| didier's profileFINANCE AND TECHNOLOGYPhotosBlogLists |  Tools  Help |
|
FINANCE AND TECHNOLOGYBy Dr. Didier Joannas 12/21/2006 World's most expensive land sale in HKRead in the South China Morning Post:
Sun Hung Kai Properties paid HK$1.8billion, or hk$42,196 (USD5,430) per square foot, at auction for the lot at Mount Kellet Road (Peak).
It is said that thereafter, one will need to pay above HK$50,000 per square foot to live there.
Just in case people were wondering where Hong Kong was located on a map, I would like to remind them it is where a hotel has just bought 7 brand new green Rolls Royce to carry their guests around and where there is the highest density of such car brand in the world.
From the US, just fly to Japan and then turn left. Do not miss the stop as you could end up in Macao, which will soon overcome Las Vegas as the world's largest gambling market.
Welcome! 9/14/2006 Zero Coupon Bond: a premiere in Hong Kong SARHong Kong Mortgage Corporation issued this week the first zero coupon bond in the Special Autonomous Region. It is a 10 year HK$ bond with an implied rate of 4.40%.
One particularity of the issue is that it was very much aimed at the retail investors who could subscribe directly via their bank. The issue was well received by the public despite a few comments in the press, which were more linked to the timing of such a set of issues (HKMC issued a total of 3 bonds, one in USD and the 2 others in HK$). Indeed, now that banks rely less and less on HKMC to buy part of their mortgage portfolio, the argument was more about HKMC’s role going forward –and hence the necessity to raise more funds- than about the issues themselves. But there was also a comment which made sense to me: by offering a new instrument to the public, with no direct point of comparison (a 10 year zero-coupon rate is obviously different in essence from the gross redemption yield of a 10 year coupon paying bond) might be willing to pay more for the bond then what market makers, and financial institutions at large, would.
Nevertheless, issuing a Zero-coupon bond, and providing it is the first of many to come, could help the fixed income market by providing some direct reference on the interest rate curve rather than having to calculate implied rates from a still relatively illiquid coupon bearing bond market. In addition, it will also help financial institutions to offer capital guaranteed financial products to the public at large by using a simple hedge instrument. Such products have been very popular in H.K. in the past few years or so, credit to the large local players, but also to Societe Generale, for instance, who is marketing its products via HSBC.
Rate Me on BlogHop.com! 8/30/2006 Air Traffic in ChinaLast time I went to Beijing I had a 3 hour delay.
Not too bad? Sure, my boss experienced a 9 hour delay some time ago on his way back to Hong Kong (from Beijing).And in the end who cares if you are sitting in a first class lounge sipping a cocktail?
Unfortunately, most of the time this happens (and to and from Beijin there is 100% chances it will happen to you) you cannot wait in the lounge: you have to board the plane and wait in an overheated plane for the time when Beijin will eventually clear the plane for take off.
I read that, in addition to the overcrowed Chinese airspace, this is also due to the lack of means to control air traffic. As a consequence, the distance between each airplane must be much more than, let's say, when you land at Heathrow airport.
But then Chinese authorities should do something about it: what is the point in having so many departures to Hong Kong for instance (flights are not alway full) if in the end you need to be at the airport on time to wait for hours and hours at a time?
Hence these are a few leads to them:
-Reduce the number of landing slots (if capacity to deal with so many planes is not there, why pretend?).
-Extend the official airport opening hours and redespatch the landing slots: what good is it to have a departure time at 7pm when you know that you will not take off before 10pm? I would rather have the choice to be at the airport much later to catch a 10pm flight!
-Forbid smaller aircraft to land during pick time: what good does it bring to the public at large to have small aircraft landing when you can satisfy twice as many passengers by using larger aircraft (that could be coupled with a reduction in landing slots so that airlines do not lose out). And in the future, just only allow the Airbus A380 to land there!!
-...and eventually, please upgrade your air traffic control hardware!
5/18/2006 Basel 2 in Taiwan: 2007 ?As I will be focusing on Mainland China from now on (professionally), this may be one of my last posts on Taiwan. I wish I had set up an internal market website in which I could have asked the following question: "when will Basel 2 reporting become a requirement in Taiwan?"
In an official press release dated 4 April 2006, the Financial Supervisory Commission reiterated that for those banks choosing the Standardized Approach for credit risk the deadline to produce Basel 2 reporting was confirmed to be 01/01/2007. For those choosing an IRB approach, the deadline is 01/01/2008l leaving them one more year to prepare their internal rating models.
