AIG extends improbable rally

Source: Straits Times Aug 28, 2009

AIG extends improbable rally

AIG reported in July second-quarter earnings of US$1.8 billion. -- PHOTO: AP

NEW YORK - INSURANCE giant AIG extended its surprising rally on Thursday, rising 26.9 per cent amid frenzied speculation along with improved prospects on its ability to repay its massive government bailout.

AIG shares closed at US$47.84 (S$68.89), up US$10.15 in a day and some 400 per cent from recent lows on July 9, before the ailing firm announced its first profit in nearly two years.

The rally has spread to other troubled financial firms including Fannie Mae and Freddie Mac, the two mortgage finance giants taken over by the government nearly a year ago. Some analysts said the rally was a 'short squeeze' in which market players who had bet on a decline are forced to purchase shares to cut their losses, resulting in upward pressure on stocks.

Analysts at Briefing.com said the gains were a 'garbage rally' in the most at-risk financials, 'which began late yesterday afternoon with the massive short squeeze in AIG.' The surge 'wasn't the result of a specific news-related catalyst; instead, it started as a small rally in the afternoon, and as it started to gather steam and accelerate it forced shorts to panic and scramble to cover,' the note to clients said.

'Since AIG is the most volatile name in the 'at-risk financials' group, this created one of those momentum themes where coming in this morning, traders saw AIG continuing to squeeze in pre-market trading, and so they started to bid up the other low-quality financial stocks.' Andy Brooks, head of equity trading at T Rowe Price, said AIG 'looks like a stock that may be salvageable, so that has drawn investor attention. The same thing has happened to Fannie and Freddie.' But he noted that AIG stock 'is still down a down a ton from its highs' over US$1,000 a few years ago.

AIG was the largest single recipient of US bailouts, with the government pumping more than US$170 billion into the firm to keep it afloat and taking a controlling stake in the group in the process. It reported in July second-quarter earnings of US$1.8 billion.

The company said its return to profits came as some 'businesses stabilized and the company's results reflected positive valuation changes. AIG also achieved several important milestones in its restructuring programme.' AIG was on the verge of collapse last year after backing trillions of dollars in risky financial products amid a home mortgage meltdown that triggered financial turmoil.

Jon Ogg at 24/7WallSt.com said some of the AIG interest came on reports that new chief executive Robert Benmosche had talked with founder and former CEO Hank Greenberg about efforts to help rescue the firm. Joe Weisenthal at the financial website Clusterstock said the AIG rally was 'insane' since the government would have to be repaid before shareholders could benefit.

'Nobody knows what's going on, really. It's all rumor and speculation,' he said. Among other financials, Fannie Mae rose 3.78 per cent to US$1.92 dollars and Freddie Mac jumped 10.34 per cent to US$2.24. Citigroup, the bank with the biggest US bailout, jumped 9.07 per cent to US$5.05. -- AFP

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US consumer spending up 0.2%

Source: Straits Times Aug 28, 2009

US consumer spending up 0.2%

WASHINGTON - US CONSUMER spending rose for the third consecutive month in July while incomes were virtually flat, government data showed on Friday in a report suggesting demand picking up amid the long recession.

The Commerce Department said consumer spending - which drives two-thirds of US economic activity - rose 0.2 per cent in July, in line with the average analyst forecast.

Personal income was up less than 0.10 per cent and disposable personal income - income less personal taxes - slipped less than 0.1 per cent.

The department said spending rose a revised 0.6 per cent in June, a hefty 0.2 percentage point higher than the initial estimate.

The June surge in consumer spending had been captured in the Commerce Department's report Thursday on second-quarter economic growth, which showed spending fell at an annualized rate of 1.0 per cent, a decline less steep than first estimated.

In that report, the department left unchanged its initial estimate that gross domestic product, which measures output, shrank 1.0 per cent at an annual pace in the April-June period, better than analysts forecasts of a 1.5 per cent decline.

Friday's consumer spending and income data showed that consumer prices held steady in July from June.

As a result, real consumer spending - excluding price variations - rose 0.2 per cent in July.

Real disposable income fell 0.1 per cent in July, following a 1.6 per cent decline in June.

Americans struggling with the worst recession since the Great Depression continued to save in July but at a slower pace, with the savings rate as a percentage of disposable income falling to 4.2 per cent.

