China Banks

[weijian]

Temasek has a much longer term perspective than investment banks
Even if china growth drops drastically to 6%, compared to other mature economies, even to sg, 6% is still way way ahead
On top of that valuations are very attractive. Of course this is only if u take a long term view.

Sometimes, i become quite wary when people start using words like 'long term' as the main selling point/justification for their deals.

Let's see what happened before the start of GFC2008:
In a news release, GIC's deputy chairman and executive director, Tony Tan, said the company looks for returns on a long-term basis. He believes GIC's latest Citigroup investment will meet that objective. Dr Tan said: "GIC is a financial investor seeking commercial returns on a long-term basis ... We believe that the investment in Citigroup will meet our long-term investment objective in terms of risk and return."

But, speaking at a news conference, Dr Tan, who is also Singapore Press Holdings' chairman, said GIC has confidence in UBS' wealth management business - which mainly serves global wealthy figures. He said GIC believes in the long-term prospects of the Swiss bank. Dr Tan added that GIC is very satisfied that UBS, which had asked GIC to subscribe to the issue of new capital, has taken a 'very conservative view' of its investments exposed to US sub-prime problems. GIC has no direct exposure to investment products packaged from risky US mortgages.

Senior Managing Director of Temasek, Frank Tang said, "We are pleased to have this opportunity to invest in Barclays. We look forward to supporting them in their strategy to create opportunities for a higher level of sustainable growth. This investment fits well with our interest for long-term exposure to strong players in the financial services sector."

Of course, there is a high degree of hindsight bias in my postings here. I can imagine hypothetically someone in their ivory tower will be arguing 'you need to judge our past decisions based on the proper context and information available at that point of time'. My personal opinion is that these purchases looked like great timing to outsiders (including myself in 2007/8), but unknown to those folks in their ivory towers, the insiders already knew. So the hard questions are, besides trying to raise/recycle capital for the tier1 ratio/meet new rules, are there anything else that those US banks know (and want to sell at such 'attractive' valuations) but most probably the outsiders do not? I think this is really what we can learn from history.

IIRC, the valuations at that point of time on UBS/Barclays/Citigroup purchases were also 'attractive'. The current investments in these Chinese banks are also attractive...but on what? On price/book or price/earnings? Past valuations can rapidly change to look expensive because mathematically, the denominator (book/earnings) has a greater impact on such multiples.