Being a big global bank is not worth the hassle: investor poll

1 Apr9:23 PM

[LONDON] Being one of the world's top 30 banks is not worth the hassle of extra regulatory scrutiny and capital requirements, according to a poll of financial industry investors last week.

Morgan Stanley said 62 per cent of investors polled at its European financial industry conference said the negatives of having a global banking business outweighed the benefits as regulations had "become overbearing" for the largest firms.

Only 28 per cent of investors said the benefits of being a large and truly global firm outweighed the negatives, and 10 per cent of the 60 people polled were undecided. "

We found it striking that some management teams are seeking to make their businesses simpler, and we believe investors would reward the restructuring potential if strategy is clear and perceived as achievable," Morgan Stanley analyst Huw van Steenis wrote in a note to clients on Wednesday.

Thirty of the world's biggest banks are dubbed global systemically important banks, or G-SIBs, which must hold between one and 2.5 per cent extra capital from the start of 2016 and also have a buffer of debt that can absorb losses, so they are less likely to collapse.

These banks, which include HSBC, JPMorgan, Citigroup and China's ICBC, also typically come under extra scrutiny from national regulators.

Banks, particularly many in Europe, are cutting down in size to save costs and simplify their operations. "We were struck by how many of the management teams we met are trying to reconfigure their business, whether through stretching cost cutting goals via digital in the UK and Nordic banks or shrinking investment banking or addressing balance sheets, such as in Italy," van Steenis said.

He said legacy systems, bad loans and businesses not making returns above their cost of capital remained material challenges for the firms, however.

A majority of investors at the conference said they expect European banks to raise at least 20 billion euros (S$29.8 billion) more equity this year.

Morgan Stanley said 41 per cent of investors polled said banks would raise 20-30 billion euros, 9 per cent expected them to raise 30-40 billion and 13 per cent expected them to raise 40 billion or more.

A majority of investors said they expected the European Central Bank to require banks it regulates to hold core capital of at least 11 per cent in the future.

REUTERS

      

Iceland has jailed four bankers for market manipulation in a landmark case

Proving to the world that even bankers aren't above the law

Iceland has jailed four bankers for market manipulation in a landmark case which sets a precedent for the rest of the world. The verdict relates to corruption at the Kaupthing bank, which collapsed after the financial crisis in 2008 due to fraud at the highest levels. Hreidar Mar Sigurdsson, Kaupthing’s former chief executive, former chairman Sigurdur Einarsson, former chief executive of Kaupthing Luxembourg Magnus Gudmundsson, and Olafur Olafsson, the bank’s second largest shareholder at the time, were all sentenced this month to between four and five and a half years.

The sentence given is the heaviest penalty in the country’s history, and Iceland‘s special prosecutor said it was evidence that it is possible to crack down on financial fraud without any adverse effect to the economy. Iceland has a reputation for taking steps that other countries have until now refused to even consider, such as nationalizing their banks. This radical change has boosted the Icelandic economy and leaves other European countries trailing miserably behind. More detail in the The Young Turks news report below.

Business leaders weigh in on Britain's election

British Prime Minister and Conservative party leader David Cameron gives a speech at a General Election Rally at The Corsham School in Chippenham, south west England on March 30, 2015. 

PHOTO: AFP

1 Apr7:46 AM

[LONDON] Over 100 leaders of British companies have declared support for a Conservative-led government ahead of the May 7 general election, weighing in on the tight-fought race.

The letter could be a boost to Prime Minister David Cameron, who is neck-and-neck with his main opposition, Labour party leader Ed Miliband.

"We believe this Conservative-led government has been good for business and has pursued policies which have supported investment and job creation," the executives wrote in a letter printed on the front page of the Daily Telegraph.

"We believe a change in course will threaten jobs and deter investment. This would send a negative message about Britain and put the recovery at risk." Signatories included Bob Dudley, chief executive of the oil and gas giant BP; outgoing Prudential insurance chief Tidjane Thiam; and the head of food processing and retailing company Associated British Foods George Weston.

Executives from brands well-known in Britain such as betting firm Ladbrokes, fashion business Ted Baker, restaurant chain Pizza Express and Cobra Beer also signed the letter.

Cameron has argued that his party is more credible on the economy due to an improved performance in the nation's finances on the watch of his Conservative-led coalition with the centrist Liberal Democrats.

However, Cameron's left-leaning rival Miliband maintains that the recovery is unbalanced and has left low-paid workers behind, and has put living standards at the heart of his campaign.

Miliband is expected to announce a policy to curb so-called "zero hours" contracts, under which employees only work when needed by their employers, often at short notice.

Business groups have defended the contracts, saying that unemployment would rise without them.

