August 27, 2008
a-iTrust buys India office space
By ARTHUR SIM
ASCENDAS India Trust (a-iTrust) will buy 96,051 square feet of office
space at India's International Tech Park Bangalore (ITPB) for 307.8
million rupees (S$10 million).
The space, now owned by Tata Consultancy Services (TCS), will be
leased back to TCS.
a-iTrust already owns 1.7 million-sq ft of space at ITPB through its
Indian special-purpose vehicle International Technology Park Ltd
(ITPL). Jonathan Yap, chief executive officer of the trustee-manager
of a-iTrust, said: 'As one of the four IT parks we own, ITPB has been
delivering good and steady returns. Current occupancy is 100 per
cent, and we continue to experience demand for space from existing
and new clients.'
a-iTrust said that the office purchase is part of an agreement under
which ITPL would construct and sell TCS a custom-built facility at
ITPB, while TCS would, in return, sell office units at the park to
ITPL.
The 515,000-sq ft custom-built facility has been completed and handed
over to TCS.
The office space will be yield-accretive. The pro forma financial
effect on a-iTrust's distribution per unit (DPU) for the financial
year ended March 31, 2008, is expected to be an additional 0.088
cents.
a-iTrust said the acquisition will be funded by drawing down an
existing loan facility. a-iTrust's gearing will be 5 per cent.
Upon completion of the acquisition, a-iTrust will own $1 billion of
assets, comprising 4.8 million sq ft of income-producing space plus
land for the development of 4.2 million sq ft of space.
Mr Yap said: 'We will continue to focus on enhancing returns to
unitholders through organic growth, developing land owned by a-
iTrust, and acquisitions.'
Showing posts with label Finance. Show all posts
Showing posts with label Finance. Show all posts
Wednesday, August 27, 2008
Tuesday, August 26, 2008
Aussie mortgage bonds offer world's best value: Pimco
August 26, 2008
Aussie mortgage bonds offer world's best value: Pimco
(MELBOURNE) Australia's mortgage-backed bonds are one of the most
attractive buys 'on the planet', according to Rob Mead, head of Asia-
Pacific credit at Pacific Investment Management Co (Pimco) in Sydney.
Mr Mead, who manages the equivalent of US$17 billion, said he is
buying top AAA-rated US dollar- and euro-denominated bonds backed by
Australian home loans. The debt is being sold at fire-sale prices by
holders forced to close their businesses amid the collapse of the US
sub-prime mortgage market, he said.
The global investor exodus from mortgage debt markets has boosted
yields on Australia's home loan bonds about 10-fold in the last 12
months to at least two percentage points more than Australia's
benchmark swap rate. Even so, the credit quality of the debt,
supported by home loans to people with good repayment histories,
hasn't declined, said Mr Mead, who runs the Australian portfolio at
Pimco, the manager of the world's biggest bond fund.
'We think this paper in the non-Aussie dollar format is very, very
compelling,' Mr Mead said in a phone interview. 'Combined with the
absolute level of Australian swap rates, investors are able to
generate attractive real yields from very high-quality assets over
the next three to five years which are not available to almost any
other investor base on the planet.'
The yields have also increased because the bank bill swap rate, which
is the benchmark the nation's mortgage bonds are priced against, has
risen in line with the central bank's increases to official interest
rates.
The Reserve Bank of Australia increased its benchmark lending rate
four times since August to 7.25 per cent to cool the fastest
inflation in 17 years, even as central banks led by the Federal
Reserve and Bank of England cut borrowing costs to ease the fallout
of the global credit squeeze.
Australia's 90-day bank bill swap rate, the typical benchmark used to
price mortgage-backed bonds, rose to 7.3 per cent on Aug 22 from
6.847 per cent a year earlier.
The highest-rated US mortgage bonds backed by American fixed-rate
prime mortgages yield above 85 basis points more than the US dollar
London interbank offered rate, according to credit traders. A basis
point is 0.01 percentage point.
AAA-rated securities backed by US sub-prime or second mortgages yield
7.1 percentage points more than Treasuries with maturities similar to
their average lives, according to Lehman Brothers Holdings Inc index
data. Mr Mead said Australian mortgage bonds are yielding around 9.5
per cent.
More than 75 per cent of residential mortgage- backed securities sold
by Australian companies in 2007 were denominated in other currencies,
including the US dollar, euros and pounds, according to Standard &
Poor's (S&P).
That debt is being sold back to Australian investors by overseas-
based structured investment vehicles and conduits that have been
wound down because the seizure in credit markets has crippled their
funding sources.
'In this environment, investors feel much more comfortable investing
in their own backyard, where they understand everything,' Mr Mead
noted.
'The issues in US dollars or euros are coming back even cheaper than
the Aussie dollar equivalent,' he pointed out. 'There is not a lot of
supply and it has been quieter in the past two to three weeks, but
this is more reflective of the European summer lull than the fact the
paper will never appear again.'
The so-called seasoning, or time elapsed since the loan was
originated, of Australian mortgages that back existing bonds show the
debt is likely to 'perform well', Mr Mead said.
Seasoning also increases subordination in a transaction, which acts
as protection against mortgage arrears on top of the cover provided
by a lender's mortgage insurance. Subordinated notes absorb losses
and must be wiped out before holders of higher rated bonds lose their
money.
Payments more than 30 days late on prime loans backing Australia's
mortgage bonds increased for a sixth consecutive month in May,
gaining one basis point to a record high 1.49 per cent, S&P said on
July 23.
Default rates may increase as the biggest drop in Australian home
prices in five years, the highest borrowing costs in a decade and
slowing economic growth lead the nation towards a 'once-in-100-year
real-estate slump', according to Residex Ltd, a Sydney company that
tracks property prices.
Australian arrears trail the US, where delinquencies for sub-prime
loans in 2006 bonds climbed to 41.7 per cent in June from 34.2 per
cent in February, S&P said on Aug 22.
Late payments on so-called prime-jumbo loans increased to 4.5 per
cent from 2.9 per cent and Alt-A delinquencies rose to 21.5 per cent
from 15.2 per cent, S&P said on Aug 21 in statements.
In June, three US homeowners defaulted on insured mortgages for every
two who got out of arrears, according to the Mortgage Insurance
Companies of America.
Aussie mortgage bonds offer world's best value: Pimco
(MELBOURNE) Australia's mortgage-backed bonds are one of the most
attractive buys 'on the planet', according to Rob Mead, head of Asia-
Pacific credit at Pacific Investment Management Co (Pimco) in Sydney.
Mr Mead, who manages the equivalent of US$17 billion, said he is
buying top AAA-rated US dollar- and euro-denominated bonds backed by
Australian home loans. The debt is being sold at fire-sale prices by
holders forced to close their businesses amid the collapse of the US
sub-prime mortgage market, he said.
The global investor exodus from mortgage debt markets has boosted
yields on Australia's home loan bonds about 10-fold in the last 12
months to at least two percentage points more than Australia's
benchmark swap rate. Even so, the credit quality of the debt,
supported by home loans to people with good repayment histories,
hasn't declined, said Mr Mead, who runs the Australian portfolio at
Pimco, the manager of the world's biggest bond fund.
'We think this paper in the non-Aussie dollar format is very, very
compelling,' Mr Mead said in a phone interview. 'Combined with the
absolute level of Australian swap rates, investors are able to
generate attractive real yields from very high-quality assets over
the next three to five years which are not available to almost any
other investor base on the planet.'
The yields have also increased because the bank bill swap rate, which
is the benchmark the nation's mortgage bonds are priced against, has
risen in line with the central bank's increases to official interest
rates.
The Reserve Bank of Australia increased its benchmark lending rate
four times since August to 7.25 per cent to cool the fastest
inflation in 17 years, even as central banks led by the Federal
Reserve and Bank of England cut borrowing costs to ease the fallout
of the global credit squeeze.
Australia's 90-day bank bill swap rate, the typical benchmark used to
price mortgage-backed bonds, rose to 7.3 per cent on Aug 22 from
6.847 per cent a year earlier.
The highest-rated US mortgage bonds backed by American fixed-rate
prime mortgages yield above 85 basis points more than the US dollar
London interbank offered rate, according to credit traders. A basis
point is 0.01 percentage point.
AAA-rated securities backed by US sub-prime or second mortgages yield
7.1 percentage points more than Treasuries with maturities similar to
their average lives, according to Lehman Brothers Holdings Inc index
data. Mr Mead said Australian mortgage bonds are yielding around 9.5
per cent.
More than 75 per cent of residential mortgage- backed securities sold
by Australian companies in 2007 were denominated in other currencies,
including the US dollar, euros and pounds, according to Standard &
Poor's (S&P).
That debt is being sold back to Australian investors by overseas-
based structured investment vehicles and conduits that have been
wound down because the seizure in credit markets has crippled their
funding sources.
'In this environment, investors feel much more comfortable investing
in their own backyard, where they understand everything,' Mr Mead
noted.
'The issues in US dollars or euros are coming back even cheaper than
the Aussie dollar equivalent,' he pointed out. 'There is not a lot of
supply and it has been quieter in the past two to three weeks, but
this is more reflective of the European summer lull than the fact the
paper will never appear again.'
The so-called seasoning, or time elapsed since the loan was
originated, of Australian mortgages that back existing bonds show the
debt is likely to 'perform well', Mr Mead said.
Seasoning also increases subordination in a transaction, which acts
as protection against mortgage arrears on top of the cover provided
by a lender's mortgage insurance. Subordinated notes absorb losses
and must be wiped out before holders of higher rated bonds lose their
money.
Payments more than 30 days late on prime loans backing Australia's
mortgage bonds increased for a sixth consecutive month in May,
gaining one basis point to a record high 1.49 per cent, S&P said on
July 23.
Default rates may increase as the biggest drop in Australian home
prices in five years, the highest borrowing costs in a decade and
slowing economic growth lead the nation towards a 'once-in-100-year
real-estate slump', according to Residex Ltd, a Sydney company that
tracks property prices.
Australian arrears trail the US, where delinquencies for sub-prime
loans in 2006 bonds climbed to 41.7 per cent in June from 34.2 per
cent in February, S&P said on Aug 22.
Late payments on so-called prime-jumbo loans increased to 4.5 per
cent from 2.9 per cent and Alt-A delinquencies rose to 21.5 per cent
from 15.2 per cent, S&P said on Aug 21 in statements.
In June, three US homeowners defaulted on insured mortgages for every
two who got out of arrears, according to the Mortgage Insurance
Companies of America.
Financial sector must play fair
Aug 26, 2008
Financial sector must play fair
By Jessica Lim
THE days of consumers being ripped off by unscrupulous finance-
industry players are numbered.
Parliament yesterday passed an amendment to the Consumer Protection
(Fair Trading) Act to bring the financial services sector under its
scope.
It also provided for a longer cooling-off period for timeshare-
related deals and motor vehicle sales. As the customer mulls over his
purchase or decision, the sellers have to inform them of their
rights.
The Act will be extended further by 2010 to cover moneylenders and
pawnbrokers.
Introduced in 2004, the Act is an avenue for consumers to take action
in the face of unfair practices, from dodgy second-hand car sellers'
tricks to high-pressure sales tactics.
Another change: Consumers can claim up to a maximum of $30,000, an
increase from the existing $20,000. Also, they can take up to two
years to file a claim, an improvement on the one-year limit.
These changes come amid increasing complaints to the Consumers
Association of Singapore (Case). Last year, it received almost 750
complaints linked to the Act.
Minister of State for Trade and Industry Lee Yi Shyan highlighted
them yesterday when the amendment Bill came up for debate in
Parliament.
But MPs like Madam Ho Geok Choo (West Coast GRC) wanted more. They
asked for, among other things, a cooling-off period for beauty
service transactions and an even higher claim amount.
Their suggestions were not taken up.
Mr Lee's explanation: The Act has provisions for consumers to seek
redress, making the cooling-off period unnecessary for the beauty
industry.
The claim ceiling is also enough, he said, because the Act is meant
to cover only small claims from vulnerable consumers with limited
ability to seek redress.
The move is a big victory for Case, which wants financial services to
be included even before the birth of the Act.
Its vice-president Lim Biow Chuan (Marine Parade GRC) expressed
gratitude that the Government took heed of consumers' repeated
requests.
