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2010-01-25T13:52:00.002+08:00

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2009-03-20T10:55:00.011+08:00

With J.P. Morgan’s help, what’s in store for RP govt employees?

J.P. Morgan announced that it has been selected by Government Services Insurance System (GSIS) of the Philippines to serve as custodian for its US$1 billion overseas investment programme.

GSIS provides and administers social security benefits for government employees and offers insurance coverage to assets and properties having government insurable interests.
As part of this existing mandate, J.P. Morgan will provide custody and fund reporting, compliance monitoring and performance measurement services to GSIS, with both local client support from Manila and regional management support from Hong Kong.

“We are delighted to have been selected by a key public institution like GSIS to provide them with custodial and fund services. We believe that J.P. Morgan’s superior service delivery and financial strength, combined with its disciplined approach to risk management practices, enables the firm to help its clients minimise operational and financial risks,” said Laurence Bailey, Asia Pacific chief executive officer for J.P. Morgan Worldwide Securities Services.

J.P. Morgan holds market leading positions in the provision of global custody services in Asia Pacific, including in Australia – the largest market in the region. The firm’s ability to serve the specific needs of this industry combined with its track record in managing assets safely and securely were key factors in GSIS’ decision to appoint J.P. Morgan to safekeep their assets.
J.P. Morgan leverages the services and products of its Treasury Services division, as well as its Investment Bank and Asset Management lines of business, to provide its customers with one-stop solutions.

With J.P. Morgan providing global custody support to GSIS, are government employees in the Philippines set to expect leverage in the state fund’s services?

2009-03-12T16:44:00.009+08:00

Why is South Korea on an Interest Rate Standstill?

The Bank of Korea unexpectedly kept its interest rate unchanged at a record-low 2 percent on 12 March, ending the nation’s most aggressive policy easing in a decade.

“We have lowered the benchmark interest rate at a rapid pace in a short period,” Governor Lee Seong Tae said in Seoul. “We’ll be monitoring the effects of the previous steps.”

South Korea’s currency and shares declined after the central bank said the economy is likely to remain in a recession amid “persistent weakness” in local and overseas demand. Lee has pared rates by 3.25 percentage points since 9 October, and Finance Minister Yoon Jeung Hyun plans to unveil an additional stimulus package this month to add to 51 trillion won ($34.7 billion) in tax cuts, handouts and infrastructure spending.

“They’ve cut very aggressively and are now taking a breather, but it is hardly a response to any better data,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong. “I expect in the months to come that they will pick it up again. Many Asian central banks are going to cut rates close to zero percent.”

Just three of 15 economists surveyed expected the decision with the remainder predicting a cut. The six reductions since early October are the most aggressive easing since the Bank of Korea began setting a policy rate a decade ago.

The Kospi stock index fell 1.5 percent to 1,111.01 after the decision, snapping three days of gains and increasing its loss over the past year to 33 percent. Korea’s won dropped 1.1 percent to 1,486.7 per dollar in Seoul after last week reaching an 11-year low of 1,597.

Tumbling Currency
“The Bank of Korea probably felt pressure to keep rates unchanged as lower interest rates can prompt investors to take more money out of the country, weakening the won further,” said David Kim, head of research at Taurus Investment Securities in Seoul.

A falling won, Asia’s worst-performing currency in 2009, increases the cost of financing offshore loans for Korean companies and could fan inflation by pushing up import prices.

South Korea’s pause in easing follows the Reserve Bank of Australia, which last week left its rate unchanged for the first time in seven months. New Zealand central bank Governor Alan Bollard said he would reduce the pace of rate cuts in the future after 5.25 percentage points of easing since July.

Government Spending
South Korea’s government said it will provide cash, loans, school fees and other financial incentives valued at 6 trillion won to help those on lower incomes cope with rising unemployment. The aid package will use funds from the extra budget being proposed this month, the finance ministry said.

Bank of Korea Governor Lee said he expects the government to propose “a significant” extra spending package, financed through bond sales. The central bank will watch the effect of debt sales on financial markets as it decides whether to purchase bonds, he added.

“The Korean economy is likely to remain in recession due to the persistent weakness of both domestic and overseas demand,” the central bank said.

The World Bank this week forecast the global economy will shrink in 2009 for the first time since World War II and that trade will fall by the most in eight decades.

Exports of cars, ships, mobile phones and other goods, which make up more than 60 percent of South Korea’s gross domestic product, fell 17.1 percent in February.

Bank Aid
As well as boosting spending, South Korea has been widening efforts to aid banks by injecting $39 billion into the financial system to thaw credit markets, setting up a 20 trillion won fund to replenish bank capital as bad loans increase, and establishing another fund to buy distressed corporate bonds.

Bank profits almost halved last year on provisions for loans to struggling developers and shipbuilders. Kookmin Bank, the nation’s largest lender, posted its first loss in four years in the fourth quarter.

“Both the central bank and the government should continue to do what they can to help the economy,” said Ryu Seung Sun, an economist at HMC Investment Securities in Seoul. “There are global efforts to prop up economies. South Korea shouldn’t exclude itself from the moves.”

The Asia’s fourth-largest economy contracted 3.4 percent last quarter, the first decline in 11 years, as exports to the U.S., Europe and China dropped. Goldman Sachs this week forecast the economy will shrink 4.5 percent in 2009.

South Korea lost 103,000 jobs in January, the biggest decline since September 2003. Genworth Financial announced last month the closure of its South Korean business as it cuts costs globally. Industrial production plunged a record 25.6 percent in January.

LG Electronics, the world’s third-largest maker of mobile phones, says industry shipments will fall more than previously expected in 2009. Hyundai Heavy Industries, the world’s largest shipbuilder, said last month that orders dropped 54 percent in January from a year earlier.

With the Bank of Korea taking a breather in cutting rates, is it simply pacing its moves or about to take a sharp turn?

2009-03-05T16:17:00.004+08:00

Why are Japanese banks swapping interest rates?

Japan’s banks are paying record premiums to exchange interest rates calculated in Tokyo for ones set in London as a slumping economy exacerbates concerns about the capacity of the nation’s companies to meet their obligations.

Banks paid as much as 49 basis points this week on top of the Tokyo Interbank Offered Rate, or Tibor, to receive the London Interbank Offered Rate, or Libor, for ten years. That’s the largest gap since at least May 1999, and exceeds levels following the banking crisis of the late 1990s when the so-called Japan premium forced domestic lenders to pay higher borrowing costs than their overseas counterparts.

The record spread “is driven by corporate credit risks,” said Tokuyoshi Takano, manager of the financial derivatives section at Mitsui Sumitomo Insurance in Tokyo. “Even if the credit problem doesn’t get solved, you can take a profit of 40 basis points over ten years.”

Six-month Tibor is little changed this year amid renewed demand for loans from companies, after falling about 14 basis points in the two weeks following its peak on 16 December at 0.92615 percent. The rate stood at 0.76692 percent on 4 March, from 0.78692 at the end of last year, according to the Japanese Bankers Association. A basis point is 0.01 percentage point.

Libor has declined to 0.79750 percent from 1.04375 percent, its recent high set on 9 December. Tibor, similar to Libor, is used as a benchmark to set corporate borrowing costs.

“Banks can lock in profits from the Tibor-Libor spread,” said Reiko Tokukatsu, a bond strategist in Tokyo at JPMorgan. “Risk takers should receive Tibor and pay Libor.”

Lending by Japan’s banks slowed for the first time in four months in January after the Bank of Japan said it would buy short-term bonds from companies and a global recession sapped demand for credit.

With Japanese banks opting to utilise the interest rates calculated in London, will the nation’s credit issue be resolved?

2009-02-26T12:14:00.005+08:00

Will Indonesia’s $4 Billion Bond Sales Plan Boost Government Spending?

Indonesia’s parliament approved a 73.3 trillion rupiah ($6.1 billion) stimulus package and endorsed the 2009 budget, paving the way for the country to sell as much as $4 billion of dollar-denominated debt.

The parliament endorsed a 2.8 percent increase in the government’s fiscal stimulus spending from an initial proposal of 71.3 trillion rupiah, Suharso Monoarfa, deputy chairman of the budget committee, said. That includes raising the budget to fund infrastructure programs by 13 percent to 17 trillion rupiah, he said.

The approval by parliament will enable the government to sell debt overseas to help fund a budget deficit of 139.5 trillion rupiah, or 2.5 percent of gross domestic product. The government plans to boost spending to sustain Indonesia’s economic growth, which is forecast to weaken to 4.5 percent this year from 6.1 percent in 2008.

The price for the dollar bonds “will be high because people will only let go of their foreign currencies with the assurance that they will get a high price,” Finance Minister Sri Mulyani Indrawati said. “A stimulus package is about timing, targets and is temporary.”

The government met investors starting on 2 February to drum up interest for the sale of dollar-denominated debt. The extra yield that investors demand to own ten-year Indonesian bonds instead of U.S. Treasuries has widened 1.8 percentage points this month to 10.8 points.

Fiscal Stimulus
The stimulus is effective starting on 1 March, Sri Mulyani said. The parliament also endorsed a government plan to raise 1.1 trillion rupiah in additional debt, Monoarfa said, without elaborating.

“We view the government moves positively,” said Destry Damayanti, chief economist at PT Mandiri Sekuritas. “However, we remain concerned on the implementation and whether the government will be able to spend according to plan, considering that it did not manage well last year.”

Southeast Asia’s biggest economy posted a budget shortfall of 4.2 trillion rupiah or 0.1 percent of GDP last year, narrower than the 2.1 percent of GDP expected by the government after failing to spend as planned.

“We’re trying to soften the downward cycle, we’re trying to keep it from becoming too deep,” Sri Mulyani said.

The government may use 51.3 trillion rupiah unused from last year’s budget, sell 54.7 trillion rupiah of bonds and borrow 44.5 trillion rupiah to finance its shortfall, said Mandiri’s Damayanti.

Debt from Indonesia, which raised $4.2 billion from dollar-denominated bond sales last year, is rated BB-, three levels below investment grade, by Standard & Poor’s. Fitch Ratings ranked the proposed debt BB, or two levels below investment grade. The government had planned to sell the bonds in phases anytime in the next three years, according to S&P.

Considering Indonesia’s government spending last year, will the sale of dollar-denominated debt help address the country’s weakening economic growth?

2009-02-19T18:21:00.007+08:00

Is Rate Cut the Answer to Taiwan’s Contracting Economy?

Taiwan’s central bank cut interest rates to a record low after the economy shrank an unprecedented 8.36 percent in the fourth quarter as exports and business investment tumbled.

Governor Perng Fai-nan and his board pared the discount rate on ten-day loans to banks to 1.25 percent from 1.5 percent in Taipei on 18 February, the seventh reduction since late September. The decline in gross domestic product from a year earlier was the biggest since official records began in 1952, and exceeded the 6.82 percent drop forecast in a Bloomberg survey of economists.

Taiwan entered its first recession since the technology bubble burst in 2001 as the global economic slump reduced demand for Taiwan Semiconductor Manufacturing computer chips and Quanta Computer laptops. The central bank will pump money into the economy if Taiwan’s lenders fail to provide more credit to businesses, Perng said.

“The steep contraction of the economy needs much stronger measures than cutting interest rates,” said Chuang Rehong, head of economic research at Sinopac Securities in Taipei. “Lowering borrowing costs won’t provide an immediate boost to the economy since the banks have been cautious in giving out credit.”

Taiwan’s economy will shrink 2.97 percent this year, the government forecast on 18 February, reversing its November estimate of 2.12 percent growth.

Relief Efforts The central bank alone can’t stimulate the economy, Perng said, adding the government is doing its part. “The government is implementing expansionary fiscal policies while the central bank is pursuing loose monetary policy.”

President Ma Ying-jeou’s administration plans stimulus spending of NT$858.5 billion ($25 billion) over four years, equivalent to about 6 percent of GDP, on infrastructure projects, consumer grants and tax cuts. It handed out NT$82.9 billion of shopping vouchers last month, which the statistics bureau forecasts added 0.66 percentage points to GDP.

Pressure is increasing on Asia’s policy makers to step up relief efforts as the region’s export-dependent economies falter.

Japan’s economy contracted an annualised 12.7 percent last quarter, the biggest drop since 1974. The Bank of Japan will detail its plan of buying corporate bonds and may prolong lending programs in place to avert a shortage of credit from deepening the worst postwar recession, economists said. Singapore’s GDP declined by a record 16.9 percent annualised rate in the fourth quarter. The government is cutting corporate taxes, giving cash grants to companies to retain workers and plans to spend S$20.5 billion ($13.4 billion) to help businesses and citizens.

Currency Declines Taiwan’s rate decision and GDP report were released after the close of trading on the island’s stock exchange. The Taiex stock index, which tumbled 46 percent in 2008, rose 0.2 percent to 4,498.37 on 18 February. Taiwan’s currency dropped to NT424.682, the lowest level in more than five years against the U.S. dollar.

“This is going to go on for some time, not just for Taiwan but for Asian currencies in general,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, the investment-banking unit of French bank Credit Agricole SA. “There’s a sense that the economic numbers are going to get worse in the next few months.”

Exports, which are equivalent to 70 percent of GDP, will decline 20.1 percent in 2009 and business investment will tumble more than 28 percent, it predicted. The economy won’t return to growth until the fourth quarter, the government added.

‘Most Exposed’ “Taiwan is among the most exposed economies in Asia,” said Frederic Neumann, a Hong Kong-based economist at HSBC Global Research. “The island’s economy is unlikely to see a significant rebound until consumers in the West decide to go out and spend again.”

The island, which has been ruled separately from China since 1949 and is home to 23 million people, is increasingly reliant on trade with the mainland to drive its economy. China and Hong Kong combined bought about 41 percent of its exports in 2007, up from 26.6 percent in 2001.

Electronics makers send parts to China that are re-exported as finished computers, televisions and mobile phones to consumers in the U.S. and Europe.

In response to the slump, Taiwan’s companies are cutting capital spending, closing factories and firing employees. Retail sales fell 9.8 percent in December, the largest drop since records began in 1999. The unemployment rate rose to 5.01 percent in December, the highest since 2003, amidst job cuts by companies including Hon Hai Precision Industry, which makes iPhones for Apple.

Quanta Computer, the world’s biggest maker of notebook computers, said this week shipments will decline more than 30 percent this quarter. Taiwan Semi in December forecast its first quarterly loss since 1990 as customers including Texas Instruments reduce orders.

With the measures being undertaken by the government and other institutions, is Taiwan set to bounce back in the near future?

2009-02-03T13:12:00.005+08:00

Why has China Construction Bank Approved to Sell $5.8 Billion of Bonds?

China Construction Bank Corp., the nation's second-largest lender, said it received regulatory approval to raise as much as 40 billion yuan ($5.8 billion) selling subordinated bonds to boost capital.

The bond sale, endorsed by shareholders in June, was approved by the China Banking Regulatory Commission and the People's Bank of China, the Beijing-based bank said in a statement to the Hong Kong stock exchange today.

China Construction Bank will sell bonds to institutional investors on the domestic market, according to today's statement, scrapping an earlier plan to issue up to 5 billion yuan in Hong Kong as part of the sale.

China is urging domestic lenders to strengthen capital and guard against credit risks as the world's third-largest economy cools. The average capital adequacy ratio of Chinese banks climbed to 8.4 percent in 2007, above the regulatory minimum for the first time. China Construction Bank's capital adequacy ratio stood at 12.1 percent as at Sept. 30, down 0.48 percentage point from the beginning of last year.

China Construction Bank plans to raise another 80 billion yuan of subordinated bonds over the next two years, it said on Jan. 16. This sale is subject to shareholder and regulatory approvals.

Subordinated debt is considered supplementary capital. In the event of bankruptcy, subordinated debt holders receive payment only after other debt claims are paid in full.

Shares of China Construction Bank fell 2.6 percent to close at HK$3.70 in Hong Kong today.

After so much news about Chinese banks being a safe haven for investors, is this the end of the dream?

2008-11-04T18:39:00.000+08:00

Why are Korean banks still on negative watch?

Kookmin Bank and six other South Korean financial firms had their ratings affirmed by Standard & Poor's as the ratings company removed them from its watch list following a government aid package for lenders.

The outlooks for Kookmin, Woori Bank, Shinhan Bank and Hana Bank -- the nation's four biggest lenders -- were still “negative” on concerns of “defaults by relatively small and midsize enterprises and construction companies,” S&P said in a statement. Woori's parent Woori Finance Holdings and Shinhan' credit card affiliate were also given “negative” outlooks.

The South Korean government pledged on Oct. 19 to provide $130 billion as a state guarantee to cover lenders' overseas debts due by mid-2009. Banks were also given access to $30 billion of dollars from the country's foreign-currency reserves. Korean banks have suffered from a liquidity crunch and pressure financing overseas debt amid the global credit crisis.

The aid package, which came after S&P placed seven financial firms on CreditWatch with negative implication, received parliamentary approval.
The state package “has largely mitigated concerns regarding the Korean banks' foreign currency liquidity risk,” S&P said. The six companies' outlooks could be revised to “stable” if they could overcome the risk of rising loan defaults “without significantly undermining their capitalization and asset quality measures,” it said.
Korea Exchange Bank, also removed from S&P's CreditWatch, was given a “stable” outlook.

How do Korean banks plan to secure more assets amid rising loan defaults risks?

2008-10-28T15:15:00.000+08:00

Is foreign-exchange trading really profitable in China?

China Merchants Bank, the nation's fifth-largest bank by market value, said its foreign-exchange trading and wealth management businesses are profitable, dousing market speculation that it suffered “huge” losses from these services.

Operations of foreign-exchange trading and foreign-currency denominated wealth management are normal, Shenzhen-based China Merchants said in a statement to the Shanghai Stock Exchange.

China Merchants tumbled by its ten percent daily limit to 12.14 yuan in Shanghai on Oct. 24, extending this year's loss to 69 percent. The stock fell 9.6 percent in Hong Kong to HK$11.34.

China Merchants said last week that profit for the first nine months of 2008 rose more than 80 percent because of expansion in assets, growth in non-interest income, a wider interest spread and lower income tax. Growth may have slowed from the 116 percent surge in the first half, raising concerns that the bank faces deteriorating asset quality.

China Merchants is scheduled to report third-quarter results on Oct. 29.

Will China Merchants' revenue from FX trading and wealth management be enough to cushion possible deterioration in the bank's assets?

2008-10-14T13:17:00.000+08:00

Can higher interest rates attract

more deposits into Hong Kong banks?

Bank of East Asia, Hong Kong's third-biggest by assets, and smaller competitors are offering depositors interest rates as much as 17 times higher than HSBC Holdings as the credit crisis drives funding costs higher.

Bank of East Asia, Wing Hang Bank and Dah Sing Banking Group are offering rates as high as 4.3375 percent for one-month time deposits, according to their Web sites. That compares with 0.25 percent at HSBC, Hong Kong's largest bank by deposits.

Money market rates are rising as the deepening global financial crisis makes banks reluctant to lend to each other, increasing the importance of deposits as a source of funding. Rumors questioning Bank of East Asia's stability last month led to Hong Kong's first bank run in more than a decade.

“The banks can increase their net interest margin” by drawing more deposits, said Kenny Tang, director of Tung Tai Securities in Hong Kong, referring to lending profitability. The higher savings rates are likely to attract investors seeking safe-haven options amid the stock market declines, he said.

