Asian bank threat to Basel III

11/10/2012 | Elliot Wilson

Asian banks are meeting informally, seeking to decide whether to adjust the Basel III rules

Many of Asia’s leading banks are expected to meet today in Tokyo behind closed doors to decide whether to accept – or potentially reject – controversial financial regulations set to come into effect on the first day of 2013.

The heads of several leading Asian lenders, including Nazir Razak, group chief executive at Kuala Lumpur-based CIMB Group, are set to convene today in an informal closed-door session to discuss the Basel III rules, chaired by Andrew Sheng, president of Hong Kong-based, Asia-focused consultancy, the Fung Global Institute.

Although it is an informal meeting designed to gauge opinion among Asian leaders and regional financial regulators about the new rules, all the major Asian banks will be there, Razak said. “The subject is whether to agree to form a consensus view on Basel III, and whether to draw up recommendations to present to our regulators back home. We have to decide whether to adjust Basel III rules, or just tweak them.”

Razak’s comments mark the first time a senior financial figure has expressed public disquiet over the incoming regulations, drawn up in the wake of the 2008-2009 financial crisis in an effort to create minimum standards of bank liquidity and place a cap on liquidity levels.

He said it was too early to describe the meeting as concrete evidence of a rift between emerging and developed markets, but said all of the lenders meeting today in Tokyo were “growing increasingly and collectively concerned” over the rules, adding: “It makes sense to act collectively rather than individually over this matter.”

Among the banks meeting in Tokyo on Friday are believed to be Sumitomo Mitsui and Mizuho Bank of Japan, CIMB’s Malaysia peer Maybank, KB Kookmin Bank of Korea, and Singapore-based DBS.

Today’s meeting had its roots in an informal chat that took place in Singapore on 23 September during the Formula One motor race. “Lots of bankers got together then and there and decided to do something,” Razak says. “We all agreed to take the matter further in Tokyo this week.”

News of the meeting quietly spread throughout southeast and northeast Asia. Iwan Azis, head of the Office of Regional Economic Integration at the Asian Development Bank, heard about the gossip in Jakarta, where the news gained quiet but firm approval, he says, among smaller Indonesian lenders, along with the country’s financial regulators.

“The smaller Indonesian banks for instance are not happy about [Basel III] at all,” Azis said. “You didn’t hear them complain before, but the time is fast approaching where they have to impose these rules, and they are worried. If you are a bank with a lower rating, somewhere in the ‘Bs’, you are going to have to raise your capital adequacy levels considerably.”

Even the International Monetary Fund in September warned that new regulations were skewed toward the interests of developed-world lenders. The fund noted that big banking groups would be “better able” than smaller banks to absorb the cost of regulations, driving more business in direction of market leaders.

http://www.emergingmarkets.org/Article/3101381/Financial-Markets/Asian-bank-threat-to-Basel-III.html

Banks unlikely to raise capital

Wednesday October 10, 2012


By YVONNE TAN

PETALING JAYA: Banks in Malaysia are already well-capitalised and are unlikely to engage in capital raising activities in the near term unless they are looking at significant outlay in that time frame, said banking analysts.

In the case of Malayan Banking Bhd (Maybank) which recently raised a record RM3.66bil via a private placement exercise, the bank was priming itself to expand its current business in the region, a banking analyst said.

It is understood that via a conference call with analysts yesterday, Maybank said that it was looking to strengthen its current businesses in the region, including those in Singapore and Indonesia and that it was not looking at any merger and acquisition (M&A) activity for now as previously speculated.

“We believe that most banks in Malaysia are unlikely to engage in capital raising activities in the near term given that they are well capitalised to meet the Basel III requirement, unless they foresee that they may need capital for something else.

“We do anticipate that most banks will be in capital conservation mode to preserve their capital in order to meet the capital requirement under Basel III which will kick off next year,” Alliance Research banking analyst Cheah King Yoong said.

