Blog Archives

Will the French dominate post crisis?

The French BNP and the Barclays’ have definitely come out on top post-crisis and given parochial attitudes in both nations, their governments are likely to plan making heavy weather on the bad financial markets industry..but I wouldn’t say these repayments signify any better practices on the part of these wannabe practitioners on the global horizon, but rather the fact that they were bystanders during the banking explosion of the last decade.

They do maintain a continued conservative stance which will come in useful, but given the history of the markets..they are much more likely to be the source of the next big black hole in a few days (years) maybe. However, with Citi planning to get out of government stakes as well, this could really absorb the prior decades’ sentiments some more and yet faster..leaving us with a blank slate in which to regulate our childrens’ future.

Coming back to the French, they do not have the depth in their markets to fund expansion and their global diaspora in terms of expansion by SocGen and BNP hardly enough to give them currency to support their non US pro Iran , pro Russia stance. They could however be the closest Euro member state for the new nations in East Europe that have been trying to get a piece of the global economics in this last decade as also they could substantially support some African nations. Being pragmatic however, they are likely to discover faster that they really do not want significant exposure in these markets

BNP recently paid $19.8 billion for Fortis (October 2008) and has therefore significantly completed its footprint in West Europe while SocGen has been active in Asia ( Offshore from Singapore, JVs with SBI in India)

China has had a long history with European Banks with the Deutsche Asiatique Bank, British Belgian Industrial Bank of China and the Sino Belgian Bank which issued Taels (North Asian currency) during Siberian-Japanese-Chinese trade ‘wars’ of the late 19th century but has never been remunerative for Foreign bank ( Comparitively with India, Chinese have very few branches and investment assets in Foreign banks)

However, as of March 2009 Bank of china had already purchased 20% in the Paris based Banque de Rothschild and with BNP out of government indebtedness, its reasons for going into China would be more mercantile than ever.

BNP Paribas, the largest French bank, said on Tuesday that it would raise €4.3 billion from investors to repay government bailout funds, The New York Times’s David Jolly and Chris V. Nicholson reported.

BNP Paribas, based in Paris, said its board had decided to repay, within the next month, the €5.1 billion, or $7.5 billion, it borrowed from the state March 31. The government would also receive a payout of €226 million on the nonvoting preferred shares it purchased.

Baudouin Prot, BNP Paribas’s chief executive, said in a conference call that the G20 meeting in last week in Pittsburgh, where world leaders agreed in principle that banks should raise more capital, had influenced the timing of BNP’s decision to issue shares, as had the lender’s share price, which is up more than 92 percent this year.

Christophe Nijdem, a banking analyst at Alphavalue in Paris, called the stock issue’s timing “judicious.”

“They had a window of opportunity,” he said. “A lot of banks will turn to the market in the months to come, and it’s first come, first serve.”

Mr. Nijdem added that, compared to American banks, European banks were more leveraged, and had to play catch up. Major Western banks are forecast to post losses of almost $2.5 trillion for the period 2007-2010, according to the International Monetary Fund.

via BNP Paribas to Raise $6.27 Billion to Repay Bailout – DealBook Blog – NYTimes.com.

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Railroads, bridges, airports and ETFs

Countries worldwide are dedicating vast amounts of  money to infrastructure spending over the next five years  and there are easy  avenues to prosper from this spending  with ETFs. A recent  white paper by Eric J. Gerritsen on  The Journal of Commerce Online provides a brilliant snap  shot of the infrastructure boom that awaits.

Eye Popping Numbers

According to Gerristen’s White Paper, the U.S. will spend $150 billion of the government’s stimulus funds on infrastructure. Other developed nations like Germany, Australia, Great Britain and Canada are all planning large amounts of infrastructure spending as well. In addition, emerging market nations such as China and India are planning to spend obscene amounts to get their countries into the 21st century. India alone is planning to double the number of its major international airports in the next decade. China also is planning very aggressive airport development. This is not to mention countries like Chile rolling out new roads, schools and stadiums with their $4 billion infrastructure plans and Brazil’s $212 billion spending on railways, roads and airports.

ETF Opportunities

On June 19, 2009 iShares rolled out an Emerging Market Infrastructure (ticker EMIF) fund to join Powershares Emerging Markets Infrastructure Fund (ticker (PXR) in the same space. Additionally, for those not willing to go the emerging markets route take a look at iShares Global Infrastructure (ticker IGF) or SPDR/FTSE Macquarie Global Infrastructure Fund (ticker GII).  Obviously, the need for infrastructure in the developing world is much greater than the developed world and hence provides an extraordinary opportunity.  Keep in mind though that the U.S. has done very little infrastructure spending in the last 40 years and also presents some great opportunities.

