US funds left bruised by heavy bond losses; Every one of the most popular class of US mutual funds investing in bonds lost money in May, highlighting the risks for investors as interest rates rise

June 3, 2013 7:44 pm

US funds left bruised by heavy bond losses

By Dan McCrum in New York

Every one of the most popular class of US mutual funds investing in bonds lost money in May, highlighting the risks for investors as interest rates rise. Bond yields around the world soared from some of the lowest levels in decades last month as investors anticipated an end to the extraordinary measures the Federal Reserve has used to stimulate the US economy. US funds that invest in higher-rated bonds with average maturities of under 10 years lost an average 1.8 per cent in May, marking their worst performance since the depths of the financial crisis in October 2008, according to Lipper, a research group. Such a broad decline has been rare for these funds. With more than $900bn in assets, these investment vehicles have attracted the lion’s share of inflows from savers in search of regular income and low risk since the crisis. Read more of this post

Bond haircuts in fashion for banks; There is a growing belief that even banks that are relatively rich in deposits should be forced to hold large quantities of bonds that can be “bailed in” if crisis hits.

June 3, 2013 8:10 pm

Inside business: Bond haircuts in fashion for banks

By Patrick Jenkins

Go back a decade and the only reason the Co-operative Bank was in the headlines was because it had raised a chunk more charity money or found a way to make cheque books out of recycled paper.

Today’s news agenda at the UK’s main ethically-minded lender is rather more existential. Over the weekend there was another spate of jitters over the Co-op. A few months after it first emerged that the bank faced a capital hole of up to £1bn, and three weeks on from its dramatic six-notch credit rating downgrade at the hands of Moody’s, there were fresh revelations. First the Financial Times reported that some institutional depositors had begun withdrawing funds. Then it emerged that the umbrella Co-op group, which spans supermarkets and funerals, was weighing some dramatic financial restructuring that would hurt bondholders. Read more of this post

No more Mr Nice Guy: Indian bankers suit up for war on debt defaulters as banks are weighed down by stressed loans of nearly $150 billion – equivalent to more than 10 percent of bank assets in the country

No more Mr Nice Guy: Indian bankers suit up for war on debt defaulters

Sun, Jun 2 2013

By Swati Pandey

MUMBAI, June 3 (Reuters) – Fed up with a profitable textile company’s failure to repay its loan, India’s UCO Bank has taken its grievance public, placing newspaper ads last month that brand the industrialist owner of S. Kumar’s Nationwide Ltd a defaulter. State Bank of India (SBI), Bank of India Ltd and Bank of Baroda are also preparing to name and shame corporate borrowers which are not paying them back, bank executives told Reuters. This aggressive tactic for dealing with bad debt marks a major departure from the traditional laid-back approach of Indian state lenders. Weighed down by stressed loans of nearly $150 billion – equivalent to more than 10 percent of bank assets in the country – and against a backdrop of the slowest economic growth in a decade, Indian banks are bringing an unprecedented intensity to their recovery efforts. Read more of this post

CJ Group Chairman Lee Jay-hyun said he will take full responsibility for the slush fund scandal that has engulfed the country’s 14th largest conglomerate and his family

2013-06-03

CJ chairman pledges to take responsibility

By Na Jeong-ju

CJ Group Chairman Lee Jay-hyun said Monday he will take full responsibility for the slush fund scandal that has engulfed the country’s 14th largest conglomerate and his family. “This firm is not mine. It’s yours. I will take all possible measures to protect your workplaces and help you keep dreaming,” Lee said in an email to CJ employees. “I will give up all my own interests. Your pride should not be hurt. My top priority is to help this firm maintain stable growth.” This was his first public statement since the prosecution launched an investigation into multiple suspicions surrounding him and his firm, ranging from tax evasion, stock price rigging to violations of fair competition rules. Lee’s remarks triggered speculation that he may make a strategic decision of giving up his chairmanship just as many other Korean conglomerate chiefs previously entangled in corruption have done. Read more of this post

Kraft changed its biscuits for China

June 3, 2013 5:23 pm

Kraft changed its biscuits for China

By Srinivas Reddy and Kevin Sproule

The story. Kraft Foods’ flagship Oreo brand first went on sale in China in 1996. But sales were lacklustre and by 2005 it was clear that one of the world’s largest biscuit brands was falling far short of expectations in this fast- growing retail market. Shawn Warren, regional head of biscuits, and his team knew they had to take radical action or risk the distinctive black-and-white-layered round biscuits being pulled off the shelves in China.

