From Bad To Worse – European Non-Performing Loans In Context

From Bad To Worse – European Non-Performing Loans In Context

Tyler Durden on 04/15/2013 10:41 -0400

Europe remains in a critical state – despite the protestations of its leadership and the indications of its nepotistic bond markets.Unconventional monetary operations have enhanced liquidity, but have done little-to-nothing to solve the real issue – insolvency. As Jassaud and Hesse note, vulnerabilities remain; as reliance on central-bank liquidity is still high especially for banks in peripheral countries. Assets continue deteriorating and remain on banks’ balance sheets, weighing on profitability. Non-performing loans (NPLs) in EU banks continue to soar, drastically outpacing loan growth. Since 2007, loans to the ‘real’ economy have decreased by 3% while NPLs increased by almost 150%, i.e., €308 billion in absolute terms. This trend shows no sign of reversal, reflecting the continued macro deterioration in parts of the EU and the absence of restructuring (until the new ‘template’). During the last European Banking Authority recapitalisation exercise, 30% of the increase in capital ratio was reached by reducing risk-weighted assets, of which one third came from risk-weighted asset ‘recalibrations’ – i.e. from rotations among the peripheral bonds that (while ultimately risky) are deemed risk-free by the ECB. For a sense of just how absolutely dire the situation is (and entirely unsustainable) across the entire Eurozone, the following chart shows thecurrent ratio of NPL-to-Total-Loans relative to Dec-2007… As ever, credit creation inflated asset prices and provided the cushion for an increase in liabilities (and never a bubble is seen) but once the bubble in asset prices begins to deflate, reality sinks in and the liabilities remain (large as ever). Thus the central bank inspired cycle of credit boom and bust continues – until, of course, there is no capacity left (and no gold to transfer).

BOJ Finds Inspiration in a 1930s Iconoclast Korekiyo Takahashi

BOJ Finds Inspiration in a 1930s Iconoclast

By Michael Schiltz – Apr 11, 2013

Korekiyo Takahashi, left, in an undated photo, had a long career in public office, including stints as Japan’s finance minister in the 1930s. Source: Library of Congress, Prints and Photographs Division

The Bank of Japan has decided to take bold action to reverse the nation’s economic decline.

The bank’s governor, Haruhiko Kuroda, announced a “new dimension in monetary easing,” vowing to double the purchases of government bonds and expand the monetary base. The BOJ also formally adopted a previously announced two-year target of 2 percent inflation. Quantitative easing will be the bank’s core business for the near future, a strategy that resembles the Federal Reserve’s response to the collapse of Lehman Brothers Holdings Inc.

The BOJ’s actions also mark a return, at least partly, to the unorthodox efforts of Japan’s finance minister in the early 1930s, Korekiyo Takahashi, who was praised by Fed Chairman Ben Bernanke for “brilliantly rescuing Japan from the Great Depression through reflationary policies.” Read more of this post

Chinese industry caught in vicious circle of over-production

Chinese industry caught in vicious circle of over-production

Staff Reporter, 2013-04-15

Chinese industries are caught in a vicious circle of over-production and loss, owing to conflicting government policies and expectations, according to the Guangzhou-based 21st Century Business Herald. The country’s producer price index dropped by a total of 1.9% this year due to overproduction, which includes a 5.6% slump in ferrous metals and a 2.6% fall in non-ferrous metals sectors. The country’s steel industry produced 2.2 million tonnes of steel per day in February, which was a historic high and will ultimately drive up annual production to 800 million tonnes. The record production came despite most producers operating at a loss. Aluminum production increased from 24 million tonnes in 2011 to 26 million tonnes in 2012, yet only 20 million tonnes were sold in 2012. The slump in prices caused by overproduction has prompted the government to close outdated and inefficient plants, especially those which were producing iron, steel, electrolytic aluminum and coke. Despite closing plants a different government agency has contrarily offered to subsidize electricity for the non-ferrous metal industry, especially in aluminum factories which use electricity in production. Read more of this post

Which Country’s Gold Will Be Sold Next?

Which Country’s Gold Will Be Sold Next?