No chart for iShares Emerging Market Infrastructure (ticker EMIF) as it is one day old

Powershares Emerging Markets Infrastructure Fund (ticker PXR) is well above its 200 day EMA

via Railroads, bridges, airports and ETFs.

RBS says good interest in Asia assets for sale | Deals | Reuters

Part-nationalized Royal Bank of Scotland RBS.L has received good interest from potential buyers for its Asian assets, its chief executive said on Friday.

“Were seeing good levels of interest, but it would be premature to declare victory with respect to price or executability,” RBS Chief Executive Stephen Hester told reporters after a shareholder meeting.

“Were in the process of working through expressions of interest, but were not at the stage where bids you can rely on are being called for,” he said.

RBS asked potential bidders to register their interest by April 1, Reuters reported last month, citing people familiar with the matter.

RBS is retrenching to its core businesses and plans to exit or significantly scale back in up to 36 of the countries where it operates globally.

HSBC HSBA.L0005.HK, Standard Chartered STAN.L2888.HK and Australia and New Zealand Banking Group ANZ ANZ.AX are all considering bids for the Asian assets, separate sources with direct knowledge of the matter have previously told Reuters.

All of the assets in the region could fetch around $2 billion, although RBS is also considering offers for assets in individual countries, sources have said.

via

RBS says good interest in Asia assets for sale

| Deals

| Reuters

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Ken Lewis applies for the Treasury job?

Rough week for stock, good week for business

To my teammates:

Public debate on the subject of potentially nationalizing some banks continues to put great pressure on our stock. And yet, our company continues to be profitable. I see no reason why a company that is profitable, with capital and liquidity levels that are very strong, and that continues to lend actively, should be considered for nationalization. Speculation about nationalization is based on a lack of understanding of our bank’s financial position as well as a lack of appreciation for the adverse ramifications for our customers and the economy.

Bank of America does not need any further assistance today, and I am confident we will not need any further assistance in the future. I believe our company has more than enough capital, liquidity and earnings power to make it through this downturn on our own from here on out.

Kenneth Lay Lewis

Insider screams dealjournal@wsj


There is no question that the recession is continuing to worsen and that rising credit costs will continue to put great pressure on our ability to generate earnings. But here’s the good news: Your hard work is producing results in businesses all across the company.

While I can’t divulge any specific financial results mid-quarter, I can tell you that activity in our trading business continues to be vastly improved over last quarter. The corporate debt markets are showing some signs of thawing in both high yield and high grade, and we’re already seeing some benefits in the market of our combination with Merrill Lynch, in terms of winning mandates to raise capital for new and existing clients. And Merrill Lynch Financial Advisors posted nearly a half billion dollars in CD sales in the first four weeks these products were available to their clients.

On the retail side, our customer satisfaction scores are up at a time when others are down. Our brand, which took a beating in January, strengthened in early February, as customers gave us high marks for trustworthiness and perception that money is safe with us. In the first week of February, our Go America, Save! promotion boosted CD sales 18% and IRA sales 10% over the prior week. We extended our industry record this week for number of active mobile banking customers, surpassing the 2 million mark. And this week, a consortium of banks, including Bank of America, launched the Help With My Credit campaign to raise awareness of the different ways credit card issuers can assist customers in managing their financial obligations.

I am really encouraged by what we’re seeing in our home lending business. The mortgage boom is so intense we actually pulled down some advertising for a brief period to give our teams a chance to catch up to the volume, but they are running at full tilt now and processing record volumes. Our decision to acquire Countrywide has put us in a great position to capitalize on the surge in this business. This is a very positive story as we lead up to the launch of our new Bank of America Home Loans brand in April.

Yesterday, I met with a group of about a hundred of our top leaders to discuss what’s going on in the businesses and listen to their thoughts and concerns. We talked about the great challenges we’re all facing in the marketplace. But we also talked about how encouraging it is to work with such strong teammates, to have the trust and support of our customers and clients, and to have the position in our markets that we do.

As we concluded the meeting, I told them that we have a clear challenge in front of us: to prove the cynics and the critics wrong. I know we can do that – in fact, I think we’re doing it now, in the work each of you is doing every day, and the business results you’re putting up on the board.

Thank you for that. Let’s keep the momentum going.