But since the beginning of the year, many banks have suffered heavy losses due to massive default in unsecured lending (cash cards and credit cards). Taishin’s Chairman revealed that his bank had stopped issuing new cash cards all together in May after having approved only 19 (NINETEEN!) new ones in April. Default rates at the bank were above 20% in this market segment (so much for the predictive power of scoring systems!).
Therefore, in the market, the mood is more on trying to find new capital to consolidate their balance sheet (already done by Taishin: see my previous posts on “following the smart money”) rather than spending the right money to be prepared for Basel 2.
Will regulators eventually give up and postpone the deadline by one more year or so? This is what an internal market dedicated to the Taiwan Financial Industry would have provided me with.
I need to put my money where my mouth is I guess, then I will bid 31/01/2007. Any takers? 5/13/2006 Copper: China -1- Speculators 8,700A little follow up on a previous post:
A few months ago, I was describing Chinese authorities efforts to try to cool the copper market by auctioning tons of the metal in China.
At the time, spot price was about USD4,244/tonne. I suggested that China could eventually win the war (why did I do that in the first place?).
This week we saw the spot price above USD8,700/tonne and there is still more demand then supply.
If the Chinese authorities have squared off their position, it is not known how much was lost in the meantime as the press reduced dramatically their coverage of the matter.
But now that the Chinese story is well behind us, will copper move on further up? Is the rally -and the party- over?
On Friday, platinum closed at USD1,310, gold at USD710 and palladium (my personal favourite for this year) at USD387 (all prices are for one ounce of the metal).
I hear people in the street (even my wife!) saying gold is a buy; this is why the alarm bell is ringing and I am just wondering if the best risk/reward is still on being on the long side.
I'd be cautious and see where we go from there.
P.S. If you wonder what your commodity risk might be, go and visit Kiodex.
4/23/2006 T+0 settlement for bonds, not a dream : a reality in "Fantasy Land"In 2000, the overall market was pushing towards better Straight Through Processing (STP) and T+1 settlement. The vendors alike: the Global Straight-Through Processing Association (GSTPA) raised more than EUR90M to develop the ‘Transaction Flow Manager” (TFM), Thomson Financial and DTCC formed OMGEO and other vendors like SunGard and TradeWeb launched their own initiatives. The T+1 initiative was abandoned in 2002 and, funny enough, GSTPA ceased all operations 2 months after launching TFM (the rights for the TFM were later acquired by a single individual for CHF10,000: a bargain! (?)).
Of course, there were so many market participants and incompatible systems that it could have looked like wishful thinking from the start. Anyway, the market focused instead on improving internal STP and stopped dreaming about a world in which settlement risk would be reduced to the strict minimum: 1 business day. 1 business day…humm…indeed it sounded to good to be true from the start, did it not?
Well, I just wrote this column today to give you a ride to a “Fantasy Land”, a land where settlement would be done T+1, but also a land where the majority of the transactions would even be settled same day! If you were to click the “STP box” after having executed a Treasury transaction via your favorite Web Browser, your stock in that bond (and your counterpart’s) would be immediately updated in your Clearing House books and the corresponding money subsequently transferred to (or from) your account at the Central Bank.
Well, of course, it is too good to be true and my Fantasy Land is only … a Fantasy Land! But if you ever want to dream about this Land, if you want to see how your current way of thinking can be challenged by other market principles, other market rules or simply another way of life, why don’t you buy an airline ticket to …Shanghai (China!)? I am not sure if Shanghai will meet your basic criteria for a Fantasy Land but in Shanghai, CFETS (China Foreign Exchange Trade System) offers:
-Online Treasury Bond dealing for 10,000 members (10,000!!) -Same day clearing via a central clearing house -Same day settlement with the People Bank of China 2/20/2006 Mizuho losses a good news for Tokyo Stock ExchangeIt has recently emerged that investors who had made money on the back of the share trading error by Mizuho (Mizuho securities lost Y40bn after executing an order to sell 620,000 shares in J-Com at Y1 instead of 1 share at Y620,000) have so far returned Y20.1bn. The funds, mostly returned by foreign investors (Y14.8bn out of Y20.1bn) have been pledged to the Japan Securities Dealers Associations who will set up a new fund to improve the Tokyo Stock Exchange (TSE) trading systems. Nobody was forced by law to give back the funds gained from the trading error, but they were asked to do so voluntarily. And because of the pressure exercised by some politicians against the foreign companies benefiting from that trade, they must have thought it would be in their best interest to comply with that request.
