No Signs of Economic Recovery Yet in the U.S.

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There are no signs of economic recovery in-spite of some folks talking about green shoots for the past few weeks. The following chart about retail sales reinforces this point.

US-Retail-Sales-June

Source: The Wall Street Journal

Last month there was a minor upturn in auto sales after many months of drastic declines. And gas prices  rose last month as the price of crude went up. Hence the Journal says “U.S. retail sales rose in June, but mostly because of higher gasoline prices and volatile auto sales, the Commerce Department reported Tuesday. Meanwhile, businesses continued to slash inventories.Retail sales climbed 0.6% in June from a month earlier on a seasonally adjusted basis to $342.1 billion, according to the Commerce Department. Excluding gas and autos, retail sales actually declined for the fourth consecutive month.”

The left part of the above chart clearly shows that sometimes charts can be misleading at face value.A few months of consistent upturn in retail sales and other variables are needed before we can come to a conclusion on the direction of the economy.

Daily Wisdom: New Bull Market Edition

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Photo: Arch de Triumph, Paris, France

ITALY’S public debt hit a record E1.7522 trillion ($3.13 trillion) in May, the Bank of Italy reported on Tuesday. Italy’s debt reaches new record

Russian millionaires are returning to the U.S. property market, lured by distressed sales and the ruble’s rise against the dollar, lawyer Edward Mermelstein said. Russian Millionaires Return to U.S. Property Market Lured by Lower Prices

Nitol Solar started making polysilicon for solar panels almost by accident. Now it’s helping Russia become a force in the industry.Nitol, Russia’s Emerging Solar Power Star

Technology stocks now make up about one-third of Legg Mason’s $304 million Value Fund.Legg Mason sees start of a new bull market

In a year of the unthinkable, which witnessed the demise of two broker-dealers and the unraveling of fraudulent investment schemes topped by the end-of-year Bernard Madoff scam, asset servicing providers have ample reason to be cautious.Understanding risk in fast-moving markets

Rising NPAs of Indian Banks Need Not be a Worry

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Back in April this year, the rating agency Crisil warned that gross Non-Performing Assets (NPA) of banks in India may reach 5% by 2011. Most of the rise in NPA will be due to problems with commercial loans.

ICICI Bank’s (IBN) NPA stood at 4.33% in May a 1% increase over the previous year. The NPA of HDFC Bank (HDB) was at 1.91% of total assets. However both these banks are exposed to high retail loans due to aggressive growth in the past few years. Comparatively ICICI is a bit more risky than HDFC.

Despite the rating agency warning, the NPA ratios of Indian banks are small and manageable even if they grow to 5%. This is because historically the NPA has decreased over the past few years as shown below:

Year 2003 = 9.06%
Year 2004 = 7.19%
Year 2005 = 4.91%
Year 2006 = 3.48%
Year 2007 = 2.66%
Year 2008 = 2.40%

Source: Reserve Bank of India

So NPA is projected to double by 2011 from last year’s 2.4%. However as mentioned above, the NPA ratio fallen continuously from 9% in 2003 to less then 3% in 2008. So the rise to 5% in 2011 may not be a severe hit to the banks. While rising NPA is a cause for concern, it may not derail the growth of the banking sector in India and it will be manageable as banks have adequate capital reserves/

A Review of Top U.S. Bank Choices for 2009

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On January 2nd this year, Stifel Nicolaus released a list of top U.S. bank choices for this year based on its research.

The top bank choices were:

BancorpSouth (BXS)
City Holding (CHCO)
Danvers Bancorp (DNBK)
First Horizon (FHN)
People’s United Financial (PBCT)
TCF Financial (TCB)

Stifel Nicolaus said: “Though not unscathed by the credit cycle, these institutions maintain adequate capital levels, in our view, and, in many cases, will capitalize on weakened competitors.”

