneva Sdn Bhd there is the case against Genneva Malaysia Sdn Bhd by Bank Negara, the investigation in Singapore against Genneva Pte Ltd by the CAD, and the cases by private investors both in Malaysia and Singapore. It is far from over.

As most people will have noticed, the price of gold has suddenly collapsed in April.

Genneva's operations in Malaysia were already discontinued, what would otherwise have happened? Would investors have returned their gold for Genneva to redeem? And would Genneva have been able to do so?

Wednesday, 15 May 2013

Andreessen: "We've Ruined The Public Markets"

Don't expect a game-changing tech initial public offering anytime soon. Private tech companies are steering clear of going public as long as they can manage, said Marc Andreessen, the co-founder of the venture capital firm Andreessen Horowitz, on CNBC's "Closing Bell" Monday.

"When you say, 'what's the next big IPO?' the brutal truth is I don't know and I'm not sure there is going to be one for quite a while because the incentives are so strong to keep these companies private," Andreessen said.

The hangover felt from the dot-com crash and financial crisis has spurred an era of over-regulation in the public markets which has essentially caused a backlash from private companies that are refusing to go public, Andreessen said.

Emerging entrepreneurs see the public markets as "incredibly hostile," he said.

"The new running theory among new entrepreneurs is never take your company public or don't do it as long as you possibly can," Andreessen said.

Above is from an article on Business Insider. Andreessen is a highly regarded player in the VC (Venture Capital) industry, he knows what he is talking about. The above applies to the US market.

I am a great believer in capital markets, but things must make sense. There should not be over-regulation, but simple, clear rules which are enforced in a strict, fast and transparent way. The cost to list and to stay listed should be minimal. Exchanges should be non-profit organisations. All intended to encourage companies to list, using public money to grow further. IPO valuation should be reasonable, investors should be rewarded for taking on risk. All parties involved (founders, initial backers, public investors, regulators) should play their part in this eco-system. Financial engineering should be brought back to an absolute minimum.

More quotes from Andreessen:

While there were about 8,800 public companies in 1997, there were about 4,100 publicly-traded companies in 2012, a decline that can be attributed to a war being waged on the public markets via regulations like Sarbanes-Oxley and Regulation FD, which were put in place to help de-risk the market. But these regulations do more harm than good, Andreessen said.

"We seem to have collectively decided as a society that we want to strip risks out of the public markets, so we had the dot-com crash, we had the financial crisis, and we decided that we don't like risk anymore," he said. "So there have been a series of regulatory reforms, a series of corporate governance movements, and the result has been a huge disincentive for companies to go public, and of course the problem with that is if new companies don't go public then you get exactly what we are seeing, which is the number of public companies falling."

Because the number of public companies is falling, growth is being stripped out of the public markets, which will ultimately pave the way for a two-tiered system, he said.

"If you kill risk, you kill growth. If you kill growth you kill returns. And as a result the market is becoming a two-tiered system and I think that is bad," he said. "Funds like ours—that primarily represent, frankly, rich people, rich people's pensions, rich people's colleges and foreign countries' sovereign wealth funds—generally, are doing fine."

However, he said that on the public side, growth is being drained out of the market, and that could hurt many Americans in the long-term.

"Of course the public market is where most ordinary Americans retirement savings is held in the form of mutual funds and pension funds and if we keep with this approach of over regulation in the public markets, we're not going to have returns for peoples' retirement accounts, which means people aren't going to be able to retire," he said. "And I think that is going to be the big problem that comes out of that and I think that's where we are heading straight towards that right now."

Tuesday, 14 May 2013

Poker star Phil Ivey sues a Genting owned casino for RM 36 million (2)

I blogged before about the court case between poker star Phil Ivey and the Crockfords casino in London, owned by Genting.

The DailyMail published an article what might have happened at the playing tables, see below.

The main question is: did Ivey do anything illegal? If not, should he not be entitled to his winnings? Is it not the responsibility of the casino to check the quality of its cards and the way its procedures are executed?

One of the world’s top gamblers won £7.8 million in a game of chance by ‘reading’ the backs of the cards, claim the owners of Britain’s oldest casino, who are refusing to pay out.

Phil Ivey, dubbed ‘the Tiger Woods of poker’, is understood to have exploited tiny flaws in the card design during a game of punto banco, a type of baccarat based purely on luck.

He insists he did nothing illegal, however, and is suing Mayfair club Crockfords in the High Court in what is expected to be the biggest legal battle in casino history.