He said: 'Most of these complaints related to the aggressive pushing
of financial products to the elderly or illiterate consumers who may
not appreciate fully the nature of such products or the risks
involved.'
Financial sector must play fair
By Jessica Lim
THE days of consumers being ripped off by unscrupulous finance-
industry players are numbered.
Parliament yesterday passed an amendment to the Consumer Protection
(Fair Trading) Act to bring the financial services sector under its
scope.
It also provided for a longer cooling-off period for timeshare-
related deals and motor vehicle sales. As the customer mulls over his
purchase or decision, the sellers have to inform them of their
rights.
The Act will be extended further by 2010 to cover moneylenders and
pawnbrokers.
Introduced in 2004, the Act is an avenue for consumers to take action
in the face of unfair practices, from dodgy second-hand car sellers'
tricks to high-pressure sales tactics.
Another change: Consumers can claim up to a maximum of $30,000, an
increase from the existing $20,000. Also, they can take up to two
years to file a claim, an improvement on the one-year limit.
These changes come amid increasing complaints to the Consumers
Association of Singapore (Case). Last year, it received almost 750
complaints linked to the Act.
Minister of State for Trade and Industry Lee Yi Shyan highlighted
them yesterday when the amendment Bill came up for debate in
Parliament.
But MPs like Madam Ho Geok Choo (West Coast GRC) wanted more. They
asked for, among other things, a cooling-off period for beauty
service transactions and an even higher claim amount.
Their suggestions were not taken up.
Mr Lee's explanation: The Act has provisions for consumers to seek
redress, making the cooling-off period unnecessary for the beauty
industry.
The claim ceiling is also enough, he said, because the Act is meant
to cover only small claims from vulnerable consumers with limited
ability to seek redress.
The move is a big victory for Case, which wants financial services to
be included even before the birth of the Act.
Its vice-president Lim Biow Chuan (Marine Parade GRC) expressed
gratitude that the Government took heed of consumers' repeated
requests.
He said: 'Most of these complaints related to the aggressive pushing
of financial products to the elderly or illiterate consumers who may
not appreciate fully the nature of such products or the risks
involved.'
Saturday, August 23, 2008
Financial storm is still blowing: Bernanke
August 23, 2008
Financial storm is still blowing: Bernanke
Fed working on three fronts to maintain economic stability, says US
central bank chief
(WASHINGTON) US Federal Reserve chairman Ben Bernanke said yesterday
the financial storm that began last year 'has not yet subsided',
creating 'one of the most challenging' economic environments in
memory.
In comments to the Fed's annual symposium in Jackson Hole, Wyoming,
Mr Bernanke said economic conditions remain soft as unemployment is
rising and inflation pressures remain hot.
The mix has created 'one of the most challenging economic and policy
environments in memory', Mr Bernanke said, according to a text of his
remarks released by the central bank.
Mr Bernanke said the Fed has been working on three fronts in an
effort to maintain economic stability - keeping interest rates low to
prevent a collapse of economic activity, offering extra liquidity to
banks and brokerages facing a credit squeeze, and revamping the
regulatory structure to prevent a recurrence of the housing boom-bust
cycle.
'By cushioning the first- round economic impact of the financial
stress, we hoped also to minimise the risks of a so-called adverse
feedback loop in which economic weakness exacerbates financial
stress, which, in turn, further damages economic prospects,' he said.
Yet Mr Bernanke said the efforts to prop up the economy are
complicated by a commodity-fuelled surge in inflation.
But he said the Fed's strategy 'has been conditioned on our
expectation that the prices of oil and other commodities would
ultimately stabilise, in part as the result of slowing global
growth'.
He said the Fed's extraordinary efforts to pump liquidity into the
financial system were 'intended to mitigate what have been, at times,
very severe strains in short-term funding markets and, by providing
an additional source of financing, to allow banks and other financial
institutions to deleverage in a more orderly manner'.
Mr Bernanke said the Fed and government authorities are looking at
more comprehensive regulatory overhauls to help avert further crises
and stabilise the financial system.
This means moving beyond the banking system that is closely regulated
by the Fed and having tighter rules for investment firms and
brokerages that allows regulators to potentially step in and take
control in a manner similar to that of a failed bank.
He said the rescue of Bear Stearns, in which the Fed and Treasury
helped the failing firm's buyout by JPMorgan Chase, 'was severely
complicated by the lack of a clear statutory framework' and that
Congress should consider such a framework.
'A statutory resolution regime for non-banks, besides reducing
uncertainty, would also limit moral hazard by allowing the government
to resolve failing firms in a way that is orderly but also wipes out
equity holders and haircuts some creditors, analogous to what happens
when a commercial bank fails,' the Fed chief said.
He said another point to consider is 'a more fully integrated
overview of the entire financial system', which he said 'has become
less bank-centred'.
Earlier yesterday, billionaire investor Warren Buffett said the US
economy is unlikely to improve before 2009, and that he expects the
government to take action to support troubled mortgage financiers
Fannie Mae and Freddie Mac.
Speaking on CNBC television, Mr Buffett said retail businesses within
his Berkshire Hathaway Inc, insurance and investment conglomerate
have been struggling and that the economy is now suffering from past
excesses in the availability of credit.
'You always find out who's been swimming naked when the tide goes
out. We found out that Wall Street has been kind of a nudist beach,'
said Mr Buffett, the world's richest person, according to Forbes
magazine.
Financial storm is still blowing: Bernanke
Fed working on three fronts to maintain economic stability, says US
central bank chief
(WASHINGTON) US Federal Reserve chairman Ben Bernanke said yesterday
the financial storm that began last year 'has not yet subsided',
creating 'one of the most challenging' economic environments in
memory.
In comments to the Fed's annual symposium in Jackson Hole, Wyoming,
Mr Bernanke said economic conditions remain soft as unemployment is
rising and inflation pressures remain hot.
The mix has created 'one of the most challenging economic and policy
environments in memory', Mr Bernanke said, according to a text of his
remarks released by the central bank.
Mr Bernanke said the Fed has been working on three fronts in an
effort to maintain economic stability - keeping interest rates low to
prevent a collapse of economic activity, offering extra liquidity to
banks and brokerages facing a credit squeeze, and revamping the
regulatory structure to prevent a recurrence of the housing boom-bust
cycle.
'By cushioning the first- round economic impact of the financial
stress, we hoped also to minimise the risks of a so-called adverse
feedback loop in which economic weakness exacerbates financial
stress, which, in turn, further damages economic prospects,' he said.
Yet Mr Bernanke said the efforts to prop up the economy are
complicated by a commodity-fuelled surge in inflation.
But he said the Fed's strategy 'has been conditioned on our
expectation that the prices of oil and other commodities would
ultimately stabilise, in part as the result of slowing global
growth'.
He said the Fed's extraordinary efforts to pump liquidity into the
financial system were 'intended to mitigate what have been, at times,
very severe strains in short-term funding markets and, by providing
an additional source of financing, to allow banks and other financial
institutions to deleverage in a more orderly manner'.
Mr Bernanke said the Fed and government authorities are looking at
more comprehensive regulatory overhauls to help avert further crises
and stabilise the financial system.
This means moving beyond the banking system that is closely regulated
by the Fed and having tighter rules for investment firms and
brokerages that allows regulators to potentially step in and take
control in a manner similar to that of a failed bank.
He said the rescue of Bear Stearns, in which the Fed and Treasury
helped the failing firm's buyout by JPMorgan Chase, 'was severely
complicated by the lack of a clear statutory framework' and that
Congress should consider such a framework.
'A statutory resolution regime for non-banks, besides reducing
uncertainty, would also limit moral hazard by allowing the government
to resolve failing firms in a way that is orderly but also wipes out
equity holders and haircuts some creditors, analogous to what happens
when a commercial bank fails,' the Fed chief said.
He said another point to consider is 'a more fully integrated
overview of the entire financial system', which he said 'has become
less bank-centred'.
Earlier yesterday, billionaire investor Warren Buffett said the US
economy is unlikely to improve before 2009, and that he expects the
government to take action to support troubled mortgage financiers
Fannie Mae and Freddie Mac.
Speaking on CNBC television, Mr Buffett said retail businesses within
his Berkshire Hathaway Inc, insurance and investment conglomerate
have been struggling and that the economy is now suffering from past
excesses in the availability of credit.
'You always find out who's been swimming naked when the tide goes
out. We found out that Wall Street has been kind of a nudist beach,'
said Mr Buffett, the world's richest person, according to Forbes
magazine.
Fannie, Freddie rescue plan could be costly for many
August 23, 2008
Fannie, Freddie rescue plan could be costly for many
It may affect scores of companies with preferred shares
(WASHINGTON) A government rescue of Fannie Mae and Freddie Mac could
be costly for scores of investment, banking and insurance companies
that hold billions of dollars in preferred shares in the mortgage
finance giants.
Speculation has been building on Wall Street that a government
investment to rescue Fannie and Freddie would come in the form of a
cash infusion through the acquisition of preferred shares in the
companies.
Preferred shares usually pay a fixed dividend and have priority over
common stock when it comes to dividends and bankruptcy liquidation.
While slightly riskier than bonds, which have the highest priority in
times of trouble, companies often invest in preferred shares for
certain tax advantages.
Investors appear to believe existing common stockholders could be
wiped out if there is a government bailout.
Fannie and Freddie's shares have lost more than 90 per cent of their
value this year.
But what happens to preferred stockholders is less certain.
'That depends on how big Fannie and Freddie blow up,' said Michael
Shedlock, an investment adviser for SitkaPacific Capital Management.
On Wall Street, investors think it could be big. Fannie and Freddie's
existing preferred shares are trading like junk bonds: yielding
around 17 per cent to 19 per cent instead around their 6 per cent
dividend levels. The higher yield is an inducement to investors to
accept the higher level of risk that the companies won't be able to
pay their dividends.
'There's enormous investor concern,' said Bert Ely, a banking
industry consultant.
Fannie Mae has 17 classes of preferred stock, with more than 600
million shares outstanding. Freddie Mac has 24 classes of preferred
stock, with about 460 million shares outstanding.
Congressional analysts estimate a government rescue of the mortgage
giants could cost taxpayers US$25 billion, with the exact amount
based on how far the US housing market falls and how severe their
financial situation turns out to be in the long run.
Another uncertainty is political: The final resolution of Fannie and
Freddie's future is likely to be determined after the Bush
administration leaves office in January. It remains unclear how much
in taxpayer resources the next administration and Congress would be
willing to commit.
Fannie, Freddie rescue plan could be costly for many
It may affect scores of companies with preferred shares
(WASHINGTON) A government rescue of Fannie Mae and Freddie Mac could
be costly for scores of investment, banking and insurance companies
that hold billions of dollars in preferred shares in the mortgage
finance giants.
Speculation has been building on Wall Street that a government
investment to rescue Fannie and Freddie would come in the form of a
cash infusion through the acquisition of preferred shares in the
companies.
Preferred shares usually pay a fixed dividend and have priority over
common stock when it comes to dividends and bankruptcy liquidation.
While slightly riskier than bonds, which have the highest priority in
times of trouble, companies often invest in preferred shares for
certain tax advantages.
Investors appear to believe existing common stockholders could be
wiped out if there is a government bailout.
Fannie and Freddie's shares have lost more than 90 per cent of their
value this year.
But what happens to preferred stockholders is less certain.
'That depends on how big Fannie and Freddie blow up,' said Michael
Shedlock, an investment adviser for SitkaPacific Capital Management.
On Wall Street, investors think it could be big. Fannie and Freddie's
existing preferred shares are trading like junk bonds: yielding
around 17 per cent to 19 per cent instead around their 6 per cent
dividend levels. The higher yield is an inducement to investors to
accept the higher level of risk that the companies won't be able to
pay their dividends.
'There's enormous investor concern,' said Bert Ely, a banking
industry consultant.
Fannie Mae has 17 classes of preferred stock, with more than 600
million shares outstanding. Freddie Mac has 24 classes of preferred
stock, with about 460 million shares outstanding.
Congressional analysts estimate a government rescue of the mortgage
giants could cost taxpayers US$25 billion, with the exact amount
based on how far the US housing market falls and how severe their
financial situation turns out to be in the long run.