The core equity capital ratio, which measures the amount of capital a bank has, is generally above 7% for all banks in Malaysia and this is healthy enough to meet Basel 111 requirements, according to Cheah (see table).

The new Basel III rules require banks to hold top quality capital totalling 7% of their risk-bearing assets, from the current 2%.

Of the 7%, 4.5% comprises core tier-1 capital, which is made of shares and retained earnings, and an additional 2.5% of capital conservation buffer.

In a press release on Monday, Maybank said its private placement exercise was a move to boost its equity capital ahead of the implementation of the Basel III capital framework.

The funds raised would also support its growth objectives, particularly, in relation to the rapid expansion of its business in Indonesia, Philippines and other regional markets, it said.

Apart from the continued strength of the Malaysian domestic economy, Maybank was seeing tremendous opportunities in the economic growth across the Asean region, it added.

http://biz.thestar.com.my/news/story.asp?file=/2012/10/10/business/12147961&sec=business

Maybank may be able to raise RM2.64bil via shares placement

Saturday October 6, 2012

Maybank may be able to raise RM2.64bil via shares placement

PETALING JAYA: Malayan Banking Bhd (Maybank) could potentially raise about RM2.64bil in a bid to further strengthen the bank's capital base and facilitate to meet more stringent capital requirement under the Basel III framework.

It intends to place out 300 million shares or 3.68% of its capital base at an indicative placement price of RM8.80 per share.

In filings with Bursa Malaysia, the country's largest bank said the assumption of the issue price was based on a 3% discount to the weighted average market price of Maybank shares for the five market days up to Oct 4 of RM9.0757.

Maybank says a possible upsize of the placement will depend on investors’ demand.

“The final number of new Maybank shares to be issued and the issue price of the shares will only be determined and announced after the completion of the book-building process, which will commence on Friday,” it said.

It said there is also possible upsize of the placement depending on investors' demand.

“The board is of the view that the proposed private placement is the most expeditious means of strengthening the company's capital base,” it said.

Maybank said the proceeds from the share sale, net of expenses relating to the exercise, would be utilised for working capital and general banking purpose.

The bank ended the day nine sen, or 1%, lower at RM8.99 yesterday.

In line with the world's adoption to Basel III, banks across the world would have to have a common format for disclosing the size and quality of their capital safety buffers from 2013 to help reassure investors they are stable.

It would also force banks to hold more capital and liquidity from 2013 onwards and will require banks to hold at least 7% of core Tier 1 capital in the form of retained earnings or pure equity.

Recently, Maybank had also succeeded in pricing its US$800mil (RM2.4bil) Regulation S Tier 2 Capital Subordinated Notes under its US$5bil multicurrency medium term note programme. The proceeds from the notes were also used for working capital, general banking and other corporate purposes, the bank had said earlier.

The subordinated notes wereexpected to qualify as Lower Tier 2 capital as per the Bank Negara's guidelines and be eligible for Basel III transitional treatment.

It is the largest regulation US dollar lower tier 2 capital issuance by anAsian Bank outside Japan and also marked the largest ever US dollar bond issuance by a Malaysian financial institution.

The said transaction was priced at 5-year US Treasury + 260 bps or a yield of 3.254% and will pay a coupon of 3.25% per annum, to be paid semi-annually in arrears.

The subordinated notes had a tenure of 10 years from the issue date on a 10 non-callable 5 basis, maturing on Sept 20, 2022.

http://biz.thestar.com.my/news/story.asp?file=/2012/10/6/business/12134243&sec=business

Maybank falls on US$1.2b share offer

Monday, 08 October 2012 16:16

Maybank falls on US$1.2b share offer

Shares of Malayan Banking Bhd (Maybank) dropped as much as 0.67 percent after the largest bank by assets in Malaysia said it would raise US$1.2 billion with a new share offer to fund growth in the country and its regional subsidiaries.

“This sounds logical to us as Maybank may be required to bring in capital if it is required to locally incorporate its Singapore subsidiary, which currently holds a qualified full banking licence,” HwangDBS Vickers Research said in a note on Monday.

