Singapore took an eye-watering $4 billion hit on a ten-year investment in UBS that was supposed to have been for the ages. In fact, the wealthy city-state should have dumped Switzerland’s largest bank long ago.


finews.first is a forum for renowned authors specialized on economic and financial topics. The texts are published in both German and English. The publishers of finews.com are responsible for the selection.


The news this week that Singapore was dumping 93 million UBS shares awakened crisis-era memories. Under then-chairman Marcel Ospel, the Swiss bank persuaded the city-state to pour in 11 billion Swiss francs as an emergency backstop late in 2007.

What Singapore didn’t know at the time was that UBS losses were about to get much, much worse. Late to the subprime party, the bank had doubled up on dud mortgage securities in an internal hedge fund set up as a sweetener for a top executive and traders, as well as in its own fixed income business.

UBS, of course, was bailed out by the Swiss government less than a year later after writing off more than $50 billion in bad investments. The bank spent three years attempting to stanch withdrawals at its flagship private bank following the rescue. Ospel was sent packing and is now a pariah of Swiss banking and society.

«Switzerland parachuted out, Singapore dug in»

Switzerland, which generally detests meddling in business, parachuted out of its UBS stake as soon as it could – less than a year after the bailout, and with a tidy billion-franc profit. By that time, the secretive Singaporean fund had already suffered severe losses on its investment, but chairman Lee Kuan Yew, the former prime minister, said that it planned to hold the stock for several decades.

Lee, who stepped down in 2011, didn’t live long enough to see that it only took one decade for for Singapore's sovereign wealth fund, the GICto finally pull the plug on UBS – not before one last parting shot that is particularly cringeworthy in Asia’s culture of saving face.

What changed? For one, Singapore finally managed to get over its loss aversion. The term is credited to behavioral economists Daniel Kahnemann and Amos Tversky. The two were the first to demonstrate that losses hurt investors psychologically more than profits of an equal amount boost. This can lead to making emotionally-driven decisions, instead of simply realizing a loss and moving on.

«Like an amateur dabbling in the stock market, Singapore held on»

The financial crisis undoubtedly presented major opportunities for a sovereign the heft of Singapore, an inexperienced investor at the time. But like an amateur dabbling in the stock market, the GIC sat on the investment with little hope that the shares would recover after slumping to a fraction of the purchase price.

The fund can’t be blamed for buying UBS right before it truly blew up – though Lee Kuan Yew did later concede Singapore jumped in too early.

But the fund is guilty of not realizing its losses and putting its considerable financial arsenal to better use elsewhere – in 2012, for example, when it became apparent that a major overhaul under new UBS Chief Executive Sergio Ermotti was not going to enliven the stock.

Growth in banks across the European continent has been feeble in recent years, with limited growth opportunities. On top of that, banks in Switzerland also face «Swiss finish» regulation that is tougher than in wider Europe, coupled with billions in private banking outflows as tax amnesties hit.

Singapore Inc.'s often politically fraught»

UBS shares briefly broached 20 francs two years ago, but the stock, which now trades around 16 francs, has hardly been a post-crisis winner. Cash-rich investors are looking at better value: Deutsche Bank has picked up new investments from China and Qatar in recent months.

A sovereign wealth fund (SWF) with an estimated $100 billion-plus in assets doesn’t exactly fit with the image of a reluctant investor prone to making amateur mistakes. Part of the problem is that both of Singapore’s funds – Temasek and GIC – are governed by «Singapore, Inc.,» as the cozy network governing domestic firms and politics is referred to.

This makes Singapore's investment decisions often more political than shrewd systemic ones which can hold up in the cold light of day: when Ospel called late in 2007 as UBS’ losses began piling up, Singapore reportedly agreed to the billion-franc deal, and then some, in a matter of days.

Undoubtedly, UBS’ more than 50 year-old ties in the city-state helped bolster trust. While crises often call for quick action, the politically fraught process doesn’t speak to impeccable governance and lively debate within the funds.

«Displeasure over 1MDB as an impetus for Singapore to dump UBS»

For example, Temasek is run by Ho Ching, the wife of the current prime minister, who is the son of Lee Kuan Yew. An effort to renew in 2009 under former Goldman Sachs banker Chip Goodyear quickly turned into a debacle due to major strategic differences.

The GIC’s succession plan has been much smoother, and in fact recent changes likely prompted the UBS sale.

The fund appointed a new CEO and a new investment chief in January: Lee Chow Kiat and Jeffrey Jaensubhakij, respectively. Both are long-time GICers as well as consummate insiders to «Singapore Inc.»

What ultimately prompted Kiat and Jaensubhakij to pull the plug is unknown, and going by past convention, the GIC will never tell.

What cannot be ignored is the billion-dollar graft scandal surrounding 1MDB, which has imploded in Singapore and Switzerland. The GIC has implicitly voiced its displeasure at the banking industry’s propensity for unethical and illegal behavior. Entirely possible that 1MDB and especially UBS’ involvement in the scandal was the last straw for the GIC.


Katharina Bart is a senior contributor for finews.ch and finews.com. She also writes for our Asian partner site, finews.asia. She is a dual Swiss-American citizen with 16 years experience as a journalist, most recently as chief correspondent for Thomson Reuters in Zurich.

Prior to that, she wrote for Dow Jones Newswires and The Wall Street Journal from 2003 to 2011. She studied communications at Grand Valley State University in Michigan and graduated with a degree in journalism from the University of Fribourg in Switzerland.


Previous contributions: Rudi Bogni, Peter Kurer, Oliver Berger, Rolf Banz, Dieter Ruloff, Samuel Gerber, Werner Vogt, Walter Wittmann, Alfred Mettler, Peter Hody, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Beat Wittmann, Richard Egger, Maurice Pedergnana, Didier Saint-George, Marco Bargel, Steve Hanke, Andreas Britt, Urs Schoettli, Ursula Finsterwald, Stefan Kreuzkamp, Katharina Bart, Oliver Bussmann, Michael Benz, Peter Hody, Albert Steck, Andreas Britt, Martin Dahinden, Thomas Fedier, Alfred Mettler, Frédéric PappBrigitte Strebel, Peter Hody, Mirjam Staub-Bisang, Guido Schilling, Claude Baumann, Adriano B. Lucatelli, Nicolas Roth, Thorsten Polleit, Kim Iskyan, Dan Steinbock, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Peter Kurer, Kinan Khadam-Al-Jame, Werner E. Rutsch, Robert Hemmi, Claude BaumannAnton Affentranger and Yves Mirabaud.