The Mail on Sunday, which revealed last October that Mr Ivey’s winnings had been withheld, understands the cards were flawed because of a mistake during the cutting
process at an overseas manufacturing plant.

Crucially, it meant their geometric pattern was not symmetrical, though this would not have been noticeable to the untrained eye.

Cards should look exactly the same if turned 180 degrees. If they do not, it allows so-called advantage players to use a system known as ‘playing the turn’.

Saturday, 11 May 2013

The return of IOI Properties

The following article is from The Star: "The return of IOI Properties".

Some excerpts:
  • “People associate Lee Shin Cheng as a planter. They have forgotten that he is an equally good property developer as seen from IOI Properties' track record before its delisting.
  • “IOI is the sort of company that big money and institutions will be attracted to,” says one fund manager who used to invest in IOI Properties.
  • Prior to IOI Properties' delisting in 2009, it was the biggest property company in terms of profitability.
  • Even now under parent IOI Corp, IOI Properties is the second largest company in terms of operating profitability after SP Setia Bhd. As of its financial year ended June 30, 2012, IOI Properties recorded an operating profit of RM506.3mil.
  • “The listing of IOI Properties will certainly be interesting. It is one of the biggest property companies in Malaysia and now has a track record in China. As we all know, the China market is never easy to penetrate,” said Etiqa Insurance & Takaful Bhd's Head of Research Chris Eng.

This all sounds very good indeed, surely Malaysia would be proud to have this company listed on Bursa?

But this very same company was actually listed on the very same Bursa, only four years ago. And it was taken private at an extremely low valuation, in the midst of the global crisis.

"Where is Ze Moola" has written many times about this issue.

This is what Gerald Ambrose, fund manager of highly regarded Aberdeen Asset Management remarks:
  • ...IOI Properties was an excellent property developer while IOI Corp Bhd was an outstanding upstream and downstream oil palm player.
  • “For sure, the company has got the track record and excellent management skills. At Aberdeen, we are long term holders with an investment horizon of 8 to 10 years. We used to be a shareholder of IOI Properties before its privatisation in 2009.
  • We were very disappointed when we had to sell the stock because we considered the privatisation price of 0.66 times to its net tangible asset as greatly undervalued. We hope that this will not happen again,”

Here is the (rather shocking) share graph from Ze Moola's website:

Bursa Malaysia's stand in this matter:

At the AGM, a shareholder also asked what Bursa's role was following an  increasing trend of listed companies being taken private, wiping billions off the exchange. And after several years, these companies got relisted.

"When [privatisation and relisting of the same companies] happens, I think someone is making money but not us shareholders," remarked the shareholder.

To that question, Tajuddin responded: "Bursa has engaged with its stakeholders on this. The conclusion was that these corporate exercises were business decisions .

That sounds like a very unsatisfactory answer. Who were those "stakeholders", where they major shareholders, brokers, lawyers, financial advisers and the like, the usual mix of insiders who only profit from these exercises? Or did they also include retail investors and fund managers like Aberdeen, who are on the receiving end of the stick?

Bursa Malaysia should urgently look into the unfair advantage that majority shareholders have, using the "listing-delisting-relisting game" to book large profits at the expense of the minority investors. It is long overdue. To simply conclude that these are "business decisions" will not do.

Bursa needs to come with an answer on Ambrose's statement "We hope this will not happen again" with which we very much agree, not only regarding IOI Properties, but any listed company on Bursa.

Friday, 10 May 2013

Bina Puri admitted its intention to secure contracts by paying bribes (2)

It seems that the Malaysian mainstream news providers have not yet picked up on the story, but in Singapore they did.

From the Singapore Law Watch website, source Straits Times, written by K.C. Vijayan (bold emphasis is mine):

Firm fails to collect $4.6m from client

A Singapore firm's court bid to collect a $4.6 million commission from a client failed after the judge found the deal had been tainted by intentions of graft.

The High Court found that Singapore-based ANC Holdings and Kuala Lumpur-based Bina Puri Holdings had intended to pay bribes to third parties in Saudi Arabia in order to secure two construction contracts worth $93 million.

The intention to bribe, which appeared to have been factored into the commission amount to be paid to ANC, effectively nullified the contract for ANC to help Bina secure the Saudi projects in return for the commission.

The judge made it clear the court was duty-bound to take into account evidence of illegal action and declined to uphold the contract on such grounds.

Judicial Commissioner Vinodh Coomaraswamy, in his judgment grounds released yesterday, said there was no finding that bribes were actually paid to secure the projects. "I cannot and do not make any findings as to whether bribery actually took place. I am in no position to do so," he said.