Tyler Durden on 04/15/2013 08:05 -0400

The first time the Status Quo/Troika tried to force a (not so) stealthy gold confiscation on an insolvent European country was back in early 2012, when as part of the most recent Greek bailout MOU, it was disclosed that “Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal.” However, the public outcry was so loud that the Troika had no choice but to shelve its plans and proceed with a full scale bondholder restructuring instead. Fast forward to last week, when Europe’s appetite for physical gold came back with a bang, this time as part of the Cyprus “Debt Sustainability Analysis“, and subsequent comments from Mario Draghi, demanding that tiny Cyprus, whose opposition, already weakened by the confiscation of uninsured deposits would be far less vocal than Greece’s, sell off €400MM, or virtually all of its sovereign gold, over 10 of its 13.9 total tons, to cover the excess costs of its ever ballooning sovereign bailout. So who’s next? It remains to be seen, although we are certain there will be a very clear correlation between the next country to see its gold “purchased” by the status quo, likely some time in the next 1-3 months, and the amount of total non-performing loans on said country’s bank balance sheets. The usual suspects are presented below. And, in the parlance of Goldman Sachs, these countries better scramble to sell, sell, sell now before gold hits 0, or maybe even goes negative.

Canadians losing faith in economic “miracle”

Analysis: Canadians losing faith in economic “miracle”

1:16am EDT

By Louise Egan and Andrea Hopkins

OTTAWA/TORONTO (Reuters) – Factory worker Nelson Claros has little time for talk of the Canadian economic miracle.

The 50-year-old was laid off last year from his job of 22 years at a bus-assembly plant northwest of Toronto, and has since applied for 130 jobs. His best offer: A job at $12 an hour, half his previous wage and not enough to pay his bills.

“Really there is a recession right now. They don’t call it a recession, but the companies are closing, there are a lot of layoffs. How can this be a miracle economy?” he asked.

It wasn’t supposed to be like this. Canada’s recovery from a mild 2008-09 recession was quick and job-filled, and the country added nearly 900,000 jobs to take the jobless rate to 7.2 percent from 8.7 percent at the depths of the downturn. Read more of this post

Wells Fargo is slashing an approved list of money managers and investment vehicles that its stockbrokers market to the firm’s wealthy clients, a change of direction that has rattled the third-largest U.S. brokerage network

Exclusive: Wells Fargo cuts approved list of money managers

1:46am EDT

By Jed Horowitz

NEW YORK (Reuters) – Wells Fargo & Co is slashing an approved list of money managers and investment vehicles that its stockbrokers market to the firm’s wealthy clients, a change of direction that has rattled the third-largest U.S. brokerage network.

Executives said the clampdown protects clients from exposure to a plethora of investment models that have received little oversight. It will also reduce the firm’s risk at a time when litigation and compliance costs are rising industry wide. Read more of this post

World Bank Says East Asia Should Consider Stimulus Withdrawal to curb the risks of asset bubbles and inflation

World Bank Says East Asia Should Consider Stimulus Withdrawal

Asia’s emerging economies should consider reining in monetary stimulus to curb the risks of asset bubbles and inflation as policy easing in developed nations spur capital inflows, the World Bank said.

Demand-boosting measures that helped sustain growth “may now be counterproductive,” the Washington-based lender said in its East Asia and Pacific Economic Update released today. “As the global economy recovers, an emerging issue is the risk of overheating in some of the larger economies,” it said in a release accompanying the report.

The International Monetary Fund warned last week that risks from the easing policies of central banks around the world are increasing as the Bank of Japan (8301) joined its counterparts in the U.S. and Europe in unleashing monetary stimulus to end 15 years of deflation. Gross capital inflows into the East Asia and Pacific region surged 86 percent in the first quarter from a year earlier, the World Bank said in its report, adding to pressure on inflation and asset prices.