The challenge. Growth was stalling at a time when the biscuit sector overall was experiencing record growth in China. Apart from a small rise in 2003, Oreo sales had been sluggish from the outset, and shipments into China were projected to drop by more than 10 per cent in 2005. To make matters worse, the company was losing money on each Oreo sold. Even a near-40 per cent rise in marketing spend yielded no boost in sales. Read more of this post

Debt on China’s Local Gov’ Financing Platforms Forces Regulator into Balancing Act

06.03.2013 17:33

Debt on Local Gov’ Financing Platforms Forces Regulator into Balancing Act

CBRC forced to choose between stability of banking system and providing officials with the funding they need

By staff reporters Tian Lin and Huo Kan

(Beijing) – Local government financing platforms’ debts now total 9.3 trillion yuan, exceeding last year’s local government revenues by half, a China Banking Regulatory Commission (CBRC) official recently said at an internal meeting.

By the end of 2015, nearly 3.5 trillion yuan of those debts will come due, exerting heavy pressure on local governments’ fiscal conditions, he said. Read more of this post

Why wealthy Chinese buy their insurance in Hong Kong; people were using offshore insurance to launder money. “The dividends paid by insurance companies is all clean money”

Why wealthy Chinese buy their insurance in Hong Kong

Jun 3, 2013 12:42pm by Lydia Guo

Wealthy Chinese mainlanders famously love to go shopping in Hong Kong, hungry for items such as milk powder, gold and luxury shoes and handbags. But they also like to buy less high profile items, including insurance policies.

During the first quarter of this year, mainland visitors spent HK$2.8bn ($361m) on premiums for personal policies such as life insurance and annuities, or 12.5 per cent of the total for such premiums, according to Hong Kong’s Office of the Commissioner of Insurance. That is a 55 per cent increase over the amount they spent a year earlier.

Why would mainlanders put insurance policies on their shopping lists? One reason is their desire to transfer capital overseas. Others are diversifying their asset allocation, avoiding a proposed estate tax and the fact that usually premiums are lower but returns higher in Hong Kong compared with mainland China. And, of course, Hong Kong’s health service is generally better. Read more of this post

Beijing Caps Home Prices to Control Demand: Mortgages

Beijing Caps Home Prices to Control Demand: Mortgages

Beijing, which already has China’s strictest real estate curbs, is being forced to take additional steps to contain surging home prices as demands for record-high down payments fail to deter buyers.

The city has enforced citywide price caps since March by withholding presale permits for any new project asking selling prices authorities deem too high, according to developer Sunac China Holdings Ltd. (1918) and realtor Centaline Group. Local officials will need further tightening as they struggle to meet this year’s target of keeping prices unchanged from last year, said Bacic & 5i5j Group, the city’s second-biggest property broker. Read more of this post

Volvo Becomes China Latecomer as Geely’s Li Miscalculates Home Advantage

Volvo Becomes China Latecomer as Li Miscalculates Home Advantage

Three years after buying Volvo Cars, Chinese tycoon Li Shufu may get to compete with Volkswagen AG (VOW)’s Audi and Bayerische Motoren Werke AG on a more level playing field in his own country.

Volvo Cars, a unit of Li’s Zhejiang Geely Holding Group Co., will begin production this month at its first factory in China, allowing it to avoid the nation’s 25 percent import tariff. The company had so far brought in its cars from overseas or produced them in limited quantities at a Ford Motor Co. plant in Chongqing, China.

The three years it took to open the factory shows how Li, 49, miscalculated the edge he would have in his home country as the Chinese government subjected the Swedish brand to the same regulatory approval procedures as all foreign automakers. Still, the plant paves the way for Volvo to double sales to 800,000 by the end of the decade as China heads toward becoming the world’s largest market for premium vehicles. Read more of this post

Elite in China Molded in Part by Tiananmen

June 3, 2013

Elite in China Molded in Part by Tiananmen

By ANDREW JACOBS and CHRIS BUCKLEY

BEIJING — For four days, more than 400 of China’s brightest political minds gathered in smoke-clouded halls at a Beijing hotel, vigorously debating the nation’s future.

It was April 1989, and after a decade of economic transformation, China faced a clamor for political liberalization. Days later, protests erupted in Tiananmen Square, and the lives of those at the meeting took radically different turns. Several are now national leaders, including Li Keqiang, China’s prime minister. Others ended up in prison or exile, accused of supporting the demonstrations that shook the Communist Party and ended with soldiers sweeping through the city on June 4, shooting dead hundreds of unarmed protesters and bystanders. Read more of this post

