Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Here's a TIP: Investors Are Banking on Inflation
Caught the following headline on Bloomberg when we walked in this morning: "TIPS' Yields Show Fed Has Lost Control of Inflation."
The gist of the story is that the yield on the five-year Treasury Inflation-Protected Security TIPs) is negative for the first time ever, and has been trading that way since Feb. 29. The real yield is currently -.20%. Five-year TIPS are now yielding about 2% less than five-year Treasuries.
What does this mean? Does a negative yield mean a Treasury Inflation-Protected Securities holder has to pay to own the security? In a way, yes. It means if you buy TIPs here you are essentially paying the government to do so because the yield is less than the Treasury equivalent.
Now why would anyone do that? Because TIPs are designed to provide protection against inflation. Investors can still earn money from TIPS with sub-zero rates because the principal rises with the CPI. TIPs pay interest twice a year at a fixed rate and that rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.
When TIPS mature an investor is paid the adjusted principal or original principal, whichever is greater. What the current negative yield situation means is that investors believe headline inflation is going to remain elevated and are willing to give up the real yield for the inflation-adjusted return of principal.
TIPS have returned 6.2% this year, compared with 3.7% from Treasuries, according to tracking indexes compiled by Merrill Lynch (MER).
On the one hand, buying TIPs here might seem a bit like fighting the Federal Reserve, though not in the way one might typically think of "fighting the Fed." The bet on TIPs would be that the U.S. central bank is sacrificing price stability for higher growth, allowing inflationary pressures to continue to build.
That's the conventional wisdom to be sure, and we disagree with it. It's true, the Fed is not fighting inflation; they're fighting deflation. TIPs holders better hope the Fed doesn't lose.
2. Barron's Joins the "Tinfoil Hat Club"
Last week when sitting around wearing my tinfoil hat and pondering the potential nationalization of Fannie Mae (FNM), little did I know I would soon be joined in the "tinfoil hat club" by Barron's. The weekly newspaper was out this weekend with a pretty wonky story on Fannie Mae ("Is Fannie Mae Toast?") and the possibility the mortgage giant may be "the next government bailout."
"Just maybe a bailout of Fannie, in effect a nationalization, would be a good thing," the article said. "A retooled Fannie could pursue its important social mission without the distraction of trying to please Wall Street. Of course, it's doubtful if this happens that the shareholders would be along for the ride."
It certainly appears at least some shareholders have reached that conclusion as well, which is really what prompted the Five Things piece on the nationalization of the GSE's in the first place. Fannie Mae and Freddie Mac (FRE) are down more than 40% since the beginning of the year.
As for nationalization being "a good thing"? Well, Barron's will have to remain in that particular club without us.
3. The Next Real Estate Bubble?
First residential real estate. Now, increasing signs of stress in commercial real estate. Next? Perhaps the farm. According to an interesting piece in the New York Times over the weekend ("A Global Need for Grain That Farms Can’t Fill"), the flood of money into American agriculture is leading to rising land values and a renewed sense of optimism in rural America.
A separate Associated Press story noted that farmland values rose 16% in parts of the upper Midwest, the largest increase in nearly 30 years. USDA officials found that the average value of an acre of Wisconsin farmland, about $2,250 in 2002, had jumped to $3,366 in 2006.
4. Apparently, We Aren't Going to Just Sit Home Twiddling Our Thumbs Every Day
Amusement park operator Six Flags (SIX) may not be the most important stock in the universe at around a buck 65 a share, but we took a listen to their conference call this morning mainly because we were interested in their take on a consumer recession and what that means for discretionary entertainment dollars.
Mark Shapiro, Chief Executive Officer noted the headwinds right off the bat: "From October 15th to the end of 2007 the stock market was down 15%, driven by the credit crunch, driven by the housing bubble, driven by oil prices, driven by a retail sector that was down really across the board from a Christmas shopping standpoint, just overall it's the same climate
that we're experiencing right now," he said.
