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US Finance System Meltdown

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September 17, 2008
US finance system meltdown:
   -Thailand: Central bank sees little impact on AIG unit
   -Singapore: MAS reassures worried AIG policyholders
   -Philippine banks raise provisions to reduce exposure
   -Indonesia cuts loan rates as US credit woes spread
   -US crisis biggest risk to Asia growth - ADB


September 18, 2008

US Finance System Meltdown:
•    SE Asian markets remain gloomy despite AIG rescue
•    AIA units distance themselves from parent’s woes

SE Asian markets remain gloomy despite AIG rescue
Stock markets in Thailand, Malaysia and Singapore recorded new lows on Wednesday as the last-minute US government rescue of insurance giant AIG did little to revive investor confidence, according to Reuters.   

Asian funds are sticking with defensive plays and keeping cash levels high as they shrug off the AIG rescue, although some are starting to look more closely at buying opportunities, the news agency said.

Thai equities led losses, falling 3.3 percent to close at 605.14 - its lowest in 4 years - as investors worried about further political and financial sector instability.

Thailand's parliament elected a brother-in-law of ousted leader Thaksin Shinawatra as prime minister Wednesday, ensuring continued tension with protesters who accuse the new government of being Thaksin's puppet.

"Share prices have been real cheap but it doesn't help draw buying simply because it's an issue of lack of market confidence," Reuters quoted Pichai Lertsupongkij, head of sales at Thanachart Securities in Bangkok, as saying.

"If the index drops below 600, the prices will be unrealistically low," Pichai said.

Stock Exchange of Thailand (SET), while acknowledging the impact from the US financial chaos on its bourse, said it could have been much worse if the US Federal Reserve had not bailed out the ailing AIG.

The impact would not extend beyond the damage which has already been done because the SET composite index has already dropped by around 20 percent, Thai News Agency quoted SET chairman Pakorn Malakul na Ayudhya as saying Wednesday.

In Singapore, the benchmark Straits Times index reversed early gains and fell 1.7 percent to close at a fresh two-year low, due reportedly to some serious de-leveraging going on at the retail and institutional levels.

Malaysia gave up 0.9 percent, weighed down by lender Maybank , which dropped nearly 7 percent after regulators gave the green light to its $2.7 billion bid to control Bank Internasional Indonesia (BII) , a deal viewed by many investors as too expensive.

The normally insular Vietnam market fell 4.1 percent on global financial worries rather than domestic concerns, but Indonesian shares turned nearly 2 percent higher on banks and resources, and the Philippine index gained 1.5 percent on blue chips.

Vietnam is the worst performing market in Southeast Asia and is down 53 percent so far this year, followed by Indonesia and the Philippines, which are 36 and 32 percent down.

AIA units distance themselves from parent’s woes
As American International Group (AIG), was rescued by an 85 billion dollar US government bailout, the subsidiaries of the troubled insurance giant in Singapore and Thailand were busy trying to reassure their policyholders and employees in the region that they would survive, reports from the two countries said.

Of AIG's 116,000 staff in 130 countries, almost half are reportedly in Asia, where wholly-owned subsidiary American International Assurance Company Limited (AIA) manages most of the operations in Southeast Asia, China and Australia.

Even after the US Federal Reserve rescued AIG, hundreds of worried customers converged on the company's Singapore subsidiary on Wednesday, many looking to end their contracts - some having flown in from abroad, the city-state news agency Channel News Asia reported.

"Despite the rescue bid by the US government, AIA will still have to sell its assets to pay back the loans," CNA quoted one AIA client as saying.

AIG's Asian units are trying to distance themselves from the parent firm's troubles, saying they remain well capitalised. AIA Singapore said it has more than sufficient capital and reserves to meet obligations to policyholders. It said the funds maintained in Singapore are segregated from AIG.

Singapore's de facto central bank, the Monetary Authority of Singapore, said AIA has enough assets to meet liabilities to policyholders, who should "not act hastily to terminate their insurance policies".

In Thailand, AIA announced Wednesday that it had not been affected by the financial crisis facing its parent.

''AIA Thailand has operated business in Thailand for 70 years and we are going to continue to grow for the next 70 years. We are a locally incorporated insurer. And most of our total assets are invested in Thailand,'' said Thomas White, executive vice-president and general manager of the country's biggest life insurer.

''Insurance policies underwritten by AIA are direct obligations of our regulated business, which is subject to stringent local regulatory and capital requirements as prescribed by the Life Insurance Act,'' he said.

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