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Commentary - Empty Pockets, What Does the Greek Debt Dilemma Mean for the Global Economy?
Fear is growing that Greece -- one of 16 countries that use the euro as currency -- may default on a massive pile of debt, creating a ripple effect of problems throughout Europe and beyond. Following pressure from the European Union and the European Central Bank, the Greek government on March 3 announced a new round of austerity measures -- the third such package in the last six months. Meanwhile, Wall Street banks are again facing scrutiny -- this time, for the complex financial instruments they used to allegedly disguise the country's real debt. What caused Greece's debt problem to spin out of control? And what steps should it take to remedy the situation? Wharton finance professors Richard Herring and Itay Goldstein weigh in.
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Headline News, Wednesday, March 10, 2010
March 10: Commentary - The Renaissance of Non-Agency RMBS Securitization, Projected Collateral Credit Performance
There are a number of critical issues that must be addressed before the securitization of newly originated non-agency residential mortgage pools can begin. These issues will require significant legislative and regulatory decisions to be made, hopefully in the not too distant future. However, we can begin to look at what Prime collateral pools SHOULD looklike and perform in future securitizations. This can provide some guidance into likely subordination levels.
March 10: Economic Risk - Barker on Monetary Policy, from Stability to Financial Crisis and Back?
In a speech to the National Institute of Economic and Social Research in London yesterday, Kate Barker draws lessons from her nine years as an external member of the Bank’s Monetary Policy Committee (MPC). She suggests these might inform the Committee over the “difficult” years immediately ahead. Ms Barker steps down from the Committee on 31 May this year.
March 10: Operational Risk - Planning for the Recovery, Access to Capital and Executive Compensation Among Chief Issues at 2010 Shareholder Meetings
Given economists forecasts of a slow recovery from the “great recession,” investors are keenly interested in how management is planning to navigate the remaining economic turbulence. This uncertain climate should make for an especially challenging annual meeting season this Spring. BDO has compiled the following list of topics that corporate management and boards of directors should be prepared to address in connection with 2010 annual meetings.
March 10: Commentary - Solving FAS 166 And 167 Compliance with Data Integration and Data Quality
Back in June 2009, the Financial Accounting Standards Board (FASB) published Financial Accounting Statements No. 166, Accounting for Transfers of Financial Assets, and No. 167, Amendments to FASB Interpretation No. 46(R), which changes the way entities account for securitizations and special-purpose entities.
March 10: Commentary - FSA Must Not Give In to Pressure from Industry on PPI
The Consumer Panel blamed industry pressure in forcing the FSA to re-publish a consultation on payment protection insurance (PPI) complaints and redress yesterday, so further delaying fair treatment for consumers in this vital area.
March 9: Operational Risk - ISDA Publishes the Market Review of OTC Bilateral Collateralization Practices and Independent Amount Whitepaper
ISDA yesterday announced that it has published the ISDA Independent Amount Whitepaper and Market Review of OTC Bilateral Collateralization Practices. Collateralization has become a key method of mitigating counterparty credit risk in the derivative markets. The documents are designed to provide better understanding of current market practices. In these documents, a number of recommendations were made for market participants to enhance practice or understanding in the collateral management arena.
March 9: Market Risk - Hedge Funds Advance +0.96% in February
Global equity markets were mixed in February, with the U.S. experiencing gains and most international markets posting small losses. During the month, the focus of hedge fund managers was on Greece and its debt level, as well as potential problems in Spain, Portugal and Italy. Managers see this only as the tip of the iceberg.
March 9: Energy Risk - Energy Efficiency Funding
Money is tight. But not necessarily for projects involved with increasing energy efficiency. Some innovative financing techniques are emerging to allow customers to make improvements without incurring initial out-of-pocket costs.
March 9: FSA - Liquidity Calibration Statement
The FSA believes that it would be premature to increase liquidity requirements across the industry at the current time.