A few interesting conclusions can be drawn from this line of events:
-There is an obvious difference in treatment between foreign firms and local firms and investors: almost all Japanese firms and investors have not given back their gains and do not intend to do so. They do not feel compelled to refund the money. -Mizhuo securities are the ones who lost money from the trading error and from the fact that the TSE existing systems forbid them to cancel the order once the mistake had been identified. Still, they are not the ones who are going to receive back the money. It is TSE, who contributed to the losses by providing inadequate service, who will get Y20bn to help improve their transaction systems. A good free “capital injection” to prepare for their upcoming listing! -TSE’s systems cannot support the growing volumes of transactions in Japan as individuals investors are finally gradually starting to move away from saving accounts deposits. This lack of system capacity might partially explain why most of the stocks in Japan trade at ridiculously high prices: if instead of trading at Y620,000 J-COM stock had traded at Y620 (after a stock split for instance), the trading error would have not had any major impact on the market. In the U.S., a part from Berkshire Hathaway, most stocks trade anywhere between USD1 and USD350 (USD350 is to include Google!), hence such a problem could not happen (not to mention the superiority of the trading solutions used there!).
Finally, I have decided that Japanese politicians may just have provided me with a way to recover some lost money. I will call G.W. Bush tonight and ask him to pressure those vile investors who made money out of me shorting Google at USD200 to give me back my USD1,000 loss! 2/8/2006 Taishin: Follow the smart money...Quick!After Newbridge Capital, Nomura Holdings is now buying shares of Taishin Financial Holdings in a private placement. Congratulations to Taishin management who succeeded in selling their vision and Taishin’s value to renowned investors. No doubt that Taishin will now be in a better position to bid for an additional stake in ChangHWa Bank (CHB). The merger of the 2 entities would create the second largest lender behind Bank Of Taiwan. Still a long way to go as the ownership of CHB would just be one item on the long list of issues to address for a merger to be successful: Taishin is coming from the private world whereas CHB is still a “government owned” bank (Taishin is currently holding a 22% stake in CHB). Stock has rebounded dramatically and is now trading at NT$20.7 today. No need to thank me if you bought some Taishin shares on 02/02, after reading my post on that day, at NT$18.05 and are now sitting on a 11.5% return… But you could still wire money to my usual Caiman Island bank account.
Below is the Dow Jones announcement of the deal with Nomura:
TAIPEI -(Dow Jones)- Taishin Financial Holding Co. (2887.TW) plans to sell NT$ 4 billion worth of new shares to Japan's Nomura Holdings Inc. (8604.TO), Taishin Chairman Thomas Wu said Monday. The two companies will sign a memorandum of understanding Monday afternoon to finalize the deal, he said. Taishin is Taiwan's eighth-largest financial group by assets. Nomura, which didn't own any Taishin shares previously, will hold a 3.38% stake in the financial holding company after the acquisition, said Taishin Chief Financial Officer Carol Lai. The deal follows U.S. private-equity firm Newbridge Capital Inc.'s (NBG.XX) decision to buy NT$27 billion worth of Taishin shares and convertible bonds on Jan. 27. At that time, Taishin said it was seeking to improve its capital adequacy and lower its debt-to-equity ratio through the Newbridge transaction. On a fully converted basis, Newbridge will hold a 22.3% stake in Taishin, Lai said. Both transactions will be completed by the end of March, said Lai.
2/2/2006 Taishin: Follow the smart moneyIn December, Taiwan enacted a new banking act amendment limiting the rate banks can charge on unsecured loans (specifically cash cards and credit cards) to 10% over the average 1 year deposit rate in Taiwan: about 8% lower than the highest rates then charged by Taiwanese banks. In addition, the minimum monthly repayments on credit cards balances was raised to 10% from 2%. On one hand, regulators have tried to ease the debt burden of consumers, but by raising the minimum monthly payments, they may well have triggered future default payments with borrowers not being able to meet the additional monthly repayments. But one thing is for sure it is that both sides of the equations were bad news for credit cards issuers and for Taishin in particular, the 2nd largest participant in this market segment (largest credit card issuer being Chinatrust).