The savings rate had hit its highest level since 1995 in May as households hunkered down as unemployment surged in the sharp recession that began in December 2007. -- AFP

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Figures add up nicely for GE Life

Figures add up nicely for GE Life

By Larry Haverkamp, For The Straits Times

Taken from the Straits Times , August 27, 2009 GREAT

Eastern Life Insurance looks to be everyone’s pick for the most generous company of the year. The company wants to help its policyholders by buying back their GreatLink Choice (GLC) structured notes. These are similar to minibonds but there are more of them. Minibonds worth $508 million were sold to 10,000 investors, while $594 million worth of GLC notes were sold to 18,000 investors. If the notes default over the next four years, investors would lose the $594 million they had sunk in. The company says it will lose $250 million by buying the notes back. It looks generous. Great Eastern will require its agents to pitch in too. They will return the $12 million they made in commissions from selling the notes. This glowing story has been widely reported. On the surface, it might appear investors would be foolish to turn down Great Eastern’s offer. But that may well be wrong. GLC comes in five tranches. GLC 1 and 2 make up one similar group while GLC 3, 4 and 5 are another. A Sunday Times report by Ms Lorna Tan correctly calculated that GLC 1 and 2 are safer investments than GLC 3, 4 and 5. Does that mean the buyback is not in the best interests of GLC 1 and 2 investors? In a word: Yes. Does that mean the offer would benefit Great Eastern at the expense of these investors? In another word: Yes. Instead of helping GLC 1 and 2 investors, it would bite them a second time. The first was when Great Eastern sold GLC without disclosing the total returns of the underlying bonds. That is the standard way for structured notes to conceal risks. The public is shown only the investor yields – such as 3.5 per cent to 4.9 per cent annually for GLC. This lulls investors into thinking risks are moderate. They never see the high-risk returns produced by the note’s underlying assets of junk bonds and credit default swaps. The second bite comes now with the offer to buy back the notes. It will take a safe 17.5 per cent return from GLC 1 and 2 investors and give it to Great Eastern. Less generous than it appears BY 6PM tomorrow, Great Eastern will have bought back many of its GLC notes and written them down to ‘fair value’. It says the write-down will result in a $250 million loss. That estimation could help the company sell its buyback offer. Investors see $250 million as a lot of money to turn down. In fact, Great Eastern’s loss may be much less:

• First, the $12 million clawback of commissions from agents will go entirely to the company. Investors will not get a dollar.

• Second, Lion Global was the fund manager for GLC. Its management fees totalled 8 per cent to 11 per cent on the $594 million value for all five GLC tranches. Much of that was paid upfront – and unlike the clawback of agent fees, Lion Global will not be required to return its fees.Lion Global is 100 per cent owned by Great Eastern and OCBC Bank, while OCBC owns 87 per cent of Great Eastern.

• Third, GLC 1 and 2 are likely to produce high profits for Great Eastern. They make up $209 million – or 35 per cent of the $594 million worth of notes sold.Just over half the investors have accepted Great Eastern’s buyback offer so far. Why so many when it is not in their interest? The current price for the notes is set at 61 cents on the dollar, according to the company website’s pop-up ad and newsletter – a buy-only price, set by the underwriter, which is Deutsche Bank for GLC 1 and 2. Investors who redeem early must sell at that price and sell only to the underwriter. This is likely to bias the price downwards. Great Eastern’s offer is valued at $1 minus the dividends already paid of 10.5 cents. So $1 – $0.105 = $0.895 – easily more than 61 cents. Investors would conclude: ‘It’s a no-brainer. I accept!’ Besides the downward price bias noted above, the 61 cent price on the website is out of date. The more recent price is 73 cents, which makes the offer less attractive to investors. It can also be found on the website, though not as easily.

• Fourth, GLC 1 and 2 investors must give back 10.5 per cent in clawed-back dividends. They must also forgo the 3.5 per cent that was to be paid at the end of September and October, plus another 3.5 per cent due at maturity in 13 and 14 months. So 10.5 + 3.5 + 3.5 = 17.5 per cent – that is the ‘one year’ return investors will receive if they reject the offer and hold GLC 1 and 2 to maturity.

While that 17.5 per cent yield is high, the risks remain low for two reasons:

• One, GLC 1 and 2 have underlying collateralised debt obligations (CDOs) that reference bonds rated BBB- by Standard & Poor’s (S&P). Their time to maturity is just over one year. S&P data shows the one-year default rate for BBB- global corporate bonds from 1981 to last year was only 0.6 per cent. That is less than one bond out of 100 defaulting.

• Two, the rules for GLC 1 and 2 do not place them near default. Only six out of more than 100 bonds held by either tranche have suffered ‘credit events’ in the past four years. Another 11 bonds must go bad before investors lose any capital. With the improved economy, it is unlikely that 11 more bonds will go bad within 14 months.If this scenario plays out and GLC 1 and 2 do not default, investors will get back 100 per cent of their investment in little more than a year. Though there is a slight risk, that 17.5 per cent return more than compensates for it. In its automated e-mail messages, Great Eastern gives the opposite advice: ‘Do not miss this chance to accept the offer,’ it says.

Accept the buyback for GLC 3, 4 and 5 GLC 3, 4 and 5 – valued at $385 million – are different. The underwriter has priced GLC 3 at 36 cents on the dollar, and GLC 4 and 5 at 23 cents. These figures probably understate the value of the bonds for the same reasons as for GLC 1 and 2, but in this case, it does not matter. The value of these bonds is so far underwater – below the buyback price – that some degree of under-pricing won’t affect the investor’s decision.

• First, the underlying CDOs of GLC 3, 4 and 5 are rated CCC- by S&P. Their time to maturity is three to four years. S&P data shows that the three-year default rate for CCC- global corporate bonds from 1981 to last year was 39 per cent. The four-year default rate was 42 per cent.