Bank of East Asia dropped 3.4 percent to close at HK$20.15, paring earlier losses. Wing Hang fell 0.5 percent to HK$43.70 while the local benchmark Hang Seng Index declined 8 percent. Stocks across Asia tumbled on Oct.10 driving a regional benchmark toward the biggest weekly drop since it was created almost 21 years ago.
The Hong Kong Monetary Authority on Oct. 9 cut its base rate by 150 basis points to two percent. That didn't stop the benchmark three-month Hibor from rising one basis point to 4.41 percent on Oct. 10, almost double from Sept. 10. One-month Hibor was 4.99 percent. One basis point is 0.01 percentage point.

The interbank rate is the rate at which banks bid for and offer deposits to each other.

Loan-Deposit Ratios
Tong Hon Shing, general manager and head of the personal banking division at Bank of East Asia, wasn't immediately available to comment.

The average loan-to-deposit ratio at Hong Kong banks rose to 83.2 percent in August, the highest since December 2005, according to HKMA data.

Bank of East Asia is offering 4.3375 percent for HK$400,000 placed in one-month time deposits, according to its Web site. On Sept. 1, the interest was 1.0675 percent, bank spokeswoman Vera Lung said in an e-mail.

Wing Hang Bank customers get 3.55 percent for one-month time deposit of up to HK$500,000, according to its Web site. HSBC pays 0.25 percent for one-month deposits of less than HK$500,000, its Web site shows.

Fitch Ratings on Sept. 29 cut Bank of East Asia's long-term credit rating outlook to negative from stable after the bank run. Hong Kong Financial Secretary John Tsang had said the rumors were unfounded and malicious and that the bank has enough capital to serve clients. Police arrested an 18-year-old man in the investigation.
HSBC, based in London, had $231.7 billion of deposits in Hong Kong at the end of June. Bank of East Asia had $39.7 billion and Wing Hang and Dah Sing had $15.4 billion and $11 billion, respectively.

Aside from securing higher saving rates, how do banks assure investors and ordinary depositors that their accounts are safe?

2008-10-02T19:45:00.001+08:00

How long will BEA stay under negative outlook?

Bank of East Asia, Hong Kong's third-largest lender, had its long-term credit rating outlook cut to negative from stable by Fitch Ratings after speculation about its stability caused depositors to withdraw money.

“Despite endeavors to ascertain exactly how much in deposits were lost, the bank has not disclosed this information,” making it hard to assess “the level of damage incurred by the bank's franchise,” Fitch said in a statement.

David Li, chairman of the bank, said Sept. 26 that operations were “quickly returning to normal” after rejecting the rumors that caused some customers to withdraw deposits last week. Hong Kong Financial Secretary John Tsang said last week the rumors were unfounded and that the bank had enough capital to serve clients.

Li, 69, bought 100,000 shares of the bank at the average price of HK$26.30 on Sept. 25, according to a filing to the Hong Kong stock exchange. His stake remains at 2.76 percent after the purchase, the filing showed.

BEA doesn't plan to disclose the amount of deposits lost “for the time being,” Vera Lung, a Hong Kong-based spokeswoman for the firm, said. She declined to comment on Fitch's rating cut.

Fitch has an A- long-term issuer default rating on BEA, the fourth-lowest investment grade, according to the statement.

The bank said Sept. 24 its “exposure” to bankrupt Lehman Brothers Holdings and American International Group, taken over by the U.S. government, is about $61 million, less than 0.2 percent of assets.

Hong Kong police arrested a man suspected of spreading rumors online that urged people to withdraw deposits from a local financial institution, the South China Morning Post reported.

What could be BEA's reasons for not disclosing the total amount of deposits it lost?

2008-09-23T11:02:00.003+08:00

How does Shinsei plan to recover from losses

due to exposure to Lehman?

Shinsei Bank, the Japanese lender part-owned by private equity investor Christopher Flowers, forecast profit to fall 80 percent after losses on debt extended to Lehman Brothers Holdings.

Net income will decline to 12 billion yen ($113 million) for the 12 months ending March 31, from the 60.1 billion yen a year earlier, the Tokyo-based bank said in a statement. The company in May forecast 62 billion yen profit.

Shinsei has about 38 billion yen in “exposure” to the bankrupt Wall Street firm, including a 25 billion yen unsecured loan and 9 billion yen in bonds, the bank said on Sept. 16.

“These figures leave a very bad impression,” said Hiromichi Tsuyukubo, a hedge-fund manager in Tokyo at Myojo Asset Management Japan, which oversees about $150 million. “The 38 billion yen to Lehman was already announced but the size of the downward revision is much bigger than expected.”

Shinsei sold its Tokyo headquarters to a Morgan Stanley real estate fund in March, keeping it from missing profit targets for a second straight year and removing a potential threat to the jobs of top managers at the time. The bank, which recorded $295 million in writedowns and provisions from investments tied to the U.S. residential mortgage market at end June, said it will make additional provisions on European asset-backed securities and investments.

Shinsei also said that it had completed the acquisition of General Electric's Japan consumer finance business for 580 billion yen. The new unit will boost full-year earnings by 30 billion yen, the firm said in a separate statement.

Shinsei is buying the Tokyo-based Lake unit and GE's mortgage-loan and credit-card businesses in Japan to boost its lending to consumers in the nation by almost two-thirds.

Chief Executive Officer Thierry Porte is betting that Japan's consumer finance industry, after contracting since a 2006 crackdown by authorities on interest rates and collection tactics, is poised to recover.

Will acquisitions overseas, especially units of Wall Street companies, be a better option for Shinsei?

2008-09-16T14:03:00.001+08:00

Are Japanese banks expecting another 'Black Monday'?

Mitsubishi UFJ Financial Group and Aozora Bank led the biggest decline among Japanese banks since the “Black Monday” market crash in 1987, after Lehman Brothers Holdings' collapse triggered a plunge in U.S. financial stocks and saddled Japanese lenders with some of the largest debts.

Mitsubishi UFJ, Japan's biggest bank, fell 10 percent, the most in at least seven years, on the Tokyo Stock Exchange. Aozora plunged by 20 percent.

The U.S. stock decline erased more than $600 billion in market value as financial shares in the Standard & Poor's 500 Index decreased the most since at least 1989, according to data compiled by Bloomberg. The largest single creditor listed in Lehman's Chapter 11 bankruptcy filing is Tokyo-based Aozora, owed $463 million.

“I'd expect the direct impact on Japanese names to be very modest, but they exist in a global financial system that's coming under a lot more pressure than anybody considered likely,” said David Threadgold, a bank analyst with Fox-Pitt Kelton Asia in Tokyo. “The bigger issue is the whole world is in trouble.”

The 84-stock Topix Banks Index fell as much as 10 percent, the most since October 20, 1987, the day after “Black Monday,” when stock markets around the world crashed.

Sumitomo Mitsui, Mizuho
Sumitomo Mitsui Financial Group, Japan's third-largest bank by market value, fell 11 percent to 608,000 yen while Mizuho Financial Group, the second-biggest, dropped 10 percent to 419,000 yen.

Tokyo-based Mizuho is owed $382 million by Lehman, the U.S. brokerage said in a statement. Masako Shiono, a spokeswoman for Mizuho, declined to comment on the statement.

Aozora's exposure due to Lehman was overstated in the U.S. firm's bankruptcy filing and may be less than $25 million, Chief Financial Officer Richard Layton said in a statement.

Financial stocks in South Korea also fell, led by Woori Finance Holdings, which controls the nation's second-biggest bank. Woori plunged 14 percent, the most since it began trading in June 2002, in Seoul.

An index tracking 54 of South Korea's financial companies dropped 8.9 percent, the biggest contributor among 19 industry groups to the benchmark Kospi index's 6.1 percent decline.

South Korea's Financial Services Commission said Korean firms have invested about $720 million in loans and securities linked to Lehman.

Kookmin Bank, the country's largest, fell 8.5 percent while Shinhan Financial Group, which controls the third-biggest lender, dropped 7.4 percent.

In Sydney, Commonwealth Bank of Australia fell 2.2 percent to A$41.07. The lender said its exposure to Lehman is less than A$150 million ($119 million).

The Sydney-based bank is “working with relevant parties in regard to its position,” Commonwealth said in a statement to the Australian stock exchange.

Will Asian banks lessen their exposure to finance institutions such as Lehman after this recent plunge in U.S. stocks? How will this affect, if ever, the banks' position in the global financial system?

2008-09-09T14:26:00.003+08:00

Will acquiring Acom help Mitsubishi UFJ do better

in a shrinking consumer finance industry?

Mitsubishi UFJ Financial Group, Japan's biggest bank, will spend about 153 billion yen ($1.4 billion) to more than double its stake in consumer lender Acom Co. as foreign companies withdraw from the market.

Mitsubishi UFJ will increase its holding in Acom, Japan's biggest consumer finance company by market value, to 40 percent from 16 percent, it said in a statement. The offer values Acom at 638.5 billion yen.

Acom will add about 1.4 trillion yen of loans to individuals and small companies, which make up a smaller percentage of lending at Mitsubishi UFJ than at rivals such as Sumitomo Mitsui Financial Group. Tokyo-based Mitsubishi UFJ joins Shinsei Bank in buying into Japan's consumer finance industry as Citigroup and General Electric exit a market that's been shrinking since a 2006 government crackdown on lending practices.

“For Mitsubishi UFJ, it makes sense long term because they don't have the level of personal loans that other banks do,” Kristine Li, an analyst at KBC Securities Japan in Tokyo, said before the announcement.

Mitsubishi UFJ is also expanding overseas. It invested more than $1 billion in five Asian financial institutions from Singapore to Indonesia during the past two-and-a-half years and on Aug. 18 said it will spend $3.5 billion to gain full control of California-based lender UnionBanCal.

Acom to Be Subsidiary
The bank plans to make Acom a consolidated subsidiary and integrate the company into its consumer finance business, the release said. It will pay 4,000 yen a share for the 24 percent stake in Acom. The bid period is from Sept. 16 to Oct. 21.

Tokyo-based Acom has risen ten percent since the potential deal was first reported on Aug. 28 and climbed 3.6 percent before the announcement. Mitsubishi UFJ gained 13 percent.

The investment follows Shinsei's announcement in July that it will spend 580 billion yen to acquire General Electric's local consumer finance businesses. Citigroup's consumer loans unit, which had 32 branches and 540 automated loan machines in Japan as of June, plans to close them and transfer capital to more profitable areas.

Consumer Lenders
Consumer lenders in Japan have grappled with falling sales since a crackdown two years ago by the government and courts on interest rates and collection practices. Acom and its main rivals Promise, Aiful and Takefuji posted losses totaling 1.7 trillion yen in the year ended March 2007 after making provisions for potential refund claims by borrowers who paid excessive fees and interest.

The government approved legislation in 2006 capping the interest rates consumer lenders can charge at 20 percent, down from 29 percent previously.

The country's weakening economy, which shrank by an annualized 2.4 percent in the three months ended June 30, and rising prices are also crimping household spending and driving up bad-loan ratios.

”Mitsubishi UFJ shouldn't invest in Acom, as consumer finance isn't profitable,” said Hiromichi Tsuyukubo, a hedge-fund manager in Tokyo at Myojo Asset Management Japan, which oversees about $150 million. The bank should instead seek to buy a stake in Lehman Brothers Holdings, the U.S. securities firm that's trying to raise capital, he said.

Shares Decline
Acom is the only one of Japan's four biggest consumer whose market value increased this year as it has avoided selling convertible bonds, issued by Promise, Takefuji and Aiful to boost capital and repay debt. The stock is up 37 percent since the end of 2007, compared with declines of 12 percent to 58 percent for its three biggest rivals.

Acom boosted first-quarter profit 51 percent from a year earlier to 20 billion yen, even as revenue fell 14 percent, it said Aug. 7.

“There may be opportunities in the consumer finance market now that the dust has settled,” said Kirby Daley, senior strategist at Newedge Group in Hong Kong. The Japanese government may be tempted to introduce “a slight easing of regulations” as the economy slows, making the industry more appealing, he said.

Mitsubishi UFJ made its Mitsubishi UFJ Nicos credit-card arm a wholly owned subsidiary earlier this year, as it cut jobs at the business after two straight years of losses. The bank boosted its holding in Jaccs, a consumer credit company, to 20 percent from 6.9 percent this year.

Debt Repayment Funds
DC Cash One, an Internet-based consumer finance company set up by Acom and Mitsubishi UFJ in August 2001, plans to merge its loan business with Acom by April 2009, the statement said.

If Mitsubishi UFJ's offer for Acom is successful, the bank will lend 57.3 billion yen to Acom, 40 billion yen of which will be used to repay debt, Acom said in a release.

Mitsubishi UFJ Securities and Nomura Securities advised Mitsubishi UFJ on the transaction, while Merrill Lynch advised Acom.

With major overseas banks leaving the Japanese market, can local banks alone revive consumer lending in the country?

2008-09-02T16:31:00.002+08:00

Will Bank of China continue to lag behind peers

after posting slowest growth?

Bank of China posted the slowest profit growth among the nation's biggest lenders in the second quarter because of subprime mortgage losses and said it holds $10.5 billion of securities backed by U.S. home loans.

Net income at China's third-largest bank rose 15 percent to 20.5 billion yuan ($3 billion), based on figures released in a statement. The company said it holds $3.64 billion of securities tied to subprime mortgages and disclosed $6.9 billion of additional home loan investments.

“All these investments are time bombs if the situation in the U.S. gets worse,” said She Minhua, a Shanghai-based analyst at China Securities.

Overseas mortgage investments limited Chairman Xiao Gang's ability to profit from a domestic economy that grew 10.1 percent in the quarter. Industrial & Commercial Bank of China became the world's most profitable lender this year as it avoided the global credit contagion that led to more than $500 billion of losses globally.

Profit growth at Bank of China slowed from 85 percent in the previous three months. Bigger competitor ICBC boosted net income by 41 percent in the quarter.

Bank of China said it held $7.5 billion of debt issued by Fannie Mae and Freddie Mac as of Aug. 25, and $5.17 billion of mortgage-backed securities guaranteed by the two largest U.S. home loan providers. It held $1.83 billion of securities backed by so-called Alt-A mortgages and $5.08 billion of other “non- agency” home loan investments. Bank of China said 99 percent of the latter category of securities carries AAA credit ratings.

Biggest Subprime Loser
Bank of China wrote down the value of subprime investments by $405 million in the quarter. The bank has booked $522 million of losses on securities tied to Alt-A loans to date, and another $599 million on other mortgage investments.

All told, investments in U.S. mortgage securities have led to $3 billion of total losses at Bank of China since the credit crisis began a year ago, making it the biggest loser among the nation's lenders.

“I hope BOC has learnt a lesson about the cost of seeking yield pick-up over U.S. Treasuries,” said Winson Fong at SG Asset Management Hong Kong, which oversees $3 billion and doesn't hold Bank of China shares.

Maintain Profit Growth
The bank will closely monitor investment in Fannie and Freddie and “act accordingly,” President Li Lihui said. The debt won't have significant impact on second-half profit, and full-year earnings growth is expected to match the gain in the first half, Li said.

Credit market losses in Asia are dwarfed by those in Europe and the U.S. The region's financial companies have suffered a combined $23 billion of losses, compared with $230 billion in Europe and $254 billion in the U.S., according to data compiled by Bloomberg.

Optimism that a wider footprint would benefit Bank of China turned to concern last year as rising U.S. mortgage defaults spawned a worldwide credit contraction, derailing global growth while China's economic expansion stayed above ten percent.
Shares in Bank of China have dropped 40 percent in Shanghai and 16 percent in Hong Kong over the past year, underperforming bigger competitors ICBC and China Construction Bank.

Bank of China trades at 1.5 times forecast end-2008 book value, below the average 2.05 times among the nation's 14 publicly traded banks, according to Bloomberg data. Citigroup, the biggest U.S. bank, has a price-to-book multiple of 0.87.

'Substantial' Losses
Investors should avoid Bank of China regardless of its low valuation, Core-Pacific Yamaichi analyst Yuk Kei Lee wrote in a July 24 report. He cited the risk of “substantial” foreign exchange losses, and the possibility that U.S. banks will default on their debts. The yuan has climbed seven percent against the dollar this year, the best-performing Asian currency.

Bank of China operates 689 outlets overseas, six times more than ICBC, the world's largest bank by market value. Operations abroad accounted for 43 percent of Bank of China's profit in 2007, compared with 3 percent for ICBC.

“Bank of China is facing a very serious challenge to its strategy and business mix,” said Wang Yihuan, a Beijing-based analyst at China Asset Management, which manages the equivalent of $36 billion. “Its overseas operations and large foreign exchange holdings have been and will continue to be a drag on profit, and management can't fix that quickly.”

Lending Profitability
Net interest income, or income earned on loans after deducting interest paid for deposits, at Bank of China rose 15 percent to 81.5 billion yuan. Fees and commissions gained 45 percent to 22.4 billion yuan. Its net interest margin, a measure of lending profitability, widened to 2.72 percent in the first six months from 2.66 percent a year earlier.

The bank expanded loans by 13.8 percent in the first half to 3.24 trillion yuan. The non-performing loan ratio narrowed to 2.28 percent from 3.12 percent at the end of last year.

Royal Bank of Scotland owns 8.25 percent of Bank of China, Temasek Holding owns 4.13 percent and UBS AG holds 1.33 percent.

BOC Hong Kong (Holdings), a Bank of China unit, reported that first-half profit fell five percent to HK$7.09 billion ($908 million).

Will a revamp in strategy help save some of BOC's capital? Which aspect of the strategy should the lender prioritize?

2008-08-26T13:40:00.000+08:00

Will ICBC's upcoming bond sale

be enough to support future acquisitions?

Industrial & Commercial Bank of China, the world's most profitable bank, may sell as much as 100 billion yuan ($14.6 billion) of bonds after domestic loan growth and acquisitions overseas drained capital.

The Beijing-based lender, which topped closest rival HSBC Holdings after profit soared 57 percent in the first half, plans to sell the subordinated debt in batches by 2011, it said in a statement to the Shanghai Stock Exchange. Shareholders will vote on the plan on Oct. 27.

Annual economic growth of more than ten percent bolstered corporate loans and services to China's growing number of wealthy people, helping ICBC more than double profit since 2005. Chairman Jiang Jianqing has spent more than $6 billion making acquisitions in Indonesia, Macau and South Africa in the past year, tripling the share of profit coming from overseas.

“The management is preparing for the rainy days and investment opportunities that may emerge abroad, which will easily exhaust capital,” said Yuan Lin, a Beijing-based analyst at BOC International. “ICBC's current capital position is ample to support the domestic growth.”

ICBC's capital adequacy ratio, a key measure of financial strength, fell to 10.33 percent as of June 30, down from 12.23 percent at the end of last year.

Debt Sales
The bank said first-half profit surged to 64.5 billion yuan as a focus on domestic lending helped it avoid the global credit crisis that led to more than $500 billion of writedowns and losses at financial firms since the beginning of 2007 because of the subprime meltdown.

China's government, grappling to contain the world's largest foreign-currency reserves that soared to a record $1.81 trillion on June 30, has been encouraging state-owned companies to expand overseas.

