Friday, September 28, 2012

Spanish Stress Test Results

Here are the results of the stress test conducted on Spanish banks, as per the FT.

Seven banks failed and seven passed.

The shortfall comes in at under Euro60BN which, bizarrely, Juncker finds comforting!

Here is the reaction of the European Commission:
"The European Commission welcomes today’s publication by the Spanish authorities of the results of the independent valuation of Spanish banks. This is a major step in implementing the financial-assistance programme and towards strengthening the viability of and confidence in the Spanish banking sector.

In line with the Memorandum of Understanding governing the financial-sector programme for Spain, an external consultant conducted over the past few months a stringent bank-by-bank (bottom-up) stress test and a thorough asset quality review. The European Commission was closely involved in this process, as were the ECB, the EBA and the IMF.

The capital needs for individual banks disclosed today are a key step in the process of restoring and strengthening the soundness of the Spanish banks. They will form the basis for the eventual recapitalisation of banks with the help of the programme. The necessary State aid provided to Spanish banks will be determined in the coming months. It will be based on today's published results. It will also reflect measures to be taken by the banks, such as the disposal of assets, other restructuring measures and tapping funding markets, and subordinated liability exercises. In addition, the capital shortfall of credit institutions receiving public funds will be adjusted as a consequence of the transfer of assets to the Asset Management Company.

Banks with a capital shortfall will present recapitalisation plans. Upon approval of these recapitalisation plans by the Bank of Spain and the European Commission, banks requiring state aid will present restructuring or orderly resolution plans to the Spanish authorities, which will notify these to the European Commission for approval under EU state aid rules. Upon approval of these restructuring and/or orderly resolution plans, the recapitalisation of a first group of banks is scheduled to occur by November. "

Thursday, September 27, 2012

ONS Revises Its Figures Yet Again!

On July 25 I wrote the following:

"UK GDP has contracted by 0.7% in the second quarter of 2012, thus bringing the UK into a double dip recession.

However, this figure needs to be taken with a pinch of salt, ONS figures are out of date and are invariably wrong
In August I wrote the following:
"As predicted, it transpires that the ONS figures were of course wrong. Economia reports that the ONS has revised its figures upwards from -0.7% to -0.5%."
One month on and the hapless and hopeless Office for National Statistics (ONS) have yet again revised their figures upwards, this time to -0.4%.

As I have noted many times before it is extremely unwise to rely on figures provided by the ONS, they are always out of date and invariably wrong; eg in February this year inflation figures spiked partly because the ONS (as per usual) had been erroneously under reporting inflation (clothing) for several years, and the resulting correction caused a spike in inflation.

Instead of the government and the Bank of England relying on and using ONS figures to to try to manage the economy, they may as well rely on reading goat entrails as these would be more accurate, timely and easier to interpret!

Wednesday, September 26, 2012

Combined or separate finances for married couples?

I have been trying to figure out a system to manage the finances with my future spouse. My girlfriend is against the idea of separate finances while I feel that both systems have their pros and cons.

Combined finances could accelerate wealth accumulation given that both parties in the marriage have common financial goals. Also, combined financial power can contribute to a sense of solidarity, as you begin to think of spending as a unit. Saving together allows a couple to start working towards mutual goals, such as buying a house, going on an overseas trip or building passive income.

On the other hand, separate finances will be a fairer system if the couple have a huge income disparity or markedly different spending habits. Also, it may allow greater independence when it comes to spending and make personal gifts and dates more special.

What appeals to me most is a hybrid system that incorporates the benefits of both combined and separate finances. In this system, both spouses put their entire paycheck into the joint account, and then withdraw a fixed amount(allowance) into their personal accounts every month. Household expenses and bills will be deducted from the joint account.

