Decade of turbulence and greed

The Business Times 01/01/2010 FELDA CHAY, JAMIE LEE

While the first 10 years of the new millennium were full of turmoil, there were triumphs as well Singapore A DECADE of zeros. A decade of nothing. Whatever you choose to call it, the past 10 years will probably be remembered for the scores of calamitous events that took place during the period. And yet these turbulent years also had their stories of triumph. This is as good a time as any to journey back over the past decade that seems to have passed so quickly and yet packed so much in it. IT bubbled over It started with such promise. On Jan 10, 2000, the world's largest online service AOL announced its takeover of media giant Time Warner in a US$164 billion allstock deal driving home hopes that riding the dotcom wave, which began in 1998, was indeed the way to go. The conviction that investing in technology stocks would yield dizzying profits was strengthened by the upswing in the technology-heavy Nasdaq Composite Index. It crossed the 5,000 mark on March 10 that year more than double its value from just a year earlier. But rising so high so quickly was unsustainable. Soon after Nasdaq breached this barrier, there were massive, multi-billion dollar sell orders for its major bellwether stocks that dragged the index almost. Investors soon began pulling out of technology companies many of which never made a net profit. From March 2000 to October 2002, technology firms lost US$5 trillion in market value falling as fast and hard as their rise to stardom. The fall of Enron As if the technology crash wasn't enough, American energy firm Enron had to add to the downward spiral and reinforce the point that really, nothing is forever. "America's Most Innovative Company" for six consecutive years a title bestowed upon Enron by Fortune magazine was found in October 2001 to have greased and cooked its books in what was considered to be the largest corporate scam at that time, a discovery that contributed to its bankruptcy two months later. Its fall from grace also led to criminal charges against its auditor, Arthur Andersen, in 2002. The firm, one of the "big five" accounting firms worldwide, was found guilty and dissolved that same year. The Enron debacle was followed by a string of accounting scandals in the US at large, reputable firms like WorldCom, the second largest long distance phone company in America for a time, and manufacturing firm Tyco. The scandals culminated in the Sarbanes-Oxley Act, which increased the accountability of auditing firms to maintain an objective and independent view of their clients'

conduct, among other things. The largest IPO, ever Not all was doom and gloom for this decade. Certainly, the euphoria that struck investors when the Industrial and Commercial Bank of China (ICBC) launched its IPO in 2006 helped China's largest bank to raise a staggering US$21.97 billion. In particular, the run-up to its IPO launch saw Goldman Sachs purchase a 5.8 per cent stake in ICBC for US$2.6 billion, one of its largest investments ever. The amount ICBC raised not only makes it the largest IPO of the decade, but also the largest IPO the world has ever seen. So long, Lehman No compilation of the biggest events on the first 10 years of this new millennium is complete without mentioning the fall of the supposedly infallible Lehman Brothers, the fourth-largest US investment bank, to the subprime mortgage crisis. On top of being the collapse that really marked the start of plunging stock market values worldwide, the 158-year-old bank's bankruptcy is also the biggest Chapter 11 filing in US history after losing 94 per cent of its market value in 2008. Buy me, or I will go under Lehman's fall was, unfortunately, just the first of many bank failures in the US. In a bid to prevent further shocks to global markets, America's Federal Deposit Insurance Corporation (FDIC) actively sought to arrange for the sale of failed American banks' assets to an existing financial institution, or directly pay out their deposits so long as they fell within the FDIC's insurance limits. The US Bank, having bought 12 failed banks between 2008 and 2009, takes the top spot as the institution that bought the largest number of failed American banks. The banks it bought over include the First Bank of Idaho, San Diego National Bank and California National Bank. Biggest single-day major stock market fall One of the many consequences of the financial tsunami was how stock markets across the world came crashing back to earth. None, however, fell as hard as Hong Kong's Hang Seng Index at least, when talking about the biggest single-day drop experienced by a major stock index. On Oct 27, 2008, the index plummeted by as much as 12.7 per cent in the panic and uncertainty that fell on the months after Lehman's downfall. A day later, however, the HSI rebounded 14.4 per cent.

Biggest single-day major stock market rise This accolade goes to India's BSE Sensex, which rose 17.3 per cent on May 18, 2009 highlighting how quickly markets around the world, in particular within Asia, have recovered from the financial crisis. The sharp rise also shows the relative resilience of Asian markets to the global meltdown. Biggest stock gainers on Wall Street Banks around the world saw their stock price nosedive as a result of the ongoing financial storm, but Goldman Sachs has managed to keep its wall standing against the gale. The iconic financial institution saw its share price rise 73.9 per cent to US$163.8 on Dec 28, 2009 from its closing price of US$94.2 on Dec 31, 1999 making it one of the top gainers of the decade on Wall Street. It is the only bank to make the list. Pharmaceutical firm Express Scripts also made its presence felt, rising as much as 1005 per cent to US$88.4 on Dec 28 from US$7.5 at the end of 1999. Other firms that make the list of biggest stock gainers in the decade include Google, which rose as much as 521 per cent to US$619.9 on Dec 28 from its IPO price of US$85 in 2004. Apple too, made the list, flying 723 per cent to US$209.5 on Dec 28 from its US$25.7 closing on Dec 31 a decade earlier. We love you, Philip Morris While 2008 will remain etched in the minds of many as one of the more painful years of the world's most devastating financial crisis since the Great Depression, it also saw the largest M&A deal made this decade. Tobacco company Philip Morris International Inc was bought over by shareholders of its parent firm Altria Group in a spin-off deal for a jaw-dropping US$112.96 billion. Small country, big money Singapore has been called a tiny red dot, but the Government of Singapore Investment Corporation (GIC) takes the cake when it comes to making the biggest deals involving sovereign wealth funds on record. GIC's injection of 11 billion Swiss francs into Switzerland's biggest bank, UBS, in 2007 is the single largest investment by a sovereign fund on record. In fact, both Temasek Holdings and GIC have been involved in at least five of the 10 biggest deals involving sovereign wealth funds that were recorded. Clearly, physical size is not as important as one might think. Money, money, money In a decade marked by excesses and lately, furore over the large bonuses enjoyed by Wall Street, it is interesting that the biggest bonus paid out within

the decade goes not to a Wall Street banker, but to Apple CEO Steve Jobs, who was given a bonus of US$43.5 million in 2001. Executive compensation research firm Equilar awarded Mr Jobs the top spot after looking into the bonuses paid out to chief executive officers of the Russell 3000 companies the top 3000 stocks in the US over the last 10 years. All values were taken from the companies' proxy statement, with only values included in the bonus column of the summary compensation table taken into consideration. Equilar also excluded any equity awards that were not included in the bonus column, along with cash distributions associated with ownership in the company.