True enough. But what caught our ear was the inventiveness in Shapiro's pitch that Six Flags is somewhat recessionary proof. Despite the economic headwinds, what ends up happening historically is the long-distance vacation, the big-ticket items are what get sacrificed, Shapiro said. The short, close to home and affordable vacations usually historically ramp up.
"We just believe that people are not going to stay in their house every single day just twiddling their thumbs," he said. "Recent results from BJ's (BJS) and Costco (COST) indicate the consumers are essentially trading down for specialty stores, they're trading down from department stores, they're looking for lower price alternatives and we believe Six Flags is such that it is exactly a low-priced alternative."
Fair enough. So does that mean the company gets hammered when the economy improves and people can afford to vacation again?
5. Anti-Consumption Sentiment Turns Against the "Good Consumers"
Ran across a fascinating piece in the Washington Post that merges neatly with our thesis that as social mood darkens, consumption will increasingly be targeted as a societal evil. What was unexpected, however, was that the target in this anti-consumption piece wasn't the Neiman Marcus set, but "good consumers."
"Let us buy Anna Sova Luxury Organics Turkish towels, 900 grams per square meter, $58 apiece. Let us buy the eco-friendly 600-thread-count bed sheets, milled in Switzerland with U.S. cotton, $570 for queen-size.
Let us purge our closets of those sinful synthetics, purify ourselves in the flame of the soy candle at the altar of the immaculate Earth Weave rug, and let us buy, buy, buy until we are whipped into a beatific froth of free-range fulfillment.
And let us never consider the other organic option -- not buying -- because the new green consumer wants to consume, to be more celadon than emerald, in the right color family but muted, without all the hand-me-down baby clothes and out-of-date carpet."
The aggressive cynicism in the first three paragraphs is also a bit surprising. There's no attempt to gently persuade going on here. The commentary is forthright and harsh:
"Consuming until you're squeaky green. It feels so good. It looks so good. It feels so good to look so good, which is why conspicuousness is key."
It speaks to the magnitude of the shift in social mood that we may be seeing.
http://www.minyanville.com/
Monday, March 10, 2008
Saturday, March 8, 2008
New-found fear of debt rattles shares
Fashion can be very fickle. Twelve months ago companies were under pressure from investors to take on debt and gear up their balance sheets. Fast-forward to 2008 and investors are fleeing stocks with high debt levels.
The worry is that these companies will struggle to refinance debt or that the economic slowdown will dent their ability to meet interest payments and keep banking covenants.
Nowhere has this flight from leverage been more in evidence than in the case of Yell. Shares in the Yellow Pages publisher have fallen 51 per cent since the start of the year, making them the worst performer in the FTSE 100.
Aside from concerns about the outlook for the advertising market, the main reason for the poor share price performance is worries regarding Yell's balance sheet.
Yell is highly leveraged. Net debt was five times earnings before interest, tax, depreciation and amortisation at the end of December. Put another way, 70 per cent of its enterprise value is debt.
Analysts fear a further downturn in the advertising market could see Yell breach covenants (although they can only guess what the covenants are because the company has never disclosed them).
Of course, Yell is not the only company affected by the new-found fear of debt. Shares in Premier Foods have halved this year amid concerns that the maker of Branston Pickle and Hovis bread would need a rights issue.
Premier moved to address those fears this week and provided full details of its banking covenants, which have been renegotiated, and increased available credit by £225m.
Investors soon found another company to worry about. Shares in Johnston Press, the regional newspapers group, fell more than 15 per cent on Thursday and Friday on fears it could breach banking covenants. Broker UBS said that was possible if revenues fell a further 5 per cent this year.
So which other companies' share prices could weaken (or weaken further) on debt concerns?
In a research report, Morgan Stanley said the deterioration in money and credit markets would weigh on companies that need short-term funding and have low fixed-charge cover.
Fixed-charge cover is earnings before interest and tax divided by net interest payments, rent and operating leases. Companies with low cover should in theory have less cash available to invest in growth and pay dividends.