Maybank said on Monday it completed the bookbuilding exercise for the private placement, the largest so far in Malaysia’s corporate history.

The placement is a proactive move to boost Maybank’s equity capital ahead of the implementation of the stringent new solvency requirements of the Basel III global banking regulations, Maybank said in a statement.

The issue price was fixed at RM8.88 a share, Maybank said, while the total number of shares to be issued represents 4.98 percent of the enlarged issued and paid-up share capital of Maybank as at Sept. 30.

The private placement exercise is expected to be completed no later than the middle of October, added Maybank.

HwangDBS maintained its "buy" rating on Maybank stock with a target price of RM11.10.

“Maybank remains our top pick and we believe our investment thesis of high dividends and strong earnings momentum remains intact despite these developments,” said HwangDBS.

The stock was down 0.56 percent at RM8.94, underperforming the broader index’s 0.15 percent drop.

-- REUTERS

Maybank plans US$1.2b share offer, says IFR

October 05, 2012

HONG KONG, Oct 5 — Malayan Banking Bhd (Maybank), the country’s largest lender, is seeking to raise up to US$1.2 billion (RM3.7 billion) with a new share offer, capital markets news service IFR said today.

Banks in Southeast Asia are beefing up core capital to accommodate the rapid growth in lending in the region and to meet the stringent new solvency requirements of the Basel III global banking regulations.

The fund raising comes just a week after sources told Reuters that Maybank was among the potential bidders approached by US conglomerate General Electric Co to sell its US$1.6 billion stake in Thailand’s Bank of Ayudhya. .

Maybank is offering 300 million new shares, in a range of 8.8-8.9 ringgit each, a discount of up to 3 per cent to the average trading price over the previous five days, said IFR, a Thomson Reuters publication, citing a term sheet for the sale.

Maybank’s shares closed today at 8.99 ringgit, trading on a price-to-earnings ratio of around 12.56, which compares with a median of 12.32 for all Malaysian banks.

The new funds will be used to strengthen the company’s capital base, support its “growth objectives” and meet the Basel III capital requirements, IFR said.

The offer can be expanded by an additional 112 million shares depending on the strength of demand, it added.

Maybank’s offering adds to Malaysia’s flourishing capital market deals this year with the tally for share offers at US$7.3 billion, accounting for nearly one-quarter of all new listings in Asia-Pacific and well up from about US$1.8 billion in Malaysia in the same period last year.

Maybank and UBS are managing the share offer, IFR added. — Reuters

Call for more time to 'tweak' Basel III

By Rupa Damodaran
Published: 2012/10/15


Malaysia's top two banks, Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd, say the Basel III package of measures to strengthen the global financial system needs more scrutiny and are calling for more time to "tweak" the new regulations.

One of the deepest concerns is that the banking sector could lose investor appeal, Maybank said at the Institute of International Finance annual meeting here.

The Basel III package of measures will see a gradual phase-in of the standards from next year until 2019.

"The consultative papers have been placed with the central banks," said Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar.

Overall, while there are some elements like trade finance and small and medium enterprises (SMEs) that can be tweaked, the banking sector must be prepared for Basel III.

"We saw it as an eventuality and that was why we raised US$1.2 billion (RM3.66 billion) blanket capital to make sure we are prepared," he said in reference to last week's successful completion of a bookbuilding exercise in relation to its private placement.

He called for a level playing field, arguing that the risk weighted assets of European banks are between 20 per cent and 30 per cent, one third that of Asian banks, which measure at between 50 per cent and 60 per cent.

CIMB Group chief executive Datuk Seri Nazir Razak said there are details that need to be looked into as well as Basel III's implications on the banking landscape.

Basel III, he said, is crafted in the context of problems in the West, which is heavily reliant on a global ratings framework that is biased against developing countries.

Nazir said further scrutiny shows that the new regulations will be disadvantageous to Asian banks.

"It places excessive liquidity requirements on Asian banks when there is so much of liquidity in the region and likewise, there is too much emphasis on government bonds when there is enough in Asia."