Another uncertainty is political: The final resolution of Fannie and
Freddie's future is likely to be determined after the Bush
administration leaves office in January. It remains unclear how much
in taxpayer resources the next administration and Congress would be
willing to commit.
Friday, August 22, 2008
More flexible guidelines for M'sian reits
August 22, 2008
More flexible guidelines for M'sian reits
More leeway for expansion, but withholding taxes not addressed
By PAULINE NG IN KUALA LUMPUR
MALAYSIA has announced new real estate investment trust (Reit)
guidelines that would give Reit management companies greater
flexibility to manage and expand their portfolios, but left the issue
of its uncompetitive withholding taxes untouched.
The new measures - a follow-on to earlier ones announced in the last
national budget where foreign shareholders were allowed to hold up to
70 per cent of Reit management companies, from 49 per cent
previously - make it easier for Malaysian Reits in terms of
acquisitions and fund-raising.
Reit managers would be given more leeway to invest in foreign real
estate and a portion of their portfolio can consist of real estate
that it does not wholly own or claim a majority stake in.
The Securities Commission's (SC) revised guidelines also allow Reit
managers to seek a general mandate from unit-holders for issuing
units up to 20 per cent of its fund size, where previously the
issuance of any number of new units required the specific approval of
unit holders.
Although Reits are still not permitted to acquire non-income
generating real estate such as vacant land, they can now buy property
that is under construction or uncompleted real estate up to 10 per
cent of their total asset value.
Trustees would also have a bigger role to play in related party
transactions, with new rules introduced to regulate such
transactions.
But the new rules designed to give more management flexibility and to
augment investor protection aside, there was disappointment in that
the main drag on the industry was not addressed.
Reit managers and analysts have repeatedly stressed the country's
high withholding taxes on Reit income make it an unattractive
proposition for investors, particularly foreign ones, and have
stymied the sector's growth with potential Reit owners preferring to
look elsewhere.
While the SC has done a good job trying to relax the sector yet
protecting the interest of investors, Quill Capita Trust chief
executive Chan Say Yeong said the measures would not boost the
industry unless the tax issue was addressed. 'What is more important
right now is the withholding tax,' he observed, the lack of attention
to the matter in the past three years being a sore point with
investors. 'Investors tell us on our roadshows that the government is
not serious in promoting the industry.'
Malaysia's withholding tax on Reit dividends received by foreign
institutions is 20 per cent or twice the amount Singapore imposes.
Individuals are also taxed at 15 per cent.
At 7 per cent, Malaysian Reits might offer higher yields, but after
deducting the tax, it is not significantly more attractive than the 5-
6 per cent yield offered by Singapore Reits - a reason why they did
not perform as well even when the stock market was roaring last year.
Despite these disadvantages, CapitaLand has committed to the listing
of a RM2 billion (S$844 million) asset-sized retail Reit on Bursa
Malaysia, likely to be the largest Reit in the country.
However, the Finance Ministry's reluctance to lower the taxes has
been a source of frustration for players who continue to clamour for
a reduction ahead of every national budget - 2009's to be tabled next
Friday. At the same time, a number of local owners with large
property assets have said they do not discount listing their Reits
overseas in more favourable markets.
Why the ministry continues to maintain the rate is unclear as
analysts said the funds earned are not huge given Malaysia only has
some 11 Reits at present, the average asset size less than RM500
million.
In its statement, the SC also said its prior approval on real estate
valuation was now only required where the purchase of a real estate
is financed, or re-financed within one year, through the issuance of
new units. In all other circumstances, it would conduct a post-review
of the valuations to ensure they are reasonable and well-supported.
More flexible guidelines for M'sian reits
More leeway for expansion, but withholding taxes not addressed
By PAULINE NG IN KUALA LUMPUR
MALAYSIA has announced new real estate investment trust (Reit)
guidelines that would give Reit management companies greater
flexibility to manage and expand their portfolios, but left the issue
of its uncompetitive withholding taxes untouched.
The new measures - a follow-on to earlier ones announced in the last
national budget where foreign shareholders were allowed to hold up to
70 per cent of Reit management companies, from 49 per cent
previously - make it easier for Malaysian Reits in terms of
acquisitions and fund-raising.
Reit managers would be given more leeway to invest in foreign real
estate and a portion of their portfolio can consist of real estate
that it does not wholly own or claim a majority stake in.
The Securities Commission's (SC) revised guidelines also allow Reit
managers to seek a general mandate from unit-holders for issuing
units up to 20 per cent of its fund size, where previously the
issuance of any number of new units required the specific approval of
unit holders.
Although Reits are still not permitted to acquire non-income
generating real estate such as vacant land, they can now buy property
that is under construction or uncompleted real estate up to 10 per
cent of their total asset value.
Trustees would also have a bigger role to play in related party
transactions, with new rules introduced to regulate such
transactions.
But the new rules designed to give more management flexibility and to
augment investor protection aside, there was disappointment in that
the main drag on the industry was not addressed.
Reit managers and analysts have repeatedly stressed the country's
high withholding taxes on Reit income make it an unattractive
proposition for investors, particularly foreign ones, and have
stymied the sector's growth with potential Reit owners preferring to
look elsewhere.
While the SC has done a good job trying to relax the sector yet
protecting the interest of investors, Quill Capita Trust chief
executive Chan Say Yeong said the measures would not boost the
industry unless the tax issue was addressed. 'What is more important
right now is the withholding tax,' he observed, the lack of attention
to the matter in the past three years being a sore point with
investors. 'Investors tell us on our roadshows that the government is
not serious in promoting the industry.'
Malaysia's withholding tax on Reit dividends received by foreign
institutions is 20 per cent or twice the amount Singapore imposes.
Individuals are also taxed at 15 per cent.
At 7 per cent, Malaysian Reits might offer higher yields, but after
deducting the tax, it is not significantly more attractive than the 5-
6 per cent yield offered by Singapore Reits - a reason why they did
not perform as well even when the stock market was roaring last year.
Despite these disadvantages, CapitaLand has committed to the listing
of a RM2 billion (S$844 million) asset-sized retail Reit on Bursa
Malaysia, likely to be the largest Reit in the country.
However, the Finance Ministry's reluctance to lower the taxes has
been a source of frustration for players who continue to clamour for
a reduction ahead of every national budget - 2009's to be tabled next
Friday. At the same time, a number of local owners with large
property assets have said they do not discount listing their Reits
overseas in more favourable markets.
Why the ministry continues to maintain the rate is unclear as
analysts said the funds earned are not huge given Malaysia only has
some 11 Reits at present, the average asset size less than RM500
million.
In its statement, the SC also said its prior approval on real estate
valuation was now only required where the purchase of a real estate
is financed, or re-financed within one year, through the issuance of
new units. In all other circumstances, it would conduct a post-review
of the valuations to ensure they are reasonable and well-supported.
Fannie, Freddie crisis deepens
Aug 22, 2008
Fannie, Freddie crisis deepens
With shares slumping, US govt stops insisting no rescue is needed
WASHINGTON: The United States Treasury has backed away from
assurances that there is no need to rescue Fannie Mae and Freddie
Mac, as the crisis surrounding the American mortgage finance giants
deepens, with their shares falling for a third day, the Financial
Times (FT) has reported.
Although it was granted new powers last month to prop the companies
up with a cash infusion, either through loans or by buying stock, the
Treasury had been adamant that it did not expect to use the new
authority.
On Wednesday, however, a Treasury spokesman declined to repeat that
assurance, FT reported yesterday on its website. Instead, she said
the Treasury was 'vigilantly' monitoring market developments and
was 'focused on efforts that will encourage market stability,
mortgage availability and protecting the taxpayer'.
While the companies continue to insist that their fundamental
finances are sound, investor confidence in Fannie Mae and Freddie Mac
has taken a pounding this week as speculation about a federal
government bailout gains pace in the news media and among market
analysts.
Shares of Fannie Mae and Freddie Mac tumbled more than 20 per cent on
Wednesday, hitting their lowest levels in nearly two decades, as
investors fled out of fear that a government initiative to save the
ailing mortgage giants could render their stock worthless.
The stock sell-off came a day after Freddie Mac was forced to pay an
unusually high interest rate on five-year notes to entice investors
to purchase its debt.
This week alone, both companies' shares have dropped by 44 per cent
in very heavy trading. In the past 12 months, Fannie Mae's market
value has plummeted 88 per cent, or US$34 billion (S$47.98 billion),
to US$4.73 billion. Freddie Mac's value has dropped by US$20 billion,
or 90 per cent, to $2.1 billion.
The companies have reported a combined US$14.9 billion in net losses
over the past year.
A growing chorus of industry analysts are predicting that the
government will have to intervene to prevent a further deterioration
of the firms, which own or guarantee half of the US' mortgage debt.
The two firms have been reeling as concerns mount that they may not
have enough capital to cover losses because of the rising number of
bad home loans. If Fannie Mae or Freddie Mac collapses, it may
cripple the US housing market, dealing a staggering blow to the wider
economy, and will saddle the federal government with massive debts if
it chooses to seize control of either firm.
Both companies say they have enough capital to weather the severe
downturn in the housing market.
Fannie, Freddie crisis deepens
With shares slumping, US govt stops insisting no rescue is needed
WASHINGTON: The United States Treasury has backed away from
assurances that there is no need to rescue Fannie Mae and Freddie
Mac, as the crisis surrounding the American mortgage finance giants
deepens, with their shares falling for a third day, the Financial
Times (FT) has reported.
Although it was granted new powers last month to prop the companies
up with a cash infusion, either through loans or by buying stock, the
Treasury had been adamant that it did not expect to use the new
authority.
On Wednesday, however, a Treasury spokesman declined to repeat that
assurance, FT reported yesterday on its website. Instead, she said
the Treasury was 'vigilantly' monitoring market developments and
was 'focused on efforts that will encourage market stability,
mortgage availability and protecting the taxpayer'.
While the companies continue to insist that their fundamental
finances are sound, investor confidence in Fannie Mae and Freddie Mac
has taken a pounding this week as speculation about a federal
government bailout gains pace in the news media and among market
analysts.
Shares of Fannie Mae and Freddie Mac tumbled more than 20 per cent on
Wednesday, hitting their lowest levels in nearly two decades, as
investors fled out of fear that a government initiative to save the
ailing mortgage giants could render their stock worthless.
The stock sell-off came a day after Freddie Mac was forced to pay an
unusually high interest rate on five-year notes to entice investors
to purchase its debt.
This week alone, both companies' shares have dropped by 44 per cent
in very heavy trading. In the past 12 months, Fannie Mae's market
value has plummeted 88 per cent, or US$34 billion (S$47.98 billion),
to US$4.73 billion. Freddie Mac's value has dropped by US$20 billion,
or 90 per cent, to $2.1 billion.
The companies have reported a combined US$14.9 billion in net losses
over the past year.
A growing chorus of industry analysts are predicting that the
government will have to intervene to prevent a further deterioration
of the firms, which own or guarantee half of the US' mortgage debt.
The two firms have been reeling as concerns mount that they may not
have enough capital to cover losses because of the rising number of
bad home loans. If Fannie Mae or Freddie Mac collapses, it may
cripple the US housing market, dealing a staggering blow to the wider
economy, and will saddle the federal government with massive debts if
it chooses to seize control of either firm.
Both companies say they have enough capital to weather the severe
downturn in the housing market.
CityDev issuing 1st tranche of Islamic bonds by year end
August 22, 2008
CityDev issuing 1st tranche of Islamic bonds by year end
By UMA SHANKARI
CITY Developments said yesterday that it will issue the first tranche
of Islamic bonds by the end of the year, as it looks to build up its
war chest.
Singapore's second-largest developer announced last week that it
plans to sell $1 billion of Islamic multi-currency medium-term notes,
arranged by Malaysian bank CIMB. The deal will be Singapore's first
Islamic unsecured financing arrangement.
CIMB Group is listed on the Malaysian stock exchange through
Bumiputra-Commerce Holdings.
'We hope to do the first tranche before year-end, subject to market
conditions,' CityDev's chief financial officer Goh Ann Nee said at a
briefing yesterday.
CityDev said that it has not decided on the size or the coupon rate
of the first tranche of notes. But management has indicated that the
rates will be competitive and that it expects to see good
institutional demand.