ICBC, having raised $22 billion in the world's largest initial public offering in October 2006, is taking advantage of falling valuations of peers overseas to make acquisitions. The bank in October bought a 20 percent stake in South Africa's Standard Bank Group for $5.4 billion in the biggest overseas acquisition by a Chinese bank.

Bond Redemption
The company's debt issuance plan comes as it prepares for a redemption of bonds sold earlier and seeks mergers and acquisitions overseas, board secretary Gu Shu said.
ICBC, which controlled 17 percent of the nation's banking assets, received approval in July 2005 to sell up to 100 billion yuan of bonds before the end of 2007. The lender sold 35 billion yuan of callable subordinated debt in 2005 and it has the right to redeem 22 billion of the debt as early as 2010.

Subordinated debt is considered supplementary capital. In the event of bankruptcy, subordinated debt holders receive payment only after other debt claims are paid in full.

ICBC is now the world's biggest bank by market value, three years after receiving a $15 billion government bailout. It has 16,476 branches nationwide and 112 branches outside China. It also has 170 million personal customers, equivalent to the populations of Russia and Canada combined.

Now considered as the world's most profitable bank, how do you expect ICBC to perform in both domestic and international markets? Can the lender sustain its momentum or will it shift gears soon?

2008-08-19T15:57:00.000+08:00

Why does SH Asset Management oppose Kookmin buyback?

SH Asset Management said it opposes Kookmin Bank, South Korea's biggest lender, buying back five percent of its own shares, becoming the first institutional investor to object to the plan.

SH Asset, a unit banking rival Shinhan Financial Group, said in a regulatory filing it is against Kookmin's move to spend one trillion won ($963 million) on the buyback. The Seoul-based firm didn't say why it opposes the plan.

Kookmin wants to create a holding company, making it easier to use capital for acquisitions. The bank has said it may scrap the restructuring if investors representing more than 15 percent of its stock oppose it.

Kookmin needs approval for its restructuring from two-thirds of the shareholders present, or from holders of one-third of its outstanding shares, during a shareholder meeting on Aug. 25. SH Asset holds 531,600 shares, or 0.16 percent of Kookmin's stock.

The bank plans to purchase 16.84 million shares on the market from Aug. 18 to Nov. 17 to stabilize the stock price, Kookmin said in a regulatory filing Aug. 14.

What could be SH Asset's reasons for resisting the buyback? Will it stick with Kookmin until the lender stabilizes its stock price?

2008-08-12T16:49:00.000+08:00

Will homecourt advantage still work for DBS?

DBS Group Holdings, Southeast Asia's biggest bank, said it will shift its priority on its Singapore home market after spending more than $5.4 billion in the past seven years expanding in Asian markets such as Hong Kong.

DBS also plans to rekindle the POSB brand it bought almost a decade ago, after reporting a 16 percent gain in second-quarter profit as trading income recovered and as it sidestepped additional losses on collateralized debt obligations.

“We've disappointed Singaporeans over the years and we aim to turn that around,” Richard Stanley, DBS's chief executive officer, said at a briefing. It is “our home market, we can do even better here.”

The focus on Singapore is the first major initiative by the 48-year-old former Citigroup executive since taking the helm in May. DBS is also turning to its home market after record lending in the city boosted net interest income. In Hong Kong, its biggest overseas market, net interest income dropped 23 percent.

The group's net income rose to S$652 million ($471 million) in the three months ended June 30, from S$560 million a year earlier, including one-time items, DBS said in a statement to Singapore's stock exchange. Profit beat the median S$600 million estimate of nine analysts surveyed by Bloomberg News.

The bank avoided having to further write down credit-market investments even as Merrill Lynch said last month it agreed to sell $30.6 billion of CDOs for $6.7 billion.

'Comforting' Quarter
The absence of more provisions “is comforting for this quarter,” said David Lum, an analyst at Daiwa Institute of Research in Singapore. DBS “beat a lot of estimates as the market was expecting a lot of negative scenarios for impairments and writedowns. But I don't know if the market is convinced that the worst is over.”

DBS posted a 13 percent drop in the amount of provisions it made for bad loans, to S$56 million. Total provisions for investments including collateralized debt obligations stood at S$282 million as of June 30, unchanged from three months earlier.

“These are very difficult times in our industry,” Stanley said. “We have a way to go before we see the end of it.”

The value of the investment portfolio was little changed at S$1.11 billion from the previous three months, and the worth of securities in DBS's trading book rose 13 percent to S$341 million because of “improvements in some of their component values,” the bank said.

'Biggest Positives'
In the first quarter, DBS booked S$86 million of losses for assets of Red Orchid Secured Assets, a structured investment vehicle.

The lack of major CDO writedowns is “one of the biggest positives,” JPMorgan Chase analyst Harsh Wardhan Modi said in a report. “This underscores our view that current provisioning adequately reflects underlying market values,” he said, keeping his “overweight” call on the stock and price target of S$25.

Deteriorating asset quality and rising non-performing loans may not trouble DBS, as it has the lowest non-performing loan ratio among the three Singapore banks, Kenneth Ng, an analyst at CIMB-GK Securities, said before the announcement.

“Certainly, that's a worry, but we haven't heard of people losing jobs in big numbers or property being foreclosed,” he said.

DBS expects loan growth to slow for the full year to “low double-digits” in percentage terms, said Stanley, who was the managing director of Citigroup's China operations.

Slowing Loan Growth
“It's a possibility that loan growth will slow,” he said. “There's a more challenging environment ahead.”

Trading in foreign exchange and interest rates picked up during the quarter, helping reverse the previous quarter's loss, DBS said. The one-off item was a S$16 million impairment charge for its investment in Thailand's TMB Bank.

DBS shares rose 0.3 percent to S$18.80 at the close, reversing an earlier decline of as much as 1.8 percent in Singapore trading before the midday break announcement. The stock has fallen 9.2 percent this year, the worst performer among the city-state's three banks.

United Overseas Bank, Singapore's second-biggest, said Aug. 5 second-quarter profit rose 2.7 percent to S$601 million on expanding loans, while Oversea-Chinese Banking said profit fell 20 percent to S$425 million. Both banks also said loan growth may slow for the rest of the year.

Net interest income, or interest revenue from borrowers minus returns paid to depositors, climbed three percent to S$1.06 billion from S$1.03 billion a year earlier, DBS said. Loans rose 18 percent from a year earlier to S$118.6 billion.

The net interest margin fell to 2.04 percent in the quarter from 2.09 percent in the previous three months, and narrowed from 2.21 percent a year earlier.

“DBS's growth rate in terms of lending slowed down and their margins came down; it's not a negative set of results but the outlook is not that bullish,” Daiwa's Lum said.
The bank's fee income dropped eight percent to S$342 million from S$371 million, while net trading income rose 14 percent to S$111 million.

How has DBS expansion in the Asian market fared as compared to its rivals?

2008-08-05T17:05:00.001+08:00

Will Maybank still buy Bank Internasional after takeover block?

PT Bank Internasional Indonesia shares were suspended in Jakarta after Malayan Banking's $2.7 billion bid to buy the Indonesian company was blocked by the Malaysian central bank.

Bank Internasional's shares have risen 61 percent this year, making it Indonesia's second-best performing banking stock on speculation it will be sold by Temasek Holdings. They fell 3.2 percent to 460 rupiah in Jakarta on July 29.

Malaysia's central bank revoked its approval for the purchase, saying a new Indonesian takeover law may trigger losses at the Kuala Lumpur-based lender. Maybank had agreed to pay 4.7 times book value for Bank Internasional, Indonesia's fifth-largest financial services company, which posted a 32 percent decline in second-quarter profit.

“Some of the takeover premium would be removed from the stock,” said Raymond Gin, director of investment at Jakarta-based PT Manulife Asset Management, which oversees about $1.2 billion. “I would expect investors to sell.”

The exchange, which announced the trading halt in an e-mailed statement, didn't say when the suspension will be lifted.

“The shares will now have to reflect a fundamental valuation,” Joshua Tanja, an analyst with UBS AG, said in a note to investors. “We place our rating, price target and earnings under review.”

Bank Internasional's second-quarter profit fell to 118.7 billion rupiah from 174.2 billion rupiah a year earlier. The figures were derived by subtracting first-quarter earnings from six-month results released on June 28.

Net income in the six-months ended June 30 rose to 316 billion rupiah ($35 million) from 290 billion rupiah a year earlier. Net interest income rose 17 percent to 1.4 trillion rupiah.

What could be the effects of the new Indonesian takeover law on future M&As in the country?

2008-07-29T13:18:00.001+08:00

How has Korea Development Bank's

rescue of an affiliate led to penalty?

Korea Development Bank was fined 15.4 billion won ($15.1 million) for acquiring debts from its finance leasing affiliate at below market rates to prevent it from collapsing, the Fair Trade Commission said.

State-run Korea Development Bank bought KDB Capital's debts worth 350 billion won between 2004 and 2005 at an interest rate significantly lower than the market rate, the agency said in an e-mailed statement. The move resulted in “excessive economic benefits” to KDB Capital, it said.

“Preventing the collapse of an insolvent unit through improper support is an act that significantly distorts market functions,” the agency said in the statement.
Korea Development Bank will take the case to the court, spokesman Sung Joo Yung said by telephone in Seoul.

Separately, Mirae Asset Investments was warned for giving higher stock-trading fees to its brokerage affiliate. Mirae Asset Securities was paid at a higher rate than local competitors between June and November in 2006, but later received similar fees, the agency said.

How does a regulatory agency such as the Fair Trade Commission prevent “[distortions of] market functions”?

2008-07-22T12:02:00.002+08:00

With shareholders approving the merger,

are Bank Niaga and Bank Lippo a few steps away

from being Indonesia's sixth largest bank?

Bank Niaga and Bank Lippo, two Indonesian banks indirectly controlled by Malaysia's sovereign wealth fund, have won approvals from shareholders to combine.

The shareholders of the two Jakarta-based lenders appointed Arwin Rasyid, former president director of Telekomunikasi Indonesia, as president of the lender after the merger, Niaga said in a July 18 statement on its Web site.

In June, Khazanah Nasional, Malaysia's sovereign wealth fund, said in the 24.6 trillion rupiah ($2.7 billion) merger Lippo shareholders would get 2.822 of Niaga's shares for every share they held. Khazanah will also offer to buy Niaga's shares from investors at 1,052 rupiah apiece and Lippo's shares at 2,969 rupiah a share at the end of July.

“These shareholders' approvals bring us one step closer to completing this merger for growth,” Nazir Razak, chief executive officer of Khazanah's Bumiputra-Commerce Holdings, said in the statement.

The merger is still subject to approvals from regulatory authorities in Indonesia and Malaysia, the statement said.

Merging the banks, set up almost six decades ago, will create a network of more than 600 branches with about $8.9 billion of assets, the sixth largest in Indonesia. It will also help Khazanah Nasional meet a regulation restricting control of more than one financial services company in Indonesia.

Aside from encouraging mergers among banks, how may Bank Indonesia see larger and stronger financial institutions in the country?

2008-07-15T11:14:00.000+08:00

Will Shinsei bank finally rake in more profits after acquiring GE's Lake unit?

Shinsei Bank, the Japanese lender part-owned by private equity investor Christopher Flowers, agreed to buy General Electric's local finance business for 580 billion yen ($5.4 billion), boosting its lending to consumers in the country by almost two-thirds.

Shinsei will buy GE's Tokyo-based Lake unit and its mortgage-loan and credit-card businesses, the bank said in a statement on July 11. The deal will add 779 billion yen to Shinsei's balance of outstanding loans to individuals in Japan, which stood at 1.2 trillion yen as of March 31, the company said.

Chief Executive Officer Thierry Porte is investing in an industry that has been in decline since a 2006 crackdown on consumer lenders' interest rates by Japan's government and courts. GE's CEO Jeffrey Immelt, trying to revive shares after announcing a surprise first-quarter profit drop in April, is disposing of as much as $100 billion of financial assets.

“The acquisition will result in a higher market share of the consumer finance business for Shinsei Bank, but concentration risk relating to this industry may rise,” Standard & Poor's said in a statement.

Shinsei fell three percent to close at 358 yen in Tokyo trading before the announcement, after people familiar with the negotiations said the Tokyo-based bank and GE were in final talks. The company, down 25 percent in the past 12 months, failed to meet a government-mandated profit goal in the year ended March 31 and posted a loss the previous year.

GE's Profit
Fairfield, Connecticut-based GE posted a 3.9 percent drop in second-quarter profit on July 11, matching analysts' estimates on a per-share basis. Profit from continuing operations was $5.39 billion, compared with $5.61 billion a year earlier.

Shinsei's acquisition is the biggest by a Japanese financial firm this year, according to data compiled by Bloomberg. The lender didn't hire any investment bank to advise on the transaction, CEO Porte said at a press briefing in Tokyo.

Shinsei will acquire a lending business with 2,000 employees, 2.2 million customers and 1,138 branches, the statement said.

“We are acquiring a high-quality portfolio with a great management team,” Porte, 51, said. “Shinsei is uniquely positioned to be a game-changer in this industry.”

Industry Woes
Japan's consumer lending industry has been contracting since the government approved legislation in 2006 capping the interest rates consumer lenders can charge at 20 percent, down from 29 percent previously.

The nation's four biggest consumer finance companies posted losses totaling 1.7 trillion yen in the year ended March 2007 after making provisions for potential refund claims by borrowers who paid excessive fees and interest.

“The consumer lenders' revenues have been falling,” said Junichi Shimizu, a Tokyo-based research analyst at Deutsche Bank AG. “The pressure may continue for a couple of years.”

As part of the deal announced, Shinsei will take on a maximum liability of 206 billion yen for potential refunds to GE's borrowers in Japan, according to the Japanese bank.

Three of Japan's four biggest consumer lenders have sold convertible bonds this year to raise capital. Promise Co., the second-largest by market value, fell the most in six years on July 9 after scaling back a convertible bond sale by 30 percent, citing “unstable” markets.

Funding Concerns
Aiful Corporation, Japan's biggest consumer lender by assets, plunged 11 percent on June 25 after Lehman Brothers Holdings said in a report the lender's parent may be insolvent. Aiful denied it has funding difficulties and later said it may sue Lehman.

Shinsei's existing consumer-finance units Shinki and Aplus returned to profit in the year ended March 31 after both posted losses the previous year.

Since the beginning of 2008, GE has agreed to sell its corporate charge card unit to American Express for $1.1 billion. It agreed to swap GE Money units in Germany and the U.K. to Spain's Banco Santander in exchange for Italian commercial lender Interbanca SpA, which is valued at 1 billion euros ($1.58 billion). GE last year sold U.S. subprime unit WMC Mortgage and put its Japanese consumer business on the block.

The company said it plans to spin off its entire GE Consumer & Industrial group to shareholders, two months after putting its century-old appliance unit up for sale.

In May, GE said it may divest its Australian home mortgage unit Wizard as loan growth in the country slowed after four interest-rate increases since August.

GE has done business in Japan since 1886, when it provided electric generators to a government printing factory. It entered the local consumer finance market by acquiring Minebea Shinpan in 1994. The unit bought Lake's personal loan business four years later.

Aside from government-imposed interest rates, what could be other reasons why Shinsei and other Japanese banks had incurred losses for the past months?

2008-07-08T13:25:00.000+08:00

As Bank Mandiri buys Tunas Finance, is the bank ready

to get a larger share of Indonesia's consumer finance pie?

Bank Mandiri, Indonesia's largest financial services company, agreed to buy a 51 percent stake in the automobile finance unit of car retailer Tunas Ridean.

Mandiri didn't say how much it will pay for the stake in Tunas Financindo Sarana in an e-mailed statement in Jakarta.

The Jakarta-based company's second purchase in less than a year will help it expand its consumer finance business, which has so far been “very limited,” the statement said. Mandiri in January said it plans to spend as much as 1 trillion rupiah ($108 million) for a controlling stake in a finance business.

“Tunas Finance will spearhead Bank Mandiri's drive in increasing the bank's consumer finance market share,” Agus Martowardojo, president of Mandiri, said in the statement.

Tunas Finance, which has 978 employees in 32 offices across Indonesia, extended 2.03 trillion rupiah of credit last year, Mandiri said. The lender completed the acquisition of Bank Sinar Harapan Bali earlier this year.

Car sales in Indonesia rose 51 percent to 237,941 vehicles in the first five months of the year, according to the Indonesian automotive association.

After Tunas Finance, which company could be next in Mandiri's acquisition list?

2008-07-01T15:07:00.003+08:00

As Malaysia loosens up on issuing licenses to big banks, would it finally cement its role as Asia's Islamic finance hub?

Malaysia will allow more lenders to set up Islamic bank units and plans to issue licenses for overseas Islamic fund management companies to woo investments as it faces competition from Singapore, Hong Kong and Japan.
The central bank has given licenses to banks such as HSBC Holdings, Oversea-Chinese Banking Corp. and Standard Chartered to set up “standalone Islamic subsidiaries,” Mohd Razif Abd Kadir, Malaysia's deputy central bank governor, said in an interview in Kuala Lumpur.
“More are in the pipeline,” he said, declining to name the banks. “Investors' appetite for Islamic papers is huge” and they are “unaffected by the subprime issue.”
Malaysia is giving licenses and offering incentives to help cement its role as Asia's Islamic finance hub. The Asian country, which accounted for two-thirds of global Islamic bond sales last year, has also offered tax breaks to stay ahead of the newcomers vying for a piece of the market estimated to expand to $2.8 trillion by 2015.
Japan plans to sell as much as $500 million of Sukuk this year, according to Moody's Investors Service in February. Hong Kong raised its first Islamic fund last year, fetching $45 million by December. Singapore, which started offering investors incentives in the past few years, said May 13 it plans to develop a facility to start a domestic Islamic bond market.

Huge Potential
Malaysia, where 60 percent of the 27 million people is Muslim, also faces competition from other countries where a majority of citizens share the same faith. Indonesia, which has the world's biggest Muslim population, passed its first Islamic banking law this week to allow foreign and domestic investors to buy stakes of Shariah-compliant banks in the country.
“The potential for growth is huge because it's an underserved market,” said Fiona Leong Wai, an analyst at AmSecurities in Kuala Lumpur. “That's why you see everyone going in, wanting to have a slice of that market.”
It makes sense for the nation to go after more investments in Islamic products because “Malaysia is ahead of some of the other countries” in terms of Islamic finance, she said.
The government said on June 19 the stock exchange will introduce two new Islamic products in the first quarter of 2009. The first, called Commodity Murabahah, will use palm oil as the underlying asset for Islamic finance and capital market products, and the other will be a Shariah-compliant instrument that allows borrowing and lending of securities, using the Islamic concept of “waad.”

New Licenses
In January, it also rolled out an 840 million ringgit ($257 million) Shariah-compliant exchange-traded fund, the first of its type in Asia.
Malaysia will issue new licenses for companies planning to set up an Islamic fund management business in Malaysia, said Mohd Razif, who oversees the development of an initiative called the Malaysia International Islamic Financial Centre, aimed at promoting Islamic finance.
The new licenses mean the funds, which will invest in ringgit and non-ringgit denominated assets, will be exempted from paying taxes until 2016, according to the central bank. The funds won't be restricted to investments in Malaysia, though they need to have experts operating in the country to enjoy the benefits, the central bank said.