AFP

    
 

Japan denies plan to join China-led development bank

Chief Cabinet Secretary Yoshihide Suga said Tuesday the ambassador had not made any such comment and Japan's position on the AIIB had not changed. 

PHOTO: AFP

31 Mar12:11 PM

[TOKYO] Japan on Tuesday ruled out any immediate plan to join the Beijing-backed Asian Infrastructure Investment Bank (AIIB), categorically denying a news report that its ambassador to China said Tokyo is likely to take part.

The Financial Times reported that Masato Kitera, Tokyo's envoy in Beijing, said in an interview Japan is likely to join the AIIB within a few months, a move that would leave Washington as the only big holdout.

But Chief Cabinet Secretary Yoshihide Suga said Tuesday the ambassador had not made any such comment and Japan's position on the AIIB had not changed.

"I have been informed that it is not true that Ambassador Kitera made such remarks forecasting (Japan's) participation," Suga told a news conference.

The report comes just before the end-March deadline China has set for participation in the bank as a founding member.

Australia, Britain, France, Germany, Italy and Russia have all said they intend to join the Beijing-headquartered US$50 billion institution, despite scepticism in Washington and Tokyo. China's neighbour and long-time foe Taiwan said Monday it would also make a formal application to join.

"Japan is dubious about whether (the AIIB) would be properly governed or whether it would damage other creditors," Mr Suga said. Japan is a key player in the Asian Development Bank (ADB), which would be a rival.

"Anyway, I think it's impossible for Japan to take part today," the government's top spokesman said, adding that Tokyo would work together with Washington, its top ally, and other countries to ask Beijing for clarification.

The new multinational lender is seen as a threat to the World Bank and the ADB, two institutions that are heavily influenced by the US and Japan.

Washington has been left increasingly isolated in its opposition to the AIIB, which opponents claim could end up as a Chinese vehicle that has low standards on governance, the environment and social issues.

President Barack Obama's administration has waged an intense but low-profile lobbying campaign against it, but has watched with frustration as allies around the world pile in, with some hoping to curry favour in Beijing and others not wanting to miss out on a lucrative part of the world.

China is expected to foot the bulk of the initial money needed to get the AIIB started, with donations from other members set to increase the size of the overall fund to more than US$100 billion.

AFP

    
 

China says Taiwan welcome to join AIIB

1 Apr1:18 PM

[BEIJING] China welcomes Taiwan's decision to apply to join the Beijing-led Asian Infrastructure Investment Bank (AIIB) as long as the self-ruled island uses an appropriate name, state news agency Xinhua reported on Wednesday.

China's Taiwan Affairs Office has received Taiwan's letter of intent to join and has passed it to the AIIB's interim secretariat, Xinhua cited Taiwan Affairs Office spokesman Ma Xiaoguang as saying. "The AIIB is open and inclusive," Ma said. "We welcome Taiwan to participate in the AIIB under an appropriate name." Most countries, including the United States, do not recognise Taiwan due to pressure from China. Taiwan is not a member of the United Nations, the World Bank or the International Monetary Fund.

However it is a member of the Asian Development Bank under the name of Taipei,China.

The United States has urged countries to think twice about joining the AIIB until it could show sufficient standards of governance and environmental and social safeguards.

The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia region. AIIB is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB),which are regarded as dominated by developed countries like the United States

China views Taiwan as a renegade province and has not ruled out the use of force to bring it under its control. However, since Taiwan's current president Ma Ying-jeou took office in 2008, enmity has declined considerably and the two sides have signed a number of trade and investment deals.

REUTERS

    
 

US ready to accept China-led infrastructure bank: Treasury Secretary Jack Lew

PUBLISHED ON APR 1, 2015 10:37 AM

US Treasury Secretary Jack Lew says Washington is "ready to welcome" the China-led Asian Infrastructure Investment Bank, easing towards the new development institution after early concerns. -- PHOTO: REUTERS 

WASHINGTON (AFP) - United States Treasury Secretary Jack Lew said on Tuesday that Washington was "ready to welcome" the China-led Asian Infrastructure Investment Bank (AIIB), easing towards the new development institution after the US expressed early concerns.

Mr Lew said in a San Francisco speech just after a trip to Beijing that the United States would embrace any new international development bank providing it "complements" existing institutions like the World Bank and International Monetary Fund.

He also stressed that new institutions needed to "share the international community's strong commitment to genuine multilateral governance and decision making, and ever-improving lending standards and safeguards", according to his prepared speech.

Speaking at the northern California chapter of the Asia Society, Mr Lew said he was encouraged that Chinese leaders "made clear that they aspire to meet high standards and welcome partnership". "Our consistent focus on standards has already had an impact and, as lending begins, the test will be the character of the projects funded and their impact on the people and countries they serve."

