The billionare investor Warren Buffet, who has huge investments in the banking and insurance industries, recently
said that the US economy has ‘fallen off a cliff.’ Speaking on US cable network CNBC, Buffet said that the economy
has not only slowed down, but habits of the Americans have changed considerably. The 78-year old owner of the investment and insurance firm Berkshire Hathaway added that it is up to the US government to turn around the economy and reduce the effects of the recession. His long term view of the recession was however optimistic but warned that unemployment will rise further before the recession is over. “We’re in a big war,and we’re going to use money to fight it. ”Change won’t happen overnight, he concluded. “You can’t turn around on a dime.”
Posted by Shue on April 30th, 2009 :: Filed under
Uncategorized
Prior to the G20 meeting in London, POBC has released a series of articles on its opinion regarding the causes of the
current financial crisis. In one of the reports, POBC said that regulation has failed to keep up with new emerging
financial institutions, products and markets. The statement said that there is a lack of understanding by regulators
of the cross-border activities among internationally active financial institutions. “In particular, there is a lack of
understanding of international capital flows,” the statement said. It thus called upon the International Monetary Fund
to set up a warning system that would watch out for imbalances and destabilizations of international capital flows.
Posted by Shue on April 29th, 2009 :: Filed under
Uncategorized
HSBC plans to raise GBP12.5 billion to help bolster its capital cushion and fund acquisitions. This capital raising,
despite the negative news, is a positive one as it points to the bank’s significant strength and a new-found
confidence in the banking sector which has proven to be hugely significant. This capital raising will be a
rights issue to its already existing shareholders and will not entail significant injections or assistance
from banks as is the case with RBS and Llyods. This will be a plain old rights issue to its shareholders.
Posted by Shue on April 28th, 2009 :: Filed under
HSBC
In a move to possibly boost its revenue, Citigroup bought the internet bank Egg from the UK insurer Prudential
for only 75 million pounds. This is 375 million pounds less than the original value, or about 40% less value than that
assigned by Prudential just a year ago. The reason for the sale, according to Prudential was growing losses for Egg.
The bank was estimated to have lost 145 million pounds last year alone. The move was considered a good one by
analysts as this was the best price on the market. According to experts, Prudential would have needed to infuse
additional capital into Egg if it would have had to fetch a better price. However, this move would not have gone well with
investors.
Posted by Shue on April 27th, 2009 :: Filed under
Citygroup
In a bid to stabilize its postion and reassure the markets, Citigroup has agreed to have the Government
restructure its board of directors to include more independent members. Last year, in a bid to cut costs, the
bank slashed over 50,000 jobs and in January, Citigroup was split into 2 separate entities. These 2
businesses would help in better management. Citicorp, one of the bodies, would continue to manage the
traditional banking work of the company while the Citi Holdings business branch would specifically handle the investment assets of the firm that are considered the riskiest. Some of the stocks owned by the Government are to be
converted to common shares.
Posted by Shue on April 26th, 2009 :: Filed under
Citygroup
The US Government now has a 36% stake in the troubled Citigroup bank up from the previous 8%, the Treasury
announced earlier in March. The higher stake comes with more responsibilities as this will mean the US
Government will have a more powerful influence over the bank. However, the day-to-day operations and control
of the bank will still be handled by the Citigroup’s board. This move will help raise the bank’s private capital
and still leave out extra taxpayer investment. Citigroup was one of the worst hit banks by the credit crunch.
The bank was bailed out in a deal worth $45 billion by the US Government. The bank’s risky loans were also
guaranteed with an extra $306 billion.
Posted by Shue on April 25th, 2009 :: Filed under
Citygroup
In Europe, the British stocks experienced a rise in february following the news on inflation that had also
caused the prices of food and fuel to go up. This has offset the deflationary effects of the economic crisis.
It was expected that consumer price index would drop as weaker demand would drive retailers to bring down
their prices to attract more shoppers. However, the index rose from 3.0% in January to 3.2% in February.
Commodity stocks have experienced heavy losses recently while markets across Asia continue to gain with
Hong Kong and Japan’s indexes each experiencing a stunning 20% surge over the month of March.
Posted by Shue on April 24th, 2009 :: Filed under
Uncategorized
Banks have noted that more than 90% of all homeowners currently are on their mortgages. While they argue
that their assets will ultimately perform, the discounted prices being offered by investors do not
thus reflect the real worth of these investments. In addition, recognizing the assets at a lower value may
leave them worse off than if they do not sell out and make them potentially insolvent. Government-backed financing
seems to be a sweetener but it is likely the banks will remain reluctant until they are offered a price that
matches or exceeds the value recorded in their books. FDIC chairman, Sheila Bair however lamented that
the banks will have to take the hit if they are to survive. There is no incentive for banks to participate.
Posted by Shue on April 23rd, 2009 :: Filed under
Uncategorized
The plan is straightforward; investors in the private sector will bid in buying stakes in the pools of assets
tied to troubled debts, either in commercial or residential mortgage loans or other securities and their
investments to be matched dollar for dollar by the Treasury. The leveraging will be as much as sixfold
and it will be issued through insured loans by the Federal Reserve or the Federal Deposit Insurance Corp.
However, the dynamics could discourage banks from participating, experts say. The real issue is that banks
disagree as to the real worth of the assets since the worsening economy could put further pressure on
underlying borrowers.
Posted by Shue on April 22nd, 2009 :: Filed under
Uncategorized
The Federal Reserve recently offered a bid of $1.2 trillion in order to have the interest rates come down and as a result, encourage americans to start spending again. This in turn is expected to improve conditions in the credit markets and this will help revive the ailing economy. This economy recovery package has been offered at a time when it is hoped that the Fed and the Obama administration will be successful in stabilizing the financial system. Bernanke, the Federal Reserve boss, said the economy package will only serve as a hinge. In the meantime, the efforts of the government and the Fed to overhaul the regulatory system that is expected to act as a protection from any future financial crisis seems to be going well.
Posted by Shue on April 21st, 2009 :: Filed under
Uncategorized