Below is an illustration of the system assuming take-home pay to be $3,000 each:

Both my wife and me will deposit our entire paychecks into a joint account. We will each withdraw $600 as our allowance. If there is any amount left at the end of the month, we will deposit into our personal accounts and this will form our individual personal savings. Parents' allowance, household bills, insurance, cash portion for mortgage payments and other miscellaneous expenses will be debited directly from the joint account. Also, an amount of $2,000 will be set aside every month as our opportunity fund. There will be a leftover of $1,000 in the joint account every month and this will be our combined savings/emergency fund.

Tuesday, September 25, 2012

Greece's Euro30BN Blackhole

In February I noted that the Troika had have discovered that Greece needed an extra Euro15BN on top of the Euro130BN second bailout that it had yet to receive. In August I noted that the Troika's assessment was that there is a Euro14BN hole in Greece's finances for 2013/14.

A grand total of around Euro29BN in blackholes!

Now Süddeutsche reports that according to senior EU officials, Greece will require an additional two years and additional funding of Euro30BN in order to meet the conditions of its second bailout package. It is not clear as to whether this blackhole is the combination of the two blackholes I wrote about in February and August, or a new blackhole over and above those already highlighted.

Either way it is now unclear if/when Greece will receive its next tranche from the package. Seemingly any decision is being delayed until after the results of the US Presidential election, lest a financially destabilising event propels Romney into office.

Monday, September 24, 2012

Updates: Bursary Application 2012

I called up my school today to enquire about the status of my bursary application. I am pleased to know that I will be awarded the full quantum of $3,700. The bursary will be disbursed in 2 stages in late October 2012 and January 2013 respectively.

Also, the result of my private bursary application will be known in early November 2012. If this private bursary application is successful as well, I will be awarded an additional $1,800. Investible net worth is estimated to cross the $60k mark by February 2013, leaving me 10 months to accumulate $10,000 in order to achieve my first goal - $70,000 by age 25 (Dec 2013). This target should be easily achievable as I should be starting work full time in mid 2013 after graduation if nothing goes wrong.

Thursday, September 20, 2012

Stagnation Abounds

The purchasing managers indexes (PMIs), released today make depressing reading.

Reuters reports that the composite Eurozone PMI fell to 45.9 in September, from 46.3 in August. A level of less than 50 denotes contraction.

The ongoing decline in PMI indicates that the ECB "plan" to buy Eurozone debt has not impressed companies, or restored their faith in an upturn.

It is not just Europe that is suffering, the ongoing recession in Europe has negatively impacted China (seen by many as the last best hope for pump priming a global economic recovery). Although the China manufacturing PMI rose in September to 47.8 from August's nine-month low of 47.6, it remains below 50 which indicates that Chinese growth is slowing/stalling.

In theory China and the Eurozone should work together to try to address their mutual problems. Unfortunately, China is less than pleased that there is still an arms embargo and that its products are subject to tariffs.

Wednesday, September 19, 2012

Financial Sector Receives 36% of All Bonuses

The Office for National Statistics (ONS) reports that the total level of bonus payments received across the whole economy, during the financial year April 2011 to March 2012 (2011/12), came to £37BN. This is an increase of 3% compared with 2010/11, and equates to an average of around £1,400 per employee in 2011/12.

Those of you who are wondering why you did not receive a £1.4K bonus will be "relieved" to learn that it hasn't got "lost in the post", but has in fact contributed to the higher than average bonuses paid to those working the in the finance and insurance industry who received a total of £13BN in bonuses. This accounts for 36% of all bonuses in 2011/12, even though the sector only accounts for 4% of all UK employees.

Monday, September 17, 2012

Merkel's Bleeding Heart

Doubtless the people of Greece who are facing destitution, courtesy of their country's ill fated and suicidal dalliance with the Eurozone, will be heartened to learn that Chancellor Angela Merkel's "heart bleeds" for the Greeks who are facing hardship.

Does this mean that she will lighten up on the Eurozone's austerity package?


Friday, September 14, 2012

When to have my first child?