Smaller banks also stand to suffer as Basel III means heavy compliance costs.

"The West wants to deleverage but Asia has a huge appetite for funds and we need to intermediate that or, otherwise, it will be counter-productive," said Nazir.

Asian banks will need to boost their cooperation and make sure Basel III does not impact their capacity to give out funds.

Australia and New Zealand Banking Group Ltd CEO Michael Smith suggested providing degrees of flexibility (to adopt Basel III), according to the various nations.

Most Asian banks can meet all the targets under Basel III, unlike their European counterparts, some of which will find it difficult to impose the capital requirement.

A more pragmatic approach is needed, he said, adding that the economic structure of Asia is different.

"The sheer amount of liquidity moving around the world due to the monetary easing of central banks in Europe or the United States creates an issue in Asia as investors chase the yields," said Smith.

The shift from Basel 1 to Basel II took 20 years while the shift from Basel II to Basel III took 18 months.

Wahid said Asean, which has set a target to become the Asean Economic Community by 2015, needs to be served by well-capitalised and well-distributed regional banks.

Apart from Maybank, CIMB and Public Bank of Malaysia, there are the DBS Bank, OCBC Bank and UOB Bank from Singapore and the Bangkok Bank of Thailand.

He is looking to Indonesian banks next to expand their reach to other Asean countries.

Read more: Call for more time to 'tweak' Basel III http://www.btimes.com.my/Current_News/BTIMES/articles/20121014225945/Article/index_html#ixzz29sjy9r6D

The Sources of Risk in Stock Investing

Total Risk = Unsystematic Risk + Systematic Risk

Unsystematic Risk (diversifiable)
Business Risk
Financial Risk

Systematic Risk (nondiversifiable)
Market Risk
Interest Rate Risk
Reinvestment Rate Risk
Purchasing Power Risk
Exchange Rate Risk

Basel III to spur secondary loan activity

Thursday October 18, 2012

KUALA LUMPUR: The implementation of Basel III next year will encourage secondary loan market activity, said CIMB Group deputy executive officer of corporate banking Datuk Lee Kok Kwan at the Asia Pacific Loan Market Association’s Malaysia conference.

Basel III, a global regulatory standard imposed by the Basel Committee on Banking Supervision, which includes representatives from 20 major world economies, requires banks to hold an increased 4.5% of common equity and 6% of Tier-1 capital of risk-weighted assets, according to the Bank for International Settlements.

Lee explained that under the proposed guidelines on Single Counterparty Exposure Limit in the region, banks will be required to observe prudential limits including a maximum 25% exposure to a single counterpart from a bank’s capital base, and a total exposure (set at 10% of a bank’s capital base) not exceeding six times the capital base.

Also, credit concentration risk will be re-examined by national regulators.

Basel III would result in higher capital requirements for longer tenor loan and bonds, in addition to more punitive liquidity requirements, he said.

“Under Basel III, banks will need to distribute and sell down loans in order to free up capital and liquidity to pursue new lending opportunities, thus leading to increased secondary loan market activity,” Lee said. — Reuters

Getting into Harvard Business School

Buffett avoids companies in need of major overhauls.

It is not Buffett's intention to first purchase a company and then seek major changes.

On the contrary, he avoids companies in need of major overhauls.

Furthermore, because he will only purchase companies that possess shareholder-oriented managers, the idea of confronting management to improve shareholder returns is unthinkable.

Maybank IB keeps 'buy' on Public Bank on 'solid fundamentals'

Maybank IB keeps 'buy' on Public Bank on 'solid fundamentals'

Written by Ho Ching-Ling
Friday, 19 October 2012 11:48

KUALA LUMPUR (Oct 19): Maybank Investment Bank (IB) has maintained its “buy” call for PUBLIC BANK BHD [] and raised its target price by 70 sen to RM16.70 based on the group’s stable growth and
solid fundamentals.