However, "it is a serious thing to admit an intention to secure contracts by paying bribes. It is especially serious - legally and reputationally - for a public listed company to do so", he added.

Bina Puri Holdings is listed on the Kuala Lumpur bourse and deals in construction and property development, among other things. ANC had contracted to help its subsidiary in Saudi Arabia secure the housing projects, which Bina Puri Saudi won in January 2011. But the Saudi housing authorities cancelled the contracts three months later, after Bina Puri Saudi failed to pay performance guarantee deposits worth 5 per cent of the projects' value.

ANC then sued Bina for its 5 per cent commission on the grounds that it had effectively secured the job for the Malaysian company. ANC's lawyer P. Ashokan argued it had alerted Bina to the pro-jects in Saudi Arabia and advised Bina's Saudi subsidiary on how to price its bids, making ANC the effective cause through which Bina got the contracts.

But Bina's lawyer Chia Foon Yeow countered that the firm had known of the projects independently and the successful pricing had been worked out with a Saudi contractor without ANC's help.

Judicial Commissioner Vinodh agreed that the evidence did not favour ANC's claim of having provided material assistance. But it was the allegations of bribery that finally unpicked the case.

The claims were triggered at first by Mr Chia's examination of an ANC witness which Mr Ashokan objected to. But in his own questioning of Bina's witnesses, it emerged, among other things, that some of the commission was meant for use as bribe payments with Bina's knowledge.

ANC's witnesses claimed the payouts to persons in Saudi Arabia were for market intelligence on relevant issues such as pricing strategy.

The judge discounted the claims, noting that 60 per cent of the $4.6 million commission was to go to Saudi third parties. He noted the commission in the agreement was 2.5 times the 2 per cent sum reasonably expected for such tender projects. "And this serves to reinforce my belief that the common intention from the outset was for (ANC) to use bribery to ensure Bina Puri Saudi secured the projects."

The judge dismissed the case and ordered both parties to bear their own costs.

Bina Puri did make today an announcement to Bursa Malaysia. Not about the High Court findings in Singapore nor about the intention to bribe which it admitted, but about a huge (30%) private placement which will very much dilute its existing shareholders. And that while a previous private placement had just taken place.

Bina Puri's accounts over 2012 were not qualified, but there was an "Emphasis of Matter" regarding the amount of RM 17 million owing by an associate which has been long outstanding, which is a clear red flag.

Bina Puri is allegedly linked to Syed Mokhtar. However, the following quote is from his biography:

He also answered the issue of the shareholding structure of his companies that could not be traced to him, acknowledging “it is an old habit that has to change.”

Where is Ze Moola has written several articles about Bina Puri.

Thursday, 9 May 2013

Bina Puri admitted its intention to secure contracts by paying bribes

It is not often that a listed company admits being involved with bribery, but Bina Puri Holdings Bhd seems to have done exactly that.

In a court case in Singapore between ANC Holdings (plaintiff) and Bina Puri (defendant) a sum of S$ 4.6 million (more than RM 11 million) was claimed being 5% of the total value of a project in Saudi Arabia. The plaintiff claimed it fulfilled its obligations.

I recommend the readers to read the whole document. The word "bribe" is mentioned 82 times.

"The defendant's witnesses gave evidence that it had been the joint intention of both the plaintiff and the defendant in entering the agreement that the plaintiff's assistance to the defendant's subsidiary would consist of paying bribes to secure the projects."

" ..... it is a serious thing to admit an intention to secure contracts by paying bribes. It is especially serious - legally and reputationally - for a public listed company to do to." (page 72)

"I am satisfied that the parties' common intention in entering into the Agreement was that the plaintiff would procure the Projects for Bina Puri Saudi by paying bribes."

"... the result is that the plaintiff cannot enforce any claim under the agreement."

"I therefore dismiss the plaintiff's claim."

"I decline to award the defendant any cost in the present action. When the parties are in pari delicto - as they are here - the parties' losses lie where they fall." (in pari delicto: in equal fault)

Bina Puri has just filed its annual audited accounts 2012. The following paragraphs deal with the above court case, without mentioning about the bribes:

It will be interesting to see how the top management of the company will deal with the above case. Will the Malaysian authorities take any action?

Wednesday, 8 May 2013

From "not fair but reasonable" to "only partially free and not fair"

Many people wrote about the "not fair but reasonable" judgement, used so often these days by independent advisers regarding corporate exercises.

