I agree fully with this statement which then leads me to ask, 'What is the probability of the worst case happening?'.

Looking at Citigroup's latest financial reports, it is to be noted that the bank's exposure to Collateralised Debt Obligations (CDOs) was not 'marked to market'. This is not in compliance with the accounting rules in the US. The CDO exposure was based on models using very subjective assumptions. Thus the valuations of these CDOs are a major concern to investors as it is highly possible that the bank may face further significant losses.

According to official reports available at the Office of Comptroller of the Currency, Citigroup has one of the highest derivatives exposures of more than US$30 trillion (S$43.3 trillion) - an amount that is too gigantic by any measure. As there are great uncertainties in the financial markets and such markets are expected to remain volatile in the foresee-able future, a slight swing in the markets against the bank's positions may cripple its finances.

The 7 per cent rate of return on the GIC-Citi deal may seem attractive at first glance. However, taking into account the expected high inflation rate in the US and potential increase in the supply of dollars needed to boost the already-weakened US economy, the return may not be that attractive.

Considering the huge fiscal and trade deficits, simple economics tells us that the dollar has to be devalued very significantly to correct the huge imbalances in the near future.

Did the GIC fund managers factor in all the above risks before using public funds for this transaction?

Yong Kum Thong