Did investors see it coming or was it just a compounding effect? The truth of the matter is that Taishin Financial Holdings traded at a 52 weeks low of NT$16.4 to rebound to NT$19 in early December but only to fall back to NT$17 after the announcement, well below the 52 weeks high of NT$26.7. It is currently trading at NT$18.05. Well guess what, Newbridge Asia IV, L.P. (see Bloomberg announcement below) just bought NT$27 billion of Taishin securities. And it reminds me of the 90's in France when Bankers Trust and the likes were buying real estate from local banks who needed to get rid of then "embarrassing" on going provisions in their book. Given that the French real estate is now at an historical high, who is laughing now? And I wonder: who will be laughing in a while if Taishin trades back to the NT$26 level and above? Newbridge has been doing very well with their investment portfolio lately (if we believe what can be read everywhere) and one may want to consider if following smart money is not just the way to go.
Read on Bloomberg: Taishin Financial Holdings Co (台新金控), seeking to increase its stake in Chang Hwa Commercial Bank (彰化銀行), said it will sell NT$27 billion (US$844 million) of securities to Newbridge Asia IV, L.P. in a private placement. The Newbridge Capital LLC fund will buy NT$20 billion of stocks and NT$7 billion of convertible bonds from Taipei-based Taishin, the two companies agreed, according to a Taishin statement to the Taiwan Stock Exchange filed around midnight on Friday. The government is promoting mergers among the nation's almost 50 banks so they can withstand competition in the US$700 billion market from Citigroup Inc, HSBC Holdings Plc and other global lenders. President Chen Shui-bian (陳水扁) wants to create three banks that will each control 10 percent of the nation's market. "The deal shows Taiwan's better banks are attractive to foreign investors," said Michael On, who manages the equivalent of US$60 million at Beyond Asset Management Co in Taipei. "There won't be any synergy" between Taishin and Newbridge, he said. Newbridge, which is based in San Francisco, was established in 1994 by Texas Pacific and Blum Capital Partners, has invested in companies including Shenzhen Development Bank, Lenovo Group Ltd (聯想), Hanarotelecom Inc and Korea First Bank. Taishin owns Taiwan's second-biggest credit-card issuer. The purchase will make Newbridge the single largest institutional investor in Taishin, with an 18 percent stake, the Commercial Times reported yesterday. "We're inclined to bring in foreign investors in the private placement," Carol Lai (賴昭吟), Taishin's chief financial officer, said on Dec. 16. The company's board on the same day approved a plan to raise as much as NT$35 billion selling stock in a private placement. Shares of Taishin gained 2.2 percent to NT$18.30 on Jan. 25, the last trading day before the Lunar New Year holiday. The stock is 26 percent lower than a year ago, compared with an 11 percent rise in the TAIEX index. 2/1/2006 Health Savings Accounts: a windfall for U.S. Banks....A disaster for society?
“Banks, credit unions and money management firms are now positioning themselves to become central players in the business of healthcare. Bank of America, J.P. Morgan Chase, Fidelity investments and hundreds of others are hoping to capitalize on the latest wrinkle in medical care paid by consumers: health saving accounts, which have been around since 2003 (…) These supercharged checking accounts, which must be linked to high deductible health insurance plans, allow consumers to invest their own money for current and future medical expenses and have it grow tax free. They are the centre piece of Bush’s plans on health care, just as private accounts were offered as Social Security fix (..) Currently, only about 3 million Americans have signed up for the high deductible insurance policy that is eligible for such accounts (…) That number has roughly tripled from last March (…) By 2010, more than 15 million Americans, or about 10% of all those insured, will have a health savings accounts (…)”
This article from the International Herald Tribune really focuses on the opportunity for the financial industry to reap huge profits from health savings accounts. And no doubt that similarly to the pension funds case the main beneficiaries will be the financial industry, much more so then the “consumer”. It is said, in the same article, that in addition to receiving “lucrative” fees by offering mutual funds and other investments the market participants would also charge between $50 to $75 to set up such account and would then “collect perhaps $40 or more in maintenance charges and service fees”. To start with, one could argue with the word “consumer”. I would say that they are either patients who need treatment or they are investors in what ever investments the providers will offer. And this is where it could and will go very wrong. Already the U.S. system and the Anglo-Saxon approach in general (U.K….) towards healthcare is …peculiar. How many times have we heard of people unable to meet the cost of health treatment to treat life threatening illnesses? Even Hollywood raised the issue with so many movies dealing with health insurance policies not covering this or not covering that. What they are now saying is that in addition, U.S. citizens will only be able to afford treatment that they could fund themselves in the first place anyway. Good enough for high income people who could already save enough regardless of the legislation, especially if they are single for instance (potentially less risk to need health care). But what about low to mid level income families?...Large families?