Public Bank's net profit for the third quarter ended Sept 30, 2012 rose to RM983.29 million versus RM931.95 million a year ago.

Revenue for the quarter rose to RM3.58 billion from RM3.27 billion a year earlier. Earnings per share was 28.08 sen while net asset per share was RM4.83.

In a research report on Friday, Maybank IB said Public Bank continues to perform within guidance with a domestic loan growth of 13% in line with management’s 12% to 13% target for the year.

“At the heart of the loan growth domestically is residential and commercial property lending, which rose at an annualised rate of 17% and 22% respectively. Hire purchase growth trailed at 9%,” it said.

According to Maybank IB, the banking group still maintains a dominant position with market shares of 18.8%, 33.4% and 26.3% in residential property, commercial property and passenger vehicle financing
respectively.

However, the research house highlighted that the group’s overall loan growth lagged at 11%, mainly due to a contraction in its Hong Kong loan book.

“Competition remains stiff for Public Bank (Hong Kong), which has 32 branches in Hong Kong, three in China and is involved primarily in commercial loan disbursements, as well as Public Finance (42 branches), which mainly provides personal financing to maids,” said Maybank IB.

Having said that, Maybank IB does not expect a large earnings impact from Public Bank’s Hong Kong operations since its overseas operations only accounts for just 6% of its profit before tax.


theedgemalaysia.com

Buy and Hold is safe and rewarding for selected stocks

Have a look at this portfolio.
Note that dividend gains are not included in the calculations.

https://docs.google.com/spreadsheet/ccc?key=0AuRRzs61sKqRdDFQd2QtdjZtNjBtUjlMUWtvaUowNlE

Buffett believes it is foolish to use short-term prices to judge a company's success. What happens to the stock price in the short run is inconsequential.

If adapting Buffett's investment strategy required only a change in perspective, then probably more investors would become proponents.  Unfortunately, applying Buffett's approach requires changing not only perspective but also changing how performance is evaluated and communicated.

The traditional yardstick for measuring performance is price change:  the difference between the purchase price of the stock and the market price of the stock.  In the long run, the price of a stock should approximate the change in value of the business.  However, in the short run, prices can gyrate widely above and below a company's value, dependent on factors other than the progress of the business.  The problem remains that most investors use short-term changes to gauge the success or failure of their investment approach.  However, these short-term price changes often have little to do with the changing economic value of the business and much to do with anticipating the behaviour of other investors.

Buffett believes it is foolish to use short-term prices to judge a company's success.  Instead, he lets his companies report their value to him, by their economic progress.  Once a year, he checks several variables:

• Return on beginning shareholder's equity
• Change in operating margins, debt levels, and capital expenditure needs.
• The company's cash generating ability.

If these economic measurements are improving, he knows the share price, over the long term, should reflect this.  What happens to the stock price in the short run is inconsequential.

The difficulty of using economic measurements as yardsticks for success is that communicating performance in this manner is not customary.  Clients and investment professionals alike are programmed to follow prices.  The stock market reports price change daily.  The client's account statement reflects price change monthly and the investment professional, using price change, is measured quarterly. 

The answer to this dilemma may lie in employing Buffett's concept of "look-through" earnings.  If investor use look-through earnings to evaluate their portfolio's performance, perhaps the irrational behaviour of solely chasing price might be tempered.

The more appropriate question is not how did Buffett do it but why did not other investors apply his approach?

How did Buffett do it?

Given the documented success of Buffett's performance coupled with the simplicity of his methodology, the more appropriate question is not how did he do it but why did not other investors apply his approach?  The answer may lie in how individuals perceive investing.

When Buffett invests, he sees a business.  Most investors see only a stock price.  They spend far too much time and effort watching, predicting, and anticipating price changes and far too little time understanding the business they partly own.  Elementary as this may be, it is the root that distinguishes Buffett.

His hands-on experience owning and managing a wide a variety of businesses while simultaneously investing in common stocks separates Buffett from all other professional investors.