'Quite Compelling'
Malaysia has five pure Islamic banks in the country, Mohd Razif said, including Kuwait Finance House KSC, the world's second-largest Islamic bank, and Saudi Arabia's Al-Rajhi Bank. There are nine local banks and 14 overseas banks in the country that already offer Islamic financial services, including HSBC, Oversea-Chinese and Standard Chartered, helping to make country a base for Middle East investors amid record oil revenue.
“The flow of capital from the Gulf, with the oil boom,” will need to find a destination, Mohd Razif said. “In terms of incentives, it's quite compelling for the banks to consider Malaysia as a gateway to this region.”
Islam's Shariah law bans the payment and receipt of interest, and investments in businesses such as gambling. Sales of Sukuks, or Islamic bonds, are expected to increase more than 22 percent a year in Malaysia, Mohd Razif said.

With Indonesia Passing A Law Allowing Foreign and Local Investors to Buy Stakes of Its Islamic Banks, Will Malaysia Be A Better Venue For Investments?

2008-05-26T17:59:00.000+08:00

Will Wing Lung seal the deal with favored bidder China Merchants soon?

China Merchants Bank Co. was picked as preferred bidder for Hong Kong's Wing Lung Bank, people familiar with the matter said, paving the way for the city's biggest banking acquisition in seven years.
Merchants Bank is in exclusive talks with Wing Lung Chairman Michael Wu and his family, who are seeking to sell a 53 percent stake, the two people said, declining to be identified before an agreement is reached.
Merchants Bank, China's fifth largest by market value, beat out Industrial & Commercial Bank of China and Australia & New Zealand Banking Group to hold exclusive talks with Wing Lung, the people said. Merchants Bank, which pioneered wealth management in China, follows bigger rivals ICBC and China Construction Bank Corp. in targeting Hong Kong's banking market as the city builds closer ties with the mainland.
“The mainland banks want a platform in Hong Kong to expand overseas, especially in the wealth management area,” said Kenny Tang, director of research at Tung Tai Securities Co. “They can offer overseas wealth management products to mainland clients through their Hong Kong branches.”
Under Hong Kong law, a buyer of the Wu family's stake would be required to make a full tender offer.
Wing Lung, a family-run bank founded in 1933 with initial capital of $5,700, has 35 branches in Hong Kong and $12 billion of assets. On April 30, the bank reported a first-quarter loss after writing off $61 million of investments in structured investment vehicles and collateralized debt obligations.

Shares Rally
Merchants Bank, based in Shenzhen across the border from Hong Kong, had one branch in the city at the end of 2007, with 72 employees and 19.5 billion yuan ($2.8 billion) of assets. The company has 570 branches on the mainland.
Wing Lung has rallied 56 percent in local trading this year as speculation of a takeover mounted, bringing its market value to $4.5 billion as of May 23's close.
Taiwan's Fubon Financial Holding Co. bought International Bank of Asia in 2003 in a $415 million deal that valued the target at 1.16 times book value, according to Bloomberg data. The takeover was announced as Hong Kong was reeling from the SARS outbreak that killed 299 people, caused stocks to tumble and triggered a brief recession.
Patrick Poon, a spokesman for Wing Lung Bank, couldn't be reached for comment at his office. Lan Qi, board secretary of China Merchants Bank, wasn't immediately available for comment.

Reluctant Sellers
The city of 7 million people has 142 fully-licensed banks, according to the Hong Kong Monetary Authority. Yet takeovers of Hong Kong-listed banks have been rare because few owners are willing to sell.
That may change as larger, multinational banks muscle in, said Wayne Yu, an associate finance professor at Hong Kong Polytechnic University. Chong Hing Bank, controlled by the family of Chairman Liu Lit Man, may be next on the block, he said.
Chinese banks may target Hong Kong rivals to develop revenue sources outside their main business of making loans, said Yu.
“For the mainland Chinese banks, the majority of their revenue is based on interest rate spreads,” Yu said. “It's relatively new for them to engage in wealth management and other non-traditional services.”

China Pioneer
Merchants Bank in 2005 became the first Chinese lender to offer wealth management, capitalizing on the growing riches of a nation whose economy doubled in size between 2002 and 2007. The bank, run by President Ma Weihua, also pioneered dual-currency credit cards in 2002.
Revenue at Merchants Bank's wealth management division surged almost 10-fold last year to 54 billion yuan. At Wing Lung, income from selling such services doubled in 2007, the bank said in its annual report without providing further details.
Clients seeking to invest money outside China through Merchants Bank are mostly restricted to using the company's so-called Qualified Domestic Institutional Investor quota, currently at $1 billion. Hong Kong has no curbs on foreign investments.

'Strategic' Foothold
ICBC, the world's largest bank by market value, paid $231.5 million for control of Union Bank of Hong Kong in 2000, its first acquisition outside the mainland. China Construction Bank followed six years later, buying Bank of America Corp.'s Hong Kong and Macau unit for $1.24 billion in what was then the largest overseas takeover by a Chinese lender.
“Gaining a foothold in Hong Kong is seen as strategic, because Hong Kong is part of China and becoming more integrated with China,” said Simon Ho, a Hong Kong-based analyst at ABN Amro Holding NV. “Many Chinese banks don't have much of an operation in Hong Kong.”

How Will Hong Kong Banks Perceive These Acquisitions? Will They Be As Open To Take-Over As Wing Lung?

2008-05-22T10:56:00.000+08:00

With Tighter Credit controls and Bad Debts, Why Are China Banks Giving Out Loans Easily?

China's biggest banks are providing emergency loans, easing lending requirements and improving repayment terms on credit cards for people affected by the nation's most powerful earthquake since 1950.

Agricultural Bank of China will offer preferential loan rates for those affected by the disaster and extend repayment terms for mortgages by three to six quarters, Vice President Zhang Yun said at a press conference organized by China's banking regulator yesterday. Industrial & Commercial Bank of China, Bank of China and Bank of Communications said they'll ease loan terms and change repayment dates without charge.

“The aftermath of the quake requires creative and flexible banking arrangements,” said China Construction Bank Chief Risk Officer Zhu Xiaohuang. “People have lost their identity and bank cards, or can't remember their passwords after the trauma. We're pushing through emergency loans to help these people get money even without full identification documents.”

China's strongest earthquake in more than half a century killed at least 34,000 people, left 10 million homeless and may have caused more than $20 billion of damage, the government estimates. Companies in Sichuan, the worst hit province, face economic losses of 67 billion yuan ($9.6 billion), according to the Ministry of Industry and Information.

Banks should advance as much as 5,000 yuan to any accountholder who lost their deposit certificate but can provide basic identity information, the central bank and banking regulator said in a joint statement last night.

The impact on bank profits from the earthquake is ‘hard to estimate,’ said Yang Zaiping, vice chairman of the China Banking Association. China's 12 publicly traded banks posted an average 118 percent jump in first-quarter profit, taking advantage of a booming economy to make loans.

Quake Losses

Bank of China, the nation's third-largest, announced as much as 160 million yuan of quake-related losses as of May 18 as the temblor disrupted data networks and damaged buildings. The Beijing-based lender, which lost 20 employees in two outlets in Sichuan, expects a ‘very small impact’ on full-year profit, Chairman Xiao Gang said in Hong Kong.

Agricultural Bank, which operates 31,000 outlets nationwide with most in rural areas, had 8.5 billion yuan of losses related to loans made to the power grid, manufacturing and real estate industries, the company said at yesterday's briefing.

Bank of Communications, part-owned by HSBC Holdings, had 50 million yuan worth of damage to its automatic teller machines and network, said Vice President Qian Wenhui.

Bank of China fell 2.9 percent to close at 4.78 yuan in Shanghai. Bank of Communications dropped 4.3 percent and ICBC slipped 3.4 percent. The benchmark CSI 300 Index fell 5.2 percent, the most in five weeks on concern corporate losses from the earthquake will increase.

‘Manageable’ Impact

Moody's Investors Service said that the impact on banks and insurers from the quake will be ‘manageable’ and that credit losses will be ‘minimal.’

“Commercial bank credit exposure to Sichuan is fairly low,” Moody's analyst Richard Lung said in a statement. The province accounted for about 3 percent of total commercial bank loans at the end of 2007, he said.

Chinese banks may report higher bad loans this year because of tighter credit controls and a slowing economy, the industry regulator said earlier this month. Write-off requirements for nonperforming loans may be reduced because of the quake, Yang said at yesterday's press conference.

Chinese banks offered 2.99 billion yuan of loans for reconstruction work as of noon yesterday, the China Banking Regulatory Commission said in a statement. Bank of China made more than 500 million yuan of emergency loans, while Bank of Communications advanced 2.04 billion yuan of funding, the companies said.

ICBC, the nation's largest, plans to grant more than 10 billion yuan of loans for relief work.

China's banking regulator urged banks on May 15 to ensure the availability of cash and ‘basic’ financial services in south-central Sichuan province. More than 90 percent of banking outlets in Sichuan province resumed operations by May 16.

Will The Quake Victims Be Able To Pay The Banks Back?

2008-05-15T17:34:00.000+08:00

With Operating Losses of 21.6 billion yen, is Aozora Bank in Severe Trouble?

Aozora Bank, the Japanese bank controlled by U.S. buyout fund Cerberus Capital Management, forecast profit will rise more than sevenfold as it rebounds from a 93 percent plunge last year caused by the U.S. credit crisis.

Net income in the year ending March 2009 will climb to 44 billion yen ($420 million), the bank said in a statement to the Tokyo Stock Exchange. Profit fell to 5.9 billion yen in the year ended March 31, compared with a preliminary earnings figure of 5 billion yen released April 23.

Aozora, which gets most of its profit from investment banking, may struggle to boost earnings as investments in the U.S. mortgage market continue to decline in value. Japan's slowing economy and falling investment sales will continue to pressure profits at the Tokyo-based bank and bigger rivals such as Mizuho Financial Group.

Aozora rose 2.7 percent to close at 303 yen on the Tokyo Stock Exchange before the earnings announcement. The Topix Banks Index gained 2.4 percent.

Aozora changed its profit forecast three times before today's announcement as rising losses on investments in the U.S. mortgage market made it impossible to meet the bank's initial full-year profit target of 84.5 billion yen. Aozora said its investments in collateralized debt obligations had lost more than 90 percent of their original value, leaving the bank with 45.4 billion yen in losses.

Operating Loss

The bank posted an operating loss of 21.6 billion yen, Aozora said.

The bank set aside a provision of 14.9 billion yen for a decline in the value of its $500 million investment in U.S.-based GMAC LLC, whose housing unit has recorded $5.3 billion in losses over the past six quarters. Aozora joined Cerberus and a group of other investors in buying a 51 percent stake in GMAC in November 2006.

Cerberus increased its stake in Aozora to 45 percent from 37 percent last month after completing a public offer for additional shares. Cerberus, founded by Stephen Feinberg and William Richter in 1992, helped return the former Nippon Credit Bank to profit after buying control in 2003.

Lending rose 16 percent to 4.28 trillion yen in the year ending March 31, with net interest income climbing 21.8 percent. The bank cut its dividend forecast for the year ending March 31 to 3.5 yen from a previous forecast of 3.86 yen.

Why Is the Management at Aozora Optimistic About Future Earnings? Do They Know Something That We Don’t?

2008-05-08T16:21:00.001+08:00

How did State Bank of India Manage to Beat Analysts' Estimates?

State Bank of India, the nation's biggest by assets, reported a 26 percent increase in fourth- quarter profit, beating analysts' estimates, as record economic growth spurred demand for loans.
Net income climbed to 18.8 billion rupees ($462 million) in the three months ended March 31 from 14.9 billion rupees a year earlier, the state-owned bank said. That beats the 17 billion rupee median estimate of five analysts surveyed.
State Bank completed its first share sale in a decade in March to boost lending to its 130 million customers, equivalent to the population of Japan. Finance Minister Palaniappan Chidambaram said interest rates are unlikely to climb from a six-year high, easing concerns that loan growth will slow.
“Banks in India will continue to be a good bet as the economy grows,” said Mihir Vora, who manages $800 million as the head of equities at HSBC Asset Management (India) Pvt. in Mumbai. “Banks with good asset-liability balance and credit control will outperform.”
Economic growth that's averaged 8.7 percent annually for four years has spurred companies and individuals to borrow from lenders led by State Bank, which controls more than a fifth of India's banking assets. Chairman Om Prakash Bhatt is required to offer credit to high-risk groups including farmers and artisans and operate branches in less profitable towns and villages.
Shares rose 2.7 percent to 1,822.4 rupees in Mumbai trading. The stock was the fourth-best performer on India's equity benchmark Sensitive Index in the past 12 months.

Investment

State of Bank of India will need 250 billion rupees to hire workers at branches and increase revenue by an average 25 percent for the next three years, Bhatt told reporters in Kolkata today. The bank plans to add 2,000 branches this financial year and may consider buying or allying with a bank in the United Arab Emirates, he said, without identifying a target.
The investment will be in addition to the 167 billion rupees it raised selling shares to stakeholders in March, Bhatt said.
Loans and deposits increased 23.4 percent in the year ended March 31, Bhatt said. The chairman has previously forecast loan growth to slow this fiscal year as higher interest rates and inflation lead to a reduction in consumer spending.
The bank estimates loans will increase 25 percent and deposits will climb 22 percent this financial year, Bhatt said. Interest rates are expected to remain ‘stable’ in the next three to six months, he said.

Cars, Homes

Credit growth in India slowed to 21.6 percent in the 12 months ended March, from 28.1 percent a year earlier, according to data from the central bank, as consumers deferred purchases of automobiles and homes.
State Bank expects to receive government approval to merge with its seven units this month and plans to complete the consolidation by March, Bhatt said. The bank had already started the process of combining with the State Bank of Saurashtra to grow assets and gain more branches.
“If State of Saurashtra goes through, we will decide on the sequence and pace of remaining associate banks,” Bhatt said. “We have a sense that before March 2009, we will be able to merge all of them.”
State Bank's focus on extending banking services across the world's second-most populous nation has limited its exposure to the collapse in the U.S. subprime market.

Meltdown

The bank set aside about $10 million to cover mark-to-market losses in the year related to the meltdown in the credit markets, it said today.
More than 100 of the world's biggest banks and securities firms have reported $312 billion in asset writedowns and credit losses since the beginning of 2007, including reserves set aside for bad loans.
The lender needs to bridge a gulf in assets with overseas competitors such as Industrial & Commercial Bank of China Ltd. as regulators consider letting foreign financial-services firms take control of India's private banks.
State Bank's market value of $28 billion is less than a tenth of Industrial & Commercial Bank of China Ltd.'s $306 billion. ICBC is the world's biggest by market value.
To help achieve this, State Bank plans to get about 25 percent of profit from overseas within five years, up from about 11 percent now, the bank said.

Will allowing foreign financial services firms to manage India’s private banks prove to be a wise decision, or will it turn out to be otherwise?

2008-04-22T17:26:00.000+08:00

Is there something fishy going on?

Nomura Holdings, Japan's largest investment bank, said the country's securities industry watchdog is investigating one of the company's workers over insider-trading allegations.

The employee, in Nomura's mergers and acquisitions department, leaked information about deals the firm worked on to two people, the Yomiuri newspaper reported. The two made a 50 million yen ($485,000) profit from trading on the information, the newspaper said, without saying where it got the information.

Government officials urged a thorough investigation of the alleged conduct at Nomura, which was the top-ranked adviser for Japanese takeovers last year.

Competitor Daiwa Securities SMBC, the nation's second-largest investment bank, was forced to suspend some operations for a day after two former bankers were indicted for illegal trading in 2003.

“Clients might possibly leave Nomura, as overseas institutional investors in particular are strict about this kind of behavior,” said Shoichi Arisawa, an Osaka-based manager at Iwai Securities. “It's bad for Nomura to hurt the reputation of its advisory business, which is otherwise promising.”

Nomura fell 3.5 percent to 1,645 yen in Tokyo trading, while the benchmark Topix index declined 1.1 percent.

“Nomura deeply regrets this,” company spokesman Michiyori Fujiwara said in Tokyo, where the firm is based. “We will cooperate fully with the inspection.”

Fujiwara declined to comment on details of the allegations. A spokesman for the Securities and Exchange Surveillance Commission wasn't available to comment.

“It's always bad if a securities firm employee uses inside information for personal gain,” Yoshimi Watanabe, the minister for financial services, said at a regular press briefing. “We'll have to deal with this strictly.”

The 30-year-old worker being investigated was recently transferred to Nomura's Hong Kong unit, the Yomiuri said, without naming the employee or any of the companies involved.
The two people who received information used it to trade shares in more than 20 companies from 2006 to 2007, including a company targeted for acquisition by a large semiconductor component maker, the Yomiuri reported.

“It is deplorable that such an incident should take place,” Japan's Chief Cabinet Secretary Nobutaka Machimura said at a regular press briefing in Tokyo. “I would like the oversight committee to investigate thoroughly.”

Nomura ranked first among financial advisers on Japanese mergers and acquisitions last year, advising on 147 transactions totaling $28.9 billion, according to data compiled by Bloomberg. The company has slipped to third place this year behind UBS AG and Goldman Sachs Group, Bloomberg data shows.

Will this scandal cause Nomura to fall even further in the rankings?

2008-04-15T10:37:00.001+08:00

When will the bleeding stop?

Mizuho Financial Group, Japan's second-largest bank by revenue, posted a 50 percent drop in full- year profit after losing $5.5 billion on mortgage securities, the most reported by an Asian company.

Net income fell to 310 billion yen ($3 billion) for the year ended March 31, below a January forecast of 480 billion yen, Tokyo-based Mizuho said in a preliminary earnings statement.

Analysts expected profit of 369 billion yen, according to a Bloomberg survey.

Mizuho's securities unit recorded 400 billion yen of trading losses, mostly from writing down the value of investments related to U.S. subprime mortgages. The bank's shares rose the most in a week after Mizuho said the division reduced holdings of overseas asset-backed securities by almost 80 percent to 100 billion yen.

“Management of the securities company was very bad,” said Edwin Merner, who oversees $2 billion as president of Atlantis Investment Researchin Tokyo. “It's good that they're aggressively writing down these securities now.”

Mizuho gained 5.2 percent to 407,000 yen at the 3 p.m. close of trading. The shares have plummeted 48 percent in the past year, wiping out about $40 billion of market value.

The bank may have lost 83 billion yen in the fiscal fourth quarter, based on its 393 billion yen profit for the first nine months. That would be the first quarterly loss since at least June 2004. Mizuho's securities division lost 220 billion yen in the quarter, according to the release.

Trading losses at Mizuho Securities were “mainly due to markdowns related to securitization products amid the dislocation in the credit markets stemming from the U.S. subprime loan issues,” Mizuho said in the statement.

Losses at the brokerage unit, led by Keisuke Yokoo, have forced Mizuho to postpone merging the unit with Shinko Securities to create Japan's third-biggest securities firm. Last month, Mizuho postponed the transaction until next year as subprime losses forced it to revise the deal's terms for a second time.

“Long term, we must question whether the Mizuho group is properly governing its securities arm,” said Keisuke Moriyama, a Tokyo-based banking analyst at Nomura Holdings.

Mizuho waded into the business of repackaging and selling U.S. debt securities just as the market began showing signs of collapsing, hiring a team of bankers from Calyon, the investment bank of France's Credit Agricole SA, in December 2006.