“Near-zero interest rates and new and protracted rounds of quantitative easing in the United States, European Union, and Japan are inducing large capital inflows into emerging markets including in East Asia,” the World Bank said. “The risk of an asset boom in the markets, in which global liquidity spills over is emerging, with asset valuations moving ahead of fundamentals and possibly a correction down the road.” Read more of this post

Made-in-Asia Luxury Sheds Fake Image Challenging Vuitton

Made-in-Asia Luxury Sheds Fake Image Challenging Vuitton

For decades, made-in-Asia luxury has been shorthand for “fake.” Now, companies from South Korean bag maker Couronne to Malaysian dressmaker Farah Khan are making a case for homegrown chic.

Couronne, Khan and brands such as Woo, a Shanghai-based producer of silk scarves, are winning clients with products that can rival goods made in Europe. Their growing popularity, amid slowing sales at Louis Vuitton and other European brands, shows how demand is changing in Asia, with consumers favoring fresh designs over ubiquitous logos. The trend may lead to more acquisitions in the region as companies such as LVMH Moet Hennessy Louis Vuitton (MC) SA and PPR SA (PP) seek to boost growth.

“Luxury brands of the 21st Century can come out of anywhere,” said Uche Okonkwo, executive director of consultancy Luxe Corp. For consumers who increasingly value craftsmanship over provenance, “what’s important is that a product is made by the best hands using the best materials.” Read more of this post

Hong Kong Pollution Reaches Severe Level as Pollutants Trapped

Hong Kong Pollution Reaches Severe Level as Pollutants Trapped

Hong Kong’s air pollution index reached the “severe” level for the third time this year, triggering a government warning, as the lack of air flow trapped pollutants in the city.

The Air Pollution Index (HKAICEMA) reached 203 at both the Central business district and the Mong Kok roadside-monitoring stations as of 11 a.m. local time, according to the Environment Protection Department. The index last registered similar readings in March.

“The high air pollution incident is caused by the trapping of pollutants,” the Environmental Protection Department said in a statement on its website today. “Air quality will start to improve gradually later tomorrow” after the wind picks up, according to the statement. Read more of this post

Bird Flu to Dead Hogs Curb China’s Soybean-Import Demand

Bird Flu to Dead Hogs Curb China’s Soybean-Import Demand

An eight-year surge in soybean imports by China, the biggest buyer, may come to an end this year as feed consumption drops following a bird-flu outbreak and the discovery of thousands of dead pigs floating in a river.

Imports, which more than tripled from 2004 to 59.2 million metric tons in the year to Sept. 30, will probably fall to 58 million tons this year, as consumers, wary of infectious diseases, shun poultry and pork, according to the median of a Bloomberg survey of four crushers and three analysts in China. Feed is mostly made with soybean meal and corn.

China’s 60 cases of H7N9 flu virus infections and 13 deaths are raising the specter of the 2003 global pandemic of severe acute respiratory syndrome that killed 774 people. Imports of soybeans plunged 21 percent in the 2003-2004 marketing year and an outbreak of H5N1 virus in 2006 also led to the slowest growth in shipments since the SARS outbreak.

“We believe this new avian flu will cut at least 500,000 tons of soybean-meal demand in the immediate future,” said Liu Xianwu, general manager at researcher China Cereals & Oils Business Net. “Soybeans will come down because at the current level, Chinese crushers don’t make money,” he said April 12. Read more of this post

India Convertible Sales Halt as Funds Bleed on Defaults

India Convertible Sales Halt as Funds Bleed on Defaults

Convertible debt sales in India have halted as investors shun the notes in Asia’s worst- performing stock market, with defaults extending 2012’s record.

Issuance of bonds that can be exchanged for shares was zero in 2013, compared with $600 million in 2012 and a record $7.5 billion in 2007, according to data compiled by Bloomberg. That’s the slowest start since 2000, the data show. Convertibles returned 0.27 percent last quarter, the worst performance in the Asia-Pacific after Singapore’s 0.8 percent loss, Barclays Plc indexes show. The region’s average return was 3.8 percent.