Ken

Barron’s Online | This is not just a recession..

via High Debt Service costs mean a long depression

Isn’t the process of restructuring under way in households and at corporations?

They are cutting costs to service the debt. But they haven’t yet done much restructuring. Last year, 2008, was the year of price declines; 2009 and 2010 will be the years of bankruptcies and restructurings. Loans will be written down and assets will be sold. It will be a very difficult time. It is going to surprise a lot of people because many people figure it is bad but still expect, as in all past post-World War II periods, we will come out of it OK. A lot of difficult questions will be asked of policy makers. The government decision-making mechanism is going to be tested, because different people will have different points of view about what should be done.

What are you suggesting?

An example is the Federal Reserve, which has always been an autonomous institution with the freedom to act as it sees fit. Rep. Barney Frank [a Massachusetts Democrat and chairman of the House Financial Services Committee] is talking about examining the authority of the Federal Reserve, and that raises the specter of the government and Congress trying to run the Federal Reserve. Everybody will be second-guessing everybody else.

So where do things stand in the process of restructuring?

What the Federal Reserve has done and what the Treasury has done, by and large, is to take an existing debt and say they will own it or lend against it. But they haven’t said they are going to write down the debt and cut debt payments each month. There has been little in the way of debt relief yet. Very, very few actual mortgages have been restructured. Very little corporate debt has been restructured.

The Federal Reserve, in particular, has done a number of successful things. The Federal Reserve went out and bought or lent against a lot of the debt. That has had the effect of reducing the risk of that debt defaulting, so that is good in a sense. And because the risk of default has gone down, it has forced the interest rate on the debt to go down, and that is good, too.

Debt servicing is more than 15% of the GDP, and that means it will be a long winter

Debt servicing is more than 15% of the GDP, and that means it will be a long winter

However, the reason it hasn’t actually produced increased credit activity is because the debtors are still too indebted and not able to properly service the debt. Only when those debts are actually written down will we get to the point where we will have credit growth. There is a mortgage debt piece that will need to be restructured. There is a giant financial-sector piece — banks and investment banks and whatever is left of the financial sector — that will need to be restructured. There is a corporate piece that will need to be restructured, and then there is a commercial-real-estate piece that will need to be restructured.

Is a restructuring of the banks a starting point?

If you think that restructuring the banks is going to get lending going again and you don’t restructure the other pieces — the mortgage piece, the corporate piece, the real-estate piece — you are wrong, because they need financially sound entities to lend to, and that won’t happen until there are restructurings.

On the issue of the banks, ultimately we need banks because to produce credit we have to have banks. A lot of the banks aren’t going to have money, and yet we can’t just let them go to nothing; we have got to do something.

But the future of banking is going to be very, very different. The regulators have to decide how banks will operate. That means they will have to nationalize some in some form, but they are going to also have to decide who they protect: the bondholders or the depositors?

Nationalization is the most likely outcome?

There will be substantial nationalization of banks. It is going on now and it will continue. But the same question will be asked even after nationalization: What will happen to the pile of bad stuff?

Let’s say we are going to end up with the good-bank/bad-bank concept. The government is going to put a lot of money in — say $100 billion — and going to get all the garbage at a leverage of, let’s say, 10 to 1. They will have a trillion dollars, but a trillion dollars’ worth of garbage. They still aren’t marking it down. Does this give you comfort?

Then we have the remaining banks, many of which will be broke. The government will have to recapitalize them. The government will try to seek private money to go in with them, but I don’t think they are going to come up with a lot of private money, not nearly the amount needed.

To the extent we are going to have nationalized banks, we will still have the question of how those banks behave. Does Congress say what they should do? Does Congress demand they lend to bad borrowers? There is a reason they aren’t lending. So whose money is it, and who is protecting that money?

The biggest issue is that if you look at the borrowers, you don’t want to lend to them. The basic problem is that the borrowers had too much debt when their incomes were higher and their asset values were higher. Now net worths have gone down.

Deal Journal – WSJ.com : How Steven Spielberg Handles the Credit Crisis

 

The global credit crisis has roiled the country, but in Hollywood the stars are still spending. Along with Reliance Big Entertainment, filmmaker and DreamWorks SKG co-founder Steven Spielberg wrote a $26.5 million check this week to Paramount Pictures.

 

 

Getty Images

 

 

Mr. Spielberg and DreamWorks Chief Executive Stacey Snider last fall left Paramount in order to launch a film company, with funding from Reliance, one of India’s largest conglomerates.