A year later, Mizuho suspended trading and creating U.S. collateralized debt obligations containing asset-backed securities or high-yield corporate loans.

The former Calyon team underwrote $4.4 billion of CDO deals before the markets seized, according to Asset-Backed Alert, an industry newsletter. Mizuho was the 18th-largest underwriter of mortgage-bond CDOs during 2006 and 2007.

Sales of CDOs, used to repackage assets such as mortgage bonds and buyout loans into new securities with varying risks, have plunged as U.S. homeowner defaults sparked unprecedented downgrades and record bank writedowns. CDOs mainly backed by high-risk company loans, such as debt for private equity deals, are called collateralized loan obligations, or CLOs.

Asian banks have accounted for a small fraction of the $245 billion of global writedowns and credit losses announced since the beginning of 2007. Swiss bank UBS AG has written off $38 billion of assets since the credit squeeze started in July.

Mizuho's bigger rival Mitsubishi UFJ Financial Group lost 55 billion yen on subprime-related holdings for the nine months through December. Bank of China on March 25 announced $1.3 billion of subprime writedowns for 2007.

Compounding Mizuho's woes is an economy forecast by Goldman Sachs Group and Morgan Stanley to follow the U.S. into a recession. Confidence among large manufacturers is at a four-year low and businesses plan to reduce investment, the Bank of Japan's Tankan survey showed last week.

Mizuho is the second Japanese bank this week to fall short of its own earnings target, following regional lender Fukuoka Financial Group Inc. Fukuoka Financial said April 7 that full- year profit was probably 2.5 billion yen, 92 percent less than its forecast, after booking investment losses and additional costs for possible bad loans.

Lending by Japan's 10 so-called city banks, including Mizuho and larger rival Mitsubishi UFJ Financial Group, fell for a 12th straight month in March, the central bank said.

So were the losses mainly caused by bad governance, or by the dislocation in credit markets?

2008-04-08T11:22:00.000+08:00

Will Daiwa’s move help it to regroup?

Daiwa Securities Group, Japan's second-largest securities firm, aims to help overseas investment banks raise cash in Japan after they lost money on subprime- related investments.

Daiwa started research in the U.S. and Europe to find out which banks will need capital in the long term and how best to market their needs to investors in Japan and other markets, incoming Chairman Akira Kiyota said in a Bloomberg Television interview in Tokyo.

“We've just started throwing the ball” to overseas banks, Kiyota said in the interview on April 3. “We want to make the most of the fact that overseas banks have exhausted themselves, and financial assets in Japan remain untouched.”

Tokyo-based Daiwa is targeting Japanese individuals, who have 1,550 trillion yen ($15 trillion) of financial assets available to invest in securities products. Citigroup, Merrill Lynch & Co and other banks have so far relied on sovereign funds in Abu Dhabi and Singapore to seek more capital.

“The idea is fascinating,” said Mitsushige Akino, who oversees about $560 million in assets as chief investment officer at Ichiyoshi Investment Management in Tokyo. “One concern is that Japanese individuals may be insensitive to the risk. Overseas banks' shares could fall further, as we may only be halfway through the subprime crisis.”

Daiwa shares fell in Tokyo trading after the bank had its first quarterly loss in five years as the value of its holdings of fixed-income securities fell. The stock slid 2.5 percent to 903 yen.

Net income dropped 51 percent to 45 billion yen in the year ended March 31, the firm said in a preliminary earnings statement after markets closed last week, indicating a fourth-quarter loss of 14.3 billion yen.

Goldman Sachs Group, Ripplewood Holdings LLC, Cerberus Partners LP, Lone Star Funds and other overseas funds invested in Japanese companies when Japan's banks struggled with bad loans in the late 1990s and early 2000, and are recouping investments through initial public offerings or liquidating sales.

“It's the other way around this time,” Kiyota said. “We see a very big business opportunity here.”

Banks and securities firms worldwide are seeking additional capital after reporting at least $232 billion in subprime-related asset writedowns and credit losses since the beginning of 2007.

Lehman Brothers Holdings, the fourth-largest U.S. securities firm, said on April 1 it raised $4 billion from a share sale. UBS AG, Europe's biggest bank, said the same day it would seek a cash infusion of 15 billion francs ($15 billion) after a 12 billion franc loss linked to subprime mortgages.

Daiwa sees this as a chance to expand its global equity underwriting. The firm ranked second among underwriters of Japanese equity and equity-linked securities in 2007, behind Nomura Holdings, according to data compiled by Bloomberg.

Kiyota said his company can sell overseas banks' preferred shares to Japanese individuals and institutional investors, and arrange global equity or debt sales in Japan and other markets.

Will Japanese individuals prove to be insensitive to the risk?

2008-04-01T10:10:00.001+08:00

Is further deregulation coming?

South Korea should complete its planned sale of 49 percent of state-run Korea Development Bank by 2012, the Financial Services Commission said in a report to President Lee Myung Bak.

The government, which said March 20 that the 20 trillion won ($20 billion) sale would begin in 2009, may also start easing regulations this year to eventually allow industrial groups to own bigger stakes of banks, according to the report, released in Seoul.

Selling state-run Korea Development Bank was one of the first measures financial authorities announced under Lee's push for deregulation and privatization. Lee, who took office in February, had made boosting growth in Asia's fourth-largest economy as his key campaign pledge.

The stake sale will be done “in phases” and their proceeds should be used to set up a fund to lend to small companies, as the bank itself had previously done, the report said. Korea Development Bank now mainly provides loans for large industrial projects.

The government will make plans for the remaining 51 percent stake by 2012, the commission said.

The first step in corporate ownership of banks may be to allow private equity and pension funds to invest in lenders, the commission said. South Korea will eventually raise the limit on stakes industrial groups can have in banks above the present 4 percent, it said, without providing a timeline.

Lee, who took office in February, is the nation's first president from a corporate background, having served as chief executive officer of South Korea's largest contractor, Hyundai Engineering & Construction.

To what extent will this deregulation boost the economy?

2008-03-17T17:46:00.000+08:00

Will Taiwan open up further?

Taiwan's cabinet approved a plan allowing banks to invest in their Chinese peers through third- country subsidiaries, in a bid to make them more competitive.

Premier Chang Chun-hsiung approved the proposal in a weekly cabinet meeting, the cabinet said in an e-mailed statement. Taiwanese banks may buy as much as 20 percent of their Chinese counterparts using third-country units, the statement said.

“It's a very good beginning of opening financial investment in China,” said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management in Taipei. “Still, Taiwan's banks will need direct investments to really serve their clients there.”

Taiwan restricts direct investment in China, which considers the island part of its territory and has threatened to invade if formal independence is declared. Fubon Financial Holding is the only island bank currently qualified to buy into a Chinese rival through a third-country unit, according to Taiwan's financial regulator.

Rules were also relaxed on Taiwanese banks' offshore units, allowing them to handle accounts receivable transactions in China, so they can better serve mainland clients, the cabinet statement said. Companies such as Taiwan Semiconductor Manufacturing and Cathay Financial Holding have invested $150 billion in the mainland, the island's biggest export market.

A proposal is being studied to allow Taiwanese banks to directly invest as much as 20 percent in their Chinese counterparts, Susan Chang, vice chairwoman of the Financial Supervisory Commission, said.

Fubon Bank (Hong Kong), controlled by Taipei-based Fubon Financial, may buy a stake in China's Xiamen Bank, the Economic Daily News said in January. In 2004, Fubon Financial, Taiwan's second-largest financial company by market value, bought a controlling stake in International Bank of Asia in Hong Kong and renamed it Fubon Bank.

“We are so glad that the government relaxed the rules, and we hope to complete acquisition this year,” Fubon Financial President Victor Kung said, declining to confirm the target is Xiamen Bank.

Kung said there would be more consolidation among the island's lenders and Fubon Financial hoped to make acquisitions.

“We will actively join in mergers and acquisitions,” he said, declining to name any specific targets.

Taiwan and China have been ruled separately since 1949 when Mao Zedong's communists took control of the mainland.

How successfully will Taiwanese banks capitalize on this new opportunity?

2008-03-11T09:35:00.000+08:00

Approval for HSBC?

HSBC Holdings, Europe's biggest bank by market value, won antitrust approval in Seoul for its $6.45 billion takeover bid for Korea Exchange Bank.

“The Fair Trade Commission analyzed the merger effects of HSBC and Korea Exchange Bank's products in eight markets, and concluded that there aren't any breaches of antitrust regulations,” the government agency said in an e-mailed statement.

The success of the London-based bank's offer now hinges on disputes between U.S. buyout firm Lone Star Funds, the majority owner of Korea Exchange Bank, and South Korean prosecutors. The Financial Supervisory Service has withheld final approval of the takeover pending court appeals, including one from Paul Yoo, the Lone Star South Korea head who was jailed for stock price manipulation.

A Seoul court found Yoo guilty of manipulating the price of Korea Exchange's credit card unit in 2003 to acquire the business at a knockdown price. Lone Star and Korea Exchange were also found guilty of the same charge, and each fined 25 billion won ($26 million). All parties said they will appeal the rulings.

Separately, prosecutors allege Lone Star's 2003 takeover of Korea Exchange Bank, South Korea's fifth-largest by market value, was engineered at an artificially low price through a political conspiracy.

“The Fair Trade Commission conclusion is not related to the Financial Supervisory Service's final approval for the takeover of Korea Exchange Bank by HSBC,” the regulator's statement said.

HSBC Chairman Stephen Green said that the bank is hopeful it can complete the takeover of Korea Exchange Bank by an April deadline that it and Lone Star set.

“We welcome the findings of the commission,” Vinh Tran, a Hong Kong-based spokeswoman for HSBC, said. “The transaction remains subject to the approval of the Financial Supervisory Service and we will work with the regulators.”

Will the takeover take place on schedule?

2008-03-04T10:50:00.000+08:00

Will changes improve Nomura’s fortunes?

Nomura Holdings replaced Chief Executive Officer Nobuyuki Koga after a five-year tenure during which he failed to boost profit and an attempt to expand in the U.S. backfired as the subprime mortgage market collapsed.

Japan's largest brokerage appointed 55-year-old Kenichi Watanabe, head of its consumer operations, as CEO effective next month, the company said in a statement. Koga, 57, will become chairman of Nomura Securities, its brokerage unit.

Nomura's stock has risen 32 percent since Koga took over in April 2003, about half the gain of Japan's brokerage index and the broader Topix. Koga's push to challenge Wall Street firms in the U.S. led to 15 billion yen ($146 million) in costs for closing its home-loans division in the world's biggest economy.

“The old management team took responsibility for the old problems,” said Yasuhiro Matsumoto, a credit analyst at Shinsei Securities in Tokyo. “Management is going to be focused on the domestic market and the asset management business.”

Nomura's 8.28 percent return on equity, a financial yardstick used to measure profitability, trails the 32 percent of Goldman Sachs Group Inc. and the average 17 percent of the world's 20 largest banks, according to Bloomberg data. It compares with 10.77 for Daiwa Securities Group, Nomura's closest competitor in Japan.

The Tokyo-based firm had a loss of 145.6 billion yen on investments related to residential mortgage-backed securities for the nine months ended September 30.

“I'm taking this job amid severe financial market conditions,” Watanabe said at a press conference in Tokyo. Nomura needs to strengthen its domestic operations, he said.

Watanabe joined the company in 1975 after graduating from Kobe University. In addition to heading Nomura's retail business, he is executive vice president of Nomura Securities.

Koga joined Nomura's brokerage in 1974 after graduating from the University of Tokyo and became chief operating officer in 2001. He also worked as a business planner and human resources manager at the firm.

In Koga's first year in charge, Nomura earned 172 billion yen. In his fourth year, it was 176 billion yen. By comparison, net income at Goldman more than doubled in the same period.

Nomura dropped to 41st last year among financial advisers on global mergers, with a market share of less than 1 percent, according to data compiled by Bloomberg. That compares with its rank of 20th with a 1.7 percent share for 2003, when Koga became chief executive.

Japan's economy has gained every quarter since February 2002, the longest expansion since the end of World War II, according to the Cabinet Office.

Nomura also said Takumi Shibata, the president of its asset management unit and a former president at Nomura International Plc, will become its new chief operating officer.

Hiromi Yamaji, who helped the firm advise Oji Paper on its $1.4 billion unsolicited bid for Hokuetsu Paper Mills, will become chief executive of global investment banking.

“Nomura intends to provide business solutions to clients in Europe and Asia and seek a world-class lineup by assigning non-Japanese onto its board,” Watanabe said.

What other strategies does the new management have up its sleeve?

2008-02-26T11:23:00.000+08:00

Temasek changing its mind over PT Bank?

Temasek Holdings, Singapore's sovereign wealth fund, said it may sell its stake in PT Bank Internasional Indonesia, reversing from an earlier preference for a merger of its two Indonesian banks.

The Singapore fund has to either sell or merge Bank Internasional with PT Bank Danamon Indonesia to meet an ownership rule imposed by the Indonesian central bank. Temasek also owns a stake in Bank Danamon, Bank Internasional's bigger rival.
“The sale plan is a good move,'' said Made Suardhini, a banking analyst at PT Mandiri Sekuritas in Jakarta. “Merging may not add value to the banks because their businesses overlap.”

The sale of Bank Internasional may allow Temasek and its partners to profit from an investment that has risen by about fivefold since they first paid 1.99 trillion rupiah ($218 million) for a 51 percent stake in Bank Internasional in 2003. The partners include South Korea's Kookmin Bank.

Temasek is “exploring the sale of our investment in Bank Internasional Indonesia,” Myrna Thomas, the company's spokeswoman, said in an e-mailed statement. “Our final decision will be based on what optimizes value for our shareholder. We remain optimistic about the prospects for Indonesia's financial services sector.” Temasek's shareholder is Singapore's Ministry of Finance.

The Singapore sovereign wealth fund said on December 13 it planned to merge the two banks. Temasek also said at the time it may consider a sale if the merits of a merger aren't compelling enough.

Bank Internasional, Indonesia's sixth-biggest bank by assets, gained 3.1 percent to 330 rupiah in Jakarta. Bank Danamon is the nation's fifth-largest bank.

Temasek has until 2010 to comply with Bank Indonesia's ownership rules for the country's lenders.

What will Temasek ultimately choose to do?

2008-02-19T09:49:00.001+08:00

Will Industrial Bank of Korea’s run continue?

Industrial Bank of Korea, Korea's biggest lender to small and mid-sized companies, posted a smaller-than-expected gain in 2007 profit as it set aside more provisions against risky loans to meet stricter regulations.

Net income rose to 1.17 trillion won ($1.2 billion) from 1.05 trillion won a year ago, the Seoul-based bank said in a regulatory filing. That missed the average estimate of 1.27 trillion won by 20 analysts surveyed by Bloomberg News.

New standards are likely to hurt Industrial Bank more than rivals because the government considers loans to small companies to be riskier than lending to large corporations. The bank is required by law to provide more than 80 percent of its loans to small and mid-sized companies, defined as those with fewer than 300 employees and less than 100 billion won in annual sales.

“Even if you take the extra loan provisions Industrial Bank had to set aside in the fourth quarter as a one-time event, it is unlikely the bank will see significant growth in lending,” said Koo Kyung Hwe, a banking analyst at Hyundai Securities, who has a “market perform” rating on the stock.

Industrial Bank fell 1.2 percent to 16,550 won in Seoul before the earnings were released.

The bank's outstanding loans rose 15 percent to 84.3 trillion won at the end of 2007 from a year earlier, the bank said in an e-mailed statement.

South Korea will fully introduce stricter capital adequacy measures proposed by the Bank for International Settlements in 2009, after adopting basic rules related to loan risks this year.

Industrial Bank is seeking to offer services such as insurance and broking before new rules take effect in 2009 that will remove barriers between banks, securities firms and asset managers. Chief Executive Officer Yun Yong Ro said in his inauguration speech that the bank will set up a securities unit as well as an insurance company.

Will these measures succeed?

2008-02-12T09:42:00.000+08:00

What's the next step for UBS?

UBS AG's plans to open a banking branch in India are being held up as the country's central bank seeks clarifications from Europe's largest bank by assets.

“In-principle approval given to UBS has been put on hold pending investigation,” Alpana Killawala, spokeswoman for the Reserve Bank of India, said in response to a report by the Mint newspaper.

The paper reported that the Reserve Bank of India had suspended its approval for the branch because of UBS's reluctance to cooperate with local authorities in scrutinizing a global chain of money transfers linked to an Indian national, citing people it didn't identify.

UBS refused to comment on the Indian newspaper article. “Our application for a bank branch license is pending,” Mark Panday, the Hong Kong-based spokesman for UBS, said in a phone interview, without elaborating.

UBS, which doesn't have a banking branch in India, is seeking to join Citigroup Inc. and France's BNP Paribas SA, which have been increasing investments to benefit from an economy which is expected to grow at 9 percent for the third straight year.

BNP last invested $147 million to expand operations in the world's fastest-growing major economy after China.

Will UBS eventually break into the Indian market?

2008-01-29T15:56:00.000+08:00

Will Citi’s China banking agreement become the latest plank in the bank’s mainland platform?

Citigroup has signed an agreement with a Chinese partner to establish a mainland investment banking joint venture, ahead of an expected opening of the sector to more overseas participation.
People familiar with the situation said the US bank had agreed a partnership with Central China Securities, a mid-sized brokerage. The venture is expected to apply for regulatory approval in the coming weeks. Citigroup declined to comment and officials at Central China Securities were not available to comment.

The agreement comes as Beijing is poised to relax a two-year ban on foreign investment in the country’s booming domestic securities industry.

Citigroup’s move follows those of Credit Suisse and Morgan Stanley, which last month signed separate agreements with Chinese partners to establish mainland investment banking joint ventures. Credit Suisse signed a deal with Founder Group, a Chinese conglomerate that owns a securities arm. Morgan Stanley has signed a preliminary agreement with China Fortune, one of the country’s oldest brokers.

Central China Securities has its headquarters in Zhengzhou, in the central province of Henan, although it’s main investment banking operations are in Shanghai. The company’s website says it has 500,000 brokerage clients.

Citigroup already advises mainland companies on overseas IPOs and mergers and acquisitions. The joint venture, if approved, would become the latest plank in the bank’s mainland platform. It has a stake in Shanghai Pudong Development Bank, de facto control of Guangdong Development Bank and its own retail branch network.

Goldman Sachs and UBS won approvals for mainland securities joint ventures before China stopped such deals, fearing that the better managed and more experienced overseas companies would dominate the industry.

The inability of most foreign groups to underwrite mainland IPOs or trade domestic securities has proved costly, with the stock market booming and A-share listings in Shanghai and Shenzhen raising more than $60bn last year. Analysts warn that it could take several months before any joint venture receives approval from the Chinese Securities Regulatory Commission. Several other companies are understood to be discussing joint venture deals.

How will Citigroup’s joint venture impact the country’s booming domestic securities industry?

2008-01-22T12:44:00.000+08:00

Is this a sign of economy slow down in Japan?

Sumitomo Mitsui Financial Group, Japan's second-largest bank by market value, will use alliances with Asian banks, including Malaysia's RHB Capital, to boost income as domestic lending falls.

“We have a close relationship with RHB and are considering what kind of business we can do together,'' said President Teisuke Kitayama, 61.