Owning and operating businesses has given Buffett a distinct advantage.  He has experienced both success and failure in his business ventures and has applied to the stock market the lessons he learned. The professional investor has not been given the same beneficial education.

While other professional investors were busy studying capital asset pricing models, beta, and modern portfolio theory, Buffett studied income statements, capital reinvestment requirements, and the cash-generating capabilities of his companies.

"Can you really explain to a fish what it's like to walk on land?"  Buffett asks.  "One day on land is worth a thousand years of talking about it and one day running a business has exactly the same kind of value."

According to Buffett, the investor and the businessperson should look at the company in the same way because they both want essentially the same thing.  If you ask a businessperson what he thinks about when purchasing a company, the answer most often given is:  "How much cash can be generated from the business?"

Buffett: His investment performance, widely documented, has been consistently superior.

Program trading, leveraged buyouts, junk bonds, derivative securities, and index futures have frightened many investors.  The grind of fundamental research has been replaced by the whirl of computers.

Throughout the last few decades, investors have flirted with many different investment approaches.  Periodically, small capitalization, large capitalization, growth, value, momentum, thematic and sector rotation have proven financially rewarding.  At other times, these approaches have stranded their followers in periods of mediocrity.

Buffet, the exception, has not suffered period of mediocrity.  His investment performance, widely documented, has been consistently superior.  As investors and speculators alike have been distracted by esoteric approaches to investing, Buffett has quietly amassed a multi-million-dollar fortune.  Throughout, businesses have been his tools, common sense his philosophy.

Ultimately, the best investment ideas will come from doing your own homework. You should not feel intimidated.

Investment success is not synonymous with infallibility.  Rather, it comes about by doing more things right than wrong.

The success in your investment approach is as much a result of eliminating those things you can get wrong, which are many and perplexing (predicting markets, economies, and stock prices), as requiring you to get things right, which are few and simple (valuing a business).

When purchasing stocks, you should focus on two simple variables:  the price of the business and its value.  The price of the business can be found by looking up its quote.  Determining value requires some calculation, but it is not beyond the ability of those willing to do some homework.

The wonderful thing is because you are no longer worry about the stock market, the economy, or predicting stock prices, you are now free to spend more time understanding your businesses.

More productive time can be spent reading annual reports and business and industry articles that will improve your knowledge as an owner.  The degree to which you are willing to investigate your own business lessens your dependency on  others who make a living advising people to take irrational action.

Ultimately, the best investment ideas will come from doing your own homework.  You should not feel intimidated.

Determining how to allocate your savings is the most important decision you, as an investor, will make.

Public Bank records higher Q3 pre-tax profit of RM1.31b

October 18, 2012

KUALA LUMPUR, Oct 18 – Public Bank Bhd posted a higher pre-tax profit of RM1.313 billion for the third quarter ended Sept 30, 2012, compared with RM1.231 billion registered in the previous corresponding quarter.

In a filing to Bursa Malaysia, the bank said revenue for the period also increased to RM3.589 billion from last year’s RM3.272 billion.

Founder and Chairman of Public Bank, Tan Sri Dr Teh Hong Piow said the group’s gross loans grew at an annualised rate of 11.3 per cent to RM193 billion as at the end of September this year, with domestic loans up 12.8 per cent on an annualised basis.

“Over the same period, we also recorded a steady growth of customer deposits at an annualised rate of 13.2 per cent, with domestic customer deposits increasing by 14 per cent.

“As a result, the group’s loan-to-deposit ratio remained stable at 86.8 per cent,” he was quoted saying in the statement.

Teh said Public Bank continued to be in the forefront amongst its banking peers in Malaysia in terms of recording the highest net return on equity of 24.2 per cent and maintaining the lowest gross impaired loan ratio of 0.7 per cent.


The group’s lending to small and medium enterprises also recorded commendable growth with an annualised growth rate of 23.6 per cent in the first nine months of this year.

“Our funding position remained robust, supported by the strong retail franchise and large domestic depositor base of over 4.8 million customers.