So funding the health saving accounts is an issue in itself, even though the employers may contribute to some extent. The only positive thing on that side of the equation is that U.S. citizens are not savers anyway (households save in average less than 2% of their income) hence this could potentially force them to save more. But on the other side of the equation are the investments which will “grow” tax free. Am I missing something or have we all forgotten the disasters linked to some 401K plans? What about entire life savings gone due to Enron and the likes? As they say in the disclaimers of investment products: “investment can go down”! What the hell, when you have lost your pension you can always work until you die! But when you have lost the money in your health saving accounts, you may not have to worry anymore as you stand good chances of passing away prior to having redeemed your 401k!
More generally, since communism lost to free markets and capitalism, we tend to believe that the market will fix everything for us. We do forget what society and democracy is all about: living and prospering together and protecting the weaker. Yesterday it was pensions, today it is healthcare, what about tomorrow? The police, the army? By praying that markets will fix the healthcare problem we make a big mistake. It will never be in the interest of the market to help the needy the desperate and the ill. They tend to be less profitable when they need treatments. Around the globe most of the effort is spent on trying to solve the funding side of the equation (health savings accounts in the U.S., higher taxes or insurance premiums elsewhere) and no real breakthrough has been achieved on the spending side of the equation except for the rise of generic drugs (and then the fall of established providers who are cutting heavily on R&D to meet shareholders expectations in earning per share). Let’s do something about it. Let’s brainstorm, let’s be creative let’s spend half as much time we spend on the funding side on the spending side.
And here is my modest contribution:
Instead of investing the proceeds of the health saving accounts in hazardous investments, why not invest them in something tangible which will ALWAYS go up in value? Why not create a framework to invest these funds in buying treatments now for later use? Why not buy beds in hospitals? Doctor and surgeon’s fees? Blood, chemicals and the likes? Actually, given patient history or genetic background, one may be more at risk to a given illness. Then if they contract another disease for instance, they could trade the treatment they bought for another one.
No doubt that financial markets, eager to get fees, would jump onto the opportunity given to them to structure such market (let’s call it “health for life” market to give it an optimistic name). That would be a real WIN-WIN! 1/12/2006 A glossary of Islamic Financial TermsWe have previously mentionned in this column the growing importance of Islamic Banking worldwide and more specifically in Asia.
I found the glossary below in the F.T. and thought I would copy it back here as it gives a very good insight of the kind of constraints to be considered to produce sharia-compliant investments:
Murabaha (cost plus contract):
a substitute for credit where a bank acquires an asset from the supplier and then resells it to the client at a price including the agreed mark-up.
Ljara (leasing):
where an Islamic Financial Institution is the owner of the asset and bears certain risks that would be passed on to the customer in conventional financing.
Mudaraba (profit-sharing agreement):
a partner provides funds to a managing partner who then invests in sharia-compliant enterprises.
Musharaka (partnerships):
a joint enterprise in which the partners share responsibilities of providing capital and management for a venture and then share the profit or loss.
Takaful (insurance):
similar to conventional mutual models where participants share risk.
Istisna (commissioned manufacture):
used for the acquisition of manufactured goods where price is paid by instalments based on the progress that is made.
11/27/2005 Copper: China -1- Speculators -0-Well it did not take long...
The details of the positions held by the State Regulation Centre for Reserve Control were disclosed on Thursday, together with the various steps taken to unwind/manage such positions.
In fact, the SRCRC had sold short 180,000 tonnes of copper at about USD3,300 per tonne.
They bought back 50,000 tonnes already. They will also deliver 30,000 tonnes of the metal to LME datawharehouses in South Korea and Singapore.
They will subsequently buy back the equivalent of 20,000 tonnes of short position and roll over the remaining 80,000 tonnes until next year.
At the same time, Chinese authorities have been auctionning copper -20,000 tonnes at a time- 2 times already (last Wednesday auction was not fully subscribed) with another auction coming next Wednesday.
The intent is to deflate spot prices and reduce the unrealized loss on their short position.
And it is working! The spot price on the Shangai Futures Exchange fell 1,300 yuan/tonne on the day of the last auction.