March 9: Industry Risk - Huge Green Construction Support Continues Despite Recession -- Energy Savings is Number One Reason for Building Green
We do not expect a significant change in carbon offsets unless mandatory carbon mitigation programs are adopted at the state or federal level.
March 8: Commentary - Mark-to-Market Accounting, OneWest and WaMu; Commentary by Brian Wesbury and Robert Stein, Bernanke Finally Fingers Mark-To-Market
It would have been much better for the economy if Chairman Bernanke had been this clear about mark-to-market accounting back in 2008. If he had been, the US might have avoided the Panic of 2008. But it's never too late, and now that mark-to-market ideology is affecting the ability of the Federal Reserve to exit its quantitative easing, he's finally onboard.
March 8: Economic Risk - US February Payrolls Fell Less Than Expected and the Unemployment Rate Held Steady
The February labour market report provided somewhat better than expected news. Job losses continued during February, but the decline was 36,000, which was less than the median expectation of a 50,000 decline. January's job loss deepened to 26,000 from the previously estimated 20,000 decline; however, December's data was revised to show that fewer jobs were lost.
March 8: Market Risk - Chart of the Day
Last Friday, the Labor Department reported that the unemployment rate held steady at 9.7% during the month of February. For some perspective on the current state of the labor market, today's chart illustrates the unemployment rate by educational attainment.
March 8: Industry Risk - Association of German Banks Warns of Negative Consequences of a Leverage Ratio
The introduction of a leverage ratio won't help to stabilise the financial system - on the contrary. A leverage ratio would consequently handicap German universal banks in particular, although they had a much lower risk exposure than, for example, Anglo-Saxon investment banks.
March 8: Energy Risk - Unregulated Power Companies 'Stable'
The economic rebound should correlate with that of the electricity sector and particularly the unregulated component of it. But despite months of uncertainty, those "merchant" utilities played it smart by locking in longer-term contracts prior to the downturn.
March 8: Credit Risk - US Credit Card Defaults Surge 11%, Delinquencies Fall Again
US credit card chargeoffs surged to near record levels set last fall. Late-stage delinquencies are still trending in the 4% range industrywide, which is keeping chargeoff levels in the double-digits.
March 5: Industry Risk - Large US Companies Emerge from Credit Crisis with Banking Relationships Intact, but Recovery Brings New Tests
Relationships between the largest U.S. companies and their banks remained relatively harmonious throughout the global credit crisis — at least when compared to the levels of acrimony that emerged between banks and cash-strapped small and mid-sized businesses. But the state of these relationships for the rest of 2010 will be determined in large part by the answer to a single question: As the economic recovery takes hold and big companies begin making long-delayed investments in their businesses, will their banks have the capacity and appetite to meet their increased demands for funding?
March 5: Operational Risk - More Technology CFOs Migrate to the Cloud
This year, according to an annual study by BDO, a majority (56%) of chief financial officers (CFOs) at leading U.S. technology businesses are currently using cloud computing in some capacity. Further, the vast majority (90%) report their use of cloud computing will remain the same or increase this year.
March 5: Operational Risk - One-Two Punch of Superior Due Diligence and Activist Ownership Key to Private Equity Outperformance
According to a comprehensive private equity (PE) market report (“Global Private Equity Market Report, 2010”) a superior due diligence process followed by a quick transition to active owner involvement will be key to generating exceptional returns—in a future devoid of free-flowing credit, multiple arbitrage and mega-deal opportunities. The outlook finds that new buyout funds formed and new investments made over the next three-to-five years will likely generate gross returns in the low to mid-teens on average, several percentage points below their historic levels.
March 5: Job at Risk - Monster Employment Index Rises Sharply in February
Index rises by ten points in February, as employers resume recruitment activity following January’s seasonal lull. Year-on-year growth rate now up a positive 2 percent, with online demand rising above year-earlier levels. Offerings in information; professional, scientific, and technical services rise, while utilities and retail decline. Online job demand rises in all of the 28 major metro markets monitored by the Index, with Detroit showing strongest monthly gain.