China enters stock frenzy as rookie traders open record accounts

PHOTO: AFP

1 Apr10:37 AM

[NEW YORK] To get a sense of the frenzy in China's world-beating equity market, consider this: In a two-week span last month, the rally lured 2.8 million rookie stock pickers, almost the equivalent of Chicago's entire population.

The number of new equity accounts surged to a record during the two weeks ended March 27, five times the average of the past year, data from China Securities Depository and Clearing Co showed on Tuesday.

About 4 million were opened in March, enough for every person in Los Angeles. More than two-thirds of new investors have never attended or graduated from high school, according to a survey by China's Southwestern University of Finance and Economics.

Signs of inexperienced investors' growing influence on the US$6.5 trillion market have already shown up in the outperformance of China's equivalent of penny stocks and a jump in share-price volatility to the highest level in five years.

While fresh capital may feed market momentum as the government steps up efforts to support economic growth, foreign money managers have been selling shares on concern the gains are overdone.

"A lot of speculative money has come into the market," Michael Wang, a strategist at hedge fund Amiya Capital LLP, said by phone from London. The rally "is not fundamentally driven. It's much more of a flow-driven phenomenon," he said.

The Shanghai Composite Index advanced 16 per cent in the first quarter, extending its gain since the end of June to 83 per cent, the most among the world's major stock indexes. The gauge rose 0.1 per cent at 9.58am local time.

MONETARY STIMULUS

Chinese shares climbed to seven-year highs on Monday as the government lowered the downpayment requirement for second-home buyers, the latest step to boost the economy following two interest-rate cuts since November.

Central bank chief Zhou Xiaochuan signaled on Sunday that further stimulus may be on the way, saying growth has tumbled "a bit" too fast.

Individual investors, who account for about 80 per cent of China's stock trading, are flocking to equities as slumping home prices and government curbs on wealth-management products make alternative investments less attractive.

More than 10 million stock accounts have been opened since the start of December, equivalent to the total number for all of 2012 and 2013 combined. About 37 per cent of the new investors were middle-school graduates and 25 percent only attended elementary schools, according to a December survey of some 4,000 households by the Southwestern University of Finance and Economics in Chengdu, Sichuan Province.

EUPHORIA SIGNS

Stocks in China's large-capitalization CSI 300 Index that were quoted below 5 yuan at the end of September - shares that have long held an allure for amateurs - jumped an average 63 per cent through mid-January, versus a 35 per cent gain for all index stocks and 11 per cent for those priced above 50 yuan. The gauge's 200-day historical volatility has climbed to the highest level since January 2010.

Bank of America Corp downgraded its recommendation on Chinese shares to the equivalent of hold from buy last month, citing signs of "euphoria." Overseas investors sold a net 1.7 billion yuan (US$274 million) of stocks via the Shanghai-Hong Kong exchange link in the week through Monday, while the two biggest Hong Kong ETFs tracking mainland equities had withdrawals of US$622 million.

While the momentum can carry on for a while as individual investors chase the gains, the stock market is increasingly diverging from economic reality, said Tom Orlik, a Bloomberg Intelligence economist in Beijing.

NO BUBBLE

China's expansion rate slowed to 6.28 per cent in February from a year earlier, the weakest since 2009 and below the official target of 7 per cent for 2015, Bloomberg's monthly growth tracker shows. Dual-listed mainland companies traded 36 per cent above their equivalent shares in Hong Kong on March 26, the biggest premium since October 2011, according to data compiled by Bloomberg.

Stock ownership by individuals is still low, with room to increase as China becomes a more mature market, said Michelle Gibley, the director of international research at San Francisco- based Charles Schwab Corp.

Equities account for 20 per cent of financial assets in Chinese households, compared with 45 per cent in cash and bank deposits, according to a Charles Schwab survey released in January.

"Chinese domestic investors entering the stock market may be chasing gains, but this occurrence doesn't necessarily indicate a bubble," said Gibley, whose firm oversees about US$2.5 trillion.

"That said, valuations of Chinese A-share stocks appear extended relative to H-share stocks, and may be due for a breather." Chinese traders are accustomed to booms and busts, partly because the market is dominated by individuals who may be less committed to long-term equity holdings. The Shanghai Composite surged 353 per cent in two years through 2007 before crashing 65 per cent the following year.

For as long as new investors keep piling in, "it will be good for the market as the bubble expands," Tony Hann, the head of emerging markets at Blackfriars Asset Management Ltd. in London, said by e-mail. "But it will surely end in tears."

BLOOMBERG