 

 

As part of an extensive corporate divorce agreement, the name “DreamWorks” and much of its staff went with Mr. Spielberg and Ms. Snider to their new venture.

 

 

But Viacom’s Paramount has retained other DreamWorks assets, such as the right to remain involved in any projects the company puts into production this year. The newly independent DreamWorks also had to pay for 17 movie projects it wanted to take from Paramount to the new company–hence the $26.5 million check Mr. Spielberg just signed. DreamWorks owes an additional sum to Paramount, between $3.5 million to $8.5 million, to cover overhead for producers and screenwriters working on those projects.

 

 

Hollywood insiders are touting the check as a sign that plans for the film venture are proceeding. Those plans came into question at the end of 2008, when the turmoil in the global credit markets slowed J.P. Morgan Chase’s attempts to raise the $700 million to $750 million in debt the new DreamWorks wanted. Reliance had agreed to provide Mr. Spielberg and Ms. Snider as much as $550 million in equity, but only as they had raised an equal amount in debt financing.

 

 

Now, Reliance and DreamWorks are both saying they are confident the money will come through, if at a slower pace. J.P. Morgan plans to raise at least $325 million of the $700 million to $750 million by the end of the first quarter, which Reliance will match for a combined total of at least $650 million.

 

 

via Deal Journal – WSJ.com : How Steven Spielberg Handles the Credit Crisis.

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    Understanding Risk

    It is a wonder why journalists and analysts continue these random posers about risk being a dirty word. Risk is omniscient. Risk is all pervading. Thus only an understanding of the Risk can make possible any chance of profit for you. This return to conservative sectors is not a realisation of risk being a dirty word and anyone who believes that is signing the wrong papers. This random note however takes care to remove references to all journalists and analysts of the same orientation so you can all find these so called users if the pen as the sword and teach them not to be so steeped in sand when talking to their readers.

    Satyam goes down

    Well, first the data you need. Rs 7136 crores addded to books with no accompanying transactions. Just extra revenues and extra profits from these non existent revenues; a non existent personal loan of Rs 1236 crores and non existent cash of Rs 5000 crores on assets. Added revenues of 588 cr in Sep Qtr which could not withstand preliminary due diligence. And to quote the Ramu Raju of the piece, no one knew about it. A plain shame.

    None the less, though industry experts come out with Satyam is not representative of India, that is just not true. This is happening everywhere, just a blind eye to the Financials that compromises the best of analysts and market-makers. Criminal concerted planned breakdown of a global systemic disease that is keeping our hopes live for the next corner. Reform that is inordinately delayed and hanging a damocles sword over working professionals.

    Satyam’s cash value would now be more like $250 m for just the real estate and the employee roster. And $255m in secured loans. and the liabilities are not going to be transferred to the client roster. At least I would not recommend it. CLSA’s valuation of post diligence breakdown at 600 m seems way off the mark. JPM and Credit Suisse reactions are better. The markets have reacted worse than expected. For stocks outside Satyam, huge falls raise questionsof faith that are representative of the lack of faith that pulls India down.

    And when the totem poles of reform like ICICI Bank or institutions like Fidelity cannot do even a semblance of due diligence before investing it is really a question mark on corporate governance at these institutions. And KPMGs and E&Ys and the other Top 20 auditors who have failed once in 2000 and once again in 2008. A shame!

    An undue prolongation of the shame that is evident at Enron, GM Ford and now Satyam and a few more. Atleast we have the processes and the structure to discover them and withstand them. I doubt a China and a Russia have even a remote modicum of the process and the regulation. I doubt if the servicing It companies and the users that are even Whistleblowers are doing even remotely enough to make this world a livable one. Nonetheless, one step at a time we will get there.

    BAC and Citi also have agreed to cut executive bonuses. It’s a good start to 2009.

    Good Economy, Bad Economy

    The worst financial crisis in more than a half century is going to get even worse, putting further pressure on U.S. home prices and driving the unemployment rate above 11 percent, according to two prominent academic economists.

    Carmen Reinhart, from the University of Maryland, and Kenneth Rogoff, of Harvard, suggested housing might not bottom until 2010, which bodes poorly for struggling banks that still hold trillions in mortgages.

    “Financial crisis are protracted affairs,” Reinhart and Rogoff wrote in a paper presented at this weekends annual meeting of the American Economic Association, in San Francisco.

    via Economists see jobless surge, deeper housing hole | U.S. | Reuters .