Top 10 at 10; Retirees 'begging in the streets'; ANZ's ING failures; Roubini's anemia; Dilbert
24th Jul 09, 10:43am
by
Here's my Top 10 links from around the Internet at 10am. I welcome your additions in the comments below and please send suggestions for Monday's Top 10 at 10 to bernard.hickey@interest.co.nz There is no fat in our management ranks....well not too much...
1. Retirement Commissioner Dianna Crossan has warned future retired New Zealanders may be "begging in the streets" if the looming superannuation crisis is not dealt with. She's right. Some serious economic problems are not being confronted by consumers, by voters and by the government, although I'm starting to see some encouraging signs wafting out of the Beehive with the Tax Working Group and the Producitivity Commission.
Ms Crossan hit out after the Government ducked a response to the Retirement Commission's 2007 report warning that the cost of future pensions must be debated now to give future retirees time to adjust to any changes. In a letter from Finance Minister Bill English and Social Development Minister Paula Bennett, the Government blames current economic certainty for postponing the debate until 2010. But Ms Crossan said the number of over-65s was set to double to 1.1million by 2032. The Government needed to put some figures to the long-term cost of pensions so the issue could be properly debated. She was disappointed at its response. "They're a three-year government who don't want to take on this long-term issue, just like their predecessor. Not getting the figures out there and having a discussion is a failing," Ms Crossan said.2. Following Bill English's speech, the Overseas Investment rules may be tested in the near future, with Valero, the US's largest oil refiner, perhaps looking at acquiring full ownership or a stake in New Zealand refining, Blomberg reports.
There continues to be complaints about some inequities in the structure of the capital raisings that have enabled a massive recapitalisation of our listed corporate sector to occur amid the global financial crisis. While some of those complaints are valid, the accelerated capital raising structure that facilitated $90 billion of equity raisings last year has produced enormous competitive advantage and economic benefit. The fact that the $90 billion was raised last year "“ and that nearly $140 billion has been raised in the past two years "“ is, however, of greater significance than the perceived deficiencies in the process by which it was raised. Our banks have been able to maintain conservative balance sheets and maintain their lending even as their loans losses have accelerated. They've also be able to acquire some of the smaller institutions that would have been under acute pressure from the crisis without the access to funding provided by the acquiring majors.4. John Gapper at FT.com says the new leviathans of international finance should be squeezed. Hear hear. Gapper says the regulatory moves on both sides of the Atlantic have failed to do much.
Banks such as JPMorgan Chase and Goldman Sachs have reported large profits for the second quarter, helped by big fixed income trading revenues, having repaid the equity injections the US government made in them last autumn. Meanwhile, regulators struggle to devise a solution to the glaring problem that we now know such institutions to be too big to fail. Not only do they enjoy day-to-day access to central bank funding, but they are bound to be bailed out if trouble strikes; there is no use denying it. The latest attempt to rewrite regulations to address this came from Britain's Conservative party this week. The "big idea" of George Osborne, the shadow chancellor, is to abolish the Financial Services Authority and hand over the prudential supervision of all financial institutions to the Bank of England. The Bank is doing better politically than the US Federal Reserve, which faces hostility from Congress after the US Treasury proposed beefing up its powers. Thus, most political energy is now being expended not on regulation itself but on the name of the regulator. Given the scale of the crisis we have just endured, and appear to have survived, this is pathetic. If I were a banker, I would be laughing discreetly at the bumbling and misdirected efforts of governments to change my behaviour.
5. An angry Westpac customer has withdrawn NZ$190,000 worth of savings in NZ$20 notes, Laura Basham at the Nelson Daily Mail reported. This came after the bank rejected an application for an NZ$80,000 mortgage. There were 190 negative comments about Westpac on the story at last look. Ouch!
Mr Griffiths, a loyal Westpac customer for 25 years, decided to withdraw his money after the bank rejected his application for an $80,000 mortgage. "It's about time normal people took a stand." He said the bank turned down his application because he did not have a regular income as an artist. However, he was a successful artist, exhibiting his paintings at the World of Wearable Art complex, in Christchurch and New York, he said. He wanted to buy a $385,000 property in Mapua, had $200,000 in cash and was going to sell his $110,000 campervan. That more than met the bank's criteria for a 20 per cent deposit, and the property which included a home and commercial premises would have returned $500 a week, he said.6. Banking Ombudsman Liz Brown has appeared before Parliament's commerce select committee discussing complaints from investors tied up in the ANZ/ING funds debacle. Her office found ANZ failed its customers in 80% of the completed cases.