I am planning to have my first child in year 2020/2021(32 or 33years old) and that is also the time when I have fulfilled/almost fulfilled the Minimum Occupational Period(MOP) for my HDB flat. I will then sublet my whole flat and move to my parents/parents in law's place to stay for a year. According to my girlfriend, her mother has already agreed to such an arrangement even though that will be in 9 years time.

Rental of a similar property in the area is around $3500. Assuming rental stays constant till 2021, I will be able to rent out my flat and receive a passive income of $3500 monthly. After taxes and expenses(additional allowance for parents in law), it will be approximately $2800/mth or $33,600/year.

Apart from the financial benefits of this plan, I'll also be able to spend more time with my child and my future parents in law could take care of their grandkid as well. As my HDB flat is quite a distance from my girlfriend's home, I could save tonnes of travelling time and costs if we stay at my future parents in law's place. Most importantly, my girlfriend is happy with this arrangement.

Greek Brinkmanship

As the game of brinkmanship between Greece and the Eurozone continues, it s not surprising to see Greece play its "we need a third bailout" card.

Thanos Catsambas, who represent Greece at meetings with the Troika, told the Troika that Greece will require additional financing, which may take the form either of official-sector involvement or of additional loans, hopefully on more favourable terms.

To try to add some "credibility" to his request for more money, he noted that the previous coalition government estimated that "only 22% of the commitments under the troika-supported program were implemented" in 2011.

That admission, from the Troika's perspective, hardly adds credibility to Greece's commitment to implement change.

Brinkmanship aside, the Greek economy is collapsing as yesterday's figures for unemployment show; they rose to 23.6% (they were at 16.3% this time last year).

Thursday, September 13, 2012

Peter Cummings Fined £500K

The FSA has fined former HBOS director Peter Cummings £500K, and banned him for life from working in the City.

Tracey McDermott, director of enforcement and financial crime at the FSA is quoted in the Telegraph:
Despite being aware of the weaknesses in his division and growing problems in the economy, Cummings presided over a culture of aggressive growth without the controls in place to manage the risks associated with that strategy.

Instead of reacting to the worsening environment, he raised his targets as other banks pulled out of the same markets
However, do not shed too many tears for Cummings, Cummings left HBOS in 2009 with a payout of £600K; so he's still £100K up on the deal!

Wednesday, September 12, 2012

German Court Approves Fiscal Pact With Cap

The German Constitutional Court has cleared the way for the fiscal pact and the eurozone's permanent rescue fund to be implemented.

However, and there is always a "however", the court has limited German liability to the ESM to a maximum of Euro190BN.

Any excess over and above that figure must first be approved by the German parliament.

Tuesday, September 11, 2012

DDDY Rises From The Ashes

ODDY, the Organisation for Public Property Management, the Greek government department tasked with selling off unwanted assets and property confiscated from criminals had been disbanded. Thus there is no means by which those assets can be turned into cash.

Ironically Reuters reports that ODDY, although it has been disbanded, still exists in another form. Out of the ashes DDDY has risen, DDDY is now the Directorate for Public Property Management and is an office of the Greek Finance Ministry.

The cost of salaries are now apparently being booked to pensions. However, because of the chaos caused by the closure and resurrection, DDDY is paralysed and assets are left to rot.

The future of the Euro is in the hands of people who have engineered this shambles!

The Smartest Paper Ever From a Regulator

In case you missed it, Andrew Haldane's "The Dog and the Frisbee," the paper he recently presented at Jackson Hole, was brilliant.

According to the understated prose of the Bank of England, the paper by the Bank of England's head of financial stability "explores why the type of complex financial regulation developed over recent decades may be sub-optimal for crisis control."

In other words, fighting complexity with complexity is a prescription for failure. The financial system has evolved into mind-numbing complexity, partly in attempts to creatively evade letter-of-the-law regulatory regimes.

Regulators will always be outgunned, if they choose to do battle on this field. The banks have the intellectual firepower, the sheer manpower, the profit incentives -- basically, everything in their favor -- to keep running circles around hapless regulatory officials.