• Second, the CDOs backing GLC 3, 4 and 5 reference more than 100 bonds each. The contract requires that an additional 10, seven and five bonds in GLC 3, 4 and 5 must go bad before investors lose their capital. This is more likely to happen since the time to maturity for these tranches is three times longer than for GLC 1 and 2 and their bond quality is much lower.

There is no need to feel sorry for Great Eastern. The buyback is not as expensive as it seems, even for GLC 3, 4 and 5. The notes are structured as a wager rather than an investment and work like this: Only 10 per cent to 15 per cent of the underlying bonds need to suffer credit events before investors must forfeit the other 85 per cent to 90 per cent of good bonds to ’someone’. That someone is usually the underwriter or arranger – Goldman Sachs for GLC 3, 4 and 5. Great Eastern could simply inherit this deal from investors. Or it might reduce its risks by first entering into a hedge or re-insurance agreement with Goldman Sachs or others. Great Eastern has not said if it did this although it would not be unusual. The company’s losses on GLC 3, 4 and 5 would be further reduced by: One, the expected profits from GLC 1 and 2; two, the clawback of agent commissions; three, the management fees earned by Lion Global; four, the profit sharing – if any – with the underwriter; and five, tax savings should losses occur. Four years from now – when the notes have all matured – the net loss to the OCBC group is likely to be substantially less than the trumpeted figure of $250 million. The writer is a financial columnist for The New Paper and Adjunct Professor of Economics and Statistics at Singapore Management University.

Figures add up nicely for GE Life

Figures add up nicely for GE Life

By Larry Haverkamp, For The Straits Times

Taken from the Straits Times , August 27, 2009 GREAT

Eastern Life Insurance looks to be everyone’s pick for the most generous company of the year. The company wants to help its policyholders by buying back their GreatLink Choice (GLC) structured notes. These are similar to minibonds but there are more of them. Minibonds worth $508 million were sold to 10,000 investors, while $594 million worth of GLC notes were sold to 18,000 investors. If the notes default over the next four years, investors would lose the $594 million they had sunk in. The company says it will lose $250 million by buying the notes back. It looks generous. Great Eastern will require its agents to pitch in too. They will return the $12 million they made in commissions from selling the notes. This glowing story has been widely reported. On the surface, it might appear investors would be foolish to turn down Great Eastern’s offer. But that may well be wrong. GLC comes in five tranches. GLC 1 and 2 make up one similar group while GLC 3, 4 and 5 are another. A Sunday Times report by Ms Lorna Tan correctly calculated that GLC 1 and 2 are safer investments than GLC 3, 4 and 5. Does that mean the buyback is not in the best interests of GLC 1 and 2 investors? In a word: Yes. Does that mean the offer would benefit Great Eastern at the expense of these investors? In another word: Yes. Instead of helping GLC 1 and 2 investors, it would bite them a second time. The first was when Great Eastern sold GLC without disclosing the total returns of the underlying bonds. That is the standard way for structured notes to conceal risks. The public is shown only the investor yields – such as 3.5 per cent to 4.9 per cent annually for GLC. This lulls investors into thinking risks are moderate. They never see the high-risk returns produced by the note’s underlying assets of junk bonds and credit default swaps. The second bite comes now with the offer to buy back the notes. It will take a safe 17.5 per cent return from GLC 1 and 2 investors and give it to Great Eastern. Less generous than it appears BY 6PM tomorrow, Great Eastern will have bought back many of its GLC notes and written them down to ‘fair value’. It says the write-down will result in a $250 million loss. That estimation could help the company sell its buyback offer. Investors see $250 million as a lot of money to turn down. In fact, Great Eastern’s loss may be much less:

• First, the $12 million clawback of commissions from agents will go entirely to the company. Investors will not get a dollar.

• Second, Lion Global was the fund manager for GLC. Its management fees totalled 8 per cent to 11 per cent on the $594 million value for all five GLC tranches. Much of that was paid upfront – and unlike the clawback of agent fees, Lion Global will not be required to return its fees.Lion Global is 100 per cent owned by Great Eastern and OCBC Bank, while OCBC owns 87 per cent of Great Eastern.

• Third, GLC 1 and 2 are likely to produce high profits for Great Eastern. They make up $209 million – or 35 per cent of the $594 million worth of notes sold.Just over half the investors have accepted Great Eastern’s buyback offer so far. Why so many when it is not in their interest? The current price for the notes is set at 61 cents on the dollar, according to the company website’s pop-up ad and newsletter – a buy-only price, set by the underwriter, which is Deutsche Bank for GLC 1 and 2. Investors who redeem early must sell at that price and sell only to the underwriter. This is likely to bias the price downwards. Great Eastern’s offer is valued at $1 minus the dividends already paid of 10.5 cents. So $1 – $0.105 = $0.895 – easily more than 61 cents. Investors would conclude: ‘It’s a no-brainer. I accept!’ Besides the downward price bias noted above, the 61 cent price on the website is out of date. The more recent price is 73 cents, which makes the offer less attractive to investors. It can also be found on the website, though not as easily.