Swedish Students Go To College For Free And Still Wind Up With Five-Figure Debt

Swedish Students Go To College For Free And Still Wind Up With Five-Figure Debt

Matt Phillips, Quartz | Jun. 3, 2013, 3:35 PM | 1,779 | 2

Swedish colleges and universities are free. Yep. Totally free. But students there still end up with a lot of debt. The average at the beginning of 2013 was roughly 124,000 Swedish krona ($19,000). Sure, the average US student was carrying about 30% more, at $24,800. But remember: Free. College in Sweden is free. That’s not even all that common in Europe anymore. While the costs of education are far lower than in the US, over the past two decades sometimes-hefty fees have become a fact of life for many European students. Britain got them in 1998. Some German states instituted them after a federal ban on student fees was overturned in the courts. In fact, since 1995 more than half of the 25 OECD countries with available data on higher education have overhauled their college tuition policies at public institions, with many adding or raising fees. And yet, students in Germany and the UK have far lower debts than in Sweden. And 85% of Swedish students graduate with debt, versus only 50% in the US. Read more of this post

Solar Thieves Evade German Police Hunted With Liquid DNA: Energy

Solar Thieves Evade German Police Hunted With Liquid DNA: Energy

At least 14 times this year, thieves raided solar parks in Germany’s Brandenburg state, carrying off tons of photovoltaic panels in a crime that’s forcing investors in the world’s biggest solar market to tighten security.

“Even thief-proof screws didn’t stop them,” Christian Linder, of plant developer Athos Solar GmbH, said by telephone on June 3 after 130 panels on the outskirts of Berlin were detached from their foundations and carted off. “We have security staff patrolling the park now.”

Solar theft in the eastern state between Berlin and Poland has increased from 16 cases in all of 2008, the region’s police department said. In the south, authorities in Bavaria released recommendations to help protect its 9.6 gigawatts of installed capacity. That’s enough to power about 2.3 million homes in a nation that invested about $15 billion in solar gear in 2012. Read more of this post

UK high streets to lose 5,000 shops in next five years

June 4, 2013 12:04 am

UK high streets to lose 5,000 shops in next five years

By Hannah Kuchler

British high streets are forecast to lose another 5,000 shops in the next five years, as stores – caught between cautious consumers and competition from online and out-of-town rivals – lower the shutters for the last time.

Town centre shopping streets have lost 5 per cent of their outlets in the last two years, according to new research from the Local Data Company and the Saïd Business School. If this trend continues at the same rate, they project that high streets will shed another 13 per cent of stores by 2018. Read more of this post

Bond volatility threatens banks’ Value at Risk models

June 3, 2013 5:32 pm

Bond volatility threatens banks’ Value at Risk models

By Tracy Alloway in New York

Recent volatility in some of the world’s biggest bond markets could upend the complicated mathematical models that underpin large banks’ trading businesses, risk managers have warned.

“Value at Risk,” or VaR models, have been a key part of banks’ risk management toolboxes for the past two decades, despite being heavily criticised for failing to predict the large losses incurred during the recent financial crisis. Read more of this post

EM assets lose favour on fears of slowing Fed QE

June 3, 2013 4:10 pm

EM assets lose favour on fears of slowing Fed QE

By Robin Wigglesworth and Alice Ross

Nowhere did recent hints that the US Federal Reserve could cut back its bond-buying in the near future reverberate as loudly as in emerging markets.

Although the bond and stock markets of developing countries have rallied over the past decade on the back of fundamental fiscal and economic improvements, gains have recently been supercharged by the aggressive ‘quantitative easing’ of western central banks – primarily the Fed. Read more of this post

Call to press fund managers over fees paid by pension trustees

June 3, 2013 11:34 pm

Call to press fund managers over fees paid by pension trustees

By Norma Cohen, Demography Correspondent

Fees collected by fund managers add up to a rising proportion of the returns they generate for pension trustees, with a vast divergence between what different investment groups charge for similar services, according to a report.

The fees paid by pension trustees have stayed flat while their returns have been subdued compared with past decades, adding to concern about the relative cost of fund managers’ services, says Lane Clark & Peacock, the actuarial consultants. Read more of this post

Emerging Market Currency Dominoes to Fall as SocGen Sees Rout

Emerging Market Dominoes to Fall as SocGen Sees Rout

The worst month in a year for emerging-market currencies will prove to be more than a momentary bout of weakness to strategists at firms from UBS AG to Societe Generale SA who see the Federal Reserve weaning investors off its extraordinary stimulus.

South Africa’s rand led declines among the 24 developing-nation currencies tracked by Bloomberg last month, tumbling 11.3 percent. JPMorgan Chase & Co.’s Emerging Markets Currency Index (FXJPEMCI) fell 3.3 percent, the most since it slipped 7 percent in May 2012. Only China’s yuan gained, rising 0.51 percent.

“For these emerging-market currencies, this is the beginning of a trend that perhaps is going to be longer and deeper in terms of a correction,” Tom Levinson, a currency strategist in London at ING Groep NV, the largest Dutch financial-services firm, said in a May 31 phone interview. Read more of this post