Sharemax appears to be spiralling to its doom. Multiple stories today report that they are late on dividend payments to investors and may not be able to pay dividends in the forseeable future.
Cash has run out. The overvalued, over-geared properties cannot support the income stream that was demanded from them.
No surprises here then.
Posted with WordPress for BlackBerry.
From Stats SA
The headline inflation rate in July 2010 (i.e. the Consumer Price Index for all urban areas in July 2010 compared with that at July 2009) was 3,7%
The official inflation rate (i.e. the percentage change in the CPI for all urban areas in July 2010 compared with that in July 2009) was 3,7% at July 2010. This rate was 0,5 of a percentage point lower than the corresponding annual rate of 4,2% in June 2010 (i.e. the Consumer Price Index for all urban areas in June 2010 compared with that in June 2009).
From June 2010 to July 2010 the Consumer Price Index for all urban increased by 0,6%
CPI Headline July 2010 = 3,7%
So this is close to the bottom of our 3% to 6% inflation targeting range. Economic growth is struggling, unemployment is high, but we haven’t reduced interest rates? Something here is a little odd.
I’ll put another $100 in Kiva, to be “microlent” to businesses and people across the world, if the next monetary policy committee meeting doesn’t cut interest rates.
Michael Lewis, of Liar’s Poker fame, has written an engaging account of the role that subprime lending played in the global financial crisis. The new book is called “The Big Short: Inside the Doomsday Machine”.
The jargon that Lewis uses is generally explained and shouldn’t prevent non finance geeks from understanding the role of subprime lenders, mortgage originators and, of course, the Wall Street banks that fed the frenzy with CDSs, synthetic CDOs and bonuses for all.
The story places a few characters at the centre of the story. I wasn’t convinced that these guys were all skill and no luck, but they certainly seemed to have a clearer idea of what was going on in the murky, muddy waters of securitisations of that era than many of the supposed experts.
Overall, it’s won’t be the smash hit that Liar’s Poker is, but it’s entertaining reading all the time. The links to Gutfreund are tenuous and smell a little of name-dropping. If Lewis wanted to remind the reader of his role in toppling the ex CEO of Salomon Brothers he succeeded. If he wanted to somehow project the glory onto the new book, he failed.
Check out Book Finder for prices from several stores (new and used) in your currency including delivery costs to your location.
The FT has an article (Banks win battle to tone down Basel III) describing how the proposed new rules for banking capital requirements might have some of the new requirements around liquidity removed or weakened.
Key amongst these new considerations is the limitation of mismatches between the term of assets and liabilities, which would limit the danger of a removal of deposits and wholesale funding in a crisis scenario. The problem is that this has been fundamental to the business model of banks for decades. Short-term assets (call, overnight, 30 day deposits) have been used to finance long-term liabilities (vehicle loans, home loans, business loans).
Retail deposits, even those technically call deposits, are generally quite sticky. This is in spite of the easily recallable image of queues of depositors wanting to get their money back. Typically, this is still a small fraction of total depositors (certainly in countries with retail deposit protection). Further, other banks have usually pulled or tried to pull their short-term funding (or simply not renewed overnight lending) well before the public even gets wind that there might be risks. As banks rely increasingly on wholesale finance, the risks of a liquidity and credit crisis are amplified as this money is teflon-coated and greased in terms of stickiness.
The banks argue there are other ways of managing the risk. It’s understandable that regulators around the world have had their confidence in banks’ risk management ability dented.
The real danger of overregulation of banks is not “too safe banks”, but rather an increase in the cost of providing banking and credit services to the economy (individual countries as well as the global economy) which could make limit economic growth and the replacement of jobs lost during the recession.
It’s going to be interesting to see how this develops.
A friend “volunteered” me to answer an insurance question from Aardvark on allocating economic capital across different insurance products. After writing a short response, I received the frighteningly useful message: “Error”.
Having written a brief summary of the different techniques used in this really important area, I thought I should use it as a blog post. Maybe “Daan d.” from Cape Town will stumble across this answer eventually.
The question:
What is the standard practice to allow for diversification benefits when allocating capital required between different insurance products?
My brief answer (this is a huge topic!):
There is no standard practice. It’s one of the more irritating and subjective aspects of allocating capital between imperfectly correlated product
Economic Capital doesn’t have to be calculated as VaR, but I will use VaR below as a generalisation. Banks are typically slightly more mature in their capital allocation processes so what I’m describing below is often used in the banking world, but applies equally to insurance (life and non-life / P&C).
Splitting the capital in proportion to the sum of the components is frequently used, but is flawed and usually doesn’t give good results unless speed and simplicity are primary objectives. (more…)
The US Federal Deposit Insurance Corporation closed the 69th bank of 2009 recently. The rate of closures has increased recently, leading some analysts to believe that well over 100 banks could be closed this year.
The Savings and Loan crisis of the 1980s in the US started at about the same pace, with 100 closures per year. However, the number of closures increased to a peak of 534 in 1989 – fully 9 years after the start of the uptick in closures in 1980.
The South African banking environment is different – very much fewer banks and arguably tighter regulation give the lack of deposit insurance. However, the pain that US banks are feeling informs views that our banking sector still has pain to live through before turning around.
I blogged before about some medium-term concerns I have around Lebanon’s currency stability. A story I saw today shows an opposite view, so I’m linking it here. Moody’s have upgraded Lebanon’s bond ratings due to improved external liquidity.
My original post was to temper the irrational optimism around the currency peg, rather than to say there is bad news around the corner. However, I still feel Moody’s may be slightly optimistic, upgrading a small country’s bonds when the extent of the global recession is not clear.
In my previous post I discussed some of the risks to various currencies.
Now what happens if your local currency is pegged to the US Dollar as it is in Lebanon? Speaking to Lebanese bankers and insurers there seems to be a devout belief that the peg is rock solid. This is surprising given the history of the Lebanese Pound (LBP) over the last 30 years. Decades of civil war and hyperinflation decimate a currency.
photo credit: austinevan
Now if you offer insurance policies denominated in USD or LBP, accepting premiums and paying benefit in currencies assumed always to be pegged at a fixed rate you might want to consider what assets you have backing those policies. USD policies backed with assets in LBP (and LBP policies backed with USD assets) are a massive currency risk. The probability of a break in the peg may be small, but the result could be catastrophic.
Unfortunately, it is arguably worse. Even if the USD policies are backed with USD deposits and bonds at Lebanese banks, how will the banks fare if the currency is devalued? How about if the USD does plummet on the back of inflation concerns in the US economy and the LBP is forced to be revalued upwards? Unless the banks are managing this currency risk themselves and are appropriate matched the contagion of currency problems will flow through banks and straight to insurance companies.
Now is not the time to assume that artificial links will remain no matter what happens to the global economy. This is a massive currency risk.