“Domestic customer deposits grew at an annualised rate of 14 per cent compared with the domestic banking industry’s annualised growth of 8.8 per cent.”

The group expects to maintain its earnings momentum and record satisfactory performance for the fourth quarter of this year. – Bernama

The Author Of The 'Rich Dad, Poor Dad' Books Has Filed For Chapter 7 Bankruptcy

Jill Krasny
Oct. 11, 2012


Robert Kiyosaki, author of the bestselling "Rich Dad, Poor Dad" series, has filed for Chapter 7 bankruptcy protection after losing a nearly $24 million court judgment to The Learning Annex, The New York Post reports.

As one of Kiyosaki's earliest backers, The Learning Annex was responsible for arranging the speaking engagements and platform that led to his massive success. 

But apparently the fame went to his head because according to court papers obtained by the Post, Kiyosaki, who published his first "Rich Dad" book in 1994, never paid the Annex its rightful share. Said founder and chairman Bill Zanker: "Oprah believed in him, and Will Smith believed in him, but he didn't keep his promise to us." 

Kiyosaki's Rich Global company was ordered by a U.S. judge in April to cough up $23,687,957.21, which in turn led him to file for corporate bankruptcy on Aug. 20.

Despite the blow to the personal finance guru's reputation, Kiyosaki probably won't feel the pinch in his wallet. Forbes pegs his net worth around a cool $80 million, and Kiyosaki, who's written 11 books, operates as many as ten other companies. Rich Global was said to be worth a few million when it went under. 

"Rich Dad, Poor Dad" became an overnight sensation when Kiyosaki made the rounds on feel-good daytime TV like "Oprah" and aired his speaking programs on PBS. Cash-strapped consumers identified with his inspirational story of learning how to manage money from one father who struck it big and another who died penniless and alone. 

Of course, not everyone bought into the schtick. As Helaine Olen's wrote in Forbes Thursday, the guru's "tips ran the gamut from ridiculous to illegal and downright hurtful and included advocating for insider trading, arguing for the purchase of multiple real estate properties with little or no money down and telling followers they could purchase stocks on margin via unfunded brokerage accounts.

Read more: http://www.businessinsider.com/the-author-of-the-rich-dad-poor-dad-books-has-filed-for-chapter-7-bankruptcy-2012-10#ixzz29bQ4Ttcz

Financial Tenet: The One-Dollar Premise

Financial Tenet:  For every dollar retained, make sure the company has created at least one dollar of market value.

An Illustration:

Public Bank Berhad

(Sen) (Sen) (Sen) (RM) (RM) Year DPS EPS Retained Price Price Earnings Low High 2002 9.5 25.5 16.0 3.02 4.20 2003 9.9 30.0 20.1 3.26 5.42 2004 42.8 36.2 -6.6 5.02 7.04 2005 48.3 40.7 -7.6 5.94 7.47 2006 37.9 47.8 9.9 5.84 7.57 2007 45.5 60.7 15.2 7.28 10.73 2008 56.7 69.5 12.8 7.52 11.50 2009 40.1 71.9 31.8 6.90 11.14 2010 37.2 87.0 49.8 10.94 13.02 2011 46.8 99.5 52.7 11.68 13.60 374.7 568.8 194.1 7.48

Since 2002, the market value of PBB has grown from RM 4.20 to RM 11.68 - an increase of RM 7.48 or 748 sen.  (Calculation:  Low Price of 2001 RM 11.68 - High Price of 2002 RM 4.20).

During these 10 years, PBB earned 568.8 sen.  It paid shareholders, in dividends, 374.7 sen and retained 194.1 sen for reinvestment.

Thus, PBB retained 194.1 sen in earnings and created 748 sen in market value for its shareholders.  That is, for every RM 1 retained earnings over the last 10 years, PBB created RM 3.85 in market value for its shareholders.

This financial accomplishment demonstrates the superior management  and the ability to reinvest shareholder's money at optimal rates.



Financial Tenet:  For every dollar retained, make sure the company has created at least one dollar of market value.