The Institute for Democracy and Economic Affairs (IDEAS) has issued a report about GE13, titled "was GE13 free and fair?". The report is 124 pages long (apparently Malaysians really like long reports!), and issued today, quite soon after GE13 has ended. Its conclusion is "we conclude that GE13 was only partially free and not fair".

So there we go again, although the words used are different, the one thing in common are the words "not fair". Probably quite typical, since (unfortunately) Malaysia is not a very fair country. Most likely (partially) caused by the fact that Malaysia has the highest score on the Power Index in the world:

The PDI measures the distribution of power and wealth between people in a nation, business and culture, and seeks to demonstrate the extent to which subordinates or ordinary citizens submit to authority.

Returning back to the IDEAS report about the GE13, the eight reasons given were:

(1) The media was heavily biased in favour of Barisan Nasional. State-funded media platforms have been abused to project partisan views to the public;

(2) There were doubts about the EC’s impartiality and competency despite their many efforts to improve the electoral system. They were seen as being part of an already biased civil service. The fact that EC members repeatedly issued statements that could be construed as partisan did not help. Their defensiveness when criticised further angered the public;

(3) Trust in the integrity of the electoral roll is low. This resulted in the public being very cautious when there were reports of foreigners being flown in, when they saw foreign-looking individuals, or when the indelible ink was seen as ineffective;

(4) The Registrar of Societies did not treat all political parties equally, delaying the registration process of non-BN parties;

(5) Constituency sizes are too unequal, allowing parties that win many smaller seats to win parliament, despite not commanding popular support;

(6) Financing of political parties is not transparent, resulting in a big lack of clarity about the financial standing of the competing parties;

(7) During the campaigning period, government and armed forces facilities were repeatedly used for campaigning purposes during the official campaign period;

(8) Racial issues were dangerously exploited for political gains. There were many instances of BN fishing for votes by sowing mistrust between the Chinese and Malay communities.

Some of the above issues were acknowledged in the excellent article in The Edge, "Malaysia at Crossroads".

For more background in the Malaysian elections, I strongly recommend the articles from Bridget Welsh, especially "Disturbing questions surrounding GE13 polling".

We definitely hope Malaysia can move forward and improve a lot on all the issues raised.

Poker star Phil Ivey sues a Genting owned casino for RM 36 million

Poker champion Phil Ivey is going all-in to get back his disputed winnings at Crockfords casino in London.

Ivey is suing the casino for $12.1 million, the amount he won playing Punto Banco at the exclusive gambling club in August 2012.

Ivey's legal team filed Tuesday at the High Court in London, according to a press release from his representatives. Ivey said in the release that he was given a receipt for his winnings, but that they were never delivered. “I am deeply saddened that Crockfords has left me no alternative but to proceed with legal action," he said.

The matter drew much attention last summer when the high-rolling Ivey began playing Punto Banco, a baccarat variation that relies on luck, and fell $800,000 in the hole at Crockfords, which is owned by Malaysia-based Genting Group. But he and a female companion launched an impressive run over the next two nights to build their profit to a then-reported $11.7 million, apparently arousing the suspicions of the casino management. Investigators reportedly interviewed employees who worked during the run and examined surveillance video and the cards.

But the casino has never publicly accused Ivey of any impropriety, telling the press it wants to keep the matter private.

Ivey, 36, has won nine World Series of Poker Championship bracelets.

UPDATE: Crockfords released the following statement to The Huffington Post through a spokeswoman:

In line with our customer privacy policy we do not comment on matters involving individual members. However in this rare instance we are able to confirm that our position, which is supported by strong legal advice, has been made very clear to Mr Ivey’s solicitors from the start. We shall be filing our defence shortly and defending this claim vigorously.

The above article is from Huffington Post. The amount involved is quite substantial, even for a large organisation as Genting. Phil Ivey is a well respected poker player and if Crockfords had any indication there was cheating involved surely they would have notified the police. It will be interesting to follow the developments, in the court case both sides have to reveal what exactly was going on.

Tuesday, 7 May 2013

How Singapore's currency club fell apart

Article on the website from The Star, written by Reuters. Some snippets:

Mukesh Kumar Chhaganlal said he tried to warn his manager at UBS AG about the "increasingly unrealistic" currency rates being set last year for the Indonesian rupiah against the dollar.

Mukesh's battle with the Swiss bank is part of a broader story about how a clubby, foreign exchange trading community was torn apart in a rate-fixing manipulation probe in Southeast Asia's financial hub.