• Fourth, GLC 1 and 2 investors must give back 10.5 per cent in clawed-back dividends. They must also forgo the 3.5 per cent that was to be paid at the end of September and October, plus another 3.5 per cent due at maturity in 13 and 14 months. So 10.5 + 3.5 + 3.5 = 17.5 per cent – that is the ‘one year’ return investors will receive if they reject the offer and hold GLC 1 and 2 to maturity.

While that 17.5 per cent yield is high, the risks remain low for two reasons:

• One, GLC 1 and 2 have underlying collateralised debt obligations (CDOs) that reference bonds rated BBB- by Standard & Poor’s (S&P). Their time to maturity is just over one year. S&P data shows the one-year default rate for BBB- global corporate bonds from 1981 to last year was only 0.6 per cent. That is less than one bond out of 100 defaulting.

• Two, the rules for GLC 1 and 2 do not place them near default. Only six out of more than 100 bonds held by either tranche have suffered ‘credit events’ in the past four years. Another 11 bonds must go bad before investors lose any capital. With the improved economy, it is unlikely that 11 more bonds will go bad within 14 months.If this scenario plays out and GLC 1 and 2 do not default, investors will get back 100 per cent of their investment in little more than a year. Though there is a slight risk, that 17.5 per cent return more than compensates for it. In its automated e-mail messages, Great Eastern gives the opposite advice: ‘Do not miss this chance to accept the offer,’ it says.

Accept the buyback for GLC 3, 4 and 5 GLC 3, 4 and 5 – valued at $385 million – are different. The underwriter has priced GLC 3 at 36 cents on the dollar, and GLC 4 and 5 at 23 cents. These figures probably understate the value of the bonds for the same reasons as for GLC 1 and 2, but in this case, it does not matter. The value of these bonds is so far underwater – below the buyback price – that some degree of under-pricing won’t affect the investor’s decision.

• First, the underlying CDOs of GLC 3, 4 and 5 are rated CCC- by S&P. Their time to maturity is three to four years. S&P data shows that the three-year default rate for CCC- global corporate bonds from 1981 to last year was 39 per cent. The four-year default rate was 42 per cent.

• Second, the CDOs backing GLC 3, 4 and 5 reference more than 100 bonds each. The contract requires that an additional 10, seven and five bonds in GLC 3, 4 and 5 must go bad before investors lose their capital. This is more likely to happen since the time to maturity for these tranches is three times longer than for GLC 1 and 2 and their bond quality is much lower.

There is no need to feel sorry for Great Eastern. The buyback is not as expensive as it seems, even for GLC 3, 4 and 5. The notes are structured as a wager rather than an investment and work like this: Only 10 per cent to 15 per cent of the underlying bonds need to suffer credit events before investors must forfeit the other 85 per cent to 90 per cent of good bonds to ’someone’. That someone is usually the underwriter or arranger – Goldman Sachs for GLC 3, 4 and 5. Great Eastern could simply inherit this deal from investors. Or it might reduce its risks by first entering into a hedge or re-insurance agreement with Goldman Sachs or others. Great Eastern has not said if it did this although it would not be unusual. The company’s losses on GLC 3, 4 and 5 would be further reduced by: One, the expected profits from GLC 1 and 2; two, the clawback of agent commissions; three, the management fees earned by Lion Global; four, the profit sharing – if any – with the underwriter; and five, tax savings should losses occur. Four years from now – when the notes have all matured – the net loss to the OCBC group is likely to be substantially less than the trumpeted figure of $250 million. The writer is a financial columnist for The New Paper and Adjunct Professor of Economics and Statistics at Singapore Management University.

New consumer watchdog

Source: Straits Times Aug 25, 2009

New consumer watchdog

By Francis Chan, Finance Correspondent

A NEW consumer watchdog was launched on Tuesday to keep closer tabs on financial institutions and their sales processes.

Formed by former Income chief executive Tan Kin Lian, the Financial Services Consumers Association (FiSCA) is an independent and not-for-profit organisation that sets out to strengthen financial consumer protection.

The move to set up FiSCA came after thousands of retail investors here lost their savings on complex structured products.

FiSCA will focus on education and research. It will hold seminars and consumer forums for members to enhance their understanding of financial services and products.

"Ultimately, our focus is to educate people on how to make choices," said Mr Tan, who will head FiSCA as president.

"But even before we learn to assess the more complex products, we must make sure we have the basic understanding first. If not, we may be easily taken for a ride."

Mr Tan said for an annual membership fee of $36, members can also access its services, which will also include an online platform.

A survey has found that investors here want a truly independent watchdog that is not funded by any financial institution, said Mr Michael Zhan, FiSCA committee member.

To maintain its impartiality, FiSCA will not seek funding from financial institutions, said Mr Tan.

FiSCA hopes to raise additional funding from government agencis and other philanthropic organisations that want to promote consumer financial education.