CityDev will use the funds to buy land or buildings, and has said
that it will inject its own properties, freeing funds for new
investments.
Islamic financing will allow CityDev to tap a broader base of
investors, says managing director Kwek Leng Joo.
'Many are curious why City Developments is enhancing its war chest,'
Mr Kwek said. 'We always believe that in the midst of any economic
slowdown there are tremendous opportunities.'
CityDev did not say which markets it is interested in. But management
has guided that it will look at distressed assets in the region,
including Vietnam, China, the Middle-East and Russia, CIMB analyst
Donald Chua said in a note yesterday.
'Given restrictions on the use of syariah/Islamic products, we
believe proceeds will be used for investments primarily in
residential property and commercial (office) investments,' he added.
CIMB Investment Bank head of debt capital markets Thomas Meow said
that the bank has been in discussions with other Singapore firms to
set up syariah-compliant financing.
Vince Cook, chief executive of DBS unit Islamic Bank of Asia, told
Reuters: 'Given the ongoing difficult conventional market conditions,
it is not surprising that issuers are looking at ways to open up new
pools of investors.'
CityDev shares gained six cents to close at $10.20 yesterday.
CityDev issuing 1st tranche of Islamic bonds by year end
By UMA SHANKARI
CITY Developments said yesterday that it will issue the first tranche
of Islamic bonds by the end of the year, as it looks to build up its
war chest.
Singapore's second-largest developer announced last week that it
plans to sell $1 billion of Islamic multi-currency medium-term notes,
arranged by Malaysian bank CIMB. The deal will be Singapore's first
Islamic unsecured financing arrangement.
CIMB Group is listed on the Malaysian stock exchange through
Bumiputra-Commerce Holdings.
'We hope to do the first tranche before year-end, subject to market
conditions,' CityDev's chief financial officer Goh Ann Nee said at a
briefing yesterday.
CityDev said that it has not decided on the size or the coupon rate
of the first tranche of notes. But management has indicated that the
rates will be competitive and that it expects to see good
institutional demand.
CityDev will use the funds to buy land or buildings, and has said
that it will inject its own properties, freeing funds for new
investments.
Islamic financing will allow CityDev to tap a broader base of
investors, says managing director Kwek Leng Joo.
'Many are curious why City Developments is enhancing its war chest,'
Mr Kwek said. 'We always believe that in the midst of any economic
slowdown there are tremendous opportunities.'
CityDev did not say which markets it is interested in. But management
has guided that it will look at distressed assets in the region,
including Vietnam, China, the Middle-East and Russia, CIMB analyst
Donald Chua said in a note yesterday.
'Given restrictions on the use of syariah/Islamic products, we
believe proceeds will be used for investments primarily in
residential property and commercial (office) investments,' he added.
CIMB Investment Bank head of debt capital markets Thomas Meow said
that the bank has been in discussions with other Singapore firms to
set up syariah-compliant financing.
Vince Cook, chief executive of DBS unit Islamic Bank of Asia, told
Reuters: 'Given the ongoing difficult conventional market conditions,
it is not surprising that issuers are looking at ways to open up new
pools of investors.'
CityDev shares gained six cents to close at $10.20 yesterday.
Thursday, August 21, 2008
CapitaLand going ahead with 2nd Malaysian Reit
August 21, 2008
CapitaLand going ahead with 2nd Malaysian Reit
Latest offering will comprise 3 malls worth RM2b: chief investment
officer
By PAULINE NG IN KUALA LUMPUR
CAPITALAND will list its second Malaysian real estate investment
trust (Reit) this year, barring unfavourable market conditions, the
company's chief investment officer Kee Teck Koon said yesterday.
The Reit will initially comprise three shopping malls worth RM2
billion (S$849 million), he said. CapitaLand will gauge market
sentiment to ensure the launch is timed 'so it can capture the
imagination of investors'.
At a news briefing after the topping-out ceremony for Kuala Lumpur's
Tower D, which is owned jointly by CapitaLand and Malaysia's Quill
Group, Mr Kee said that the listing plan for the second Reit has not
changed. 'The intention is very clear,' he said.
Penang's Gurney Plaza and two malls in the Klang Valley - Mines
Shopping Fair and Sungei Wang Plaza - will form the Reit's initial
core assets. Mr Kee would not say who CapitaLand's local partner in
the Reit would be.
The company's reservations about market sentiment are warranted. The
last three listings on Bursa Malaysia have debuted below their offer
price. In the latest, shares of Perwaja Steel yesterday opened 10 sen
short of the RM2.90 offer price before closing at RM2.48.
Although Malaysian Reits are seen as defensive, interest among
foreign investors has been dampened by relatively high withholding
tax.
Still, some investors continue to be attracted to local real estate
because its comparative pricing ought to allow for greater capital
appreciation down the road.
For example, the Malaysia Commercial Development Fund (MCDF) - a
US$270 million closed-end private equity investment fund launched
jointly by CapitaLand and Maybank in March 2007 with a gross
development value of US$1 billion - is fully invested, CapitaLand
Commercial chief executive Wen Khai Meng said yesterday.
CapitaLand 'may consider subsequent funds' focused on residential,
commercial and retail segments, he said.
MCDF provides a pipeline of projects to be injected into Quill Capita
Trust - a commercial Reit jointly listed by Quill and CapitaLand in
January 2007 with an initial fund size of RM276 million, which has
grown to over RM800 million.
Tower D in the KL Sentral area will allow them to further leverage on
strong demand for commercial property and is likely to be injected
into the Reit.
To be completed by January, the Grade A building, which has a net
lettable area of 355,000 square feet, has a confirmed tenancy rate of
65 per cent and is expected to be fully tenanted by March.
The 29-storey office block with a six-storey retail podium has
attracted several multinational and big local companies as tenants,
said Quill director Michael Ong.
Rental rates are around RM6 to RM7 per square foot and a number of
tenants have signed three-plus-three-year leases, he said.
CapitaLand, through MCDF, owns 40 per cent of Tower D developer Quill
Realty.
CapitaLand going ahead with 2nd Malaysian Reit
Latest offering will comprise 3 malls worth RM2b: chief investment
officer
By PAULINE NG IN KUALA LUMPUR
CAPITALAND will list its second Malaysian real estate investment
trust (Reit) this year, barring unfavourable market conditions, the
company's chief investment officer Kee Teck Koon said yesterday.
The Reit will initially comprise three shopping malls worth RM2
billion (S$849 million), he said. CapitaLand will gauge market
sentiment to ensure the launch is timed 'so it can capture the
imagination of investors'.
At a news briefing after the topping-out ceremony for Kuala Lumpur's
Tower D, which is owned jointly by CapitaLand and Malaysia's Quill
Group, Mr Kee said that the listing plan for the second Reit has not
changed. 'The intention is very clear,' he said.
Penang's Gurney Plaza and two malls in the Klang Valley - Mines
Shopping Fair and Sungei Wang Plaza - will form the Reit's initial
core assets. Mr Kee would not say who CapitaLand's local partner in
the Reit would be.
The company's reservations about market sentiment are warranted. The
last three listings on Bursa Malaysia have debuted below their offer
price. In the latest, shares of Perwaja Steel yesterday opened 10 sen
short of the RM2.90 offer price before closing at RM2.48.
Although Malaysian Reits are seen as defensive, interest among
foreign investors has been dampened by relatively high withholding
tax.
Still, some investors continue to be attracted to local real estate
because its comparative pricing ought to allow for greater capital
appreciation down the road.
For example, the Malaysia Commercial Development Fund (MCDF) - a
US$270 million closed-end private equity investment fund launched
jointly by CapitaLand and Maybank in March 2007 with a gross
development value of US$1 billion - is fully invested, CapitaLand
Commercial chief executive Wen Khai Meng said yesterday.
CapitaLand 'may consider subsequent funds' focused on residential,
commercial and retail segments, he said.
MCDF provides a pipeline of projects to be injected into Quill Capita
Trust - a commercial Reit jointly listed by Quill and CapitaLand in
January 2007 with an initial fund size of RM276 million, which has
grown to over RM800 million.
Tower D in the KL Sentral area will allow them to further leverage on
strong demand for commercial property and is likely to be injected
into the Reit.
To be completed by January, the Grade A building, which has a net
lettable area of 355,000 square feet, has a confirmed tenancy rate of
65 per cent and is expected to be fully tenanted by March.
The 29-storey office block with a six-storey retail podium has
attracted several multinational and big local companies as tenants,
said Quill director Michael Ong.
Rental rates are around RM6 to RM7 per square foot and a number of
tenants have signed three-plus-three-year leases, he said.
CapitaLand, through MCDF, owns 40 per cent of Tower D developer Quill
Realty.
CIMB bags job for CDL sukuk issue
August 21, 2008
CIMB bags job for CDL sukuk issue
(KUALA LUMPUR) CIMB Group has won the mandate to arrange a $1 billion
Islamic bond issue for Singapore-listed property developer City
Developments Ltd (CDL), according to a report in Malaysia's Business
Times.
It will be Singapore's first sukuk-Ijarah unsecured financing
arrangement by a company, the paper pointed out.
A signing ceremony between CIMB Group unit CIMB-GK Securities Pte Ltd
and CDL is expected to be held this week in Singapore.
CDL is the property arm of Hong Leong Group Singapore.
The deal is significant for CIMB as it comes at a time when capital
market activities at home and in the region are slowing.
'This (new mandate) certainly helps it cushion some of the downside
arising in the debt market. It also highlights the competitive edge
that CIMB has over some global investment banks,' said an analyst
from a foreign research house in Kuala Lumpur.
CIMB is part of Malaysia's second largest banking group, Bumiputra-
Commerce Holdings Bhd, which last week reported a 7 per cent decline
in half-year net profit because of weaker capital markets.
CIMB group chief executive Nazir Razak had said at a results briefing
that he expects the weak markets to persist in the second half of the
year.
CDL, which is Singapore's second largest developer, said in a
statement last Thursday that it plans to make use of the $1 billion
Islamic multi-currency medium-term notes programme to tap new markets
and investors.
'This programme will provide the group with a diversified,
alternative and non-traditional financing stream to further enhance
its war chest,' executive chairman Kwek Leng Beng said.
It is understood that CDL's sukuk-Ijarah is expected to be listed on
the Singapore stock exchange sometime in the fourth quarter.
CIMB bags job for CDL sukuk issue
(KUALA LUMPUR) CIMB Group has won the mandate to arrange a $1 billion
Islamic bond issue for Singapore-listed property developer City
Developments Ltd (CDL), according to a report in Malaysia's Business
Times.
It will be Singapore's first sukuk-Ijarah unsecured financing
arrangement by a company, the paper pointed out.
A signing ceremony between CIMB Group unit CIMB-GK Securities Pte Ltd
and CDL is expected to be held this week in Singapore.
CDL is the property arm of Hong Leong Group Singapore.
The deal is significant for CIMB as it comes at a time when capital
market activities at home and in the region are slowing.
'This (new mandate) certainly helps it cushion some of the downside
arising in the debt market. It also highlights the competitive edge
that CIMB has over some global investment banks,' said an analyst
from a foreign research house in Kuala Lumpur.
CIMB is part of Malaysia's second largest banking group, Bumiputra-
Commerce Holdings Bhd, which last week reported a 7 per cent decline
in half-year net profit because of weaker capital markets.
CIMB group chief executive Nazir Razak had said at a results briefing
that he expects the weak markets to persist in the second half of the
year.
CDL, which is Singapore's second largest developer, said in a
statement last Thursday that it plans to make use of the $1 billion
Islamic multi-currency medium-term notes programme to tap new markets
and investors.
'This programme will provide the group with a diversified,
alternative and non-traditional financing stream to further enhance
its war chest,' executive chairman Kwek Leng Beng said.
It is understood that CDL's sukuk-Ijarah is expected to be listed on
the Singapore stock exchange sometime in the fourth quarter.
Wednesday, August 20, 2008
Big US bank 'could go under soon'
Aug 20, 2008
Big US bank 'could go under soon'
Harvard don says worst of credit crunch still ahead, lean times loom
By Bonnie Oeni
A LEADING United States economist warned yesterday in a speech
delivered in Singapore that a major US bank could collapse within
months, in the continuing fallout from the global credit crunch.