Companies with low fixed-charge cover include Ashtead, Avis Europe and the retailers DSG International, Debenhams and HMV. In terms of funding, Morgan Stanley identified HMV and Avis as stocks in which short-term funding costs equated to 5 per cent or more of total assets. Other companies that screened poorly on this measure were Rentokil Initial, Helphire Group, Dairy Crest and, surprisingly, BTGroup
More broadly, companies that have a high multiple of net debt to equity include Debenhams, Rank, Next, Enterprise Inns and Mitchells & Butlers.
Investors in these companies will hope debt comes back into fashion soon. But, as with flares and kipper ties, they could wait some time. * Yell's recent performance is all but certain to cost the company its FTSE 100 place when the results of the quarterly review are released on Wednesday. Other companies for the chop are Rentokil and Taylor Wimpey, the housebuilder.
One of those three places will be taken by Eurasian Natural Resources Corporation. Although it is valued at £14bn, the Kazakh mining company is something of a mystery to many brokers and investors. That will change pretty quickly. ENRC is one of the world's largest producers of ferrochrome but has a small number of shares that can be traded. This seems likely to make it one of the most volatile stocks in the FTSE 100, unless, of course, one of its pre-float backers decides to cash in. ENRC has risen 95 per cent since listing in December.
http://www.ft.com/
The worry is that these companies will struggle to refinance debt or that the economic slowdown will dent their ability to meet interest payments and keep banking covenants.
Nowhere has this flight from leverage been more in evidence than in the case of Yell. Shares in the Yellow Pages publisher have fallen 51 per cent since the start of the year, making them the worst performer in the FTSE 100.
Aside from concerns about the outlook for the advertising market, the main reason for the poor share price performance is worries regarding Yell's balance sheet.
Yell is highly leveraged. Net debt was five times earnings before interest, tax, depreciation and amortisation at the end of December. Put another way, 70 per cent of its enterprise value is debt.
Analysts fear a further downturn in the advertising market could see Yell breach covenants (although they can only guess what the covenants are because the company has never disclosed them).
Of course, Yell is not the only company affected by the new-found fear of debt. Shares in Premier Foods have halved this year amid concerns that the maker of Branston Pickle and Hovis bread would need a rights issue.
Premier moved to address those fears this week and provided full details of its banking covenants, which have been renegotiated, and increased available credit by £225m.
Investors soon found another company to worry about. Shares in Johnston Press, the regional newspapers group, fell more than 15 per cent on Thursday and Friday on fears it could breach banking covenants. Broker UBS said that was possible if revenues fell a further 5 per cent this year.
So which other companies' share prices could weaken (or weaken further) on debt concerns?
In a research report, Morgan Stanley said the deterioration in money and credit markets would weigh on companies that need short-term funding and have low fixed-charge cover.
Fixed-charge cover is earnings before interest and tax divided by net interest payments, rent and operating leases. Companies with low cover should in theory have less cash available to invest in growth and pay dividends.
Companies with low fixed-charge cover include Ashtead, Avis Europe and the retailers DSG International, Debenhams and HMV. In terms of funding, Morgan Stanley identified HMV and Avis as stocks in which short-term funding costs equated to 5 per cent or more of total assets. Other companies that screened poorly on this measure were Rentokil Initial, Helphire Group, Dairy Crest and, surprisingly, BTGroup
More broadly, companies that have a high multiple of net debt to equity include Debenhams, Rank, Next, Enterprise Inns and Mitchells & Butlers.
Investors in these companies will hope debt comes back into fashion soon. But, as with flares and kipper ties, they could wait some time. * Yell's recent performance is all but certain to cost the company its FTSE 100 place when the results of the quarterly review are released on Wednesday. Other companies for the chop are Rentokil and Taylor Wimpey, the housebuilder.