Source: South China Morning Post 24 November 2005 11/23/2005 China or International speculators? Who will win the Copper bet?It has been in all financial newspapers in the past few days: a"rogue" trader working for China's State Reserve Bureau (SRB) - a government body that manages China's strategic commodity reserves- is said to have placed a costly short bet on copper.
He alledgedly sold short 100,000 to 200,000 tonnes of copper on the London Metal Exchange (I hope you will appreciate the precision of the numbers) when the metal was trading USD500 to USD700 less than it is now.
Depending on which newspaper you read, the trader in question is either at home or has disappeared. Some Chinese officials have even denied his very existence or that he had ever worked for SRB although he has been known in the market for many years.
Speculators are currently trying to corner the market (copper traded up to USD4,244.50 per tonne) betting that the Chinese will not be able to deliver the underlying metal to LME wharehouses in time for the 21/12 expiry of the future contracts.
They would then have to buy back the future contracts from the same speculators who have been pushing up prices in the past few days or so allowing the latter to make a massive profit.
But I guess that speculators have not fully understood the Chinese way of handling sensitive matters. First and foremost, they assume that China will play by their rules: the market rules.
Well, guess what? China will most certainly not and some hints were given in the WSJ today:
-China will not be able to deliver copper of sufficient quality to the LME wharehouses in time? Well stocks in LME wharehouses in Korea have unexpectedly gone up by a few thousand tonnes and China is discussing the possibility of setting up a wharehouse in Shangai (that would come handy to deliver copper next time around!).
-China does not have enough LME quality grade copper in stock to deliver the metal necessary to cover their short position? First of all, China disclosed they had 1.3M tonnes of copper in stock, to be compared to the 200,000 tonnes figure analyst believe they have. Then a trader for a "leading Chinese broker" hinted that SRB may have already asked a few local copper exporters to move high quality copper to LME wharehouses.
So if China eventually delivers theses 100,000 to 200,000 tonnes of metal who will be the big losers having to disburse the nominal amount to settle the long future contracts? Who will have to rush to sell the future contracts to avoid having to settle them and thereafter become the rightful owners of hundreds thousand tonnes of copper?
NOT ME!
I bet on the Chinese!
Source: FT, South China Morning Post and WSJ-Asia 11/22/2005 Bank of Taiwan and Central Trust to mergeThe merger between Bank of Taiwan and Central Trust will create Taiwan's first lender with a market share in excess of 10%.
Both of these organisations are government owned, but the Ministry of Finance said that "after the assets scale of Bank of Taiwan has expanded, we will then consider at an appropriate time in the future to take it public and sell our shares to increase competitiveness."
The merger is expected to complete by May 2007.
Taiwan's government aims to halve the number ofstate controlled financial institutions to six by the end of this year and halve the number of Financial Holding Companies to seven by the end of next year.
The government's goal is healthy for the Taiwan Financial Industry, but it has proven hard to implement: ICBC and Chiao Tong Bank have still to complete their merger as part of the Mega Financial Holding group, the Taiwan Business Bank sale could not go through because of unions who wanted to protect employment at the bank and Taishin is using all its P.R. power to insist on the fact that the purchase of Chang Hwa Bank stocks is all but an investment (therefore not upsetting unions).
If history is any indication of how matters should be handled,we just need to look at the purshase of Taipei Bank by the Fubon group, Grand Commercial by Chinatrust or Dah An Bank by Taishin. In all these cases where it was about integrating non-government owned companies, the process was quick and if it was ever painful it did not fell like it: people just went on with their lives and in the end growth within these organisations created many job opportunities.
Private sector and public sector have different goals and ways of conducting business. By trying to sell some government banks to the private sector at the highest cost possible without dealing with their in-house issues first (unions, organisations, systems etc...) the process is deemed to be overly painful -if not impossible- and will not bring as much money to the government as it could.
Why not try to start by implementing best practise and procedures first together with defining more precisely the kind of market the remaining public banks need to be in? It could result to the direct sale of smaller banks with a well defined niche strategy or to further consolidation within the public sector to get critical mass and huge cost savings.
The sale price would then be much higher and the subsequent mergers easier to implement.
The downside is that it would be difficult to achieve within one year.
Source: Financial Times 11/13/2005 How to optimize boarding of planes?After a couple of weeks off the blog, I am resuming posting with an unusual topic for me.
The reason I am talking about this topic here is that it triggered some memories from when I was in a research centre in Spain.
