TUCP questions GSIS stakes in Indonesian banks

MANILA, Philippines – The country’s largest labor group yesterday questioned the equity stakes of the Government Service Insurance System (GSIS) in at least three Indonesian banks, which should have been invested in the country.

The Trade Union Congress of the Philippines (TUCP) also cited the pension fund’s acquisition of shares in the fifth-largest US bank.

“We have nothing against Indonesian banks. But if this is the case – that the GSIS is investing in the banks of our next-door neighbor, then it should have just invested here at home and could have helped further build up our own banks and the local stock market,” TUCP secretary-general and former senator Ernesto Herrera said.

He said the GSIS investment in Indonesian banks could be due to the bias of its foreign fund manager, ING Investment Management, a unit of the Dutch global financial services giant ING Groep NV. A group of Dutch corporations once ruled Indonesia, which was part of the Dutch empire for almost 350 years.

ING and France’s Credit Agricole Asset Management Ltd. manage the GSIS’s P26.54-billion ($565 million at P47 to $1) Global Investment Program (GIP) portfolio.

The GSIS listed a total of P4.13-billion worth of investments in “global equities” or the common stocks of 123 foreign firms, including 26 banks and financial institutions.

It reported owning shares in three Indonesian lenders – Bank International Indonesia, Bank Negara, and Bank Rakyat.

Herrera named the GIP’s stock investment in Minneapolis, Minnesota-based US Bancorp (USB), the fifth-largest American bank.

He said USB used to be one of the biggest creditors to the Philippines, and probably still has current loans with the state-run National Power Corp.

Like JP Morgan Chase & Co., USB has been largely unaffected by the global financial turmoil because of its limited sub-prime debt exposure.

The world’s wealthiest man, Warren Buffett, has also been building up his equity stake in USB.

USB’s stock has outperformed those of Citigroup Inc., Bank of America Corp., and Fifth Third Bancorp, three other American lenders in which the GSIS also owns stock.

Financial analysts also expect Buffett to persuade the Goldman Sachs Group Inc., where he also has a stake, to eventually acquire USB at a premium.

After the collapse of the Bear Stearns Companies Inc. and Lehman Brothers Holdings Inc., the two remaining large US investment banks – Goldman Sachs and Morgan Stanley – converted themselves into full-fledged deposit-taking banks to enjoy access to US government liquidity channels.

The Bank of America is acquiring the third surviving large US investment bank, Merrill Lynch & Co. Inc.

The GSIS also reported stock investments in Spain’s Banco Santander, France’s BNP Paribas, Italy’s Intesa San Paolo and UniCredit Group, Ireland’s Allied Irish Bank and Irish Life and Permanent PLC, Denmark’s Danske Bank;

Sweden’s ForeningsSparbanken AB, Britain’s Cattles PLC and Aviva PLC, Israel’s Bank Hapoalim, and Singapore’s DBS Group Holdings Ltd. and United Overseas Bank, among other financial firms.

The GSIS’s P4.13-billion investment in “global equities” accounts for 15 percent of its GIP. 

Meanwhile, the TUCP said the planned nationalization of US and UK banks will hurt the investments of the GSIS.

Herrera said the plan of the governments of the US and the UK to acquire large equity stakes in their respective banks “does not bode well with GSIS investments in the common stocks of foreign lenders.”

“This will definitely dilute the foreign bank stocks held by the GSIS. The banks will have to issue new shares to the US and UK governments in exchange for large amounts of fresh capital,” he noted.

Herrera claimed as a result of this, “there will be far greater supply of bank shares. And the more the supply, the greater the downward pressure on bank stock prices for an extended period.”

Last Friday, Treasury Secretary Henry Paulson said the US government intends to buy an ownership stake in a broad array of American banks for the first time since the Great Depression.

Earlier, Britain had announced that it would pour cash into its troubled banks in exchange for stakes in them - a partial nationalization.

“While this initiative will save US and UK banks from outright collapse, it will be achieved at the expense of common shareholders such as the GSIS,” Herrera said. – Mayen Jaymalin, Sheila Crisostomo