One of those three places will be taken by Eurasian Natural Resources Corporation. Although it is valued at £14bn, the Kazakh mining company is something of a mystery to many brokers and investors. That will change pretty quickly. ENRC is one of the world's largest producers of ferrochrome but has a small number of shares that can be traded. This seems likely to make it one of the most volatile stocks in the FTSE 100, unless, of course, one of its pre-float backers decides to cash in. ENRC has risen 95 per cent since listing in December.
http://www.ft.com/
Sterling Construction: Banking on a builder
America is crumbling, and we’re not talking the economy here.
The U.S. infrastructure needs upgrading worse than that old computer running Windows 98. Just a few of the problems faced by state and municipal governments are packed roads that can’t handle 21st-century traffic, century-old water and sewer lines continually springing leaks, and airports lacking the long runways needed to handle the biggest jets leaping to the skies.
Even with budget shortfalls knocking on the doors of government at all levels, elected officials know they must keep the customer satisfied by paving the potholes and keeping the water and sewage flowing for consumers and businesses. Sterling Construction Company, Inc. (Nasdaq: STRL) has been lending its expertise to all sorts of public projects in the building and rebuilding of Texas and the Southwest.
Mom and Pop might suck it up and put off some of those big home improvements during the current economic downturn, but they’re going to give government officials an earful if they’re repeatedly sitting in traffic jams or finding a sewage backup in their basement.
That’s where Sterling Construction comes in. Primarily operating through its Texas Sterling Construction business, which traces its lineage back more than half a century, Sterling has been winning a healthy stream of contracts from state and municipal government for transportation and water infrastructure projects in the Longhorn state.
Last month, the company announced its latest deals: it was the low bidder on a $26 million road project in Collin County, Texas, north of Dallas, with completion expected in the fall of 2010, and it was the apparent low bidder on a $55 million rebuilding project for the North Texas Toll Road Authority that will continue into the summer of 2010.
Three analysts surveyed by Thomson Financial have a favorable view of Sterling Construction with either a “strong buy” or “buy” rating on the stock. The recent median 12-month price target from Thomson is $26.50. On Thursday, Sterling closed at $18.40.
http://www.smallcapinvestor.com/
The U.S. infrastructure needs upgrading worse than that old computer running Windows 98. Just a few of the problems faced by state and municipal governments are packed roads that can’t handle 21st-century traffic, century-old water and sewer lines continually springing leaks, and airports lacking the long runways needed to handle the biggest jets leaping to the skies.
Even with budget shortfalls knocking on the doors of government at all levels, elected officials know they must keep the customer satisfied by paving the potholes and keeping the water and sewage flowing for consumers and businesses. Sterling Construction Company, Inc. (Nasdaq: STRL) has been lending its expertise to all sorts of public projects in the building and rebuilding of Texas and the Southwest.
Mom and Pop might suck it up and put off some of those big home improvements during the current economic downturn, but they’re going to give government officials an earful if they’re repeatedly sitting in traffic jams or finding a sewage backup in their basement.
That’s where Sterling Construction comes in. Primarily operating through its Texas Sterling Construction business, which traces its lineage back more than half a century, Sterling has been winning a healthy stream of contracts from state and municipal government for transportation and water infrastructure projects in the Longhorn state.
Last month, the company announced its latest deals: it was the low bidder on a $26 million road project in Collin County, Texas, north of Dallas, with completion expected in the fall of 2010, and it was the apparent low bidder on a $55 million rebuilding project for the North Texas Toll Road Authority that will continue into the summer of 2010.
Three analysts surveyed by Thomson Financial have a favorable view of Sterling Construction with either a “strong buy” or “buy” rating on the stock. The recent median 12-month price target from Thomson is $26.50. On Thursday, Sterling closed at $18.40.
http://www.smallcapinvestor.com/
Thursday, February 21, 2008
Banking on rise of mobile phone portals
With more gadgets using mobile technology, the rise of a banking portal for mobile phones seems likely. The question is whether Monitise, a UK company, will be behind that portal.
Since spinning off in June from Morse, a technology consultancy, it has signed partnerships with big banks and telecoms companies in the UK and US. It also claims to have achieved “scalability” – with much of the investment in system development done and the remaining challenge just rolling it out.