“Convertibles are generally issued in bull markets, when there is lot of appetite for equities,” U.R. Bhat, director at Dalton Capital Advisors India Pvt. in Mumbai, said by telephone on April 11. “There is no appetite now. Investors are not optimistic about the equity markets because the economic indicators are not good.” Read more of this post

N. Korea Celebrates Founder’s 101th Birth Anniversary Amid Heightened Tensions

North Korea Celebrates Founder’s Birth Amid Heightened Tensions

North Korea marks the 101st birth anniversary of state founder Kim Il Sung today, after the U.S. reached an agreement with China, Japan and South Korea to try to coax the reclusive regime back to talks.

“We’re prepared to reach out,” U.S. Secretary of State John Kerry said yesterday in Tokyo at the conclusion of an Asian tour that left the door open for a U.S. meeting with North Korea’s leader Kim Jong Un. Any meeting would have to be at the “appropriate moment, appropriate circumstance,” he said.

Kim early today paid his respects at the Kumsusan Palace of the Sun, which houses the tomb of both his grandfather Kim Il Sung and his father Kim Jong Il, the official Korean Central News Agency reported. Diplomats are now focused on whether Kim will mark the April 15 anniversary by testing another missile or nuclear device.

North Korea has repeatedly said the region is on the brink of war since its February nuclear test — the third at its Punggye-ri underground site — prompted stronger United Nations sanctions and the U.S. and South Korea began their joint annual military exercises last month. Read more of this post

Commodities: Tougher times for trading titans; Reaping the supercycle: the top 20 trading houses have posted almost $250bn of net profit over the past decade

April 14, 2013 7:46 pm

Commodities: Tougher times for trading titans

Reaping the supercycle: the top 20 trading houses have posted almost $250bn of net profit over the past decade

By Javier Blas

If you want to raise $10bn quickly, you need to know who to call. When Igor Sechin, chairman of Rosneft, decided to buy TNK-BP and create the world’s biggest listed oil producer, he faced a problem: banks would not be able to provide the full $55bn required.

So Mr Sechin went elsewhere. Late last year, he phoned two of the world’s trading titans: Ian Taylor and Ivan Glasenberg, the chief executives of Vitol and Glencore. In a matter of weeks, the trading houses offered a $10bn loan that the state-owned Russian company guaranteed with future supplies of crude. Vitol and Glencore were financing one of the largest deals in the history of the oil industry. “We have never seen the trading houses embarking on a deal of this scale,” says a banker who helped to put together the contract. “We are in new territory.” Read more of this post

Datuk Hashim, CEO of SME Corp Malaysia: Time to transform and win big

Time to transform and win big

Published: 2013/04/15

“If you’re really in love, appearances aren’t important. The best house is the one you build in each other’s heart.” 

Yu-jin, Winter Sonata

COMING from someone who is not blessed with good looks, flawless skin and model figure, of course, I would agree with Yu-jin! The South Korean drama series “Winter Sonata” has created a viral effect of sorts as an Asian modern classic drama since it made its debut about a decade ago. I am sure the beautiful melody of its ballad “From the Beginning until Now” still haunts most of us, as it does to me, till this day. Needless to say, people of all ages, not just the makcik and the aunts are tuning in to South Korean television dramas that have flooded the local market. Last year, K-Pop star Psy also introduced the world to his “Gangnam Style”, which went viral in August. The song, which was released in July as the lead single of his sixth studio album, debuted at number one on South Korea’s Gaon Chart. In September, “Gangnam Style” was recognised by the Guinness World Records as the most “liked” video on YouTube. By the end of 2012, the song had topped the music charts of more than 30 countries, including Australia, Canada, France, Germany, Italy, Russia, Spain and Britain. As of April 1 2013, the music video has been viewed more than 1.5 billion times on YouTube and it is the site’s most watched video, surpassing that of Justin Bieber’s “Baby”.

All these successes came from what used to be a third-world country torn by conflict with its former northern state. How did the Koreans do it? As we can clearly see, apart from technology and innovation that forms the pillar of strength of the South Korean economy, the country has also begun to tap into the creative industry and recognising its entertainment and cultural strength as one of the best-selling products. The diversification and resiliency of the South Korean economy is brought about by their domestic companies, largely their SMEs, which forms 99.9 per cent of enterprises in the country, providing 88 per cent of employment and contributing 47.6 per cent to national production.  Read more of this post