I was then part of a "Brite Euram" project on parallel computing (European Community funded research project).
Various teams around Europe were sharing experience in parallel computing. Most of them were using computers with a small numbers of processors, which were given the task of solving parts of a larger problem. The challenge was then to agregate the results obtained by using mathematical models.
On our side, at CIMNE -a Spanish research centre-, we were focusing on massively parallel computing with a computer called the Connection Machine that was made of hundreds to thousands of processors.
Each processor would execute the same -simple- instruction at the same time (for instance to add two vectors, each processor would add one component of each vector together, i.e. Z(i)=X(i)+Y(i))..
The challenge was then not to find new mathematical theories but to "re-write" the problem so that to optimise the use of all these processors.
Our initial idea was to map the array of processors to the mesh of our discretized problem (powder compaction).
But after a few months of hard work, we ended up concluding that allocating the processors randomly was still the most efficient method (lower overall computing time). And the explanation was most certainly that by trying to be "clever" we had disregarded the bottlenecks (information flowing from one processor to another one) generated by extensive use of processors close to eachother.
So to come back to this article seen in the Wall Street Journal Asia, there are apprently people who have used very complex mathematics to solve a problem, to basically reach the same kind of result: randomness often produces the best results (that will please Mr Arnaud De H. who is currently intensively studying the impact of randomness in our lives!).
Basically, all of us who have flown before have experienced various strategies by airlines to try to finish boarding planes as quickly as possible. The less time planes spend on the ground, the more money they generate for airlines.
One of the most common strategies is to first board passengers who will sit on the back of the plane and then boarding those who are closer to the front etc...
The idea is that passengers will directly cross the plane to their seat instead of blocking the aisle(s) while sorting out their hand luggage etc... hence freeing the aisle(s) for others to board.But studies show that boarding a plane randomly produces better results than such a "clever" approach. Although it is not proven (like in my Connection Machine case) why random boarding is faster, it is assumed that it reduces congestion among small groups of passengers who are all seated near one another and are called to board at the same time. Figure it out: if one of the first passengers to board stops to take a magazine or is strugling to walk through the plane, it is potentially the entire population of the passengers in the plane who cannot seat (as they are all going to the back of the plane!). It very much looks like the bottlenecks formed in the Connection Machine by too much information exchanged between groups of processors.
Basically, the idea to optimise boarding resides in minimising interaction between passengers, which is why Japanese "(who never touch eachother) produce the best results for boarding a plane (given a boarding methodolgy).
Is there no hope to improve boarding time then? Well apparently Lorentzian Geometry can be the key to the problem and it is the first time such theory is used outside of physics. It is usually used to describe the relationship between simultaneous events on the earth and a distant star -events that are unable to affect one another because of the great distances that separate them (remember the Japanese?).
Source: The Wall Street Journal Asia 10/19/2005 Chinatrust closes Taiwan's 1st dual currency CBOChinatrust Commercial Bank has recently closed an NT$18 billion (USD542 million) collateralized Bond Obligation via a private placement.
The CBO is backed by Taiwan dollar-denominated structured bonds and a US$ zero coupon bond.
Chinatrust was the originator of the deal and UBS AG was the arranger.
The CBO was made of 2 tranches:
It may well be the begining of the issuance of more CDO like structures in Taiwan. As I mentionned in an earlier comment it is time for Taiwanese Banks to start using such structures to manage their risk better and for the state own banks to improve their Capital Adequacy Ratio. 10/17/2005 Barclays Capital launches Bond tied to Hedge FundsBarclays Capital and Signet Capital Management recently launched a sterling denominated bond linked to the performance of a portfolio of 30 hedge funds managed by Signet.
Too bad as it is a structure that we had been working on with my ex-colleague (and best English Friend) Moorad Choudhry. I guess we will need to come up with an even better idea next time!!
The bond will pay regular income and investor's principal will be "largely" protected (90% of the principal value).
Barclays Capital will also provide daily liquidity for the bond, which is quite attractive as it is usually difficult to quickly withdraw money from investments in hedge funds.
ps. "our" structure is still slightly different than this one as it uses CDO tranches to provide investors with various returns depending on their risk appetite.
Source: Financial Times 10/13/2005 BNP to buy close to 20% of Nanjing City Commercial BankBNP is planning to buy between 18% and 19.7% of Nanjing City Commercial Bank, which would give them a seat to the board of the Nanjing based bank.
The size of the deal should be about USD100million.