Since floating at 22p, Monitise shares have fallen to 12½p, giving it a market capitalisation of about £32m ($63m). So far, 110,000 customers have signed up, below Monitise’s own expectations. The company is not expected to be profitable until 2010 and its revenue model is still evolving.
In the UK, banks pay a fee per-user per-month, while in the US they must also pay a monthly licence fee. There are many competitors. Alastair Lukies, chief executive, thinks 30 companies offer similar technology.
In November, Qualcomm, a wireless technology company, bought Firethorn, a smaller US rival to Monitise, for $210m (£107m). That could mean Monitise is undervalued or overmatched, depending on your point of view.
http://www.ft.com/
Since spinning off in June from Morse, a technology consultancy, it has signed partnerships with big banks and telecoms companies in the UK and US. It also claims to have achieved “scalability” – with much of the investment in system development done and the remaining challenge just rolling it out.
Since floating at 22p, Monitise shares have fallen to 12½p, giving it a market capitalisation of about £32m ($63m). So far, 110,000 customers have signed up, below Monitise’s own expectations. The company is not expected to be profitable until 2010 and its revenue model is still evolving.
In the UK, banks pay a fee per-user per-month, while in the US they must also pay a monthly licence fee. There are many competitors. Alastair Lukies, chief executive, thinks 30 companies offer similar technology.
In November, Qualcomm, a wireless technology company, bought Firethorn, a smaller US rival to Monitise, for $210m (£107m). That could mean Monitise is undervalued or overmatched, depending on your point of view.
http://www.ft.com/
Gold Price Jumps as Banking Stocks Tumble; Platinum Gains Despite "No Actual Shortage"
Gold Prices shot higher early Tuesday to hit a one-week high of $918.90 per ounce – up more than $18 from yesterday's low – as European equities bounced from a sharp fall in banking stocks.
The value of Credit Suisse, the second largest Swiss banking group, sank nearly 10% at the opening in Zurich today after it trebled the size of write-downs on its debt investments.
Only last week banking analysts agreed that Credit Suisse had "weathered 2007 comparatively well" after it wrote down $1.4 billion for Oct. to Dec.
"This is a disaster, this could be the tip of the iceberg," says Peter Thorne, an analyst at institutional brokerage Helvea.
"According to the presentation Credit Suisse gave a week ago their exposures to residential mortgages were $7.9 billion and collateralized debt obligations were $2.4bn, and now they have just written down $2.85bn down."
Here in London – where Northern Rock has finally been nationalized after receiving more than $50 billion in tax-funded support – shares in Barclays lost 4.5% at one point today after the UK's third largest bank cut second-half profits by one fifth.
Again it blamed credit investment write-downs, as well as lost earnings from securitization. All told, the world's biggest financial institutions have now written down $145 billion since the US subprime collapse began in July 2007, according to Reuters data.
The Gold Price, in contrast, has risen by one-third or more since then against all major currencies.
"Additional buying [from Newcrest Mining] has certainly been a supporting factor for gold over the past few months," says today's note from Mitsui, the precious metals dealer, "but it has not been the only story and with the current consolidation continuing, the market looks set to test higher again soon."
Australian gold miner Newcrest today reported a net loss of A$8.1 million (US$7.4m), driven by the cost of buying back 3.4 million ounces of gold – previously sold forward during the two-decade bear market in gold ending 2001 – over the last six months.
"As of the 15th February," Mitsui adds, "Newcrest still holds 622,302 ozs on its hedge book."
Elsewhere in the precious metals market today, platinum futures jumped "limit up" in Tokyo today and rose to a new record high of $2,145 per ounce in London as South Africa's energy shortage continued to drive speculators into the white metal.
"The platinum market was already worried about supplies in South Africa and this power problem emerged to trigger more buying," says Hisaaki Tasaka, a precious metals analyst at Ace Koeki in Tokyo, Japan.