The Year-To-Date (YTD) performance and dividend yield of these stocks are as follows:

BancorpSouth (BXS)
YTD Change= -9.0%
Dividend Yield = 4.23%

City Holding (CHCO)
YTD Change= -12.4%
Dividend Yield = 4.75%

Danvers Bancorp (DNBK)
YTD Change= -1.5%
Dividend Yield = 0.61%

First Horizon (FHN)
YTD Change= 19.7%
Dividend Yield = N/A

People’s United Financial (PBCT)
YTD Change= -10.2%
Dividend Yield = 4.01%

TCF Financial (TCB)
YTD Change= 5.0%
Dividend Yield = 1.50%

The best performer in the list is Memphis, Tennessee-based First Horizon. The Wall Street Journal recently had a rave review of FHN saying that the bank had cleaned up its mortgage business and is a survivor of the credit crunch. Danvers Bancorp is a Massachusetts-based small S&L. We will review these picks again at the end of the year.

HSBC – The Best Global Bank for 2009

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HSBC Holdings Plc (HBC) of U.K. was awarded the title of “Best Global Bank”  by the highly respected Euromoney magazine in London on July 8th.

Congratulating the bank Euromoney said:

“After a period in which banks suffered for putting too many eggs into too few baskets, one of the things that stands out at HSBC is the diversity of its business. It is a truly global bank.HSBC has adopted a clear policy of focusing expansion on emerging markets, and to place the bank in a position to focus on the international connectivity of those markets with the developed world. It is scoring a number of successes. The bank achieved almost full subscription to the rights issue. No other bank could have raised so much money in this way at that time. The market had made a judgment on HSBC.”

HSBC LogoThe CEO of HSBC, Michael Geoghegan commented “Conservativism, strong capital management and responsible practice have certainly been the core of HSBC since we were founded in 1865. In practice, this character is personified every day by our 300,000 plus staff around the world and it’s on their behalf that I am delighted to accept the global bank of the year award for HSBC.”

Currently HBC has a 3.95% dividend yield and a market cap of $98.4B. The stock has nearly doubled from its March lows of nearly $23. HSBC made a disastrous deal back in 2002 when it acquired consumer finance company Household International. As a result of losses with the purchase, HSBC had to  take a $10.6 billion goodwill impairment charge. After that deal, the bank made many strategic changes and positioned itself to be a strong survivor once the credit crisis hit the markets worldwide. HSBC never took British government bailout funds and successfully raised money with a rights issue. The bank that calls itself “The World’s Local Bank” has a strong presence in many countries especially in Asia since it was originally founded in Hong Kong.

Euronomey named Standard Chartered of the U.K. as the best emerging market bank. Called simply as Stanchart, it does trade in the U.S. markets.

The list of other global award winners for “Awards for excellence 2009″  are:

Best commodities house     – Morgan Stanley (MS)
Best corporate restructuring house     – Lazard
Best DCM house  –    HSBC (HBC)
Best ECM house    -  Goldman Sachs(GS)
Best emerging market debt house     – Citi (C)
Best emerging market equity house  –   J.P.Morgan (JPM)
Best emerging market investment bank -  J.P.Morgan (JPM)
Best emerging market M&A house    – Credit Suisse(CS)
Best equity derivatives house  –   Societe Generale Corporate & Investment Banking (SCGLY)
Best foreign exchange house     – Barclays Capital (BCS)
Best hedge fund    -  Paulson & Co
Best infrastructure and project finance house –    BNP Paribas (BNPQY)
Best investment bank     – Credit Suisse (CS)
Best investor services house    -  Bank of New York Mellon (BNY)
Best M&A house  –   J.P.Morgan (JPM)
Best private equity firm    -  Blackstone
Best risk management house-     Deutsche Bank (DB)
Best securities restructuring house    -  Goldman Sachs (GS)
Best short-term debt house   -  Goldman Sachs (GS)
Best sovereign advisory    -  Rothschild
Best structured products house –    RBS (RBS)
Best transaction banking house  –   HSBC (HBC)
Best wealth management house    – Credit Suisse (CS)

Source: Euromoney