March 5: Energy Risk - Despite Large Potential for Savings, Energy Management Systems Market is Still Only 14% Penetrated
Energy Management Systems (EMS) are being increasingly utilized by commercial building property managers to help optimize energy consumption. Automation and control capabilities enabled by EMS are most frequently focused on heating, cooling, ventilation, and lighting, which together account for approximately 57% of energy consumed in commercial buildings, according to the U.S. Department of Energy. However, a recent report finds that despite the strong return on investment for EMS deployments, just 14% of the market potential is being realized, providing a significant opportunity for new industry players.
March 5: Testimony – Allison on Treasury’s Strategy on Investments
The following is written testimony of Assistant Secretary of the Treasury, Allison, before the Congressional Oversight Panel.
March 4: Commentary - Can Currency Crises be Prevented?
In the past few days, both the Euro and Sterling have come under tremendous pressure from the investment community. Both have lost ground on the dollar, a currency that only 5 months ago was deemed unfit for purpose. Back then, in my commentary entitled “Why so much talk about the demise of the dollar when there are much more important issues to worry about?” I suggested that the talk about dollar’s demise was way over exaggerated and that it would be literally impossible to replace it as the currency of choice for pricing most commodities by a basket of currencies, due to the practical issues of conversions, and certainly the Chinese Yuan.
March 4: Market Risk - Monthly CDS Insight February 2010
US corporate CDS markets, while trading in a broader range, were little changed over the course of February 2010. While rising concerns of potential default in certain European sovereign contracts initially weighed on credit sentiment across the globe, risk appetite returned as expectations of sovereign default – or certainly concerns over the impact of contagion from a sovereign credit event – receded.
March 4: Operational Risk - Spending on Post-MiFiD Market Surveillance by Brokers, Exchanges and MTFs Growing by 13% CAGR, Rising to €185 Million in 2012
Market surveillance might appear an unlikely candidate to be a driving force of change and a hotbed of competition, but capital markets research and advisory firm TABB Group says that MiFID’s implementation is turning surveillance, traditionally a cost centre, into a competitive edge.
March 4: Interview - Mr. David Kučera, General Secretary of the Prague Power Exchange
Late last year, I spoke at and chaired a roundtable discussion at the Energy Risk Conference in Prague, Czech Republic. One of the roundtable participants was Mr. David Kučera, General Secretary of the Prague Power Exchange (Power Exchange Central Europe, a.s.) and I was fascinated to learn something of the challenges and hurdles he and his colleagues had gone through (and may yet still face) in working to create an exchange here in Central and Eastern Europe.
March 4: Energy Risk - Northeastern States Face Homegrown Issues
To move smart grid initiatives forward in the Northeast United States, keeping the public aware of what a more intelligent utility can mean to their lives is critical. The benefits of a smarter, more robust grid and the consequences of not having one must be clearly communicated to garner broad public support.
March 4: Market Risk - Association of German Banks Unveils Standard for Securitizations
The securitisation market in Germany has been at a virtual standstill for the last two years. "There's actually no justification for the loss of confidence in German securitisations, especially securitisations of SME loans, where losses were far lower than expected even during the crisis.
March 3: Commentary - Reputational Risk, Living in a Derivative World
According to the most recent Quarterly Banking Profile published by the FDIC, net-interest margin (NIM) for the banking industry "in 2009 was 3.47 percent, the highest annual average since 2005," but we already see evidence that NIM is starting to fall at some banks. More important, the corrosive effect of ZIRP on money market funds and other interest rate sensitive investors is becoming critical.
March 3: Commentary - Observations on the Monoline Meltdown
The bursting of the housing bubble has left the monoline financial insurers in shambles, and it is unlikely that the financial guarantee industry will ever regain viability. Risk managers, CFOs and municipal treasurers have learned the hard way that the “rating agency capital” or “claims paying resources” the guarantors held in support of their triple-A ratings were very poor substitutes for formally documented collateral agreements pledging specific assets against potential counterparty exposures; they will not again repeat the same mistakes.
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