"But at the moment, we are not seeing an actual shortage in supplies," he notes, "because lease rates have not surged."
New mining supply outweighed physical platinum demand by 1,715 tonnes last year, according to Johnson Matthey, the world's No.1 platinum distributor. Enough to meet 26% of annual consumption, that excess supply in the platinum market has grown four times over since 2002.
Meantime on the currency markets this morning, the European single currency jumped almost one cent vs. the Dollar – capping the Gold Price in Euros below €623.50 per ounce – despite news that construction output in the 14-nation Eurozone shrank for the second month running in December.
Eurostat, the official data agency, also revised Nov.'s output further down, taking the total contraction so far to 1.6%. Inflation in the cost of living, on the other hand, surged to a 14-year high of 3.2% at the end of 2007, squeezing the European Central Bank's room for maneuver.
Copper futures today rose 1% in Shanghai on news that global stockpiles have shrunk to a five-month low.
Ahead of Wall Street's return after the long Presidents Day weekend, US crude oil futures rose for the second session running to hit a five-week high above $96.40 per barrel in London – more than 1% higher from Friday's close in New York.
"It's likely that Opec will make a cut [to output] as in their view the market is well supplied," said one Swiss analyst to Bloomberg earlier.
The Opec oil cartel – which pumps 40% of the world's daily supply – has cut its demand forecasts for April to June by 1.6 million barrels per day. Yesterday the Iranian oil minister said that "cutting production has been the normal process every year in March."
Prices of bauxite, the aluminum ore, continued to rise, taking the gain since the start of January above 30% – double the gains of 2007 as a whole – after Indonesia, which supplies more than two-thirds of China's bauxite demand, cracked down on illegal mining, restricting output.
Robusta coffee today gained 1.2% in London, taking its rise since New Year's Day to 22%, a "record start" according to Bloomberg data.
http://goldnews.bullionvault.com/
The value of Credit Suisse, the second largest Swiss banking group, sank nearly 10% at the opening in Zurich today after it trebled the size of write-downs on its debt investments.
Only last week banking analysts agreed that Credit Suisse had "weathered 2007 comparatively well" after it wrote down $1.4 billion for Oct. to Dec.
"This is a disaster, this could be the tip of the iceberg," says Peter Thorne, an analyst at institutional brokerage Helvea.
"According to the presentation Credit Suisse gave a week ago their exposures to residential mortgages were $7.9 billion and collateralized debt obligations were $2.4bn, and now they have just written down $2.85bn down."
Here in London – where Northern Rock has finally been nationalized after receiving more than $50 billion in tax-funded support – shares in Barclays lost 4.5% at one point today after the UK's third largest bank cut second-half profits by one fifth.
Again it blamed credit investment write-downs, as well as lost earnings from securitization. All told, the world's biggest financial institutions have now written down $145 billion since the US subprime collapse began in July 2007, according to Reuters data.
The Gold Price, in contrast, has risen by one-third or more since then against all major currencies.
"Additional buying [from Newcrest Mining] has certainly been a supporting factor for gold over the past few months," says today's note from Mitsui, the precious metals dealer, "but it has not been the only story and with the current consolidation continuing, the market looks set to test higher again soon."
Australian gold miner Newcrest today reported a net loss of A$8.1 million (US$7.4m), driven by the cost of buying back 3.4 million ounces of gold – previously sold forward during the two-decade bear market in gold ending 2001 – over the last six months.
"As of the 15th February," Mitsui adds, "Newcrest still holds 622,302 ozs on its hedge book."
Elsewhere in the precious metals market today, platinum futures jumped "limit up" in Tokyo today and rose to a new record high of $2,145 per ounce in London as South Africa's energy shortage continued to drive speculators into the white metal.
"The platinum market was already worried about supplies in South Africa and this power problem emerged to trigger more buying," says Hisaaki Tasaka, a precious metals analyst at Ace Koeki in Tokyo, Japan.
"But at the moment, we are not seeing an actual shortage in supplies," he notes, "because lease rates have not surged."