Professor Kenneth Rogoff, former chief economist at the International
Monetary Fund (IMF), said the worst of the US financial crisis may
lie ahead.
'We're not just going to see mid-sized banks go under in the next few
months; we're going to see a whopper; we're going to see a big one,
one of the big investment banks or big banks,' Reuters quoted Prof
Rogoff as saying. He is now an economics professor at Harvard
University.
He said US mortgage giants Fannie Mae and Freddie Mac - on the brink
of collapse earlier this year - may also fail 'despite what the US
Treasury says'.
Prof Rogoff was the keynote speaker at a conference organised by RAM
Holdings, held at St Regis Hotel. The conference discussed market
liquidity and its implications for the world economy.
Borrowing a biblical reference, Prof Rogoff noted in his speech that
the world had enjoyed seven fat years, and that it therefore might
expect seven lean years.
He said that even China will suffer economic hard times. He foresees
its growth dropping to 6 per cent or less over the next two years
from the current double-digit growth, given that 'every city does
badly after the Olympics'.
He warned that the US financial crisis would continue to deepen. The
problems faced by the financial sector are only at the halfway point,
given the way the Federal Reserve has sliced interest rates in order
to prop up the sagging sector.
He said the US financial sector was bloated, contributing 8 per cent
to economic output, compared to 0.5 per cent around a decade
ago. 'There just aren't enough profits and lines of businesses to go
around,' he said. 'The financial industry needs to consolidate
naturally and you can't save them all. There will be more losers than
winners.'
He criticised the Fed for cutting interest rates too drastically.
Regional countries such as Malaysia, India and Thailand which aped US
monetary policy will similarly face crippling inflation in future,
given the sudden huge monetary expansion that has to work its way out
of the system, he said.
China faces an uphill challenge too, with inflation of over 7 per
cent. Although the investment rate in China is heading towards 50 per
cent, he believed this would not be sustainable in the long run,
given increasing urbanisation which will end the era of 'super cheap
excess labour from the countryside'.
He pre-empted that with the mood of change in the US, the Democratic
Party could win in both Houses overwhelmingly and implement
protectionist policies that would slow growth next year and beyond.
Such policies could include the biggest tax hike since World War II
and a strengthened labour union.
However, some hope remained. He suggested that the global downturn
was merely a corrective recession after a long boom, and that it
would not be a sustained one since it did not involve large-scale
economic restructuring.
The European Central Bank's policy of raising interest rates
reflected its tougher stance against inflation, and long-term
optimism that once the supply of commodities increases to meet
demand, the global economy would bounce right back.
'We had a great growth period, and now we're having a digestion
problem. But things will pick up again,' he reassured the audience.
Big US bank 'could go under soon'
Harvard don says worst of credit crunch still ahead, lean times loom
By Bonnie Oeni
A LEADING United States economist warned yesterday in a speech
delivered in Singapore that a major US bank could collapse within
months, in the continuing fallout from the global credit crunch.
Professor Kenneth Rogoff, former chief economist at the International
Monetary Fund (IMF), said the worst of the US financial crisis may
lie ahead.
'We're not just going to see mid-sized banks go under in the next few
months; we're going to see a whopper; we're going to see a big one,
one of the big investment banks or big banks,' Reuters quoted Prof
Rogoff as saying. He is now an economics professor at Harvard
University.
He said US mortgage giants Fannie Mae and Freddie Mac - on the brink
of collapse earlier this year - may also fail 'despite what the US
Treasury says'.
Prof Rogoff was the keynote speaker at a conference organised by RAM
Holdings, held at St Regis Hotel. The conference discussed market
liquidity and its implications for the world economy.
Borrowing a biblical reference, Prof Rogoff noted in his speech that
the world had enjoyed seven fat years, and that it therefore might
expect seven lean years.
He said that even China will suffer economic hard times. He foresees
its growth dropping to 6 per cent or less over the next two years
from the current double-digit growth, given that 'every city does
badly after the Olympics'.
He warned that the US financial crisis would continue to deepen. The
problems faced by the financial sector are only at the halfway point,
given the way the Federal Reserve has sliced interest rates in order
to prop up the sagging sector.
He said the US financial sector was bloated, contributing 8 per cent
to economic output, compared to 0.5 per cent around a decade
ago. 'There just aren't enough profits and lines of businesses to go
around,' he said. 'The financial industry needs to consolidate
naturally and you can't save them all. There will be more losers than
winners.'
He criticised the Fed for cutting interest rates too drastically.
Regional countries such as Malaysia, India and Thailand which aped US
monetary policy will similarly face crippling inflation in future,
given the sudden huge monetary expansion that has to work its way out
of the system, he said.
China faces an uphill challenge too, with inflation of over 7 per
cent. Although the investment rate in China is heading towards 50 per
cent, he believed this would not be sustainable in the long run,
given increasing urbanisation which will end the era of 'super cheap
excess labour from the countryside'.
He pre-empted that with the mood of change in the US, the Democratic
Party could win in both Houses overwhelmingly and implement
protectionist policies that would slow growth next year and beyond.
Such policies could include the biggest tax hike since World War II
and a strengthened labour union.
However, some hope remained. He suggested that the global downturn
was merely a corrective recession after a long boom, and that it
would not be a sustained one since it did not involve large-scale
economic restructuring.
The European Central Bank's policy of raising interest rates
reflected its tougher stance against inflation, and long-term
optimism that once the supply of commodities increases to meet
demand, the global economy would bounce right back.
'We had a great growth period, and now we're having a digestion
problem. But things will pick up again,' he reassured the audience.
Tuesday, August 19, 2008
Oil at US$1,000 a barrel?
Oil at US$1,000 a barrel?
Yes, that's our future
WHAT is going on with our prosperity? There is talk of recession. Are things really so bad?
By Larry Haverkamp (Doc Money)
mail@AskDrMoney.com
19 August 2008
WHAT is going on with our prosperity? There is talk of recession. Are things really so bad?
Yes, especially in the US and Europe. They are the economic engines that drive the world's other economies.
Two huge problems there are also affecting us: A credit crunch and high commodity prices.
The credit crunch began with falling US home prices. It shut an important safety valve. If you hit hard times, you used to be able to sell your home to pay off debts.
Times have changed.
Consider this: One-third of US homes purchased since 2003 are worth less than what the owners paid for them.
Real estate website Zillow.com also reports that in the 12 months ending 30 Jun, 25 per cent of US home sales resulted in a loss. It is the worst on record.
It isn't just homeowners.
Banks have lost big money too. Now, they talk about stringent 'risk management'. What it really means is they cut back making risky loans, practically to zero.
Fewer loans mean less money flowing through the veins of the world's economies. Not as many deals get done. Unemployment rises. Consumers with less money slow the economic engine further.
To counter it, the US and other countries have lowered interest rates and given large tax rebates. Is it enough? In the old days, it would have been.
No solution?
Bad luck. This time we have been hit with a second whammy: Commodity shortages. They could kill us.
Really? Yes. Unlike the credit crisis, this is a problem that may have no solution.
Oil is key to everything. Petroleum accounts for half of all commodities we consume. Other energy, food and minerals account for the rest.
The good news is oil prices have been falling. The bad news is they are still sky-high.
Last Friday, oil prices closed at US$114 ($161), down 22 per cent from its high of US$147.
Oh sure, US$114 looks low. But you may have forgotten that oil was only US$70 per barrel one year ago. If you are really old, you may recall that oil prices averaged US$35 over the past 10 years.
The zillion-dollar question is: 'Are the recent high prices because of genuine shortages OR a speculative bubble?'
Raise your hand if you think it's a bubble.
Good, no hands. I see you agree with me that the shortages are genuine. I suggest you keep voting that way as long as oil remains above US$100 per barrel.
Many people think the problem is shrinking supplies. No. More oil is being pumped than ever before - 87million barrels per day - but demand is rising even faster. Most of it comes from new middle classes in developing nations.
When Ramesh in India trades in his bicycle for a motorbike, it uses only a little petrol. But it is happening millions of times over.
The persistently high prices indicate this new demand is not going away. Getting Ramesh back on his bicycle will be difficult. Maybe impossible.
Previous oil crises in 1972 and 1980 were different. They were caused by temporary supply shortages when Arab countries cut output for political reasons.
Now, oil wells are pumping at maximum capacity and it is still not enough.
The problem is new.
There is no solution. The poor will not volunteer to go back to subsistence living. (Good for them.)
Eventually, oil output will decline. Then, things will really get interesting. Oil prices will hit US$1,000 per barrel and go higher from there. The question is not IF it will happen but WHEN.
It's all because our earth is not expanding. Resources are finite.
Yes, that's our future
WHAT is going on with our prosperity? There is talk of recession. Are things really so bad?
By Larry Haverkamp (Doc Money)
mail@AskDrMoney.com
19 August 2008
WHAT is going on with our prosperity? There is talk of recession. Are things really so bad?
Yes, especially in the US and Europe. They are the economic engines that drive the world's other economies.
Two huge problems there are also affecting us: A credit crunch and high commodity prices.
The credit crunch began with falling US home prices. It shut an important safety valve. If you hit hard times, you used to be able to sell your home to pay off debts.
Times have changed.
Consider this: One-third of US homes purchased since 2003 are worth less than what the owners paid for them.
Real estate website Zillow.com also reports that in the 12 months ending 30 Jun, 25 per cent of US home sales resulted in a loss. It is the worst on record.
It isn't just homeowners.
Banks have lost big money too. Now, they talk about stringent 'risk management'. What it really means is they cut back making risky loans, practically to zero.
Fewer loans mean less money flowing through the veins of the world's economies. Not as many deals get done. Unemployment rises. Consumers with less money slow the economic engine further.
To counter it, the US and other countries have lowered interest rates and given large tax rebates. Is it enough? In the old days, it would have been.
No solution?
Bad luck. This time we have been hit with a second whammy: Commodity shortages. They could kill us.
Really? Yes. Unlike the credit crisis, this is a problem that may have no solution.
Oil is key to everything. Petroleum accounts for half of all commodities we consume. Other energy, food and minerals account for the rest.
The good news is oil prices have been falling. The bad news is they are still sky-high.
Last Friday, oil prices closed at US$114 ($161), down 22 per cent from its high of US$147.
Oh sure, US$114 looks low. But you may have forgotten that oil was only US$70 per barrel one year ago. If you are really old, you may recall that oil prices averaged US$35 over the past 10 years.
The zillion-dollar question is: 'Are the recent high prices because of genuine shortages OR a speculative bubble?'
Raise your hand if you think it's a bubble.
Good, no hands. I see you agree with me that the shortages are genuine. I suggest you keep voting that way as long as oil remains above US$100 per barrel.
Many people think the problem is shrinking supplies. No. More oil is being pumped than ever before - 87million barrels per day - but demand is rising even faster. Most of it comes from new middle classes in developing nations.
When Ramesh in India trades in his bicycle for a motorbike, it uses only a little petrol. But it is happening millions of times over.
The persistently high prices indicate this new demand is not going away. Getting Ramesh back on his bicycle will be difficult. Maybe impossible.
Previous oil crises in 1972 and 1980 were different. They were caused by temporary supply shortages when Arab countries cut output for political reasons.
Now, oil wells are pumping at maximum capacity and it is still not enough.
The problem is new.
There is no solution. The poor will not volunteer to go back to subsistence living. (Good for them.)
Eventually, oil output will decline. Then, things will really get interesting. Oil prices will hit US$1,000 per barrel and go higher from there. The question is not IF it will happen but WHEN.
It's all because our earth is not expanding. Resources are finite.
US govt likely to bail out Fannie, Freddie
Aug 19, 2008
US govt likely to bail out Fannie, Freddie
NEW YORK: It's growing more likely that the United States government
will have to use taxpayer money to rescue mortgage finance giants,
Fannie Mae and Freddie Mac as their biggest backers, foreign
governments, have begun to shun their debt.
Foreign demand for debt issued by Fannie and Freddie has faltered.
The companies rely heavily on overseas investment, often up to two-
thirds of each new multibillion-dollar note offering, to help pare
funding costs and keep mortgage rates low.
But foreign central banks have dumped nearly US$11 billion (S$15.6
billion) from their record holdings of this debt in four weeks, to
US$975 billion, and won't return in force before it's clear if - and
how - the government will back Fannie and Freddie, some analysts say.