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New consumer watchdog

Source: Straits Times Aug 25, 2009

New consumer watchdog

By Francis Chan, Finance Correspondent

A NEW consumer watchdog was launched on Tuesday to keep closer tabs on financial institutions and their sales processes.

Formed by former Income chief executive Tan Kin Lian, the Financial Services Consumers Association (FiSCA) is an independent and not-for-profit organisation that sets out to strengthen financial consumer protection.

The move to set up FiSCA came after thousands of retail investors here lost their savings on complex structured products.

FiSCA will focus on education and research. It will hold seminars and consumer forums for members to enhance their understanding of financial services and products.

"Ultimately, our focus is to educate people on how to make choices," said Mr Tan, who will head FiSCA as president.

"But even before we learn to assess the more complex products, we must make sure we have the basic understanding first. If not, we may be easily taken for a ride."

Mr Tan said for an annual membership fee of $36, members can also access its services, which will also include an online platform.

A survey has found that investors here want a truly independent watchdog that is not funded by any financial institution, said Mr Michael Zhan, FiSCA committee member.

To maintain its impartiality, FiSCA will not seek funding from financial institutions, said Mr Tan.

FiSCA hopes to raise additional funding from government agencis and other philanthropic organisations that want to promote consumer financial education.

2nd term for Bernanke

Source: Straits Times Aug 25, 2009

2nd term for Bernanke

OAK BLUFFS (Massachusetts) - PRESIDENT Barack Obama on Tuesday awarded Federal Reserve Chairman Ben Bernanke a second term, saying his bold 'out-of-the-box' thinking would help steer the US economy out of the worst slump since the 1930s.

NEED TO PUMP LIQUIDITY INTO THE FINANCIAL SYSTEM MR BERNANKE has worked closely with the Treasury Department and the White House in plotting a route out of the recession and stabilising and reforming the debt-laden US financial sector. He now faces the delicate decision of how quickly to scale back the massive government effort to pump liquidity into the financial system. ... more BEN BERNANKE - FROM ECONOMICS PROFESSOR TO FEB CHIEF * MR BERNANKE, who has to be reconfirmed by the Senate, had taken unusual high-profile steps for a Fed chief of late, appearing in a profile on a popular US newsmagazine program, CBS's '60 Minutes' and at a town-hall meeting in Kansas City, Missouri. * Before his appointment as chairman of the Federal Reserve on Feb. 1, 2006, he was chairman of the President's Council of Economic Advisers, from June 2005 to January 2006. ... more MR OBAMA'S spokesman Bill Burton explained the president had made the surprise announcement merely to scotch speculation about Mr Bernanke's future. Some experts had predicted that Mr Obama would replace the central banker with one of his top advisors Larry Summers for the new term beginning next year. ... more

Mr Obama suddenly interrupted his vacation on the resort island of Martha's Vineyard to make the announcement, praising Mr Bernanke's battle against 'one of the worst financial crises that this nation and the world have ever faced.'

Lauding the cerebral Mr Bernanke for learning lessons of the 1930s Great Depression, and his background, temperament, courage and creativity, he said the Fed chief was the ideal man to help lead the economic rebound.

'Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic freefall,' Mr Obama said.

The president warned however that the economy and the financial system had a 'long way' to go before its full health was restored.

Mr Bernanke, 55, will be expected to win Senate confirmation for his reappointment, but could face stiff questioning from some lawmakers who believe he did too little to stave off the recession and protect consumers.

Mr Obama's unexpected announcement, on what aides had billed as a 'no news' vacation, will likely give the financial markets, on which many Americans depend for their retirement savings, a quick boost. It may also dampen criticism of the president's economic management on a day when his Office of Management and Budget and the Congressional Budget Office are both due to release new statistics on the ballooning deficit.

Mr Obama's sudden announcement could also suck media interest away from a flurry of lawmakers' town hall meetings featuring attacks on his limping health care reform plan and a new row over Bush-era 'war on terror' tactics. His praise for Mr Bernanke read like a defense of his own economic policy, which is facing mounting opposition as his political approval ratings decline.

'Almost none of the decisions that he or any of us made have been easy,' he said, mentioning auto and financial industry rescues and his administration's bumper economic stimulus package. 'They faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, this bold, persistent experimentation has brought our economy back from the brink.'

Mr Bernanke admitted that the Federal Reserve had been challenged by the unprecedented events of recent years. 'We have been bold or deliberate as circumstances demanded,' he said, adding that his objective was to restore a stable financial and economic environment. -- AFP

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China faces new econ worries

Source: Straits Times Aug 24, 2009

China faces new econ worries

BEIJING - CHINA'S top economic official warned the country faces new problems and said Beijing will stick to its stimulus because the recovery lacks a solid foundation, according to comments reported on Monday.

Premier Wen Jiabao cautioned against being 'blindly optimistic' despite improvements in the economy, according to a statement on the Cabinet's Web site.

The economy 'still faces many new difficulties and problems,' Mr Wen was quoted as saying during a visit to southeastern China that ended on Monday. 'There are still a lot of unstable and uncertain factors ahead and the economic situation ahead is still very grave, although both the world economy and the national economy are making positive changes now.'