New mining supply outweighed physical platinum demand by 1,715 tonnes last year, according to Johnson Matthey, the world's No.1 platinum distributor. Enough to meet 26% of annual consumption, that excess supply in the platinum market has grown four times over since 2002.
Meantime on the currency markets this morning, the European single currency jumped almost one cent vs. the Dollar – capping the Gold Price in Euros below €623.50 per ounce – despite news that construction output in the 14-nation Eurozone shrank for the second month running in December.
Eurostat, the official data agency, also revised Nov.'s output further down, taking the total contraction so far to 1.6%. Inflation in the cost of living, on the other hand, surged to a 14-year high of 3.2% at the end of 2007, squeezing the European Central Bank's room for maneuver.
Copper futures today rose 1% in Shanghai on news that global stockpiles have shrunk to a five-month low.
Ahead of Wall Street's return after the long Presidents Day weekend, US crude oil futures rose for the second session running to hit a five-week high above $96.40 per barrel in London – more than 1% higher from Friday's close in New York.
"It's likely that Opec will make a cut [to output] as in their view the market is well supplied," said one Swiss analyst to Bloomberg earlier.
The Opec oil cartel – which pumps 40% of the world's daily supply – has cut its demand forecasts for April to June by 1.6 million barrels per day. Yesterday the Iranian oil minister said that "cutting production has been the normal process every year in March."
Prices of bauxite, the aluminum ore, continued to rise, taking the gain since the start of January above 30% – double the gains of 2007 as a whole – after Indonesia, which supplies more than two-thirds of China's bauxite demand, cracked down on illegal mining, restricting output.
Robusta coffee today gained 1.2% in London, taking its rise since New Year's Day to 22%, a "record start" according to Bloomberg data.
http://goldnews.bullionvault.com/
Friday, January 4, 2008
2007 IN REVIEW: The banking sector: Post-EU fine-tuning
With its accession to the European Union on January 1 2007, Bulgaria entered a period of fine-tuned transition. As experts noted, the banking sector underwent a period of large-scale restructuring, through privatisations and subsequent buy-outs, and now it can well be likened to any of its peers in developed economies. Now, as elsewhere in Europe, the bulk of the largest banks in the country are in the hands of big European banking giants and have a strong financial backbone through their parent companies.
As such, Bulgaria’s banking sector became an inalienable part of developments elsewhere in Europe. Thus, the remoulding of Bulgaria’s banking sector in 2007 was marked by the merger of UniCredit, Hebros Bank and HVB Bank Biochim in what was part of the perennial pan-European merger of Italy’s UniCredit and HVB of Germany. Locally, the merger created the largest bank in the country by assets and business network.
The other event in the 2007 merger and acquisition timetable of note was the purchase by Greece’s Eurobank EFG, the owner of Bulgarian Postbank, of DZI Bank in what was to form another banking conglomerate in the country.
Another European-type development at hand was the entry of Belgium’s second-largest financial group, KBC, on the Bulgarian market. After years of futile attempts, KBC struck a double purchase in Bulgaria; Economic and Investment Bank and the largest insurer in the country, DZI. The Belgian group set out an ambitious plan to enter the top-three ranking in both sectors in the medium term.
The entry of the Belgian giant was interpreted as a trend-setter. In Bulgaria’s maiden year in the EU, it did what a number of other European financial players are expected to do in the years to come. Data showed that a number of finance entities with a registration in the EU sent notifications to Bulgarian National Bank (BNB) and the Commission for Financial Supervision, the local financial watchdogs, informing about plans to start operations in Bulgaria in the near term.
To recall, now that Bulgaria is a member of the EU, all EU-registered entities can begin operations through a single notification to the relevant financial watchdog, under the single-passport mechanism. This means that the sector, despite its maturity, is set to welcome new and experienced players. Their entry is expected to bring about a sift-out through the offer of new and sophisticated products, among which figure investment products, opportunities for clients to invest in equity and pension and mutual funds.
