Why Temasek Sold Bank of America Stocks

I REFER to recent reports and commentaries on Temasek's divestment of its Bank of America (BoA) stake. We would like to clarify some of the points raised.

Temasek invests with the objective of delivering sustainable returns over the long term. This means our investment strategy is not aimed at delivering target returns on a year-by-year basis. This is why we report our portfolio returns not just for a single year, but for various time horizons in our annual Temasek Review.

To achieve our investment objectives, we constantly review our portfolio and rebalance it from time to time. We may choose to divest an investment, even at a loss, to optimise our risk or portfolio exposures, or if there are better opportunities elsewhere or later. We may also choose to hold or increase our existing investments.

Ultimately, the aim is to ensure that our portfolio delivers returns that are higher than the cost of capital employed on a risk-adjusted basis, or what we call Wealth-Added.

Our investment in Merrill Lynch was made in December 2007. This was exchanged into BoA shares in January this year following BoA's completion of its September 2008 offer to buy Merrill.

Our investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader US economy. The risk-return environment had also changed substantially.

We decided to divest our BoA stake after considering all relevant factors.

This move to balance risks against opportunities is part and parcel of our discipline of investing and divesting to deliver sustainable long-term returns on our entire portfolio.

We are mindful of the risks we face as we invest. We reinforce this risk-return balance through a compensation framework which puts the institution above the individual, emphasises long term over short term, and aligns employee and shareholder interests for both the upside and downside, over the medium and long term.

While we do our best to mitigate risks, the reality is that not every one of our investments will be equally successful. We recognise that only time will tell if we have made the right decisions to deliver sustainable returns on our portfolio as a whole.

Myrna Thomas (Ms)
Managing Director,
Corporate Affairs Temasek Holdings