In the last 3 days, global stock markets corrected with the announcement of ING's breakup. As Brussels set the stage for regulating banks which received massive government help during the crisis, other banking groups are reeling from investor's fright of a domino effect on the sector.
The lessons learnt from giant financial groups to the likes of AIG, Citigroup - too big to succeed, impossible to run and too big to fail are becoming the nightmares of regulators who are entrusted with the responsibility of maintaining market stability and preventing systemic risks.
At the height of the crisis, governments had to approve mega consolidations of banks such as Lloyds and HBOS or JPM and BearStearns. This is probably sowing the seeds of new crises unless regulation is revamped.
With poor economic data released this week, optimism for the future is low. So, investors will have to sit tight as it seems like the next few weeks will be a rough ride.
Eric Tan,
London
Wednesday 28 October 2009
Sunday 18 October 2009
At the end of the 1st week of Q3 earning reporting, we have seen the entire spectrum of what to expect in the forth coming weeks.
Goldman and JPMorgan announced stunning results to the world ($3.2b and $3.6b respectively), whereas Bank of America posted a $1b loss as continuing consumer credit hurt earnings. General Electric, the bellwether conglomerate of the US ecnonomy reported earnings falling 47% to $2.5b.
However, most of the attention went to the amount put aside as bonuses for Goldman employees, a whopping $16.7b so far for this year. Given the record unemployment number and poor consumer sentiment, this is going to be hard to swallow for the public, especially as recent as just a year ago, Goldman received help for the government to get it through the financial crisis.
Eric Tan,
London
Goldman and JPMorgan announced stunning results to the world ($3.2b and $3.6b respectively), whereas Bank of America posted a $1b loss as continuing consumer credit hurt earnings. General Electric, the bellwether conglomerate of the US ecnonomy reported earnings falling 47% to $2.5b.
However, most of the attention went to the amount put aside as bonuses for Goldman employees, a whopping $16.7b so far for this year. Given the record unemployment number and poor consumer sentiment, this is going to be hard to swallow for the public, especially as recent as just a year ago, Goldman received help for the government to get it through the financial crisis.
Eric Tan,
London
Sunday 11 October 2009
Parallel Universes
Investors diametrically opposed views on everything in the markets from growth prospects, inflationary fears and deflationary pressures are all causing simultaneous rises in assets.
Since March, we have witnessed a surge in the equities markets. Oil,gold, commodities are rising in antipation of a global recovery. On the other hand, bond yields are falling steadily and reports of US mutual funds are increasing net inflows to fixed income funds. In the world of forex, Australian and Brazilian currencies are reflecting the increase in risk appetite and yet Japanese Yen and gold typically reflecting a safe haven currency are at record highs.
The markets have been reflecting the inconsistent economic data with rising unemployment and recovering growth.
With a strong boost provided by Alcoa earnings, over the next few weeks, US companies is likely to announce strong earnings supported by exports and continued cost cuts, but inability to demonstrate revenue growth may result in a fall in momentum leading to a reality check for investors.
Eric Tan
London
Since March, we have witnessed a surge in the equities markets. Oil,gold, commodities are rising in antipation of a global recovery. On the other hand, bond yields are falling steadily and reports of US mutual funds are increasing net inflows to fixed income funds. In the world of forex, Australian and Brazilian currencies are reflecting the increase in risk appetite and yet Japanese Yen and gold typically reflecting a safe haven currency are at record highs.
The markets have been reflecting the inconsistent economic data with rising unemployment and recovering growth.
With a strong boost provided by Alcoa earnings, over the next few weeks, US companies is likely to announce strong earnings supported by exports and continued cost cuts, but inability to demonstrate revenue growth may result in a fall in momentum leading to a reality check for investors.
Eric Tan
London
Sunday 4 October 2009
Why waste a good crisis?
This week, London Business School celebrates Worldwide Alumni Celebration 2009. A series of lectures and events are held all over the world. In London, a lecture in Lloyds iconic building fired off a series of events - "Where does it go from here?"
The most interesting idea I personally thought was : Why waste a good crisis?
The panel spoke about how we can see the policy makers doing the "easy-but-irrelvant" bits such as targeting the tax haven status of some economies, or pursue the "crowd-pleaser" bits of slamming bonuses and hedge fund/private equity regulations.
However, the big-big issues have not been formally addressed.
- How should banks be sized?
- Taxing by size to discourage too big to fail financial institutions
- Reviewing the Glass-Steagall act
- Tobin Tax
- Living Will
- Ratings agencies
- Cross border issues
Macro prudential regulations have also not been openly addressed. Spain managed to largely avoid the US subprime crisis by having a countercyclical capital ratio which looks increasingly likely to be adopted in the rest of Europe, but the currently prescription may get nowhere near high enough for it to be effective.
So it seems like there are many thoughts to take away from this week of Alumni celebrations in London Business School, but one thing is for sure, the regulators have a lot more work to be done before this crisis is over.
Eric Tan,
London
The most interesting idea I personally thought was : Why waste a good crisis?
The panel spoke about how we can see the policy makers doing the "easy-but-irrelvant" bits such as targeting the tax haven status of some economies, or pursue the "crowd-pleaser" bits of slamming bonuses and hedge fund/private equity regulations.
However, the big-big issues have not been formally addressed.
- How should banks be sized?
- Taxing by size to discourage too big to fail financial institutions
- Reviewing the Glass-Steagall act
- Tobin Tax
- Living Will
- Ratings agencies
- Cross border issues
Macro prudential regulations have also not been openly addressed. Spain managed to largely avoid the US subprime crisis by having a countercyclical capital ratio which looks increasingly likely to be adopted in the rest of Europe, but the currently prescription may get nowhere near high enough for it to be effective.
So it seems like there are many thoughts to take away from this week of Alumni celebrations in London Business School, but one thing is for sure, the regulators have a lot more work to be done before this crisis is over.
Eric Tan,
London
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