The premier cautioned that the effects of some government measures might fade while others would take time to show results, the Cabinet statement said. It gave no other details of potential problems.

Mr Wen's comments echoed his repeated warnings against complacency and assurances that easy credit will continue. But they clashed with increasing optimism among analysts who say China is making dramatic progress in emerging from its slump.

Mr Wen promised to stick to policies meant to boost domestic demand, maintain easy credit and promote efficiency. Beijing is in the midst of a two-year, 4 trillion yuan (S$844 billion) effort to boost domestic consumption by pumping money into the economy through higher spending on building highways and other public works.

Driven by that spending, economic growth accelerated to 7.9 per cent in the latest quarter, up from the previous quarter's 6.1 per cent, but Mr Wen and other officials have called for continued vigilance. They say weak corporate profits and other areas show a recovery is not firmly established.

Many analysts expect China to be the first major economy to emerge from the sharpest global downturn since the 1930s.

The strongest improvement has been in stimulus-financed areas such as construction. Most of the early benefits have gone to state-owned companies, while a private sector recovery has lagged.

Analysts say more gains are still dependent on stimulus spending. Chinese stock markets have declined this month on concern Beijing might curb record bank lending that financed the stimulus and ignited a boom in stock prices. -- AP

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More bank failures expected

Source: Straits Times: Aug 24, 2009

More bank failures expected

People walk past a Bank of America branch in New York August 13, 2009. -- PHOTO: REUTERS

NEW YORK - A PROMINENT banking analyst said on Sunday that 150 to 200 more US banks will fail in the current banking crisis, and the industry's payments to keep the Federal Deposit Insurance Corp afloat could eat up 25 per cent of pretax income in 2010.

Mr Richard Bove of Rochdale Securities said this will likely force the FDIC, which insures deposits, to turn increasingly to non-US banks and private equity funds to shore up the banking system.

'The difficulty at the moment is finding enough healthy banks to buy the failing banks,' Mr Bove wrote.

The FDIC is expected on August 26 to vote on relaxed guidelines for private equity firms to invest in failed banks, after critics said previously proposed rules were too harsh and would actually dissuade firms from making investments.

Mr Bove said 'perhaps another 150 to 200 banks will fail,' on top of 81 so far in 2009, adding stress to the FDIC's deposit insurance fund.

Three large failures this year - BankUnited Financial Corp in May, and Colonial BancGroup Inc , Guaranty Financial Group Inc in August - collectively cost the fund roughly US$10.7 billion (S$15.4 billion).

The fund had US$13 billion at the end of March.

Regulators closed Guaranty's banking unit on Friday and sold assets of the Texas-based lender to Banco Bilbao Vizcaya Argentaria SA . The FDIC agreed to share in losses with the Spanish bank.

Mr Bove said the FDIC will likely levy special assessments against banks in the fourth quarter of this year and second quarter of 2010.

He said these assessments could total US$11 billion in 2010, on top of the same amount of regular assessments. 'FDIC premiums could be 25 per cent of the industry's pretax income,' he wrote. -- REUTERS

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estrogen treatment for breast cancer

Source: www.channelnewsasia.com

Study finds promise in estrogen treatment for breast cancer
Posted: 19 August 2009 1345 hrs

WASHINGTON – Low doses of estrogen could help treat some forms of breast cancer, according to a clinical study published on Tuesday.

The findings, published in the Journal of the American Medical Association, could lead to a partial reversal in how metastatic breast cancer is currently treated using medicines to lower estrogen levels.

"When estrogen-lowering drugs no longer control metastatic breast cancer, the opposite strategy might work," said a statement from the Washington University School of Medicine, which carried out the tests.

Matthew Ellis, an oncologist who was the lead author of the study, said around a third of the women who did not respond to standard treatment reacted well to the new regimen.

"Raising estrogen levels benefited 30 percent of women whose metastatic breast cancer no longer responded to standard anti-estrogen treatment," he said.

Side effects from raising estrogen levels could include headaches, bloating, breast tenderness, fluid retention, nausea and vomiting, but Ellis said side effects were limited in comparison to other treatments.

"We found that estrogen treatment stopped disease progression in many patients and was much better tolerated than chemotherapy would have been."

"Overall, we demonstrated clearly that the low dose was better tolerated than the high dose and was just as effective for controlling metastatic disease." - AFP/sh

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Race Against Cancer aims to help needy patients

Source: www.channelnewsasia.com

Race Against Cancer aims to help needy patients
By Cheryl Lim, Channel NewsAsia | Posted: 23 August 2009 1448 hrs

SINGAPORE: Giving strength and encouragement to those battling cancer. That's what the inaugural Race Against Cancer hopes to do.

Some 3,600 participants took part in the race. Among them was Dr William Tan who is currently seeking treatment for stage four leukaemia. Together with some 20 sponsors, they raised about S$465,000.

The Cancer Society is hoping to raise some $500,000 as part of the race's fund-raising efforts.

The money will go towards the society's various programmes.