This is a quick financial test that will tell you not only about the strengths of the business but how well management has rationally allocated the company's resources.  From a company;s net income subtract all dividends paid to shareholders.  What is left is the company;s retained earnings.

1.  If the business has employed retained earnings unproductively over the 10 year period, the market will eventually catch up and will set a low price on the business.  If the change in market value is less than the sum of retained earnings, the company is going backward.

2.  But if your business has been able to earn above-average returns on retained capital, the gain in market value of the business should exceed the sum of the company's retained earnings, thus creating more than one dollar of market value for every dollar retained.  

Investment Banking

Special Situations: Spin-offs

How to invest in
‘special situations’

• Why I love company spin-offs and you should as well

Have you ever wanted to invest in a merger, acquisition, spin-off, or even a bankruptcy? It’s called special situation investing, and it can be a profitable way to take part in the stock market.

In many cases, special situations end up performing well because the businesses concerned have had a run of poor performance, and this has spurred management into drastic action to resolve the situation.

Spin-offs and other special situations are definitely high on our radar.

Spin-offs, the special situation of choice

I like all special situations, but spin-offs are my favorite. 

In this case I’m talking about corporate spin-offs, where a larger company decides to take a small part of its business, list it separately, and distribute the shares to current shareholders, such as the 1997 British Gas spin-offs, which gave birth to BG Group (LSE: BG), Centrica (LSE: CNA), and what is now National Grid (LSE: NG).

They don’t come along often, but I believe the potential returns make it worth investigating them thoroughly. For example, so far this year, the Bloomberg Spinoff Index is up 30%, and a 2010 report from UBS also showed that the 75 European spin-offs from the past decade outperformed Europe’s top 300 companies.

Why companies pursue spin-offs

There are many reasons a company might pursue a spin-off, instead of keeping a company in-house. One of the more common reasons is that the two businesses aren’t related, and very little is gained by keeping them under one umbrella and having them share capital.

I think the Primark retail group within Associated British Foods (LSE: ABF) is a perfect example of this, though ABF has repeatedly stated it has no plans to spin-off or sell the unit. In other cases, one division is considered a good business by the investment community, while another unit is considered an anchor or dead weight that slows the good business down.

Spinning a business off to shareholders instead of selling it is generally the more shareholder-friendly action. Arguments against a spin-off are because a business is too small to list, or lacks the management talent needed to run a publicly traded company, but in many cases taxes are the ultimate deciding factor. If a business has substantially depreciated assets, the tax hit can make a sale prohibitive for the company and shareholders, while a spin-off can often allow shareholders to realise the value of the business without triggering any tax payments.

Why spin-offs tend to do well

No two spin-offs are alike, and in some cases the larger parent may outperform the business being spun-off. But, in most cases, I find it is the smaller business that tends to outperform, but this can come with some initial volatility because shareholders often must tolerate an initial dip in the share price of the spin-off. Such dips might happen because large, institutional investors or fund managers have invested in the parent to gain exposure to the larger business, and have no interest in the smaller spin-off. In some situations, fund managers simply can’t own the spin-off, because they have limits on the size of companies they can invest in. So, as soon as the shares are received, they are sold off.

I reckon these types of situations only make spin-offs juicier opportunities for astute investors, but there are other signs to look for as well. High up on the list is a management team with incentives for growing the business, earning high returns on capital and, if you can find it, an ownership stake in the business at spin-off. Any time you can find these qualities, it becomes even more likely that management is going to take advantage of its newfound ability to allocate capital and grow the business without having to worry about their former corporate overseers.

Final thoughts

I’ve shared the basic reasons behind why spin-offs tend to outperform. But if you’re hungry for more information on spin-offs and special situations in general, I recommend the excellently written – though horribly titled – You Can Be a Stock Market Genius by Joel Greenblatt. The book provides a thorough look at a few spin-offs from the past and the clues investors were given in the filings that a unique opportunity was about to unfold.

From:  Motley Fool

12th October, 2012