Singapore's NDF market increasingly rankled central banks in the region, who loathed the idea that a handful of foreign bankers could undermine their exchange rate regimes by creating alternative offshore markets.

Reuters revealed in January those reviews had found evidence in electronic messaging conversations that traders from different banks were colluding with each other to set NDF rates to benefit their trading books rather than reflecting market conditions.

People with direct knowledge of the matter say that process has led to the decimation of a once robust community of NDF and interest rate traders. At least 50 were suspended by their banks at one point - around half the Singapore market - though some have since been allowed to return to work, they said. The rest were fired or left voluntarily.

For more than a decade, many of these traders, operating with scant oversight or regulation, tried to help each other make money by manipulating the currency rates submitted to a Singapore bank panel, according to interviews with participants.

"The NDF market grew very quickly," a former trader said. "Guys became head of desk when they were still pretty young." As volumes grew, so did compensation, as traders were typically allowed to keep a percentage of their gains as an annual bonus.

"It was like a rigged dice game, where the traders were changing the numbers on the dice when no-one was looking," said a former foreign exchange dealer.

I wrote before about the shocking behaviour of banks relating to the LIBOR scandal.

Friday, 3 May 2013

Protasco: a sliver of information

I wrote before about Protasco.

It has been very quiet regarding "Protasco's Puzzling Purchase", announced in December 2012, despite an interview in which the MD said that an announcement would be made in the middle of March.

The company announced recently its audited accounts and in it can be found a sliver of information regarding the oil & gas acquisition:

At least now we know what the securities are that are held in trust against the RM 50 million deposit: PT Inovisi Infracom TBK (a company with several directors linked to Malaysian companies). If that gives enough assurance to the shareholders of Protasco is up to them to decide. A small drop in value of the shares of PT Inovisi Infracom TBK or of the Indonesian Rupee and the collateral could be worth less than the RM 50 million deposit.

I am still quite baffled why the RM 50 million itself is not held in trust, the only reason I can come up with is that the money is actually being used for an undisclosed purpose.

We have to wait patiently for further announcements in this rather intriguing case.

Wednesday, 1 May 2013

A comic book makes the case for Loews (amended version)

(Amended version, comments added in red at the end of the article)

Loews, a holding company based in the US, has done pretty well over the years. However, investors in general don't like holding companies much, the story is just not sexy. Often holding companies are trading at a discount compared to the sum of the value of the subsidiaries.

Therefore the CEO, Jim Tisch, suggested to use a comic book to teach potential investors about the value of the company.

The book is called "Lotta Value: Investment Hunter", and can be downloaded here.

Not everyone is that positive about the idea of using a comic book, an extract of Bloomberg can be found here:

One critic says that the comic “just looks dead. And the content is about as interesting as reading the ingredients on a processed food label.”

I am not that negative, but more interesting than the comic is the value investing story of this company, which can be found here.

A return of 15.5% over 50 years means that if someone would have invested $ 1,000 50 years ago then one would now be sitting on a capital worth of about $ 1,300,000 while the same amount invested in the S&P 500 would only have yielded $ 22,500, quite a difference.

RG commented: "As far as I understand, the S&P 500 historically returns approximately 8%-10% pa. So I wonder how the figure of $22,500 was arrived at over 50 years."

And RG is right, so it seems, based on this calculator. The difference in the 50 year annual return between 6.4% and 9.7% is the difference between price (without dividends) and price (dividends reinvested).

I think it is more fair to compare returns based on dividends reinvested. However, I am not sure if Loews' return includes dividends reinvested, if not then the real return would even be higher.

The calculator from the above website goes back as far as 1871. Annual returns are 4.2% (price excluding dividends) and 8.9% (dividends reinvested), giving prominence to the importance of dividends. Adjusted for inflation the difference is even larger, 2.0% and 6.7%.

The 10 year return for the S&P 500 is 5.7% resp. 7.8%, but the 13 year return is only 0.5% resp. 2.3%, stressing the importance of choosing a starting point for comparison wisely. I prefer to measure over a period as long as possible.

PERMANDU (the performance management delivery unit from the Malaysian government) compares its performance starting in 2009, but that is in the midst of the global recession. If I use Jan 2009 as a starting point for the S&P 500 then the returns become 14.8% and 17.2%, unrealistic high annual scores, about 10% higher than the averages, caused by exceptional circumstances. PERMANDU should acknowledge the importance of the starting point for its measurements, and warn the public that returns in the future (most likely) will not continue to be so good.