So Haldane (my bold):
...calls for a fresh approach to financial supervision, one which is less rules-focused and more judgment-based. He notes that this approach: “...will underpin the Bank of England’s new supervisory model when it assumes prudential regulatory responsibilities next year.” To be effective, he says that will require more experienced regulators working to a smaller, less detailed rulebook. He adds that greater simplicity and consistency in disclosure practices could also strengthen market discipline.
As I wrote on this blog three years ago (arguing for a new philosophy of regulation based more on principles than on a myriad of rules purporting to cover every relevant situation):
One problem right now is that we lay out rules, in staggering detail, and anything not prohibited is generally assumed to be legal. That invites the creation of a loophole-seeking culture in the financial system.
I don't think the U.S. has any visionaries of Haldane caliber in the upper ranks of its regulatory bodies. Maybe the best we can hope for is that if England develops a regulatory system that's smarter, better -- and simpler -- we might have someone bright enough in our country to realize that, and copy the best parts of it.

P.S. For evidence of the complexity rampant in the financial system, that exists only to arbitrage regulations, check out SunTrust’s postpaid bifurcated collateralized variable share forward on its stake in Coca-Cola in this wonderfully titled Dealbreaker piece, "Spoilsport Regulators Ruin Another Derivative That Was Too Beautiful to Live."

Monday, September 10, 2012

Merkel's Grexit U-Turn?

Chancellor Angela Merkel has, apparently, made a U-turn wrt her policy on Greece.

Faced with the political fallout from a Greek exit before German national elections in 2013, she now wants to stop Athens from leaving the euro zone at all costs (even if it means massaging the figures in the upcoming troika report).

That at least is the theory according to Der Spiegel.

However, I remain unconvinced. The elections are not new or a surprise, and Merkel would have been well aware of the potential political fallout from a Grexit. Indeed, if anything, a Grexit may enhance her standing more than if she were to be seen to prop up Greece at the cost of German financial stability.

Friday, September 7, 2012

NatWest To Update Systems

NatWest will be updating various systems this weekend:
"On 8 September 2012, due to planned system updates, our Online, Mobile and Telephone banking services will be unavailable between 2am and 6am. We apologise for any inconvenience caused. Withdrawals can still be made via an ATM, and point of sale transactions are unaffected."
In light of what happened during another recent upgrade, let us trust it goes a little more smoothly this time around!

Beware The Dead Cat Bounce

Markets are rising on the self delusional hopes that "this time" the ECB really will do something tangible to stop the rot, and will buy bonds willy nilly.

Be warned, this is nothing more than a dead cat bounce based on the false delusion of ECB action.

Repeat after me:

- There is no plan
- There never was a plan
- There will never be a plan

Wednesday, September 5, 2012

Schaeuble's Line In The Sand

The EC is refusing to deny or confirm the story that the Troika will ask private Greek companies to introduce a six day working week.

Meanwhile Wolfgang Schaeuble, the German finance minister, has ruled out a third Greek bailout package:
"The costs for Greece are already very high and therefore we cannot have a new programme for Greece."
Whether this is a sop for the domestic audience, to keep it docile, or a genuine line in the sand is not yet clear.

Tuesday, September 4, 2012

Moody's Cuts EU's Rating

Moody's has cut its outlook on the triple A rating of the European Union to negative.

The cut reflects the credit risks of the EU's key budget contributors.

Moody's is quoted by the Telegraph:
"The outlook change to negative reflects the negative outlooks now assigned to the Aaa sovereign ratings of key contributors to the EU budget: Germany, France, the UK and the Netherlands, which together account for around 45pc of the EU's budget revenue. 
Moody's believes that it is reasonable to assume that the EU's creditworthiness should move in line with the creditworthiness of its strongest key member states."

Monday, September 3, 2012

Greeks Pressed Into Servitude

The media are awash with rumours that the Troika have requested that private companies in Greece introduce a six day working week.

Let's see how well that "suggestion" goes down with the Greek people.