Industry News - November 2013
Moody’s Upgrades Greece Credit Rating
November 30, 2013
Greece, for the last several years in severe fiscal trouble, is finally on the upswing. Moody’s upgraded Greece’s credit rating to Caa3 from C and gave the country a stable outlook. The credit rating agency is seeing Greece’s economy bottom out after six years of recession and expects the country to record a balanced budget or even a surplus. Reaching a surplus will qualify the country for further debt relief under the agreement with the IMF, European Commission, and the ECB.
Bank of England Takes Precautions against Housing Bubble
November 30, 2013
On Thursday, the governor of the Bank of England took action to remove stimulus for the housing market in the UK. Mark Carney announced that a program which gave incentives for lenders to provide mortgages, called the Funding for Lending Scheme, would be refocused on small businesses. The program was launched in August 2012, and immediately boosted home loans. Over the last year, housing prices have risen 6.5 percent, and forecasts called for a 10% rise over the next year. Following the decision to refocus, shares of home builders in England dropped sharply with Barratt Developments down 9 percent, Berkeley group 4 percent lower, and Persimmon off 6 percent.
Banks Use Foreign Subsidiaries to Skirt New U.S. Derivatives Rule
November 30, 2013
On October 2, a new rule went into effect that requires certain swaps to be traded on the new Swap Execution Facilities (SEF). However, the rules are relaxed for foreign banks, with only banks that trade more than $8 billion with U.S. banks required to trade swaps on a SEF. U.S. banks, keen to maintain their business with foreign banks, are doing their best to skirt the rules. Many of the major Wall Street banks, including Citigroup, Goldman Sachs, Morgan Stanley, and JP Morgan are all routing trades through foreign subsidiaries in London or Singapore. In this way, the trades are kept out of the SEFs and the associated regulatory burden is avoided.
Reserve Bank of India Getting Ready for Structural Banking Reforms
November 26, 2013
Based on statements in its report on Trend and Progress of Banking in India, the Reserve Bank of India appears to be getting ready for some major banking reform. The central bank wants banks to scale up business and serve smaller customers and rural regions of the country. The RBI also plans to push foreign banks to move towards a subsidiary model instead of a branch model and also further liberalize the bank licensing policy. At the same time, the report noted that banks need to improve asset quality and credit risk management as gross non-performing assets rose slightly to 3.6% from 3.1% a year ago. Additionally, banks in India still need to raise more capital before they will conform to Basel 3.
Existing Home Sales Drop 3.2%
November 24, 2013
Sales of previously owned homes dropped in October, to a 5.12 million annual rate, just under the expectations for a 5.13 million annual rate. In September, sales were at a 5.29 million annual rate. Housing sales were possibly affected by the government shutdown, with 13 percent of real-estate agents saying that delayed income verification forced buyers to push back the contract closing.
Federal Bank Regulators Guide Banks to Evaluate Payday Loan Customers
November 24, 2013
The FDIC and the Office of the Comptroller of the Currency recently both directed banks to evaluate customers more thoroughly before making deposit advance loans, commonly known as payday loans. The regulator’s guidance requires that customers should have the ability to pay back the loan and fees within six months without having to borrow more money. The guidance also would include a one month waiting time between one loan being paid off and another loan being made, an attempt to ensure that customers are not serially taking out payday loans. Deposit advance loans typically have higher fees than other methods of borrowing for consumers.
China Plans to End Yuan Intervention
November 19, 2013
In a move that continues China’s slow move towards more free markets, the People’s Bank of China announced that it plans to eventually end most intervention in the currency market. Governor Zhou Xiaochuan said that the daily trading range for the Yuan will be slowly widened. The central bank also announced that investment caps will be phased out over time for both domestic and foreign investors, as well as pulling back on the maximum deposit rate imposed on local banks. China has already been making moves towards financial liberalization, most recently removing the lower limit on lending rates in July.
Office of Financial Research Believes Asset Managers can Pose Risks to Financial System
November 18, 2013
The Office of Financial Research, created by the Dodd-Frank law, released a report which found that asset managers could create systemic risk. The Office of Financial Research provides data and analysis to the Financial Stability Oversight Council, which has the power to name companies as important to the financial system. Such firms would be under more intense scrutiny than competitors and smaller firms. Regulators have recently been eying Blackrock and Fidelity as potential systemic risks. The SEC requested comments on the study, and the industry has predictably responded negatively. Apart from Blackrock and Fidelity, T. Rowe, Federated Investors, PIMCO have all expressed opposition to the result of the report.
Mexican REIT Struggle with Transparency
October 2, 2013
The two year old REIT industry in Mexico is struggling with corporate governance and transparency issues. Known as Fibras, the real estate trusts generally have external management, which can give rise to conflicts of interest. The firms are not managed by an internal management team, but generally by a wealthy founding family or property owner who charges a fee. The Mexican tax code requires the use of an external management to make the model of owning property and hiring managers clearer to investors. This is in contrast to the U.S., where the majority of REITs are internally managed.
Australia’s Largest Mortgage Lender on Watch for Bubble
October 2, 2013
The CEO of the Commonwealth Bank of Australia warned that the industry should watch out for the potential of a bubble in real estate. Although Ian Narve believes current prices are justified, the sustained low interest rates could be creating risks. The real estate market is highly important to the bank as 60 percent of its loans are mortgages, a line of business which grew 5 percent in the first half of the year.