The anticipation of impending fierce competition, to be posed by the new entrants, put a number of banks in Bulgarian ownership onto the path of forward-looking busy product portfolio re-jigging. The need to finance those initiatives, while retaining their independence from foreign financial players, prompted a number of banks to seek large-scale financing and set the pace for the flotation of initial public offerings (IPOs). In 2007, the floor of the Bulgarian Stock Exchange tested First Investment Bank, Corporate Commercial Bank and EIBank, among others. This not only gave a new push to the local bourse, the IPOs being many times oversubscribed, but also showed that local banks had discovered a new successful tool to finance future expansion.
The reverse trend was also in place by players whose foreign parent companies believed that a single listing by the parent company itself was enough. An example of this trend was KBC, whose subsidiary DZI Insurance was about to be taken in to private hands after the completion of the mandatory buy-out procedure toward DZI insurers.
Fine-tuning also had its other facet. As Levon Hampartzoumian, CEO of UniCredit Bulbank, put it at the annual business-Government meeting organised by media group Handelsblatt and the newspaper Kapital, the banking sector was in need of a mini-reform that would discipline it. Referring to banks and other financial entities, which in 2007 continued to expand the share of loans in their portfolios – consumer and corporate alike – he spoke of the need of safeguarding against a splurge in the bad loans’ share. Noting that the sector’s stability at present was not under threat, he said that it might be in the future if no measures to check on both loan takers and borrowers’ trustworthiness were taken.
He urged for the set-up of credit bureaus, both public and private, that would run alongside the measures undertaken by the local central bank to rein in credit expansion.
In the latter half of 2007, BNB also identified that credit expansion, through faster and simpler loan-issue procedures, was the main risk to the stability of the banking sector. After relaxing restrictions on commercial banks in Bulgaria, it decided on restoring them as of September 2007. Commercial banks were again expected to file with BNB 12 per cent of their assets as mandatory reserves in case of default.
http://www.sofiaecho.com/article/2007-in-review-the-banking-sector-post-eu-fine-tuning/id_26897/catid_23
Salem to become total banking district before April
SALEM(TN): Salem in Tamil Nadu would become a 'total banking district' by March 31, a top official of the Reserve Bank of India said on Saturday.
There were 7.2 lakh families in the district and around four lakh families atleast have one bank account, said F R Joseph, Director, RBI Southern Region.
Efforts were being taken at a fast pace to ensure that all the remaining families had atleast one bank account before the end of this fiscal, he told reporters here yesterday.
Further, a special camp would be soon held in Salem to educate people on identifying counterfeit currency. A similar camp was held in Chennai recently, he added.
Loans upto Rs 50,000 could be availed from the banks without providing any surety; he said adding that about 13,000 women Self Help Groups in Salem district were availing loans from different banks.
Joseph said that bank account holders in Tamil Nadu could approach the RBI, Chennai branch with complaints about any bank. He assured that action would be taken by the ombudsman within 45 days.
http://economictimes.indiatimes.com/News/News_By_Industry/Banking_Finance_/Salem_to_become_total_banking_district_before_April/articleshow/2676716.cms
There were 7.2 lakh families in the district and around four lakh families atleast have one bank account, said F R Joseph, Director, RBI Southern Region.
Efforts were being taken at a fast pace to ensure that all the remaining families had atleast one bank account before the end of this fiscal, he told reporters here yesterday.
Further, a special camp would be soon held in Salem to educate people on identifying counterfeit currency. A similar camp was held in Chennai recently, he added.
Loans upto Rs 50,000 could be availed from the banks without providing any surety; he said adding that about 13,000 women Self Help Groups in Salem district were availing loans from different banks.
Joseph said that bank account holders in Tamil Nadu could approach the RBI, Chennai branch with complaints about any bank. He assured that action would be taken by the ombudsman within 45 days.
http://economictimes.indiatimes.com/News/News_By_Industry/Banking_Finance_/Salem_to_become_total_banking_district_before_April/articleshow/2676716.cms
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