Kitayama said Sumitomo Mitsui may “make a major or small investment'' in commercial banks in Southeast Asia, following its purchase of a stake in a Vietnamese bank last year.

Kitayama said he expects the biggest opportunities to be in consumer banking in Asian nations as he seeks to raise overseas revenue to 15 percent of the total from about 10 percent now. Profit growth is slowing at home as Japanese companies shun credit, helping send Sumitomo Mitsui down 35 percent in Tokyo trading in the past year.

The bank already refers Japanese clients seeking local- currency financing in Malaysia to RHB. It helped finance a $100 million loan for RHB together with the Japan Bank for International Cooperation in 2006.

Malaysia's Employees Provident Fund, which owns 82 percent of RHB, plans to reduce that holding to 35 percent by July, the fund said last month when it announced exclusive talks with Abu Dhabi Commercial Bank PJSC to sell a quarter of the Malaysian bank.

Will the alliance prove worthy?

2008-01-15T11:45:00.000+08:00

Why is Japanese company crucial to Citibank India?

Citibank India announced that it would establish a new Japan Desk in New Delhi, India, beginning January 2008. Leveraging its local expertise, wide product-service set, market reach and business infrastructure, Citibank India will be able to offer Japanese corporate clients in India banking and associated services in India including cash management, trade financing, foreign exchange, lending, etc.

India has become a major destination for investment and business development among large and small Japanese corporations. With the setting-up of this new desk, Citi will be able to play a key role in supporting new Japanese companies that are entering into India as well as supporting existing Japanese subsidiaries in India in their expansion plans. The new Japan Desk at Citibank India will be staffed with expatriate Japanese professionals, allowing a Japanese client interface.

Speaking about the growing trade between India and Japan, Ms. Geetanjali Kirloskar, Chairperson, India Japan Initiative (IJI) said, “Over the past few years, Japanese investments in Indian infrastructure, inflows touching US$4 billion and the emergence of India as the largest recipient of Official Development Assistance (ODA) have made apparent the emergence of India as high on Japanese priorities. While other countries looked at India as a market, the Japanese have looked at India as a partner. This Japan Desk will go a long way in providing Japanese subsidiaries in India a much-needed support system provided by a quality bank that both countries have great respect for."

Japan currently is the third largest foreign direct investor in India, and 400 Japanese companies currently operate in India, including joint ventures with Indian partners. In 2007 itself, Japanese companies invested over US$ 300 million in India. Automotives, engineering and electronics are key sectors in India with significant Japanese presence and the new focus areas for Japanese companies include infrastructure, pharmaceuticals, chemicals, and capital goods.

Sanjay Nayar, CEO, Citi India, said, “With our deep understanding of the local market and rich experience in supporting the entry and growth of international companies in India, Citi is ideally poised to cater to the growing needs of Japanese companies setting up manufacturing facilities or expanding operations in India."

India ranks 26th in terms of Japan's global exports and 28th in terms of imports. The trade volume between Japan and India in 2006 was over US$ 8.4 billion, with a 27% growth compared to the previous year. India's imports from Japan are dominated by capital and knowledge intensive manufactured products such as machinery, transport equipment, electronic goods, chemicals and metal products and top export items to Japan include gems and jewelry, marine products, iron ore, cotton yarn and software.

“Our strong presence in both countries, especially in servicing emerging sectors and small to medium enterprise businesses, will make us the preferred financial partner/advisor in the growing cross border trade and M&A activities – both outbound and inbound – between Indian and Japanese companies," said Sandeep Ghosh, Managing Director and Head-Global Commercial Bank, Citi India.

Citi has a long history in India and Japan dating back to 1902 when its first offices were established in Asia in Yokohama and Kolkata along with Shanghai and Hong Kong. In India, Citi prides itself in being a premier local financial institution backed by its global network across 100 countries. With over 22,000 employees and capital invested of over US$ 2.9 billion, Citi is the single largest FDI investor in the financial services industry in India. In Japan, Citi is one of the leading international financial firms and has recently listed Citigroup shares on the Tokyo Stock Exchange under the name "Citi."

Will Japanese company dominant India?

2008-01-08T15:20:00.000+08:00

Will OCBC's offer to buy the remaining of PacificMas help develop greater business synergies between Singapore and Malaysia?

Singapore's Oversea-Chinese Banking (OCBC), the smallest of the three Singapore banks, said it has offered to buy the rest of Malaysian insurer PacificMas Bhd for 4.30 ringgit per share, a 23 percent premium to PacificMas's closing price. OCBC said it and its subsidiaries currently own 28.15 percent of PacificMas.The offer is conditional upon OCBC securing more than 50 percent of the voting shares in PacificMas and regulatory approvals in Malaysia.

"By making the offer, OCBC group hopes to gain control of PacificMas so as to develop greater business synergies between its financial services businesses in Malaysia and the financial services businesses of PacificMas," OCBC said.

"The offer also provides an opportunity for other shareholders of PacificMas to realize their investments in PacificMas at a value above the current market price of PacificMas shares," it said.

While OCBC is obviously gaining by acquiring PacificMas, what does PacificMas have to gain from this offer?

2008-01-03T17:31:00.000+08:00

How will HSBC’s Wealth & Tax Advisory Services benefit people in developing as well as developed nations?

HSBC Holdings, one of the world’s leading financial groups, has signed an agreement to sell Wealth & Tax Advisory Services (WTAS) in a management buyout for US$65.85 million.

HSBC said that it would receive US$5 million in cash, followed by deferred notes totaling US$60.85 million. Under the terms of agreement, the company will also have an option to acquire a 19.9 percent stake in WTAS, subject to further changes.

Chris Meares, HSBC Private Banking chief executive, explained that "we’d like to focus on developing our core private banking activities in both developing and developed markets." WTAS is one of the biggest national independent firms with focuses on providing tax, valuation, financial advisory and related consulting services in the U.S.

HSBC Hong Kong shares closed yesterday at HK$130.90, down HK$0.80.

Will we see other banks follow in HSBC's footsteps?

2007-12-18T09:49:00.000+08:00

Is HSBC playing catch up to Citigroup and Standard Chartered?

HSBC Holdings, trying to catch up with Citigroup and Standard Chartered, will take over Chinese Bank of Taiwan, a unit of the bankrupt Rebar Group that was seized in January following a run on deposits. The Central Deposit Insurance, the government's bad-debt agency, will pay HSBC 47.49 billion New Taiwan dollars, or $1.5 billion, to take control of Chinese Bank. HSBC will provide $300 million to $400 million of capital to shore up finances, and the acquisition will increase its island-wide branches to 47. HSBC is speeding up its expansion after rivals including Citigroup added branches and bought assets in Taiwan to serve Asia's wealthiest people outside China and Japan.

“HSBC is under heavy pressure to accelerate its acquisition after Citigroup and Standard Chartered,” said Parker Wu, a fund manager at Agricultural Bank of Taiwan in Taipei. “It's positive for Taiwan banks as the HSBC move will help stimulate and upgrade the overall competitiveness.” The acquisition will add to HSBC's eight branches in Taiwan. Chinese Bank, based in Taipei, is one of two remaining banks up for sale on the government's auction list, with Bowa Commercial Bank set to be sold on Jan. 31. “Taiwan is a key component of HSBC's Greater China positioning,” Vincent Cheng, HSBC's Asia-Pacific chairman, said in the statement. “HSBC is strongly positioned to benefit from the growing level of trade and investment in Greater China and across the region.”

HSBC, one of Europe's biggest banks, in 2001 paid $103 million for China Development Industrial Bank's 53 percent in China Securities Investment Trust, then Taiwan's biggest fund manager. The acquisition will add to the London-based bank's earnings from Asia, where it generated 47 percent of its pretax profit in the first half of this year. The bank's chairman, Stephen Green, said last month that the bank would add more banks in emerging markets. HSBC negotiated the deal directly with Central Deposit Insurance after rounds of auctions for Chinese Bank failed. In Taiwan's bank auctions, the winning bidder receives money from the government to take over sound assets, including branches, and at least half of the employees.

Central Deposit Insurance said in July that an auction of Chinese Bank had failed to attract any investors amid concerns about the professionalism of the bank's 2,400 workers, at least half of whom they would be required to employ. The turmoil in the island's banking industry has given foreign companies an opportunity to widen their Taiwan networks through acquisitions. Citigroup, the most profitable overseas bank in Taiwan, agreed in April to buy the Bank of Overseas Chinese for 14.1 billion New Taiwan dollars. The London-based Standard Chartered in September 2006 announced the acquisition of Hsinchu International Bank, the industry's first overseas takeover, for 40.5 billion New Taiwan dollars.

How will HSBC benefit from the takover of the Chinese Bank of Taiwan?

2007-12-11T17:02:00.000+08:00

How will Philippine National Bank and Allied Banking perform after the merger?

Philippine National Bank and Allied Banking, both controlled by billionaire Lucio Tan, will merge after a court order ended a 21-year ownership dispute over his stake in one of the two banks. The Philippine Supreme Court gave Tan, the nation's third-richest man, the ownership of Allied Bank and other assets. The Presidential Commission on Good Government, the state agency tasked to recover so-called ill-gotten assets, earlier sought ownership of Tan's Allied Bank stake and other holdings.

The merger will allow Tan, 73, to overtake Land Bank of the Philippines as the country's fourth-largest bank by assets, extending an empire that also includes the nation's biggest carrier. The merger, expected in the first half, will help Philippine National compete more effective, said President Omar Mier. Tan's plan ``makes perfect sense because it will give the merged entity more scope to lever up in terms of efficiency and access to low-cost funding,'' said Ed Bancod, head of research at ATR-Kim Eng Securities in Manila.

The combined bank will have 370.7 billion pesos ($8.9 billion) of assets, compared with state-owned Land Bank's 367.8 billion pesos. Philippine National surged 7.6 percent to 49.50 pesos as of the noon end of trading in Manila, its biggest gain in more than five months. ``The merger will create a bigger, stronger and more profitable bank,'' Mier said. The union will create the nation's fifth-biggest bank in terms of capital, up from sixth currently, he said.

Philippine National's profit was 4.3 percent of sales last year, the lowest margin among 16 publicly traded banks in the country. The stock has risen 13 percent this year, trailing a 26 percent increase in the benchmark index. The court decision, also gives Tan control over Fortune Tobacco, the biggest tobacco maker in the Philippines. The outcome cements Tan's reach in the Philippine economy, where he also owns Philippine Airlines as well as Asia Brewery.

The Supreme Court voided the so-called ``sequestration'' order on some of Tan's assets, freeing them from the hold of the government task force. The state agency said it will appeal the court ruling. ``Whether or not the assets are ill-gotten is still pending'' the decision of the anti-graft court, said Presidential Commission Director Jay Miguel in Manila. The anti-graft court ruled against the government on a 20-year claim over shares in San Miguel. Tan will still need the consent of the anti-graft court to dispose of his assets, the commission director said. The Supreme Court decision proves there's no basis for the government to say the shares were ill-gotten, Tan's lawyer Estelito Mendoza said.

Is Lucio Tan extending his reach too far in the Philippines?

2007-12-05T10:10:00.000+08:00

Will the loan agreement by IFC encourage the proliferation of small and medium enterprise in China?

IFC, a member of the World Bank Group, announced the signing of a loan agreement with Business Development Bank in China. The bank will use the $45 million loan to extend its reach across the country and expand lending to small and medium enterprises, which are underserved by the banking sector.

Business Development Bank expects to expand the coverage and volume of its lending to smaller businesses significantly over the next few years through a new SME lending model. BDB is also set to benefit from an investment by United Commercial Bank, a United States-based bank that focuses on small business lending. UCB has signed an agreement with BDB’s shareholders to acquire all their shares and develop the bank into a model SME bank. This will leverage BDB’s existing SME lending capabilities with UCB’s expertise. UCB plans to partner with IFC in its program to broaden BDB’s SME lending coverage and capacity.

“IFC’s financing to BDB does not only represent a significant and welcome financial support for our bank. It is also especially well-timed in terms of the business development of the institution in China,” said BDB President Michael Askew. “Although it is layered on top of the new and important UCB investment, with its specific U.S. and Chinese business focus, the IFC facility will supply a powerful combination of experience, reach and leverage to the bank’s existing SME operations in the Chinese market.”

“We are delighted to be partnering with BDB, which fully shares IFC’s strategic objective of helping Chinese SMEs that are underserved by the banking sector. This project will have a strong demonstration effect, show that SME financing is commercially viable, and encourage other banks in China to engage more actively in the sector,” said Richard Ranken, IFC Director for East Asia and Pacific.

IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments. IFC’s vision is that poor people have the opportunity to escape poverty and improve their lives.

Business Development Bank was incorporated in China in 1992. Headquartered in Shanghai, it was the first wholly foreign-owned bank to be approved by the China Banking Regulatory Commission (formerly People’s Bank of China). It has branches in Shantou and representative offices in Beijing and Guangzhou. The bank is focused on lending to small- and middle-market companies engaged in international businesses, many of which deal with manufacturing and processing.

Will other banks follow in IFC footsteps to tap into China’s huge economy potential?

2007-11-27T14:09:00.000+08:00

Is the proliferation of Asian financial centres a boon or a bane?

Travel through most Asian airports these days and you are invariably greeted by advertising extolling the prowess of that city as a cutting-edge financial centre. Cities from Mumbai in the west to Sydney in the east - and all points between - project plans to become a “hub” or a “gateway”. The rivalry intensifies every year as financial centres across the region seek to attract investment dollars.

Driving the rivalry among the cities is a recognition that while Asia's advanced economies rely heavily on manufacturing, they will steadily lose their competitiveness in this area as living standards and wages increase. To compensate, economists say the countries must transform themselves into western-style service-based economies, in which financial services play a large role.

Hence the attempt to adjust tax and regulatory policy to attract international investment banks, private equity firms, hedge funds and scores of professionals such as accountants and lawyers needed to service financial activity. So which centres are leading the race to be Asia's premier financial centres and can they sustain their competitive positions?

Hong Kong and Singapore are regularly cited by academic studies as Asia's leading cities for finance. Far from being eclipsed by mainland cities, Hong Kong has thrived in the decade since the end of British rule and served as an essential centre for Chinese companies to raise international capital. This was graphically illustrated last October when Industrial and Commercial Bank of China, the nation's largest lender, listed in Hong Kong in an offering that raised a world record $21.9bn.

But analysts still fret over Hong Kong's future. Some officials in Shanghai are intent on restoring the city's pre-1949 position as Asia's premier financial centre. China's largest companies are now encouraged to list in Shanghai and not overseas, a call heeded recently by the likes of PetroChina that raised $9bn when it joined the bourse this month.

However, even on the mainland there is rivalry. Authorities are building up Tianjin, a city near Beijing, as an alternative centre of commerce and finance. Beijing itself is emerging as a financial centre. Financial Street, a district that houses the headquarters of the biggest commercial banks and bureaucratic decision-makers, has recently been developed.

Investment decisions made by the country's fledgling sovereign wealth funds are approved in the Chinese capital. Bankers remain confident that Hong Kong will retain a leading role. Rodney Ward, honorary president of UBS Investment Bank Asia, says: “Hong Kong will continue to play an important role for China and capital raising.”

Mr. Ward believes that the programme that allows for mainland institutions to invest in overseas jurisdictions will benefit Hong Kong's markets significantly as China's capital account restrictions are lifted in the coming years.

Singapore, too, has established itself as a home to growing numbers of hedge funds and as the region's leading centre for private banking, not to mention a niche for shipping and listed real estate companies. Mr Ward adds: “Singapore can benefit from Hong Kong's focus on China and it has successfully forged business links with India and south-east Asia.”

Seoul, too, this summer introduced a “big bang” restructuring to encourage competition, consolidation and creativity in an effort to become a world-class centre. Tokyo, meanwhile, is trying to shed its image as primarily a domestic market. Various working parties are studying how to alter regulations to attract foreign listings back to Japan: only four overseas companies have listed on the Tokyo exchange since 2004. Singapore bagged more than 40.

Australia is also plotting how best to grab a slice of the pie, in particular in the area of asset management. Thanks to a compulsory pension system, the country is on course over the next decade to be home to a pensions pool of $2,000bn. Paul Calello, outgoing CEO of Credit Suisse Asia Pacific, is one of many who believe that several centres in the region can prosper. He says: “Asia is an enormous region and there are huge opportunities for capital formation in several financial hubs.”

He adds: “Each financial centre can offer a niche reason for attracting business such as listings. HK remains important for Chinese companies, and is a gateway in to China. Singapore has developed a niche in property listings and could develop in to a bourse for Vietnamese companies.” Mr. Calello says that Asian companies will not just look to local markets to list. He says: “Nasdaq will still offer strong advantages for Asia's technology companies, while a listing on the NYSE offers a valuable currency for acquisitions.”

Will the development of the financial centres affect the ties between the Asian countries?

2007-11-20T14:58:00.000+08:00

Are China hinterlands fertile for foreign banks’ money plant?

HSBC is on a tight schedule as it works to open rural subsidiaries around China and tap the long-neglected but now fast-growing rural economy. HSBC got approval in August from China's banking regulator to open a wholly owned subsidiary in Cengdu County of Suizhou City, Hubei Province.

HSBC Rural Bank, the subsidiary, which is expected to open for business next month, will make the British financial giant the first foreign bank to expand into China's hinterlands. Recently, it sent experts to Kaixian County, in southwest China's Chongqing Municipality, preparing to open another village bank, according to the county government.

The Chongqing subsidiary will offer tailored lending, payment and settlement services to local individuals and village enterprises, similar to those to be provided by the Hubei operation, the county government said. “It may be possible for local farmers to withdraw money from an automatic teller machine, pay electricity and water bills or even buy treasury bonds through the bank, just as many urbanites do.’’

HSBC plans to set up six to ten rural subsidiaries in China in 2008. Citibank, Standard Chartered and some other foreign-funded banks have also shown an interest in expanding to China's rural areas. “The huge business potential in China's rural market is the major attraction to foreign banks,’’ said Du Xiaoshan, deputy head of the Rural Development Institute of the Chinese Academy of Social Sciences (CASS).

Guo Tianyong, head of the China Banking Research Center at the Beijing-based Central University of Finance and Economics, said that it was a long-term strategy for foreign banks to invest in rural areas. “To set up rural banks may help them burnish their image, but may not help them earn profits in a short period. It may be acceptable to them to suffer certain losses in the short term,’’ Guo said.

Farmers have long been neglected by China's banks because of the higher risks of lending to them, compounded by greater operating costs and lower returns. Official figures indicate that farmers could rarely obtain loans of more than 5,000 Yuan (666.7 U.S. dollars).

In October, the China Banking Regulatory Commission (CBRC) decided to lift restrictions on the regions where village and township banks could be established. Instead of six provinces, such banks can now be established in any rural area. At the end of 2006, the CBRC lowered the registered capital threshold to 3 million Yuan for banks at the county level and 1 million Yuan for those at the village and town levels.

The question is how will the foreign banks invasion be received by the local banks of China?

2007-11-14T10:11:00.000+08:00

Can Bank Central Asia dominate the mortgage market in the long run?

Bank Central Asia, Indonesia's second-largest financial services company, forecast 2007 loan growth will reach 20 percent, accelerating for the first time in three years as it grabs a bigger share of the mortgage market.