The US has become dependent on foreign investors buying dollar-
denominated securities en masse, lowering borrowing costs for
consumer loans and stimulating the economy.
But with housing in its biggest slump since the Great Depression, and
banks burned by record foreclosures making it harder to get loans,
more extreme steps are needed to assure investors.
'It would take something dramatic for there to be a material
improvement in the confidence necessary to bring foreign investment
back to these agencies at the levels we've become used to,' said Mr
Michael Woolfolk, senior currency strategist at Bank of New York
Mellon.
Fannie and Freddie are considered 'too big to fail' as, together,
they own or guarantee one of every five outstanding mortgages in the
US.
Weekly financial newspaper Barron's reported yesterday that the US
Treasury was likely to mount a bailout in the months ahead.
Such a move could wipe out existing holders of the firms' common
stock, with preferred shareholders and even holders of the two
entities' US$19 billion of subordinated debt also suffering losses.
An insider in the Bush administration told Barron's that Fannie and
Freddie 'are being jawboned' by the Treasury Department and their new
regulator, the Federal Housing Finance Agency (FHFA), to raise more
capital. But government officials don't expect the agencies to
succeed, Barron's reported.
In July, the FHFA and Treasury agreed to backstop the companies if
needed, and President George W. Bush approved the measures as part of
a new housing act on July 31.
However, initial optimism about the plan has been doused by concern
about the government's follow-through. After accounting for deferred
tax assets and generous asset marks, Fannie and Freddie may each have
a negative US$50 billion in asset value, and little prospect of
rescuing themselves, Barron's reported.
US govt likely to bail out Fannie, Freddie
NEW YORK: It's growing more likely that the United States government
will have to use taxpayer money to rescue mortgage finance giants,
Fannie Mae and Freddie Mac as their biggest backers, foreign
governments, have begun to shun their debt.
Foreign demand for debt issued by Fannie and Freddie has faltered.
The companies rely heavily on overseas investment, often up to two-
thirds of each new multibillion-dollar note offering, to help pare
funding costs and keep mortgage rates low.
But foreign central banks have dumped nearly US$11 billion (S$15.6
billion) from their record holdings of this debt in four weeks, to
US$975 billion, and won't return in force before it's clear if - and
how - the government will back Fannie and Freddie, some analysts say.
The US has become dependent on foreign investors buying dollar-
denominated securities en masse, lowering borrowing costs for
consumer loans and stimulating the economy.
But with housing in its biggest slump since the Great Depression, and
banks burned by record foreclosures making it harder to get loans,
more extreme steps are needed to assure investors.
'It would take something dramatic for there to be a material
improvement in the confidence necessary to bring foreign investment
back to these agencies at the levels we've become used to,' said Mr
Michael Woolfolk, senior currency strategist at Bank of New York
Mellon.
Fannie and Freddie are considered 'too big to fail' as, together,
they own or guarantee one of every five outstanding mortgages in the
US.
Weekly financial newspaper Barron's reported yesterday that the US
Treasury was likely to mount a bailout in the months ahead.
Such a move could wipe out existing holders of the firms' common
stock, with preferred shareholders and even holders of the two
entities' US$19 billion of subordinated debt also suffering losses.
An insider in the Bush administration told Barron's that Fannie and
Freddie 'are being jawboned' by the Treasury Department and their new
regulator, the Federal Housing Finance Agency (FHFA), to raise more
capital. But government officials don't expect the agencies to
succeed, Barron's reported.
In July, the FHFA and Treasury agreed to backstop the companies if
needed, and President George W. Bush approved the measures as part of
a new housing act on July 31.
However, initial optimism about the plan has been doused by concern
about the government's follow-through. After accounting for deferred
tax assets and generous asset marks, Fannie and Freddie may each have
a negative US$50 billion in asset value, and little prospect of
rescuing themselves, Barron's reported.
Monday, August 18, 2008
Concerns over health of Japan's property, banking sectors
August 18, 2008
Concerns over health of Japan's property, banking sectors
Urban's collapse exposes links to US sub-prime crisis
By ANTHONY ROWLEY IN TOKYO
THE failure last week of mid-size Japanese property developer Urban
Corporation - the latest in a series of such collapses - was more
than just another in a growing list of corporate bankruptcies in
Japan.
It has stirred fears among investors and regulators that serious
problems could be brewing again in Japan's property and banking
sectors which were at the heart of the bubble economy collapse in the
early 1990s.
Urban Corp's collapse has also revealed unexpected links between the
US sub-prime mortgage crisis and asset classes in other countries
that have so far escaped relatively unscathed from the financial
turmoil in the world's major markets, analysts say.
Urban was the fifth publicly traded Japanese property company to file
for court protection in the past month.
The Hiroshima-based developer collapsed suddenly, after Japanese
banks withdrew support in what marked an accelerating retreat by
financial institutions from financing property development in Japan
as the nation's economy falters and sales of many properties slump.
Urban's bond ratings were also downgraded sharply recently, leaving
it at the mercy of bank financing.
But a little-publicised aspect of Urban's failure - which marked the
biggest bankruptcy in six years by a listed Japanese company - was
that it was also a victim of the drying up of foreign investment
funds in the wake of the sub-prime crisis. The company had renovated
commercial properties for sale to international funds that were
hungry for real-estate investments until recently.
Other property firms in Japan and in other Asian countries could find
themselves in similar difficulties as international real estate funds
draw in their horns, analysts say.
The Tokyo Stock Exchange's property sector index has been the worst-
performing of all sectors in the past year and the exchange's Reit
(real estate investment trust) index has halved from its 2007 peak,
they point out.
Around one-third of all Japanese corporate bankruptcies in July
occurred in the property sector, according to Tokyo Shoko Research.
The number of such failures more than doubled from their level a year
previously to reach 60, the company said.
Several Japanese regional banks have announced that they expect to be
unable to recover loans to Urban Corp, which filed last Thursday for
protection from creditors with debts totalling 256 billion yen
(S$3.28 billion) in Japan's biggest corporate bankruptcy so far this
year.
Two other mid-size Japanese property development firms - Suruga
Corporation and Zephyr Company - also failed recently.
These failures have stirred concerns not only over the health of the
property sector, which had shown a sharp recovery in major Japanese
cities in recent years after more than a decade of slumping values,
but also about the soundness of Japanese regional banks. Urban's main
lender, Hiroshima Bank, has suffered heavy loan writedowns in the
wake of the collapse.
This may be only the tip of an iceberg, according to banking
analysts. Losses related to bad loans jumped by nearly two-thirds at
large Japanese banks during the second quarter of this year, Japan's
Minister for Financial Services Toshimitsu Motegi revealed last week.
Non-performing loans at the top 11 banks jumped by 62 per cent to 234
billion yen in the second quarter of this year compared to the
corresponding period of 2007.
Meanwhile losses among 110 regional banks leapt by nearly 80 per cent
to 149 billion yen.
'We will closely follow the impact of the economic environment on
financial firms,' Mr Motegi said.
Japanese banks are expected to increase loan-loss reserves, in
anticipation of more corporate bankruptcies amid the economic
slowdown.
But if they restrict lending, a number of companies in the real
estate and other sectors could face funding difficulties, and this
may worsen the overall economic situation, analysts say.
Because of the deteriorating economic and credit situation, Japan's
Financial Services Agency is considering holding talks with regional
banks to ask them to ensure stable supply of funds to smaller local
companies.
Concerns over health of Japan's property, banking sectors
Urban's collapse exposes links to US sub-prime crisis
By ANTHONY ROWLEY IN TOKYO
THE failure last week of mid-size Japanese property developer Urban
Corporation - the latest in a series of such collapses - was more
than just another in a growing list of corporate bankruptcies in
Japan.
It has stirred fears among investors and regulators that serious
problems could be brewing again in Japan's property and banking
sectors which were at the heart of the bubble economy collapse in the
early 1990s.
Urban Corp's collapse has also revealed unexpected links between the
US sub-prime mortgage crisis and asset classes in other countries
that have so far escaped relatively unscathed from the financial
turmoil in the world's major markets, analysts say.
Urban was the fifth publicly traded Japanese property company to file
for court protection in the past month.
The Hiroshima-based developer collapsed suddenly, after Japanese
banks withdrew support in what marked an accelerating retreat by
financial institutions from financing property development in Japan
as the nation's economy falters and sales of many properties slump.
Urban's bond ratings were also downgraded sharply recently, leaving
it at the mercy of bank financing.
But a little-publicised aspect of Urban's failure - which marked the
biggest bankruptcy in six years by a listed Japanese company - was
that it was also a victim of the drying up of foreign investment
funds in the wake of the sub-prime crisis. The company had renovated
commercial properties for sale to international funds that were
hungry for real-estate investments until recently.
Other property firms in Japan and in other Asian countries could find
themselves in similar difficulties as international real estate funds
draw in their horns, analysts say.
The Tokyo Stock Exchange's property sector index has been the worst-
performing of all sectors in the past year and the exchange's Reit
(real estate investment trust) index has halved from its 2007 peak,
they point out.
Around one-third of all Japanese corporate bankruptcies in July
occurred in the property sector, according to Tokyo Shoko Research.
The number of such failures more than doubled from their level a year
previously to reach 60, the company said.
Several Japanese regional banks have announced that they expect to be
unable to recover loans to Urban Corp, which filed last Thursday for
protection from creditors with debts totalling 256 billion yen
(S$3.28 billion) in Japan's biggest corporate bankruptcy so far this
year.
Two other mid-size Japanese property development firms - Suruga
Corporation and Zephyr Company - also failed recently.
These failures have stirred concerns not only over the health of the
property sector, which had shown a sharp recovery in major Japanese
cities in recent years after more than a decade of slumping values,
but also about the soundness of Japanese regional banks. Urban's main
lender, Hiroshima Bank, has suffered heavy loan writedowns in the
wake of the collapse.
This may be only the tip of an iceberg, according to banking
analysts. Losses related to bad loans jumped by nearly two-thirds at
large Japanese banks during the second quarter of this year, Japan's
Minister for Financial Services Toshimitsu Motegi revealed last week.
Non-performing loans at the top 11 banks jumped by 62 per cent to 234
billion yen in the second quarter of this year compared to the
corresponding period of 2007.
Meanwhile losses among 110 regional banks leapt by nearly 80 per cent
to 149 billion yen.
'We will closely follow the impact of the economic environment on
financial firms,' Mr Motegi said.
Japanese banks are expected to increase loan-loss reserves, in
anticipation of more corporate bankruptcies amid the economic
slowdown.
But if they restrict lending, a number of companies in the real
estate and other sectors could face funding difficulties, and this
may worsen the overall economic situation, analysts say.
Because of the deteriorating economic and credit situation, Japan's
Financial Services Agency is considering holding talks with regional
banks to ask them to ensure stable supply of funds to smaller local
companies.
Fannie, Freddie & The nightmare on Wall Street
Fannie, Freddie & The nightmare on Wall Street
KNOW Fannie Mae and Freddie Mac?
18 August 2008
KNOW Fannie Mae and Freddie Mac?
You should, because these US mortgage giants have created a US$5.3 trillion ($7.5 trillion - gasp!) financial black hole that the whole world has been dragged into.
What happened here? And who should we blame?
Hold your horses, dudes. Bring me the popcorn and soda first. And I will tell you a story about a feel-good, black-and-white Hollywood movie made back in 1946, back when life was simpler.
Movie Hero
In It's A Wonderful Life, all-American hero George Bailey (played by James Stewart) saves his building and loan association from a run by using the money from his own wedding dowry - all US$2,000 of it - to supply cash to his panicked depositors.
Young GB tells the town's people that things aren't as gloomy as they appear. He tells depositors that 'we're all in this together' - that their money is tied up (stuck, lah) in their neighbours' houses... as an investment.
Though jittery, the townsfolk trust in young GB's honesty and agree to withdraw only what they need to last the week.
At the end of the day, when the financial house closes its doors, it is spared from going bust - all because of a balance of US$2.
Young GB is your model investor - he saves, he reinvests dividends.
He takes the long view while others around him mock him and snap up short-term gains. He sticks to his core values, though at times he feels shortchanged.
Fast forward some 60 years later and the sub-prime crisis, initially unnoticed, in the US in 2006, morphed into a full-blown, headline-splashing global panic by July last year.