Banking Ombudsman Liz Brown -- who is in her final week in the job -- told Parliament's commerce select committee she had received 521 complaints about ING, of which 195 had not been investigated as they had been resolved or were in the bank's own process. Of the remaining 326, 197 were still being investigated and 129 had been completed. Those completed included 102 which were settled all or partially in favour of the customer.Brown also said the products sold by the ANZ advisors were "probably not particularly well understood by advisors." 7. Again with an eye on the very dodgy European banks, here's a backgrounder from Klaus Zimmermann and Dorothea Schäfer at FT on the Landesbanken, the state-owned banks that are still in an awful mess.
To compensate for their low rates of return compared to private banks of equal size, many Landesbanken before the crisis created structures to hold assets outside their balance sheets. Protected by state guarantees, they borrowed large sums of money in capital markets, which they invested in supposedly high-yielding subprime products with good credit ratings. When the products were subsequently downgraded, two state banks were forced to merge immediately. Four of the remaining seven state banks lost much of their equity and had to be bailed out by various state governments with tens of billions of euros. This situation could get much worse: If the Landesbanken fail to clean up their balance sheets, the next decline in equity capital could prove lethal. To avert such an outcome, it is imperative to establish a "bad bank" to receive their toxic assets "“ and then continue the clean-up by reducing the number of Landesbanken through mergers.8. Nouriel Roubini says on his RGE Monitor any global economic recovery is likely to be anemic.
The global recession may end towards the end of 2009 rather than sooner and the global recovery in 2010 will be anemic and well below trend as leveraged and income/profit-challenged households, firms and financial institutions are constrained in their ability to borrow, lend and spend. Meanwhile a perfect storm of persistently large fiscal deficits and public debt accumulation, monetization of such deficits that will eventually increase expected inflation, rising government bond yields, soaring oil prices, weak profits, still falling jobs and stagnant growth has inched a little closer on the radar of this cloudy global economic outlook. It's a storm that could blow the recovering world economy back into a double-dip recession by late 2010 or 2011. It doesn't have to come to pass. But it is getting more likely unless a clear exit strategy from the massive monetary and fiscal stimulus is outlined even before it is implemented once a more sustained global recovery is achieved.9. Accountants can be brave and stand up to bankers, says Jonathan Weill at Bloomberg.
Turns out America's accounting poobahs have some fight in them after all. Call them crazy, or maybe just brave. The Financial Accounting Standards Board is girding for another brawl with the banking industry over mark-to-market accounting. And this time, it's the FASB that has come out swinging. It was only last April that the FASB caved to congressional pressure by passing emergency rule changes so that banks and insurance companies could keep long-term losses from crummy debt securities off their income statements. Now the FASB says it may expand the use of fair-market values on corporate income statements and balance sheets in ways it never has before. Even loans would have to be carried on the balance sheet at fair value, under a preliminary decision reached July 15. The board might decide whether to issue a formal proposal on the matter as soon as next month.10. Citigroup CEO Vikram Pandit must go, Reuters columnist Matthew Goldstein argues in this commentary piece. It's all happening again.
Don't be fooled by Vikram Pandit's playing the part of a prudent banker. Instead of scaling back risky hedge fund-style trading, Citi is doing just the opposite. And that raises big questions about why the federal government continues to bail out this basket case of a bank, and why Pandit is allowed to remain at Citi's helm. Here's the scoop on this latest bailout outrage: Citi is planning to commit at least an additional $1 billion in capital to a team of stock-focused proprietary traders, say people with knowledge of these strategies "” a move seemingly at odds with Pandit's earlier vow. These traders buy, sell and short a wide variety of stocks, including telecom, technology, healthcare and consumer financials. And the profits and losses on those trades all go straight to Citi's bottom line. In all, I'm told that this team of nearly three dozen prop traders and analysts at Citigroup Principal Strategies will get to play with some $2 billion of house money.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.