VZCZCXRO4606
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHGP #1010 2610954
ZNR UUUUU ZZH
R 170954Z SEP 08
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 5775
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SINGAPORE 001010 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON SN
 
SUBJECT:  SINGAPORE FEELS AFTERSHOCKS OF WALL STREET CRISIS 
 
¶1.  Summary:  Singapore is feeling repercussions from this week's 
financial crisis on Wall Street, which helped send the local 
exchange down nearly seven percent so far this week.  Although local 
banks are well capitalized and face no serious threat from the 
crisis, individual investors in Lehman Brothers instruments are 
facing potential losses.  News of insurance giant AIG's troubles 
prompted policyholders to flood AIG's local subsidiary to redeem 
policies, though the central bank reassured policyholders that the 
company holds sufficient funds to meet its policy requirements. 
Merrill Lynch's takeover by Bank of America has local Merrill 
employees anxious about their employment outlook, but may have given 
Singapore government-linked investor Temasek Holdings a gift, 
turning its huge, thus far money-losing recent investment in Merrill 
into a potential money maker nearly overnight.  End Summary. 
 
Market slides, but financial sector stable 
------------------------------------------ 
 
¶2.  The Wall Street crisis sent Singapore's Straits Times Index on 
another two-percent slide on September 17, adding up to a nearly 
seven percent decline for the first three trading days of the week. 
The Singapore dollar has stayed relatively stable at $1.43 to the 
U.S. dollar. 
 
¶3.  Singapore banks said their exposure to Lehman Brothers was 
minimal.  None of Singapore's local banks were listed among Lehman 
Brothers' top 30 unsecured creditors.  Singapore's central bank, the 
Monetary Authority of Singapore (MAS), said in a statement on 
September 16 that the country's banks were well-capitalized, but 
that "MAS stands ready to inject additional liquidity if the 
situation warrants."  Individual investors faced potential losses 
from Lehman's "minibonds", hundreds of millions of dollars worth of 
which Lehman issued in Singapore over the past two years.  The 
minibonds were backed primarily by collateralized debt obligations 
(CDO), the value of which have declined by as much as 70 percent for 
some series. 
 
Company struggles reflected in Singapore 
---------------------------------------- 
 
¶4.  Lehman Brothers:  On September 16, the Singapore Exchange 
suspended Lehman Brothers from taking on new securities and 
derivatives positions.  However, the Exchange confirmed yesterday 
that Lehman continued to meet its obligations as a clearing member 
in the securities and derivatives markets.  MAS also directed Lehman 
yesterday to seek its approval before paying out any funds to third 
parties in order to ensure it met its financial requirements in 
Singapore.  Lehman's 270 employees were still at work on Wednesday 
waiting for an announcement on their future from headquarters. 
Lehman's Singapore office was its center for commodities and foreign 
exchange trading in Asia. 
 
¶5.  AIG/AIA:  Hundreds of policyholders of American International 
Assurance (AIA), AIG's Singapore subsidiary, have lined up at AIA's 
local office over the past two days to redeem policies.  MAS 
cautioned policyholders against terminating policies too hastily and 
issued a statement yesterday that AIA was meetings its regulatory 
requirements to maintain sufficient financial resources to meet its 
liabilities to policyholders.  AIA maintains a separate insurance 
fund for policies issued in Singapore, segregated from its AIG 
parent.  At end of 2007, AIA's fund was reportedly valued at USD 
14.8 billion, invested primarily in fixed income securities. 
According to AIA, only three percent of the fund was invested in 
CDOs, none of which were rated sub-prime. 
 
¶6.  Merrill Lynch:  Singapore's Temasek Holdings, the largest single 
investor in Merrill with a 14-percent stake, has kept silent on its 
investment and the upcoming swap of its Merrill stake for shares in 
Bank of America (BOA).  BOA's offer of $29 a share for Merrill Lynch 
stock appeared to give Temasek a brief  opportunity to net a quick 
profit from its USD 5 billion investment in December 2007, though 
the slide in the value of BOA's stock after the Merrill deal may 
have closed that window for now.  After a supplementary purchase in 
July, Temasek's average price paid per share was $24, substantially 
higher than Merrill's pre-takeover share price of $17.  After BOA's 
share value dropped this week, Temasek remained technically in the 
red.  But Temasek has characterized its large financial sector 
investments since the beginning of the crisis as long-term strategic 
moves, and local analysts predict Temasek will hold tough in order 
to maintain a stake in the U.S. financial sector.  Merrill's 1600 
local employees are awaiting news of possible staff cuts as the 
merger takes place.  BOA has only approximately 200 employees in 
Singapore, meaning less job overlap and what Merrill staff hope will 
be fewer job cuts.  Merrill had been planning to increase staff in 
Singapore, plans that are now in question. 
HERBOLD