Rising interest rates, which increased the monthly payments on newly popular adjustable rate mortgages, left many American homeowners unable to service their loans.
However, something uniquely American was on their side.
The home loans were on a 'no recourse' basis - that is, a borrower could easily 'walk away' and nothing else would happen to him, other than the lender seizing his house and reporting the default to a credit agency.
And, guess what?
Many Americans did just that - especially those with the so-called sub-prime loans. They walked away without sparing any thought for their lenders.
Meanwhile, property values, which suffered from the bursting of the US housing bubble, left the by-now-desperate American banks without a ready means to recoup their losses.
This, in turn, led to declines in stock markets worldwide, several hedge funds becoming worthless and, not surprisingly, it also led to the bankruptcy of several mortgage lenders.
Barely a year later, just last month, I witnessed 'live' on CNN another GB making a shock announcement.
Not our young George Bailey, but our not-so-young US President George Bush.
Taxpayer's Money
Old GB talks about the health of Fannie Mae and Freddie Mac and, get this right, the huge repercussions which would occur in the banking and mortgage industry if either one fails.
His stop-gap solution: Truckloads of US taxpayer's money for both Fannie and Freddie. Much more than the US$2,000 that young GB put up.
Uncle Sam's share of the bill is now estimated at US$300 billion, based on the Housing and Economic Recovery Act of 2008 that old GB signed into law on 30Jul.
How deep is this US cesspool?
At this point, the truth be told, no one really knows for sure.
But the direct result of this financial uncertainty has been a traumatic collapse in trust.
This is worrisome since the sole foundation of today's banking is trust.
So what's next, doc?
Some analysts say a US government bailout for Fannie and Freddie is unlikely and that, in any event, it shouldn't be hurried.
They say there's still time for Fannie and Freddie to raise more money from the capital markets, but with some kind of government backing. Others say the time to act is now, before things get worse.
I say, let's replay It's A Wonderful Life - to understand the real truth, to learn the real lessons. Let's also remember young GB. Let's restore trust first. The rest will follow.
--------------------------------------------------------------------------------
Our new columnist
HE calls himself a Boston Brahmin.
And he aims to figure out the big numbers in the news for busy readers.
Harvard-trained economist Zhen Ming is a branding consultant who will bring to The New Paper more than 25 years of cross-border business, banking and broadcasting experience.
He co-founded the TV show Money Mind on Channel NewsAsia.
While with a local Big Three bank, he dealt with offshore syndicated loans in the region.
He is a member of the American Management Association's Pan Asian Council, a life member of the Economic Society of Singapore and a former Honorary Secretary of the Harvard Club of Singapore.
He also co-founded Business Angel Network (South East Asia) Ltd, a not-for-profit organisation.
KNOW Fannie Mae and Freddie Mac?
18 August 2008
KNOW Fannie Mae and Freddie Mac?
You should, because these US mortgage giants have created a US$5.3 trillion ($7.5 trillion - gasp!) financial black hole that the whole world has been dragged into.
What happened here? And who should we blame?
Hold your horses, dudes. Bring me the popcorn and soda first. And I will tell you a story about a feel-good, black-and-white Hollywood movie made back in 1946, back when life was simpler.
Movie Hero
In It's A Wonderful Life, all-American hero George Bailey (played by James Stewart) saves his building and loan association from a run by using the money from his own wedding dowry - all US$2,000 of it - to supply cash to his panicked depositors.
Young GB tells the town's people that things aren't as gloomy as they appear. He tells depositors that 'we're all in this together' - that their money is tied up (stuck, lah) in their neighbours' houses... as an investment.
Though jittery, the townsfolk trust in young GB's honesty and agree to withdraw only what they need to last the week.
At the end of the day, when the financial house closes its doors, it is spared from going bust - all because of a balance of US$2.
Young GB is your model investor - he saves, he reinvests dividends.
He takes the long view while others around him mock him and snap up short-term gains. He sticks to his core values, though at times he feels shortchanged.
Fast forward some 60 years later and the sub-prime crisis, initially unnoticed, in the US in 2006, morphed into a full-blown, headline-splashing global panic by July last year.
Rising interest rates, which increased the monthly payments on newly popular adjustable rate mortgages, left many American homeowners unable to service their loans.
However, something uniquely American was on their side.
The home loans were on a 'no recourse' basis - that is, a borrower could easily 'walk away' and nothing else would happen to him, other than the lender seizing his house and reporting the default to a credit agency.
And, guess what?
Many Americans did just that - especially those with the so-called sub-prime loans. They walked away without sparing any thought for their lenders.
Meanwhile, property values, which suffered from the bursting of the US housing bubble, left the by-now-desperate American banks without a ready means to recoup their losses.
This, in turn, led to declines in stock markets worldwide, several hedge funds becoming worthless and, not surprisingly, it also led to the bankruptcy of several mortgage lenders.
Barely a year later, just last month, I witnessed 'live' on CNN another GB making a shock announcement.
Not our young George Bailey, but our not-so-young US President George Bush.
Taxpayer's Money
Old GB talks about the health of Fannie Mae and Freddie Mac and, get this right, the huge repercussions which would occur in the banking and mortgage industry if either one fails.
His stop-gap solution: Truckloads of US taxpayer's money for both Fannie and Freddie. Much more than the US$2,000 that young GB put up.
Uncle Sam's share of the bill is now estimated at US$300 billion, based on the Housing and Economic Recovery Act of 2008 that old GB signed into law on 30Jul.
How deep is this US cesspool?
At this point, the truth be told, no one really knows for sure.
But the direct result of this financial uncertainty has been a traumatic collapse in trust.
This is worrisome since the sole foundation of today's banking is trust.
So what's next, doc?
Some analysts say a US government bailout for Fannie and Freddie is unlikely and that, in any event, it shouldn't be hurried.
They say there's still time for Fannie and Freddie to raise more money from the capital markets, but with some kind of government backing. Others say the time to act is now, before things get worse.
I say, let's replay It's A Wonderful Life - to understand the real truth, to learn the real lessons. Let's also remember young GB. Let's restore trust first. The rest will follow.
--------------------------------------------------------------------------------
Our new columnist
HE calls himself a Boston Brahmin.
And he aims to figure out the big numbers in the news for busy readers.
Harvard-trained economist Zhen Ming is a branding consultant who will bring to The New Paper more than 25 years of cross-border business, banking and broadcasting experience.
He co-founded the TV show Money Mind on Channel NewsAsia.
While with a local Big Three bank, he dealt with offshore syndicated loans in the region.
He is a member of the American Management Association's Pan Asian Council, a life member of the Economic Society of Singapore and a former Honorary Secretary of the Harvard Club of Singapore.
He also co-founded Business Angel Network (South East Asia) Ltd, a not-for-profit organisation.
Sunday, August 17, 2008
Er...what are bull and bear markets?
Aug 17, 2008
FINANCIAL QUOTIENT
Er...what are bull and bear markets?
Where do you see this?
Mainly in stock market reports and analyst notes.
What does it mean?
These are the two key animals associated with overall market movement. Bulls are good times, bears are bad.
A bull market is a prolonged period in which almost all stock prices surge faster than their historical average. Investors are optimistic and indulge in buying sprees.
For instance, the Indian stock market went on a bull run from last January to this January, soaring from 14,000 points to 21,000 points.
A bear market is an extended period in which stock prices fall, usually by more than 20 per cent. There is widespread pessimism, and sometimes there are steep selldowns accompanied by irrational fear.
The most famous bear market was the Wall Street crash of 1929 which eventually sparked off the Great Depression.
Why is it important?
These two terms encapsulate overall market sentiment and price movements.
It is believed that the terms originated from the nature of these animals. Bears tread with caution while bulls are bold and love to charge forward.
Thus, a bearish investor feels the market will go down while a bullish investor thinks it is headed for new heights.
So you want to use the term? Just say...
The bull run of the last few years has ended and we are now entering a bear market.
Alvin Foo
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
FINANCIAL QUOTIENT
Er...what are bull and bear markets?
Where do you see this?
Mainly in stock market reports and analyst notes.
What does it mean?
These are the two key animals associated with overall market movement. Bulls are good times, bears are bad.
A bull market is a prolonged period in which almost all stock prices surge faster than their historical average. Investors are optimistic and indulge in buying sprees.
For instance, the Indian stock market went on a bull run from last January to this January, soaring from 14,000 points to 21,000 points.
A bear market is an extended period in which stock prices fall, usually by more than 20 per cent. There is widespread pessimism, and sometimes there are steep selldowns accompanied by irrational fear.
The most famous bear market was the Wall Street crash of 1929 which eventually sparked off the Great Depression.
Why is it important?
These two terms encapsulate overall market sentiment and price movements.
It is believed that the terms originated from the nature of these animals. Bears tread with caution while bulls are bold and love to charge forward.
Thus, a bearish investor feels the market will go down while a bullish investor thinks it is headed for new heights.
So you want to use the term? Just say...
The bull run of the last few years has ended and we are now entering a bear market.
Alvin Foo
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
No respite for battered Malaysia property stocks: analysts
Business Times - 16 Aug 2008
No respite for battered Malaysia property stocks: analysts
More pain to come from imminent interest rate hike, slowing economy
(KUALA LUMPUR) Malaysian property stocks have fallen more than 30 per cent this year due to domestic politics and inflation, but an imminent increase in interest rates is dashing any hopes of bargain hunting.
The country's property sector has also underperformed peers across South-east Asia, themselves hit by rising interest rates that have stemmed the flow of cheap money to finance a boom in the region's fast-growing economies.
'If the (regional) interest rate is still going up there's still some downside risk,' said Jason Chong, chief investment officer of Kuala Lumpur-based OSK-UOB Unit Trust Management, which manages the equivalent of US$1.15 billion. 'Right now we are underweight property stocks. We want to wait until we think the interest rate (cycle) is about to turn.'
Every central bank in South-east Asia, with the exception of Malaysia, has hiked rates in recent months.
Malaysia's inflation hit a 27-year high of 7.7 per cent in June and was expected to remain above 7 per cent in July and August. The country, a net exporter of petroleum, slashed fuel subsidies in June, causing a 41 per cent rise in retail petrol prices and a 63 per cent jump in diesel prices.
Malaysian politics has also been pretty turbulent in recent months, following the ruling coalition's worst ever performance in a general election in March, which hit local markets. Also, higher steel and building material costs have forced developers to put new projects on hold. Even the relaxation of foreign ownership rules and a flood of money for upscale office and residential projects in the central business district in Kuala Lumpur has failed to dispel the gloom.
Investment bank UBS said that it was far from clear that falling commodity prices would feed through to lower inflation and allow central banks to pause or even cut rates and thus stimulate the region's economies.
'It may be wrong to peg hope on the current downtrend in commodity prices sustaining and bringing inflation lower,' UBS said in a report published last week.
Malaysia's economy is officially projected to grow 5 per cent this year, slowing from 6.3 per cent last year, mirroring weakness across South-east Asia.
Malaysian property stocks have taken a beating and analysts warn of more pain for investors.
IOI Properties, Malaysia's top property firm by market value, has fallen 30 per cent this year and second-ranked SP Setia has dropped about 34 per cent, underperforming a 23 per cent loss on the benchmark index .
The two stocks could see more downside based on their valuations in previous crises such as the September 2001 attacks and the 2003 Sars crisis, Credit Suisse said in a research note.
IOI Properties trades at 10.7 times 2009 earnings, which is 22-26 per cent higher than the lows recorded in 2001 and 2003, while SP Setia's current PE of 12 times 2009 earnings is much higher than the seven times and 8.4 times in the crisis periods, Credit Suisse said\. \-- Reuters
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
No respite for battered Malaysia property stocks: analysts
More pain to come from imminent interest rate hike, slowing economy
(KUALA LUMPUR) Malaysian property stocks have fallen more than 30 per cent this year due to domestic politics and inflation, but an imminent increase in interest rates is dashing any hopes of bargain hunting.
The country's property sector has also underperformed peers across South-east Asia, themselves hit by rising interest rates that have stemmed the flow of cheap money to finance a boom in the region's fast-growing economies.