These include the "SCS Help the Children and Youth programme" that helps children whose lives have been affected by cancer.

Support will be provided in four areas - the school allowance grant and bursary schemes, counselling, mentoring and family engagement services.

The society helps more than 1,000 needy cancer patients and reaches out to some
40,000 individuals through its community outreach and awareness programmes.

- CNA/ir

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S'poreans under-insured

Source: Straits Times Aug 21, 2009

S'poreans under-insured

Average person covered for only a third of $495k needed

By Charissa Yong
An average Singaporean needs life insurance protection of $494,851. However, his existing life cover is only $165,628 on average. -- ST GRAPHIC

THE average Singaporean now needs about $495,000 of life insurance, but is covered for only one-third of that amount - a drastic shortfall that needs urgent attention, an expert has warned.

According to a new report by Nanyang Technological University (NTU) Associate Professor David Yee, workers here aged from 20 to 64 are under-insured by as much as $525 billion nationwide.

An average Singaporean needs life insurance protection of $494,851. However, his existing life cover is only $165,628 on average, even after including mortgage insurance and CPF savings. This leaves a stunning shortfall of $329,223.

Prof Yee presented the report at a seminar on insurance held at the Intercontinental Hotel on Thursday.

A working adult's protection needs should provide enough cash to maintain dependants' current living standards. It should also cover any outstanding debts and funeral expenses.

This excludes the contribution of a surviving spouse. In addition, it needs to cover housing costs, allowances given to parents and children's expenses, including education fees.

Working men aged 30 to 49 have the highest protection needs as they have the highest income and are likely to have higher personal loans. Also, more dependants typically rely on them financially.

The male-female income gap is the main driver behind differences in the insurance needs of each gender, he said.

As couples get older, the husband tends to be the more dominant breadwinner, and so the financial burden of protection shifts away from the wife.

Those aged 30 to 39 were found to have the highest level of insurance ownership, but also the most protection needs.

Read the full story in Friday's edition of The Straits Times

charyong@sph.com.sg

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'No needy' left behind

Source: Straits Times Aug 19, 2009

'No needy' left behind

The needy get a lot of help, said Mrs Yu-Foo. -- ST PHOTO: HOW HWEE YOUNG

NEEDY Singaporeans do receive substantial help from the Government, and in fact the Government ensures that 'no needy Singaporean is left behind'.

Mrs Yu-Foo Yee Shoon, the Minister of State for Community Development, Youth and Sports (MCYS), said this in response to criticisms of Singapore's social safety net made on Tuesday by Nominated Member of Parliament Viswa Sadasivan.

Recent increases in the quantum of Public Assistance (PA) allowances means that the total sum that a large family gets can be very close to what a low-wage worker earns, she pointed out.

And the PA scheme is only one of many administered by her ministry to help the poor, she noted.

Citing another example, she said families with a monthly income of $1,500 or less receive childcare fee subsidies of at least 95per cent. They pay only $10 a month for childcare and $5 for kindergarten. As of April, an individual person on the PA scheme now gets $360 a month, up from the previous $330. Those with families get more.

MCYS provides children from PA families with additional assistance of up to $130 per child every month. Along with other aid, this means that a family of two adults and two children could get up to $1,210 a month, Mrs Yu-Foo pointed out.

This is comparable to the bottom 20per cent of wage earners in Singapore, who make $1,200 or less a month. There are fewer than 300,000 resident workers in this category.

PA recipients also receive other cash handouts and utilities and rental rebates from the Government, as well as meal vouchers and other forms of support from community organisations.

Mr Sadasivan had taken issue with what he called a 'very basic level of assistance' provided by the Government to very needy Singaporeans, which had to be supplemented by welfare organisations. He felt the Government was in a strong enough financial position to provide the necessary assistance directly.

In reply, Mrs Yu-Foo said that while MCYS could afford to give more to the 3,000 or so PA recipients, 'the greatest danger in doing so would be taking away the incentive of the much larger number of Singaporeans who are working hard, albeit in low-paying jobs'.

CLARISSA OON

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Grow old in own homes

Source: Straits Times Aug 19, 2009

Grow old in own homes

By Tan Weizhen Although nursing homes are a necessity as the population ages, the Government wants to help elderly Singaporeans to grow old in their own homes as far as possible and will expand services to help them, said Lim Boon Heng. --ST PHOTO: STEPHANIE YEOW

ALTHOUGH nursing homes are a necessity as the population ages, the Government wants to help elderly Singaporeans to grow old in their own homes as far as possible and will expand services to help them, said Lim Boon Heng, Minister in the Prime Minister's Office on Wednesday night.

He said services such as day care, home care, escort, transport, befriending services are required and will be expanded over time.

Caregivers will also get support by tapping on volunteers and non-profit organisations like churches.

Speaking at the 50th anniversary dinner of the Catholic Welfare Services, Mr Lim said the Government will do more to provide information and referral, develop relevant services, and promote the use of the caregiver training grant, which provides $200 subsidises to train a caregiver.

