Today the Economist published an article titled “Confessions of a risk manager”. Here, an insider explains why it is so hard to stop traders behaving recklessly. In addition, a detailed elaboration on the credit crunch and beyond is also given.
Tag Archive for 'Capital Markets'
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One year after it all started, who is to blame for the global credit crunch? Different people have different explanations for the parlous state of the world’s financial markets. The BBC asked various experts to tell us who they thought was responsible. Find the full report here.
The pressure to lift the share price is building. But CEO Jeff Immelt’s options are limited. After a historic first-quarter fumble (earnings miss of 7Cents below expectations) GE met targets for Q2 FY2009. But the market didn’t reward GE. The battered stock price rose just 2Cents on the day’s news, to US$27,66. Since the beginning of the year it’s down 25%, compared with a 15% drop in the S&P 500-stock index.
Now, GE’s CEO Immelt is fighting to revive faith in the sprawling US$173 billion conglomerate, even as forces are working against him. The credit crisis and GE’s April 11 earnings miss have put him under tougher scrutiny than at any time in his seven-year tenure as CEO. Investors are questioning the size and complexity of the company, and want him to move faster to shed assets.
Immelt is acutely aware of the pressure, even as he continues to build GE for the long term. He has overhauled the business portfolio, buying US$88 billion of assets in high-tech growth areas like alternative energy and bioscience while dumping more than US$55 billion of less attractive plays such as GE Plastics. With respect to the need for a better diversified income ratio. Immelt says “asset disposals and the boom in infrastructure should bring the ratio back to about 60% industrial and 40% financial by 2010″ (now half the net).
Immelt says he doesn’t plan to change his strategy—other than raising his cost—cutting targets by $1 billion to $3 billion for this year. While he may not like the economic climate, he’s confident that the shares will ultimately reward solid execution. In the meantime, he’s doing what he can to help GE thrive. “Everybody would like to see the stock price higher,” he says, “me at the front of the list.
* Slideshow: GE’s Generals (Overview of General Electric’s five legendary CEO’s over the past 50 years.)
* Slideshow: GE’s Sprawling Empire (Overview of General Electric’s (GE) business segments)
London’s hedge fund managers and stockbrokers have more than their bonuses to worry about: many are now fretting about their marriages, according to a new study.
About 80 percent of those surveyed believe that the turmoil — and lower bonus payments — will prompt more women to seek a divorce before their husbands’ wealth evaporates further.
Here you can find the complete article.
How much more can markets digest?
Inflation worries, near-record oil prices and fears of further bank losses have led to a sell-off of shares across global stock markets.
Key share indexes in India and China both fell 3% while Japan’s main index fell for its ninth consecutive day for the first time in four years.
In Europe, the FTSE 100 fell 2% while Paris and Frankfurt saw similar losses.
Lack of confidence also hit US markets, with the Dow Jones Industrial Average opening down more than 100 points.
Banking and airline shares were especially weak, the former hit by talk of further sub-prime related losses.
UBS AG together with Citigroup and Merrill Lynch are the top three losers of the US subprime mortgage crisis, together they wrote down US$106 billion to date.
During UBS’ annual meeting on Wednesday April 23rd in Basel, shareholders were asking just one question: How did UBS manage to lose $37 billion betting on American mortgage-backed assets, battering its core capital and share price in the process?
The UBS internal investigation report on the write-downs gives three broad explanations for the bank’s woes. The investment-banking arm’s preoccupation with growth, the reliance of the control team on flawed measures of risk, and the culture of the bank. A more detailed explanation on all three causes can be found here. The credit squeeze is graphically explained by the Financial Times here and by the BBC here.
The mood in London financial markets is not good. House prices are going down, and with them the British pound. Investment bankers within UBS are looking around for jobs, and the Royal Bank of Scotland is sweeping ABN Amro’s trading floor clean with incredible lack of style:
ABN’s structured credit traders were apparently told on Thursday that they should report to RBS’ London office in preparation for a move there on Monday. Terminals needed to be checked and such like. And when they got there… they were all fired (full story).
Luckily, the British have a great sense of humour, and I couldn’t stop laughing at this economic assessment of London 2010 from the price of everything blog:
London, April 2010 – Wall Street firms have just announced their latest results for FY 2009;
300 million staff have been “written down”, leaving just two (Sid and Doris Bonkers) to manage the investment banks’ remaining worldwide debt, equity, merger and advisory, securitisation, syndication and prime brokerage businesses.
Marti Peeps, sole analyst at the last remaining research house, Teletext, welcomed the results as “a bold step in the face of ongoing bad debt provisioning,” though conceded that the City’s newly “rightsized” payroll might struggle to take on board the burgeoning supply of new issuance, namely the packet of Walkers Crisps rumoured to be hitting the primary market in late summer 2012.Hopes for a recovery in Wall Street earnings have for several quarters hinged on the prospects for the successful completion of a 40p private placement of a bag of Salt and Vinegar flavour crisps on behalf of the Walkers Crisps Company. Lead underwriters JPCitigroupMerrill, a subsidiary of the US government, and Northern Rock SocGen KFW Nomura, a wholly owned subsidiary of Tesco plc (Neasden branch), are rumoured to have “solid” interest for the underwriting, most notably from Asia, itself a subsidiary of Texas Pacific Group, but declined to go into further detail. (click here for pdf version. Enjoy!)
Update @ April 15th: London’s financial services sector faces a loss of 20,000 jobs over the next two years. Cuts by Citigroup and RBS are the tip of the iceberg (BusinessWeek).
There’s a paradox in Asian markets, according to Rafael Nam of Reuters. Balance sheets of Asian companies look like they’re in good shape, yet the cost of insuring against debt defaults by these businesses is even higher than it was a decade ago, during the Asian crisis. That makes life harder for them, but it could create an opportunity for investors.
In this case, the only rational explanation seems to be that investors – who are ultimately the ones doing the insuring – simply prefer to keep their money in highly liquid securities denominated in dollars or euros. Yet to the extent that investors’ preferences for the United States and the euro zone come from habit rather than from economic fundamentals – and habit is undoubtedly a part of it – the opportunity in Asia is real. So, who will take advantage?
A symbolic visual for this week’s ups and downs at stock markets across the world.
On the bright side of all the market tumble news, I just found out that Western chocolatiers experimenting with new flavours aimed at targeting Asian markets in order to fuel growth in a saturated Western chocolate market. You can think of ginseng, red bean and green tea flavours! What’s more to come? As I just finished reading the book “The Long Tail by Chris Anderson” creating more product variety aimed at niche markets has a big future! A glimpse into the beginning of a world with unlimited variety of chocolate can be found here.
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