'If the (regional) interest rate is still going up there's still some downside risk,' said Jason Chong, chief investment officer of Kuala Lumpur-based OSK-UOB Unit Trust Management, which manages the equivalent of US$1.15 billion. 'Right now we are underweight property stocks. We want to wait until we think the interest rate (cycle) is about to turn.'
Every central bank in South-east Asia, with the exception of Malaysia, has hiked rates in recent months.
Malaysia's inflation hit a 27-year high of 7.7 per cent in June and was expected to remain above 7 per cent in July and August. The country, a net exporter of petroleum, slashed fuel subsidies in June, causing a 41 per cent rise in retail petrol prices and a 63 per cent jump in diesel prices.
Malaysian politics has also been pretty turbulent in recent months, following the ruling coalition's worst ever performance in a general election in March, which hit local markets. Also, higher steel and building material costs have forced developers to put new projects on hold. Even the relaxation of foreign ownership rules and a flood of money for upscale office and residential projects in the central business district in Kuala Lumpur has failed to dispel the gloom.
Investment bank UBS said that it was far from clear that falling commodity prices would feed through to lower inflation and allow central banks to pause or even cut rates and thus stimulate the region's economies.
'It may be wrong to peg hope on the current downtrend in commodity prices sustaining and bringing inflation lower,' UBS said in a report published last week.
Malaysia's economy is officially projected to grow 5 per cent this year, slowing from 6.3 per cent last year, mirroring weakness across South-east Asia.
Malaysian property stocks have taken a beating and analysts warn of more pain for investors.
IOI Properties, Malaysia's top property firm by market value, has fallen 30 per cent this year and second-ranked SP Setia has dropped about 34 per cent, underperforming a 23 per cent loss on the benchmark index .
The two stocks could see more downside based on their valuations in previous crises such as the September 2001 attacks and the 2003 Sars crisis, Credit Suisse said in a research note.
IOI Properties trades at 10.7 times 2009 earnings, which is 22-26 per cent higher than the lows recorded in 2001 and 2003, while SP Setia's current PE of 12 times 2009 earnings is much higher than the seven times and 8.4 times in the crisis periods, Credit Suisse said\. \-- Reuters
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Friday, August 15, 2008
IMF in two minds about Sing$ stance
Aug 15, 2008
IMF in two minds about Sing$ stance
June report called for tightening but focus now is on economic growth
By Bryan Lee
DOES the Singapore dollar need to appreciate faster or is the current currency stance enough to fight off the threat of spiralling prices?
The answer appears anything but clear if the International Monetary Fund's (IMF's) latest assessment of the local economy is anything to go by.
In June, an annual report by IMF staff urged that monetary policy be tightened to fend off the threat of inflation. But since then, many board directors, reflecting on the report, have backed away, citing downside risks to economic growth.
Published on Wednesday on the IMF's website, the report and the board's reactions are less a sign of internal bickering than a reflection of the pace at which conditions are changing for many economies.
In the first half of the year, a relentless surge in oil and commodity prices clearly made inflation the No. 1 threat to economies outside the United States. But the prices of these natural resources have eased since hitting record highs in the past two months, while signs of a wider global slowdown are on the rise.
Singapore is no exception, with the Government downgrading economic forecasts over the past week.
'This reflects how fast things are changing and how reports are being made irrelevant so quickly,' said United Overseas Bank economist Jimmy Koh. 'Given the situation now, the focus is on growth concerns far more than on inflation.'
Singapore sets monetary policy by managing the value of its currency via an undisclosed basket of the currencies of its largest trading partners.
A stronger Singdollar helps alleviate inflation by making imports such as oil cheaper. But it also makes Singapore's exports less competitive, so some local economists have called for monetary easing to help exporters, who are bearing the brunt of the world economy's swift decline.
The IMF report, dated June 30, said a faster appreciation of the Singdollar would be desirable. The investigating team - which met senior local officials, including Finance Minister Tharman Shanmugaratnam, in May - said the currency seemed undervalued when viewed against longer-term fundamentals.
The report noted that this view was disputed by the local authorities, which said strengthening the Singdollar could amplify downside risks when it was unclear where the economy was headed.
The IMF's executive board, in a July 13 statement, mostly concurred with the Government, saying many of its members favoured maintaining the current policy mix in the short term, though some stuck with the report's recommendations.
In the statement, the board said: 'Given monetary policy lags, it would be sensible to assess the impact of the monetary tightening already in the pipeline before adjusting the stance.'
bryanlee@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
IMF in two minds about Sing$ stance
June report called for tightening but focus now is on economic growth
By Bryan Lee
DOES the Singapore dollar need to appreciate faster or is the current currency stance enough to fight off the threat of spiralling prices?
The answer appears anything but clear if the International Monetary Fund's (IMF's) latest assessment of the local economy is anything to go by.
In June, an annual report by IMF staff urged that monetary policy be tightened to fend off the threat of inflation. But since then, many board directors, reflecting on the report, have backed away, citing downside risks to economic growth.
Published on Wednesday on the IMF's website, the report and the board's reactions are less a sign of internal bickering than a reflection of the pace at which conditions are changing for many economies.
In the first half of the year, a relentless surge in oil and commodity prices clearly made inflation the No. 1 threat to economies outside the United States. But the prices of these natural resources have eased since hitting record highs in the past two months, while signs of a wider global slowdown are on the rise.
Singapore is no exception, with the Government downgrading economic forecasts over the past week.
'This reflects how fast things are changing and how reports are being made irrelevant so quickly,' said United Overseas Bank economist Jimmy Koh. 'Given the situation now, the focus is on growth concerns far more than on inflation.'
Singapore sets monetary policy by managing the value of its currency via an undisclosed basket of the currencies of its largest trading partners.
A stronger Singdollar helps alleviate inflation by making imports such as oil cheaper. But it also makes Singapore's exports less competitive, so some local economists have called for monetary easing to help exporters, who are bearing the brunt of the world economy's swift decline.
The IMF report, dated June 30, said a faster appreciation of the Singdollar would be desirable. The investigating team - which met senior local officials, including Finance Minister Tharman Shanmugaratnam, in May - said the currency seemed undervalued when viewed against longer-term fundamentals.
The report noted that this view was disputed by the local authorities, which said strengthening the Singdollar could amplify downside risks when it was unclear where the economy was headed.
The IMF's executive board, in a July 13 statement, mostly concurred with the Government, saying many of its members favoured maintaining the current policy mix in the short term, though some stuck with the report's recommendations.
In the statement, the board said: 'Given monetary policy lags, it would be sensible to assess the impact of the monetary tightening already in the pipeline before adjusting the stance.'
bryanlee@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
IMF in two minds about Sing$ stance
Aug 15, 2008
IMF in two minds about Sing$ stance
June report called for tightening but focus now is on economic growth
By Bryan Lee
DOES the Singapore dollar need to appreciate faster or is the current currency stance enough to fight off the threat of spiralling prices?
The answer appears anything but clear if the International Monetary Fund's (IMF's) latest assessment of the local economy is anything to go by.
In June, an annual report by IMF staff urged that monetary policy be tightened to fend off the threat of inflation. But since then, many board directors, reflecting on the report, have backed away, citing downside risks to economic growth.
Published on Wednesday on the IMF's website, the report and the board's reactions are less a sign of internal bickering than a reflection of the pace at which conditions are changing for many economies.
In the first half of the year, a relentless surge in oil and commodity prices clearly made inflation the No. 1 threat to economies outside the United States. But the prices of these natural resources have eased since hitting record highs in the past two months, while signs of a wider global slowdown are on the rise.
Singapore is no exception, with the Government downgrading economic forecasts over the past week.
'This reflects how fast things are changing and how reports are being made irrelevant so quickly,' said United Overseas Bank economist Jimmy Koh. 'Given the situation now, the focus is on growth concerns far more than on inflation.'
Singapore sets monetary policy by managing the value of its currency via an undisclosed basket of the currencies of its largest trading partners.
A stronger Singdollar helps alleviate inflation by making imports such as oil cheaper. But it also makes Singapore's exports less competitive, so some local economists have called for monetary easing to help exporters, who are bearing the brunt of the world economy's swift decline.
The IMF report, dated June 30, said a faster appreciation of the Singdollar would be desirable. The investigating team - which met senior local officials, including Finance Minister Tharman Shanmugaratnam, in May - said the currency seemed undervalued when viewed against longer-term fundamentals.
The report noted that this view was disputed by the local authorities, which said strengthening the Singdollar could amplify downside risks when it was unclear where the economy was headed.
The IMF's executive board, in a July 13 statement, mostly concurred with the Government, saying many of its members favoured maintaining the current policy mix in the short term, though some stuck with the report's recommendations.
In the statement, the board said: 'Given monetary policy lags, it would be sensible to assess the impact of the monetary tightening already in the pipeline before adjusting the stance.'
bryanlee@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
IMF in two minds about Sing$ stance
June report called for tightening but focus now is on economic growth
By Bryan Lee
DOES the Singapore dollar need to appreciate faster or is the current currency stance enough to fight off the threat of spiralling prices?
The answer appears anything but clear if the International Monetary Fund's (IMF's) latest assessment of the local economy is anything to go by.
In June, an annual report by IMF staff urged that monetary policy be tightened to fend off the threat of inflation. But since then, many board directors, reflecting on the report, have backed away, citing downside risks to economic growth.
Published on Wednesday on the IMF's website, the report and the board's reactions are less a sign of internal bickering than a reflection of the pace at which conditions are changing for many economies.
In the first half of the year, a relentless surge in oil and commodity prices clearly made inflation the No. 1 threat to economies outside the United States. But the prices of these natural resources have eased since hitting record highs in the past two months, while signs of a wider global slowdown are on the rise.
Singapore is no exception, with the Government downgrading economic forecasts over the past week.
'This reflects how fast things are changing and how reports are being made irrelevant so quickly,' said United Overseas Bank economist Jimmy Koh. 'Given the situation now, the focus is on growth concerns far more than on inflation.'
Singapore sets monetary policy by managing the value of its currency via an undisclosed basket of the currencies of its largest trading partners.
A stronger Singdollar helps alleviate inflation by making imports such as oil cheaper. But it also makes Singapore's exports less competitive, so some local economists have called for monetary easing to help exporters, who are bearing the brunt of the world economy's swift decline.
The IMF report, dated June 30, said a faster appreciation of the Singdollar would be desirable. The investigating team - which met senior local officials, including Finance Minister Tharman Shanmugaratnam, in May - said the currency seemed undervalued when viewed against longer-term fundamentals.
The report noted that this view was disputed by the local authorities, which said strengthening the Singdollar could amplify downside risks when it was unclear where the economy was headed.
The IMF's executive board, in a July 13 statement, mostly concurred with the Government, saying many of its members favoured maintaining the current policy mix in the short term, though some stuck with the report's recommendations.
In the statement, the board said: 'Given monetary policy lags, it would be sensible to assess the impact of the monetary tightening already in the pipeline before adjusting the stance.'
bryanlee@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
CDL's new debt issue to tap Islamic sources
Aug 15, 2008
CDL's new debt issue to tap Islamic sources
CITY Developments (CDL) is planning to raise funds through what will be
Singapore's first Islamic unsecured financing arrangement.
The developer said it will issue a $1 billion Islamic multi-currency
medium-term notes programme. This will allow CDL to tap new markets and
investors, including Islamic sources, for possible acquisitions in a
slowing economy.
'It is to keep ourselves liquid so we are ready to bottom-fish at any
time,' said CDL executive chairman Kwek Leng Beng.
The group said in a statement it is 'optimistic that under this
challenging economic situation lies tremendous opportunities'. This
deal will give it a 'diversified, alternative and non-traditional
financing stream to further enhance its war chest.'
CDL's new debt issue to tap Islamic sources
CITY Developments (CDL) is planning to raise funds through what will be
Singapore's first Islamic unsecured financing arrangement.
The developer said it will issue a $1 billion Islamic multi-currency
medium-term notes programme. This will allow CDL to tap new markets and
investors, including Islamic sources, for possible acquisitions in a
slowing economy.
'It is to keep ourselves liquid so we are ready to bottom-fish at any
time,' said CDL executive chairman Kwek Leng Beng.
The group said in a statement it is 'optimistic that under this
challenging economic situation lies tremendous opportunities'. This
deal will give it a 'diversified, alternative and non-traditional
financing stream to further enhance its war chest.'
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