"Loan demand is picking up," Djohan Emir Setijoso, president of the Jakarta-based bank controlled by U.S. hedge fund Farallon Capital Managemen, said. "Mortgages will be part of our future core business." The bank is offering lending rates a third cheaper than the industry average to lure home buyers as Indonesia's fastest economic growth in 11 years lifts incomes. Setijoso expects mortgage demand to withstand the impact of record oil prices that prompted the central bank to refrain from cutting benchmark borrowing costs last week on concern inflation may accelerate.

"The loan-growth target ‘is very achievable," said Tjandra Lienandjaja, a banking analyst at PT BNP Paribas Securities in Jakarta. "They have been more aggressive in lending, offering very low fixed-interest rates."

Bank Central Asia's loan growth last year was 13.8 percent, after a doubling of fuel prices in 2005 drove inflation to a six-year high and led the central bank to raise its benchmark rate to 12.75 percent. Loans expanded 30.8 percent in 2005 and 38.7 percent in the previous year.

Bank Indonesia held the rate used as a reference for bill sales at 8.25 percent for a fourth month in early November, after Governor Burhanuddin Abdullah expressed concern about imported inflation. Crude oil reached a record $98.62 last week. The push to increase home loans has squeezed profitability. Net interest margin, or the difference between what the bank earns on loans and pays for funds, is forecast to fall by between 1 and 1.5 percentage points this year from 6.59 percent in 2006.

Bank Central Asia was founded by Liem Sioe Liong, formerly Indonesia's richest man, whose family runs the world's biggest maker of instant noodles. San Francisco-based Farallon Capital and its Indonesian partner bought 51 percent of the bank in 2002.

Will there be a decrease in loans from Bank Central Asian as the Indonesia economy picks up?

2007-11-06T14:11:00.000+08:00

Can Bank of Communications succeed in setting up banks in rural China?

Bank of Communications, part-owned by HSBC Holdings, is in talks to buy stakes in some rural banks in China's Jiangsu Province, President Li Jun said. The talks are “under way and proceeding smoothly,'' Li said in an interview in Beijing on Nov. 3. He declined to say how many rural commercial banks are being targeted or how large the stakes may be.

BoCom, as the smallest of China's five major state-owned banks is known, may try to tap profits from serving China's 800 million farmers. Chinese President Hu Jintao has made boosting rural incomes a priority, promoting loans to farmers and raising public works spending. BoCom Chairman Jiang Chaoliang said on Oct. 18 the bank is considering setting up branches in rural areas. “Rural areas are less developed, hence they have potential,'' he said.

Jiangsu Province in eastern China is the nation's second largest in foreign trade and fifth biggest by population. Its capital is Nanjing and it borders Shanghai, China's richest city. China relaxed banking rules in less-developed provinces in December to encourage investors to set up locally based banks, loan companies and credit co-operatives. The regulator expanded the pilot program to 31 provinces from six to boost competition.

HSBC, the largest foreign bank in China, received approval in August to set up a rural bank in the city of Suizhou in central China's Hubei province. Citigroup, the biggest U.S. bank, plans to set up at least 10 rural banks and loan companies in the countryside, China's director of cooperative finance said.

Bad loans at China's rural commercial banks, restructured from credit co-operatives, fell to 4.2 percent of total lending at the end of September, down 1.7 percentage points from the end of last year.

BoCom, which has 1,600 branches nationwide, said that third-quarter profit almost doubled as economic growth in China bolstered loan demand and fee income surged on the nation's stock market rally.

With Banks of Communications moving into rural China, will other International banks follow in their footsteps?

2007-10-30T16:05:00.000+08:00

Will ICBC reap profit from Standard Bank after the acquisition?

Industrial & Commercial Bank of China said that it would pay 36.7 billion rand, or $5.6 billion, for a 20 percent stake in Standard Bank Group, the largest African bank, in the biggest overseas acquisition by a mainland Chinese company.

The investment is the third overseas purchase by the chairman of ICBC, Jiang Jianqing, in less than a year comes three days after Citic Securities agreed to invest $1 billion in Bear Stearns, the fifth-largest Wall Street securities firm. Jiang is using the $22 billion that ICBC raised in an initial stock sale a year ago to expand abroad as Citigroup and HSBC set up branches in China.

ICBC is making the biggest foreign investment in South Africa outside of mining since apartheid ended in 1994. Barclays spent 30 billion rand, or $4.5 billion, in 2005 to take control of Absa Group, the biggest consumer bank there.

Standard Bank, which makes the same amount of profit from retail banking as it does from corporate and investment banking, has units in 18 African countries and 21 nations outside the continent. The company is expanding outside South Africa, where it earns most of its profit, to tap increasing trade in commodities and fees from investment banking. Standard Bank has bought banks in Argentina, Nigeria, and Kenya and has said it may make acquisitions in Russia as well as start an operation in India.

Will there be more overseas acquistions to follow for ICBC after the takeover of South Africa's Standard Bank?

2007-10-23T11:45:00.000+08:00

Can Thai banks compete on an international front?

Bangkok Bank, Thailand's biggest lender, may sell its stake in ACL Bank to Industrial & Commercial Bank of China, the world's largest bank by market value, by the end of this year.

“The talks have been ongoing for a while to a point that it boils down to ICBC,” Kulathida Sivayathorn, a Bangkok Bank executive vice president said.

“We hope to wrap up the deal by the end of the year.” ICBC became the only suitor for Bangkok Bank's stake in Thailand's ACL after Malaysia's CIMB Group Sdn. said yesterday it has been dropped from the deal. Bangkok Bank is selling a 19.3 percent stake in ACL.

In recent months, foreign financial services companies including Bank of Nova Scotia, General Electric Co. and TPG Newbridge bought stakes in Thai lenders to tap growing demand for loans in Southeast Asia's second-biggest economy.

Kulathida said Bangkok Bank and ICBC will have to resolve regulatory issues before the sale can be completed.

Most Thai banks plagued by a relatively high gross non performing loan of more than 9% are looking at injections of foreign capital and expertise to turn their business around. Though undaunted by the military uncertainty in 2006, it may no longer be able to rely on the government full guarantee on deposits and may be forced to reorganize. Is the restructuring merely overdue? Will Thai banks be able to compete with the international players once the strict regulations on foreign ownership are lifted?

2007-10-17T11:43:00.000+08:00

Is Citibank’s joint venture with Reliance reliable?

Reliance Industries, which is opening stores in 30 Indian cities and towns, is forming a joint venture with Citigroup to provide retail loans and credit cards to its customers.
The investment is in the region of 4,300 to 4,500 million rupees and Citigroup is likely to hold a majority stake in the venture.
Consumer finance in India, which includes loans and credit cards, is growing at an annual pace of as much as 40 percent, with spending using credit cards totaling about 500 billion rupees a year.
Mumbai-based Reliance Retail, an arm of India’s largest company by market value, Reliance Industries, has reportedly floated an independent financial services division to provide retail loans to customers at the point of sale. It plans to offer 0% interest rates on certain transactions for goods from its stores.
Reliance Retail plans to invest $5.5 billion on setting up stores across Indian cities. It has already set up around 340 such stores across various formats. The company says its loyal customers account for 20% of the total customer base. It set up its first store in the southern city of Hyderabad last November.
Consumer finance is growing at rates in excess of 30% annually in India, with a majority of transactions in particular markets like automobiles being financed by loans. The size of the market is estimated at about $18 billion. But credit card market penetration rates are still relatively low, at about 1%.
Reliance Money isn’t the first retailer to enter the consumer finance business. Kishore Biyani’s Future Group launched a consumer finance initiative in April called Future Money. The group’s hypermarkets, Big Bazaar, have a partnership with ICICI Bank for co-branded credit cards.
Will this venture help Citigroup penetrate India’s mass market without getting misrepresented through the retail stores?

2007-10-08T13:44:00.000+08:00

Is Islamic banking the ‘new China’?

HSBC, Europe's biggest bank by market value, expects demand for its Islamic insurance
products in Malaysia to soar as more young Muslims seek financial products and services that comply with their religious law.

Some 75,000 customers have paid 150 million ringgit in premiums to HSBC Amanah Takaful Malaysia, a bank joint venture, since August last year, said Keith Driver, chief executive officer of the Kuala Lumpur-based company.

“We expect to grow at a fast pace. There is a great deal of opportunity there. We are looking at hundreds of thousands of Malaysians entering the economically active stage of their life.” said Driver.

Islamic insurance, or Takaful, accounts for 6.6 percent of the 116 billion ringgit industry in a country where almost two thirds of the 27 million population is Muslim and a third is aged under 15. HSBC Amanah Takaful offers family, home, general and casualty protection, along with investment-linked insurance products. It is one of eight sellers of Islamic insurance in Malaysia.

Islamic insurance is based on the Koranic principle of mutual assistance in which members are the insurers as well as the insured. Shariah forbids interest payments and any gambling or speculative investments.

The venture is also studying opportunities to grow in Singapore and Saudi Arabia. There is strong demand for Takaful in Asian countries including China, Indonesia and Brunei. The region is home to more than half of the world's Muslim population of 1.5 billion.

There has been a quantum shift in emphasis onto the Islamic market since the then nascent Chinese and Indian economies are tapped. Is Islamic banking the new China? Or will political instability jinx economic growth?

2007-10-02T16:46:00.000+08:00

Who will win the Bancassurance race?

Saigon Thuong Tin Commercial Joint-Stock Bank, the only bank traded on the Ho Chi Minh City Stock Exchange, signed an agreement with Bao Minh Insurance, Vietnam's second-biggest non-life insurer.

Saigon Thuong Tin, or Sacombank, is Vietnam's second largest non-state-owned bank, has a total assets through the end of August of 45.3 trillion dong

Bao Minh, which is traded on Vietnam's smaller stock exchange in Hanoi, generated 1.47 trillion dong in sales last year, has about a fifth of the country's non-life insurance market.

Individual wealth is rising in the nation of 85 million people, where economic growth has averaged 7.8 percent in the past five years and per-capita incomes have doubled within the decade. Vietnam's banking industry may grow at twice the rate of the economy, as only 6 percent of Vietnamese hold bank accounts.

Bancassurance is a term used to describe agreements between financial-service and insurance companies that call for arrangements such as allowing insurers access to bank customers.

“The insurance sector in Vietnam will be very strong in the future,” Tran Xuan Huy, general director of Sacombank, said. “The full international type of bancassurance may not arrive here for some years, but we need to get ready now.”

Sacombank may set up its own insurance company in the future and the bank may “consider” buying a direct stake in Bao Minh.

AXA, Europe's second-largest insurer had agreed to buy a 16.6 percent stake in Bao Minh for 54 million euros. HSBC Holdings bought 10 percent of Bao Viet Insurance & Finance Group for $255 million. Bao Viet is Vietnam's biggest state-owned insurer.

The recent years have seen the banks vying for the Bancassurance business in the region as banks gear for a share in this lucrative business. Locally, we see insurance giant Prudential tying up with Standard Chartered and Maybank, DBS with Aviva and Citibank with Manulife, for example. Bancassurance has also ventured into the Singapore post, known as Postassurance.

As the region prospers, the Bancassurance business will be a dire path for banks to increase earnings from existing customers. Is this a win win situation for the consumers as well as for the bank?

Unlike loans or investment products, insurance products once purchased, can stay with the customers for many years, and in participating plans, sometimes for life. So, can banks match the personalised long term financial services traditionally offered by insurance agents?

2007-09-27T17:38:00.000+08:00

Do corrupt bank managers deserve the death sentence?

Huang Jinjiang, a former bank official with the China Agricultural Bank was sentenced to death for receiving bribes. He is also deprived of his political rights for the rest of his life, not to mention that all his personal assets are confiscated.

From 1993 to 1997, the defendant Huang abused his position in the bank to approve loans, after accepting bribes up to seven million yuan. Huang's three other colleagues were also charged for bribery for a lesser amount. Most part of the illicit money are not recovered.

In a country where “an eye for an eye, blood for blood” is still a tradition, it may take time for the new rule that aims to reduce the number of death penalty to set in. If the death sentencing of a fellow colleague, Wen Mengjie, former director of the IT department does not deter Huang from such acts, China may need to look beyond the legal system to solve its problem.

The economic boom in China has resulted in a ‘litigation explosion’, bringing unprecedented wealth to the nation, tipping the scale between professional integrity and simple greed. Is China simply too big to govern? Are its banks too wealthy to contain? If the problem lie with the governance, is it fair to hang the players?

2007-09-19T10:21:00.000+08:00

From Citigold to the Citi clear, will Citibank win them all?

Citigroup has shifted its focus on the masses, such as its recent launch of the Citibank clear card that comes without the mandatory minimal income requirement. And in Vietnam, Citibank has extended its banking services through the post offices.

Citigroup will work with Vietnamese postal savings service to put in place services that allow for payments, transfers and foreign-currency transactions at Vietnam's 3000 post offices, nationwide.

“The joint product we are launching today will bring international payment standards to serve Vietnamese people in cities as well as remote areas of Vietnam,” Charly Madan,
Citigroup's Vietnam country manager said.

While banks like HSBC and Standard Chartered are expanding their affluent business models, Citibank is taking eager steps to sell its products to the rest. In Malaysia, foreign workers can send money home via their mobile phones and in India, thumb print recognition systems are installed in Citibank’s automatic teller machines, simplifying banking processes for all.

While Citibank strives to do it all, many prefer to stick to a niche. HSBC recently re-launched its premier banking services, changing many of its existing branches to premier banking centers to cater solely to the affluent.

So can Citibank have it all? Can the biggest U.S. bank win over the masses and maintain its stronghold on the discerning wealthy?

2007-09-14T13:09:00.000+08:00

Is China big enough?

Standard Chartered Bank will extend its private banking business into Shanghai to woo China's growing number of millionaires.

The bank targets clients who have a net worth above US$1 million that could be invested in private banking services. This service was first launched in Beijing in late June.

According to Elaine Lai, the head of wealth management of Standard Chartered Bank China, almost 70 percent of its personal banking clients are Chinese mainland residents. The bank also plans to target the credit card market.

Standard Chartered is one of two foreign banks that have applied to conduct their own brand credit card business in mainland China. The other is the Hong Kong based Bank of East Asia.

Mainland China has 345,000 millionaires with a net worth of US$1 million in 2006, a jump from 320,000 in 2005. The UK bank is also keen to enter the trading scheme which allows private investors to trade Hong Kong shares directly using their mainland bank accounts,

Currently only Bank of China in Tianjin runs trial program that allows private investors to trade Hong Kong shares directly via mainland accounts. It is unclear whether overseas banks will be able to tap into the business.

While overseas banks, banking on their long established expertise and worldwide network are winning over the millionaires in mainland China, many more foreign banks have also arrived, eager to sink their teeth into the pie. Would the heated competition just push down rates, or is the market big enough for everyone?

2007-09-04T15:45:00.000+08:00

Is reliance on good ratings a blind leap of faith?

The Bank of East Asia, the fifth-largest domestically incorporated bank in Hong Kong has its ratings of 'A-' long-term and 'A-2' short-term credit ratings affirmed by Standard & Poor's Ratings Services. It also received a ‘B’ on fundamental strength rating.

“The ratings on BEA reflect the bank's solid domestic franchise in Hong Kong and its rapid but careful expansion in China and reflect the bank's improved asset quality, satisfactory liquidity, and sound capitalization. Moderating factors include growing latent credit risks and pressured profitability." said Standard & Poor's credit analyst Qiang Liao.

Though BEA is small relative to the dominant banks in the system but it has been the precursor in terms of diversifying business into overseas market, with Hong Kong only accounting for only 62.6 percent of its total advances as of end of June 2007. After incorporating a wholly owned subsidiary in mainland China in April 2007, its loans from the Chinese market grew from 22.9 percent up from 14.4% in 2005.

A favourable combination of economic conditions, rising property prices in Hong Kong and prudent risk management measures further enhances BEA’s asset quality and keep its impaired loan ratio to 0.79% at the end of June 2007.

Ratings have become a standardised way in which we view an organization, and needless to say one with highest five-star ratings will win confidence.

Yet lawmakers and investors in the U.S have criticised the credit rating company, Standard & Poor’s for failing to judge the risks of securities backed by subprime mortgages. The ratings for Basis Capital tumbled from distinction to ‘on hold’ only on July 17, after massive loss up to 50 percent on the dollar was lost.

In the light of funds filing for bankruptcy protections and Standard & Poor’s President Kathleen Corbet resigning as a result (allegedly), what good is a good rating?

2007-08-28T10:45:00.000+08:00

Will China banks be able to compete in their home turf?

Industrial & Commercial Bank of China, the world's biggest by market value, reported profit jump of 61 percent for the first half year, fueled by its loans business.

Net income rose to 41 billion yuan from 25.4 billion yuan from just a year ago, beating the 38.9 billion yuan average estimate. ICBC overtook Microsoft as the third-most valuable company last week.

As of 23rd August ICBC is valued at $282 billion. Microsoft, the world's largest software company, is worth $265 billion and Citigroup, until last month the biggest bank by market value, has a value of $241 billion. Citigroup earned $11.2 billion in the first six months.

Flushed with cash after selling $61 billion worth of shares in the past two years, Chinese banks are expanding their lending business, issuing more credit cards and offering wealth management services in an economy that grew by 11.9 percent in the second quarter. Loan growth in China has averaged 14 percent over the past five years.

ICBC has skirted the fallout from swelling defaults subprime loans that roiled global rivals including HSBC. HSBC will cut jobs and close an office in the U.S. as it retreats from subprime mortgages.

Lending margins have widened as China's central bank boosted its benchmark lending rate for the fourth times this year. Expectations of rising profits from lending have made China's banks the world's most expensive.

ICBC plans to open at least 1,000 wealth management centers this year to battle Citigroup and HSBC for the growing pool of wealthy Chinese. Foreign banks target clients who have at least 500,000 yuan of net assets.

By 2015, the number of affluent Chinese households with annual income exceeding $25,000 will triple to 8.5 million.

Will China banks be able to compete with established international banks to manage the wealth of the discerning rich?

2007-08-21T12:12:00.000+08:00

Is Saxo Bank too late?

Saxo Bank is opening a representative office in China to tap into the bourgeoning economy, one of the fastest growing in the world.

Saxo Bank, an investment bank that specialises in online investments in the international capital markets, will be launching its trading platform, known as the SaxoTrader. This online platform enables clients to trade currencies, shares, CFD contracts, futures, options and other derivatives as well as to manage their own portfolio.

“In the Asian-Pacific region you find a client base that is knowledgeable, technologically sophisticated and receptive to information on investment instruments. The future of online trading will be determined by self-directed investors, who are eager to diversify and ready to learn. Saxo Bank’s value proposition is uniquely suited to Asian investors in that kind of environment” said Shailendra Robin Patel, Saxo Bank’s Senior Executive Director for Global Business Development.

Overseas banks in China have been declaring sharp business growth. These foreign-funded banks, with clear advantages in expertise and credentials in capital market businesses, have made big fortunes from securities brokerage businesses in the first half of this year.

Take Standard Chartered Bank for example. It has doubled its business income in China, with pre-tax profit rising 30 percent to US$1.8 billion. Many overseas banks have been quick in adding new outlets, extending their financial domination from big cities to smaller ones. Standard Chartered Bank will have 40 outlets in 15 cities this year while Bank of East Asia will have 37 branches and sub-branches.