He also urged the private sector, such as nursing homes and other organisations, to work with the government to achieve this, as well as to provide the elderly more opportunities to be socially active.

Mr Lim said as Singapore enters the 'threshold of rapid aging', the demand for nursing home beds will rise to cope with the growing aging population.

'Our baby boomers will join the ranks of 'elderly' in a few years. Assuming the same level of demand we have now, the need for nursing home beds will double in 10 years, triple in 20 years,' he said.

He disclosed that discussion to expand two nursing homes - St Theresa's Home and St Joseph's Home - is underway.

They are under the care of the Catholic Welfare Services (CWS), and its third nursing home, Villa Francis, is already being relocated and expanded.

The dinner, held at Bliss Garden Restaurant at Singapore Expo, was also attended by Health Minister Khaw Boon Wan, Reverend Nicholas Chia, Archbishop of Singapore, and Archbishop Salvatore Pennacchio, Apostolic Nuncio to the Republic of Singapore, along with 600 guests, staff from nursing homes, VWOs, volunteers and board members.

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Don't shirk responsibility

Aug 16, 2009

PM'S NATIONAL DAY RALLY SPEECH

Don't shirk responsibility

By Melissa Pang He said at a recent meeting with some managers from nursing homes, he was told that some elderly folks had been abandoned by their families. -- ST PHOTO

CARING for elderly parents may not be an easy task but it is a responsibility Singaporeans must not shirk, said Prime Minister Lee Hsien Loong on Sunday night.

Speaking in Mandarin at the National Day Rally at the University Cultural Centre Speech to a gathering of over 1,600, PM Lee said: 'As Asians, we deeply value fillial piety. Family love and warmth cannot be replaced by nursing homes or hospitals.'

He said at a recent meeting with some managers from nursing homes, he was told that some elderly folks had been abandoned by their families.

These elderly parents were sent to the nursing homes by their children, who would then disappear, some even going to the extent of changing their address.

When contacted, they said they would not care even if the homes turf out their parents.

To deal with this problem, PM Lee said the Government will explore how best to use the Maintenance of Parents Act, and other ways, such as building more community hospitals, to alleviate the burden of those with sick elderly parents.

Mr Lee also devoted a substantive part of his address in Mandarin on the stresses to the healthcare system brought about by an ageing population.

Turning to healthcare issues, he touched on the rising obesity rates in Singapore.

'Maintaining a healthy lifestyle is every man's responsibility. It is the best way to avoid diseases and cut back on medical expenses,' he said.

He noted that in China, rising obesity has led to a boom in weight loss businesses. Giving an example, he said one firm in Shanghai is charging customers by the amount of weight they lose.

'Here, the annual healthy lifestyle campaign helps everyone lose weight for free,' he said, drawing laughter from the audience.

Despite the national healthy lifestyle programme, the number of obese Singaporeans is also gradually rising, said Mr Lee.

'We must work harder to prevent obesity...or there will be more illnesses, increasing the burden to society and ourselves,' he added.

Mr Lee also addressed the economic outlook for Singapore and the need to maintain racial and religious harmony in his speech.

He will expand on these issues in English at 8pm.

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Well-placed for pickup

Source: Straits Times Aug 16, 2009

PM'S NATIONAL DAY RALLY SPEECH

Well-placed for pickup

By Alvin Foo PM Lee said the eye of the economic storm has passed for Singapore but the outlook beyond the third quarter is still unclear. -- ST PHOTO: JOYCE FANG

SINGAPORE is well-positioned to pick up strongly when the global economy recovers because of its comprehensive and decisive response to the downturn, said Prime Minister Lee Hsien Loong on Sunday night.

Giving an update on the economy amid signs of global recovery, Mr Lee said the economy is in a 'deep trough', but Singapore is coping well.

'Because of our comprehensive, decisive response to the downturn, we can be confident of our future,' he said in his National Day Rally speech at the University Cultural Centre.

The resilience package unveiled during January's Budget has worked, and there is no need for a 'new prescription' now, he told the gathering of politicians, grassroots and business leaders, among others.

PM Lee said the eye of the economic storm has passed for Singapore but the outlook beyond the third quarter is still unclear.

Although the economy contracted 6.5 per cent in the first half year, it was not as bad as feared, said PM Lee.

Last week, the Government released economic growth data which showed a 20.7 per cent rise in the second quarter over the first quarter's figure.

Mr Lee said the labour situation has stabilised and some companies are hiring again, although in small numbers.

'The third quarter should be alright,' he told the gathering.

But sounding a note of cautious optimism, he said: 'Beyond that, the outlook is still unclear.'

For instance, there are no signs of Christmas orders rushing in yet. Also, companies which have asked their staff to go on compulsory leave or shorter work week, have reduced their output but not headcounts.

While this is alright for the short term, it is unclear how long these firms can hold on to extra workers, said Mr Lee, adding that if the recovery is delayed, they may have to downsize.

Mr Lee said Singapore can still grow even if there is a subdued global recovery, by sharpening its skills and expanding its market share, even if world markets are not enlarging quickly.

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