With its 58 branches, the Chinese bank is only allowed to do business within the limits of the city of Nanjing, which will de facto limit BNP's involvement in China for the time being.
It was time for the French to be active in the financial industry in China: they come after the Americans, the British, the Germans, the Singaporeans and the Deutch.
Good luck to them. 10/11/2005 China gives green light to first Panda BondsOn Sunday, China gave Asian Development Bank and International Finance Corp. the all clear to issue more than USD260million worth of Yuan bonds. This is the first time ever that China allows foreign issuers onto their debt market. Going forward, such bonds issued by foreigners and denominated in Yuan will be called Panda bonds: please update your dictionaries! The Chinese Central Bank is yet to release the date when the bonds will be issued, saying that there was a need for a “preparation period”. Do they mean that they need to fully float the Yuan first (unlikely, but the Chinese authorities enjoy surprising foreigners)?
On its website, the Central Bank calls the new issue a “beneficial experiment” and says that the arrival of foreign issuers “will bring experience and management techniques”. It may not be the best way to attract foreign issuers: “experiments” in China can stay experiments for an unlimited period of time. It would be a shame if the debt market were not to be open further to foreign issuers. It is indeed the best way to generate a comprehensive yield curve, increase liquidity and ultimately reduce funding costs. But to the credit of the Chinese Central Bank and authorities, they are trying…they are trying on the Foreign Exchange; they are trying on the fixed income side; they are trying on the banking system side by allowing foreigners to take an increasing share of local Financial Institutions. And as I said in an earlier column, what could be a better way to get risk management experience than being paid to acquire it?
As far as the details of the bond issues are concerned, they are both expected to yield about 3.4% and have a 10 year maturity. IFC’s bond issue size will be 1.13billion yuan whereas ADB’s will be 1 billion. 10/10/2005 Katrina to wipe out the principal of Kamp Re CAT bondsIt appears that holders of a CAT Bond (CATastrophe Bond) issued in August (!) by Swiss Re as part of a reinsurance agreement with Zurich Financial may just have lost the entirety of their invested capital.
Neither Kamp Re, the SPV set up to issue the USD190million Cat Bond, nor Swiss Re have yet confirmed that the CAT Bond would be triggered.
But given that investors are supposed to lose all their money if Zurich Financial Services incur losses of more than USD1billion in any single event and that their initial loss estimates related to Katrina currently amount to USD2billion, they can kiss their investment bye bye.
CAT bonds are a very interesting kind of instruments (people interested to know how to price CAT bonds can go to Baryshnikov). They were developped in the 90s after Hurrican Andrew devastated the insurance industry in 1992, with a view to spread the risk to non-insurance related investors, rather than only relying on reinsurance companies to mitigate the risk undertaken by insurance companies in the first place.
Investors would benefit from high yields and to exposure to a new class of risk, hereby diversifying their risks further.
CAT bonds have been designed to only cover for "once in a century" kind of catastrophic events and none of them -except the Kamp Re one- have been triggered by Katrina (or Rita). Some investors may not have then fully understood what "once in a century" meant when they subscribed...or Swiss Re might not have fully explained what it was all about.
That leads me to share with you some insight on this industry. Reinsurers are not clear cut risk mitigators but mostly businessmen nowadays (at least those who understand the industry and who are not just wiped out after collecting 5 years of premiums and being hit by a catastrophic event).
In the early 70s, one of the -still- largest fire claim ever, by Ford over the destruction of their Koln (Germany) spare parts wharehouse (USD350million 35 years ago!) was to be paid by a German Insurer who had contracted a reinsurance policy.
To make a 30year long story short, it took 5 years for the claim related to the loss of business to be fully paid (of course, given that there was another warehouse in the UK and that Ford started shipping from there almost immediately,it generated an expert battle about the true excess cost of using this warehouse instead of the Koln based one), but then it took another 30 years for the insurer to REPAY the reinsurer the money they had been given to pay the claim in the first place, so that the reinsurer eventually did not lose anything because of the claim, leaving them with a small profit.
My point here is that, similarly to making any other investment, when investing in CAT Bonds make sure you fully understand what it is all about and you do not only assume it is easy money (i.e. high yield with little risk in capital). Reinsurance companie do have the means to fully assess the risk they are taking on and unless you benefit from the same tools and expertise, you should just pass on the "opportunity".
source: The Asian Wall Street Journal |
|
||||||||||||
|
|
