Which Banks Are More Risky – The Largest EU or US Banks ?

Posted by on

The largest of the European Union (EU) banks fell more than their US peers in the recent credit crisis since their leverage ratio and the exposure to market risk was higher.Many European bank stocks such as ING Bank (ING), Royal Bank of Scotland (RBS), Societe Generale (SCGLY), Commerzbank(CRZBY), Lloyds Bank(LYG) fell sharply last year and thru March. For many investors this was a big shock since they assumed that European banks were not involved heavily in the sub-prime mess.

If banks have high leverage ratios then their capacity to absorb losses becomes less.The leverage ratio for the financial sector in the Euro area increased to about 70% of the GDP between 1999 and 2007. But in the U.S. this ratio grew to only 40% during the same period.

The chart below shows the Leverage and Exposure to Market Risk of the Largest EU and US banks between 1998-2008: 

Click to Expand

EU-US-Banks-Leverage-Market-Risk

Source: Leverage: total liabilities/net tangible equity. Exposure to market risk: total securities/net tangible equity. Data on 2008 are estimates. Source: R&S – Mediobanca 2009 

Simple explanations for global financial instability and the cure: Keep it simple by Jacopo Carmassi,   Daniel Gros, Stefano Micossi

The large  EU banks had an average leverage ratio higher than US banks (top section of chart).The average ratio for EU banks was about 35 but it reached to 70 or even 80 for some German, British and Swiss banks.

Compared to the US, Europe has tougher regulations for the banking sector. Despite this, European banks  not only over-leveraged but also exposed themselves to some of the riskiest assets out there similar to the large banks in the US. This situation occurred because of the lax oversight by the regulators in European countries. Besides European banks also wanted to boost their profits to high levels even if meant taking huge unnecessary risks.

Best Private Banks in Asia for 2009

Posted by on

The publishers of FinanceAsia magazine have released the Best Private Bank Country Awards for 2009.

From Wikipedia: ” Private banking is a term for banking, investment and other financial services provided by banks to private individuals investing sizable assets. The term “private” refers to the customer service being rendered on a more personal basis than in mass-market retail banking, usually via dedicated bank advisers. It should not be confused with a private bank, which is simply a non-incorporated banking institution.”

The Best Private Banks in Asia for 2009 are:

China – Bank of China
Hong Kong – HSBC Private Bank (HBC)
India – Kotak Mahindra Bank
Indonesia – Bank Mandiri
Malaysia – CIMB Private Bank
Philippines – BDO Private Bank
Singapore – DBS Private Bank (DBSDY)
South Korea – Samsung Securities Private Bank
Taiwan – Chinatrust Commercial Bank

Knowledge is Power:Shipping Industry Crisis Edition

Posted by on

Shipping-Collapse

 Source: Der Spiegel

The global economic crisis is wreaking havoc on shipping: Demand and prices have collapsed and ports are filling up with fleets of empty freighters. The crisis has fueled cut-throat competition and not all companies will survive. Germany’s Hapag-Lloyd alone needs 1.75 billion euros to stay afloat.Shipping Industry Fights for Survival

The number of bankruptcies rose by a staggering 51.6 per cent in June compared to the year before, as more Canadian consumers and businesses were…Canadian bankruptcies skyrocket in June

Will the current crisis reverse the past two decades of democratisation and financial liberalisation? This column documents the complex, non-linear relationship between political and financial reform. Financial liberalisation often reverses as countries move from autocracy to democracy, as “partial democracies” are less liberalised, and there are big differences between de jure and de facto liberalisation.Financial liberalisation and “partial democracy”

Even some of our most sophisticated commentators doubt a link between consumer protection and any macroeconomic outcomes.  Consumer protection, in this view, is microeconomics and quite different from macroeconomic issues (such as the speed and nature of our economic recovery).Credit Conditions In The Absence Of Consumer Protection

The order in which the world will emerge, post-recession, is still unclear, but a long slog can be expected, after which there will still be few competitors to challenge the US dollar as the world’s predominant currency.How will the world look when the dust settles?

The balance of risks to Asian equities is to the downside over the next three months, says Macquarie.Macquarie bullish on Singapore and banks

Stronger high-street sales and optimism in housing market have boosted hopes of economic recovery. Spending and house prices pick up

Ships-Parked

Container ships and bulk carriers parked off the coast of Singapore: Roughly 450 container ships are now idle worldwide as a result of the crisis — about 10 percent of the global fleet. Credit: Der Spiegel

Brazil’s Current Economy in Charts

Posted by on

Emerging markets are once again the hot destination for investors this year. Brazil continues to be a favorite destination for foreign capital. The central bank of Brazil, Banco Central Do Brasil recently released the “Brazil’s Economic Chart Pack” showing  a snapshot of the current state of the economy.

Some of the interesting charts are presented below:

1. The Public Sector Net Debt trend is down. In 1Q,2009 net debt stood at 37.6% of GDP

Brazil-Debt

2.Brazil has a trade surplus as shown in the chart below

Brazil Trade

3.More than half all Brazil’s  exports is for emerging market countries. The U.S. accounts for just 13.2% of Brazil’s exports

brazil-trade

4.Only about 40% of exports are primary products which consists of iron ore, food, oil and tobacco. Manufactured goods total about 45%. These include buses, cars, tractors, planes, etc. Hence contrary to popular belief,Brazil is not just a commodity exporter. Nearly half of all exports are finished products.

Brazil-Exports

5. Unlike in the U.S. and Western Europe, credit growth is actually higher this year in Brazil. Consumers and Corporates increased credit by 18.7% and 22.7% year-over-year for April this year.

Brazil Credit Growth

Source: Banco Central Do Brasil

Related:

ETF:  iShares MSCI Brazil Index (EWZ)
Banco Bradesco (BBD)
Itau Unibanco Holding SA (ITUB)

What are the Best and Worst Performing Foreign Bank ADRs YTD?

Posted by on

The S&P; 500 Index is up 11.87% as of August 7, 2009. The Financials in the index are up 14.43%. However many of the foreign banks have risen considerably higher in the recent run-up in global markets. In fact many of the foreign bank ADRs are up over 50% Year-To-Date (YTD).

Three foreign banks have performed exceptionally well in terms of share price increase. They have grown over 100% YTD. These 3 banks are:

Woori Finance (WF)
YTD Change = 148.56%

Barclays Bank (BCS)
YTD Change = 146.33%

Bank of Ireland (IRE)
YTD Change = 142.56%

Woori Finance of South Korea is the best performing ADR YTD. South Korea’s economy is rebounding well. Today the IMF upgraded South Korea’s economic forecast and suggested that the economic growth will contract by 1.8% instead of 3.0% projected earlier. Barclays weathered the credit crisis better and emerged much stronger than its peers in the UK.

Two foreign banks are still in the negative territory YTD. These 2 banks are:

Lloyds Banking Group(LYG)
YTD Change = (5.19%)

Mizuho Financial (MFG)
YTD Change = (17.68%)

Llyods Bank of UK is suffering due to its acquisition of Britain’s largest mortgage lender HBOS plc last year.The Royal Bank of Scotland (RBS), another bank that was killed in the credit crisis is up just 5.60% so far this year. In addition to subprime, derivatives related writedown RBS also incurred heavy losses due to its ill-timed takeover of ABN Amro in partnership with a few other large banks. Clearly investors are sifting thru the rubble after the credit crisis and picking up stronger banks that can survive thru adverse economic conditions.