Saxo Bank will be opening its first branch in Beijing.

With so many foreign banks embedded in the financial heartbeat of this booming economy, and the local banks moving rapidly into the highly profitable wealth management arena, is Saxo Bank too late? And is the investor sufficiently ‘self-directed’ to trade such a complex range of investment products?

2007-08-15T10:10:00.000+08:00

Are financial firms the bane of Korean banks?

Korean banks are looking to journey overseas as competition intensified from financial firms, threatening their profits. Even Kookmin Bank, the industry leader as measured by their financial assets, is feeling the heat. Kookmin bank opened its first branch in China last month.

Financial regulators are held responsible for deflating the domestic banking scene. In defence, the regulators claim that their aim is to promote healthy financial industry takeovers and integrating the capital markets in land South Korea a bigger role in the Asian securities trading scene. The new chairman of the Southern Korean Financial Supervisory Commission Kim Yong Duk said, “Let’s ease entry and exit rules for financial companies and encourage them to grow larger by expanding capital or mergers and acquisitions.”

Regulators aim to support domestic financial firms to expand overseas as well as to ease foreign rivals to enter the market. Their hope is that the integration will shape the path for South Korea to boom as the financial hub in East Asia.

The new legislation is christened South Korea’s “Financial big bang” and will let brokerage firms provide most financial services that are similar to banks, excluding deposits taking and insurance. Most analysts believe that the bigger firms will benefit more from the change than their rivals because they can develop more products and acquire smaller rivals to expand.

This is not a unique scenario in Asia, with many booming Asian countries opening up their doors and policy makers loosening their belts as their insatiable appetite for growth whet. Will the local banks be able to survive the onslaught carried out in the name of financial growth?

2007-08-07T16:32:00.000+08:00

Can religion and banking be a favourable combination?

Bahrain's AlBaraka Banking Group BSC, the world's fourth-largest Islamic financial services provider, will spend as much as $300 million to woo customers in India and China who want to invest their money according to Muslim tenets. The $300 million will be spent in four years building the business in Asia and used for acquisitions or to provide “capital for our subsidiaries there,” Adnan Ahmed Yousif, AlBaraka's chief executive officer said. The venture in India will be the first by an Islamic bank from the Middle East in the South Asian nation, adding to the Bahraini lender's presence in 12 countries, he said.

“India is a large market and we are working with partners to see how we can do it,” Yousif said. AlBaraka will compete with Standard Chartered, ABN Amro and HSBC in Asia by offering services that comply with Shariah, or Islamic law. The Islamic finance industry worldwide may grow to $2.8 trillion by 2015 from as much as $1 trillion now, the Malaysia-based Islamic Financial Services Board estimates.

“There is a lot of interest from Middle East investors in Asia, particularly China and more recently India,” said Dubai,United Arab Emirates-based Arul Kandasamy, head of Islamic financing solutions at Barclays Capital, the investment bankingunit of Barclays Plc. London-based Barclays in July said it will start a wealth-management team in India. Under Islamic law, or Shariah, the payment of interest and investment in businesses such as tobacco, alcohol and gaming is prohibited, making many conventional stocks, bonds and banking avenues off limits to Islamic investors.

Will an Islamic bank prove to be an optimistic opportunity? Is following religious tenets and texts as the guiding principle in banking practices a sustainable idea in today’s liberalised environment?

2007-08-01T11:43:00.000+08:00

Where have all the top bankers gone?

Head of Asia Investment Banking of HSBC Holdings Plc, Steven Wallace has quit HSBC. HSBC spokeswoman Annie Cheng said Chang Touchen, Head of Investment Banking in South East Asia will replace Wallace.

This is the second senior departure in HSBC in the past month. Hong Kong based Wallace, who was promoted to head of Asia Investment Banking in 2005 refused to comment.

His resignation follows that of Michael Smith, who quit as head of HSBC’s Asia operations last month to join Australia and New Zeland Group Banking Limited as Chief Executive Officer.

HSBC ranks 18^th on advise relating to mergers and acquisitions in Asia this year, down from 5^th in 2006.

The decline is evident in HSBC’s Investment Bank too. Pretax profit at HSBC’s investment bank fell 7% in last year’s second half even as competitors including Goldman Sachs Group Inc. reported record earnings.

Former Co- Head of Investment Banking John Studzinski said the inclusion of 1400 new employees and increased expenses contributed to the decline in the overall earnings

2007-07-25T16:14:00.000+08:00

What are China’s intentions?

The Singapore and Chinese governments may bid for a stake in ABN AMRO Holdings NV in support of Barclay’s Bank in it’s attempt to procure the purchase of ABN AMRO Holdings NV.

Barclay’s has plans to raise it’s ABN AMRO bid to about 50 billion pounds, the BBC said. If the deal proves to be a success, China would get 7% of the stake and Singapore’s investment arm, Temasek Holdings, headed by Ho Ching, the wife of Singapore’s Prime Minister, Lee Hsien Loong, would get 3%.

Barclay’s Bank would go down in the annals of banking history as the bank to have made the largest acquisition if the deal is successfully finalised. It is proving to be a two horse race to get to the finish line. The other horse in this race is The Royal Bank of Scotland.

China has initiated a state executed investment fund and seeks to gain higher returns from it’s 1.3 million of foreign exchange reserves. The Chinese government is "sitting on a pile of cash and there are only so many government bonds that they can purchase, so investing in equities is an increasingly attractive option," said Craig James, an economist at Sydney-based Commonwealth Bank of Australia.

Barclay’s may also buy back several million pounds of its own shares if the takeover is final. The two countries would take smaller stakes if the ABN AMRO bid fails. Blackstone Group Lp are initiating the arrangement of the deal. The auction for ABN AMRO seemed to have reached greater heights as The Royal Bank of Scotland has now raised the stakes to 71.1 billion euros. RBS has thus exceeded Barclay’s initial offer of 64.5 billion euros. The NRC Handelsblad reported that ABN Amro Chief Executive Officer Rijkman Groenink said he expects most of the company's shareholders to choose the Royal Bank offer because it is higher .

As far as this deal is concerned, China and its little brother, Singapore may have to hope that Barclays wins the bid so as to get a probably better cut of the pie. Nevertheless not everyone is pleased it seems with the government trying to procure stakes in the bid for the bank. "In general I'm not a fan of governments taking direct stakes in companies," said Shane Oliver, who helps manage the equivalent of $83 billion at Sydney-based AMP Capital Investors. "It's the start of a trend and the market's reaction to it will depend on China's motives for taking these stakes."

And so, the question remains. What are China’s true intentions? Are they politically motivated or purely for the sole purpose of investment? What is your say?

2007-07-20T17:51:00.000+08:00

Is Taiwan using Singaporean entity to infiltrate China?

Taiwanese based Far Eastern International Bank, hopes to sell a stake to a strategically situated foreign power. This would enable the bank to help it to branch out in China.

The Chinese- language Economic Daily News reported today that DBS group holdings, Singapore’s biggest bank , may pay for a stake in the Taiwanese bank. DBS is “always on the lookout for organic and inorganic opportunities that are accretive to our shareholders, and which extend our Asian banking franchise,” company spokesperson Eileen Lau said.

A surge in cash card loans and bad credit caused a financial downward spiral within the bank that prevented a sale of a stake to outsiders.

Besides investing in China, the other reason the Taiwanese bank needs another player is the fact that the Taiwanese government does not permit it’s banks to open branches in China. The sole reason being an absence of a two way supervisory mechanism.

The question to ponder here is to whether Taiwan has an ulterior motive, that is to control and monopolise parts of China so as to gain financially and to control China from within. It’s not rocket science to comprehend that a power that has a overwhelming financial foothold on a country inevitably controls the country.

Is the Taiwanese government smokescreening it’s true intentions with permit that preaches the contrary?

2007-07-12T10:11:00.001+08:00

Is China’s ATM security up to the challenge of higher withdrawals?

Banking institutions in China have upped the withdrawal limit of Automatic Teller Machines (ATM) from RMB 5,000 to RMB 20,000, upon approval from the Mainland Banking Regulator.
Like before, customers will still be able to withdrawal a sum of RMB 2,000 to RMB 3,000 per transaction. In cases of inter-bank transactions, account holders will be required to fork out an additional RMB 2 service fee. This translates into customers having a need to engage in at least seven transactions to withdraw the maximum amount and pay more than RMB 14 in service fees.

Chinese banks are making use of ATMs as a strategy to keep abreast of mounting
competition from foreign banks. Such personalised electronic banking used to retain customer loyalty, has taken center stage in the industry's tug of war for market share.

The rise in withdrawal limits may be a double-edged sword. On the one hand, it could significantly reduce queues and congestions at bank counters and contribute to even more seamless and efficient banking operations. Yet, it could pose a new security risk, as larger withdrawal volumes heighten the possibilities of illegitimate banking activities such as credit card fraud and counterfeiting. Besides, ATM machines are located on the exterior of bank buildings, making it even easier for crime to evade detection and doubling the chances of security breeches. The primary concern of customers lies mainly in the efficiency and safety. As such, authorities are seeking means to bolster banking security at ATMs.

The banks might have increased their withdrawal limits, but how robust is the security plan that is to complement it?

2007-07-03T15:50:00.000+08:00

Standard Chartered to buy more Taiwanese Banks?

Chief Executive Officer of Standard Chartered, Peter Sands, has announced that the bank would not rule out buying more Taiwanese banks. The company, which currently generates two thirds of its profits from Asia, hopes that the acquisition of other Taiwanese banks would boost its network across the island.

In September the bank secured its first overseas takeover of Taiwanese lender, Hsinchu International Bank, in the NT$40.5 billion offer. This takeover increased the Standard Chartered outlets in Taiwan from a mere three to 86, nine of which are located in Taipei.

Reporters were informed by Sands that another acquisition in Taiwan was not out of the question however, “not and immediate priority”.

Taiwan’s government is encouraging consolidation in the industry as almost a third of its native banks are losing money.

In April New York-based Citigroup agreed to purchase the Bank of Overseas Chinese for NT$14.1 billion , increasing its branches from 10 to 66.

Most recently ABN AMRO agreed to receive NT$6.9 billion from the government in exchange for the failed Taitung Business Bank which had, until June, been under state oversight.

Can Standard Chartered use their experience, expertise and established global network to help reform Taiwan’s banking network should they continue to buy out local banks?

2007-06-26T15:27:00.000+08:00

A Billionaire’s affair?

Fosun International Ltd. is raising as much as HK$10.85 billion ($1.39 billion) in an initial public offering whose investors include Hong Kong billionaire Li Ka-shing. The Shanghai-based company, whose businesses range from steel to financial services, is offering 1.25 billion shares in Hong Kong at HK$6.48 to HK$8.68 each. Fosun co-founder Guo Guangchang's bets on companies such as Shanghai Forte Land Co. and Shanghai Fosun Pharmaceutical Group Co. have made him China's ninth-richest man, with an estimated fortune of $1.5 billion.

Guo typically borrows to fund purchases, mirroring the approach of buyout companies like Blackstone Group LP, which last week raised $4.1 billion in an IPO. “This is the China equivalent of Blackstone,” said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. “They have major investments in several very successful listings. The market perception is they have the Midas touch.” China International Capital Corp., Morgan Stanley and UBS AG are arranging the sale, which may become the third-largest Hong Kong IPO this year at the top end of the pricing range.

Guo owns 58 percent of Fosun, said a report by UBS. His stake would be worth $3 billion at the top end of the range. He is the company's chairman. Eleven corporate investors will split $220 million of shares between them, the people said. They include companies controlled by Hong Kong tycoons Li and Lee Shau-Kee; the Government of Singapore Investment Corp.; First State Investments; China Life Insurance Co.; and China Pacific Insurance Co., they said.

Fosun’s growth in the region is noticeable. It invested 20 million Yuan ($2.6 million) in property developer Shanghai Forte in 1994, according to the UBS report. As of June 13, that stake was worth $6.1 billion, UBS said. A similar-sized investment in Shanghai Fosun in the same year has since swelled to 7.5 billion Yuan, the report said. The sale of the 20 percent stake values the Shanghai-based company at between 13 and 17 times estimated earnings for 2008, the people said. Li's Cheung Kong Holdings Ltd., with operations from ports to retailing, trades at 17.4 times next year's estimated profit.

Mr. Li and the other tycoons are boosting business activities while Hong Kong’s market is thriving. How many more billionaires do we have to look forward to? Mr. Li seems to be in control of the viable businesses of Hong Kong and has been supporting Hong Kong’s growth with investment in many trade activities. Will such tycoons be the main figures behind Hong Kong’s stability? Will Hong Kong’s growth be perpetual and will it eventually dethrone other financial hubs like Singapore or Shanghai? What do you think?

2007-06-22T12:29:00.000+08:00

Is ICICI able to enhance the future of India’s banking sector?

ICICI Bank Ltd., India's second- biggest financial services company, will start selling $4.3 billion of shares, betting the fastest economic growth in six decades will attract investors to the nation's largest offering. The bank plans to split the sale equally between investors in India and overseas. It's providing small investors with a discount and phased payments to make the sale more attractive.

ICICI's share sale follows a $1.75 billion sale by Sterlite Industries (India) Ltd. in the U.S. yesterday and a $2.2 billion offer by property developer DLF Ltd. last week. ICICI joins other banks such as HDFC Bank Ltd., UTI Bank Ltd. and State Bank of India, the nation's biggest, which together may raise $10 billion in the year ending March 31 to meet growing demand for loans from companies and individuals.

ICICI will sell shares in a range between 885 rupees ($22) and 950 rupees apiece, and give smaller shareholders a discount of 50 rupees a share on investments of as much as 100,000 rupees. It's also offering non-institutional investors an option to pay 250 rupees on application and the rest on allotment. India's $854 billion economy grew an average 8.6 percent during the past four years, the fastest since the nation gained independence from Britain in 1947. The fastest-growing major economy after China is projected by the central bank to expand by 8.5 percent in the year to March 31.

“China is growing at more than 10 percent for the past 15 years or more,” K.V. Kamath, chief executive of Mumbai-based ICICI, said last week. “We are in the first, second, third year of growth tending to double digits.” Kamath said that India's banks need to grow to be able to fund the nation's future growth. “There is opportunity in India not yet seen and if that opportunity has to be seized you need to create a banking sector of size commensurate with the opportunity.” India could need $500 billion during the next three years to fund projects in manufacturing and infrastructure, Kamath said in an interview.

ICICI's plan to expand lending in rural areas also makes the offer attractive, he said. Lending by banks grew an average 35 percent in the year ended March 2006 and the year earlier, according to central bank data. Loan growth slowed to 28 percent in the year ended March 2007 as the central bank raised rates to contain inflation.

The banking sector of

India

is growing and in the coming years the growing middle class there will benefit from it. Will ICICI be able to be up to the task of managing the growing number of shareholders? How will India’s banking financial sector compare to that of other countries?

2007-06-13T10:59:00.000+08:00

Will regulators’ orders suffice to improve operations at Mitsubishi UFJ?

After regulators ordered the bank to improve its operations Chief Cabinet Secretary Yasuhisa Shiozaki said Mitsubishi UFJ Financial Group Inc. needs to establish a system to protect its clients.

Japan's largest banking group was ordered to improve compliance in its operations by the Financial Services Agency after rule breaches including mishandling sales of investment trusts.

“We'd like the bank to make the utmost effort to improve its internal management system and regain clients' trust,” said Shiozaki at a regular press conference in Tokyo today.

Mitsubishi UFJ has been sanctioned by regulators in Japan and the U.S. for compliance problems in three business areas during the past six months. The New York branch of Mitsubishi UFJ's main bank needs to strengthen anti-money laundering programs and secrecy protections, according to settlements the banks signed in December with U.S. regulators.

Shiozaki said the issue of managers' responsibility should be assessed after the bank shows the results of its operation improvements. “Financial institutions must establish strong systems to protect clients,'' he added. Mitsubishi's main banking unit has until July 11 to report to regulators on how it will improve compliance.

IS Shiozaki’s recommendation to improve operations enough? Can clients trust Mitsubishi UFJ again after rule breaches or has the matter been dealt with effectively?

2007-06-08T17:30:00.000+08:00

Will weak bank lending continue to haunt Japan’s banks?

Japan's lending growth remained sluggish for a fourth month as cash-rich companies gave no heed to the lowest borrowing costs among major economies and used their own funds to invest.

Loans with the exception of trusts rose 0.9 percent in May from a year earlier, the Bank of Japan said, slowing from 1 percent in April. Lending adjusted for currency fluctuations, bad loan write-offs and securitizations climbed 1.8 percent. “Companies won't borrow money when they've got massive amounts of cash in their pockets,” said Eiji Hirano, executive vice president at Toyota Financial Services Corp. and a former executive director of the Bank of Japan. “An acceleration is unlikely and it's a tough situation for banks.”

Spending, sales and profits among Japan's largest companies ascended to a record-high in the first quarter amid the longest period of post-war economic expansion. Mitsubishi UFJ Financial Group, Japan's largest bank, forecast on May 23 that earnings this fiscal year will fall.

Japan's banks started to expand lending in February 2006, having gotten rid of bad debts accumulated after the bubble economy burst 16 years ago. Growth in borrowing has decelerated since peaking at 2.2 percent last July, the same month the Bank of Japan ended its five-year policy of keeping interest rates near zero percent.

Mitsubishi UFJ's net interest income -- the difference between what banks pay for funds and what they receive from their loan customer -- fell 1 percent in the quarter ended March 31 from a year earlier.

“Loan demand from corporate sector lacks steam,” Masayuki Oku, head of the Japanese Bankers Association, said. “Tough competition among banks is likely to continue with a weak demand for borrowing.”

Economists including Hiroshi Shiraishi say companies' abundant cash flow is just one of factors leading to sluggish lending growth.

“Companies still have a borrowing allergy after suffering from repaying debt amid a decade-long stagnation,” said Shiraishi, an economist at Lehman Brothers Japan. “They are too afraid of taking risks to borrow even with such low interest rates.”

After being suffering from debts amid a decade-long stagnation, Japanese companies have developed a phobia of borrowing. The risk of borrowing still strikes fear even with incredibly low interest rates. Will Japanese companies ever regain optimism in borrowing and investment again? What should Japan do to shake off the blight of weak lending growth that has troubled them for years?

2007-05-30T16:48:00.000+08:00

Will foreign banks be the saviour for Exim?

Investors were informed that Export-Import Bank of India hired Barclays and Citigroup to sell yen-denominated bonds maturing in five years. The two arrangers expect to start the sale this week and haven't yet planned any investor presentations.

State-owned Export-Import Bank, which lends to support foreign trade, is raising funds to meet demand as companies in India increase sales to overseas markets. Indian exports rose 25 percent to $101 billion in the year ended March 2006, exceeding a target of $92 billion. The government aims to boost overseas sales to $165 billion by March 2010.

The bank's senior unsecured debt is rated Baa3, the lowest investment grade, by Moody's Investors Service. Standard & Poor's rates the bank's long-term foreign issues BBB-, its equivalent level.

Is the target of 165 billion over ambitious? Will bringing in reputed foreign services help raise Exim’s ratings?

2007-05-25T14:29:00.000+08:00

Can Japanese firms face up to the challenge of financial reforms?

Financial market reform in Japan will probably challenge the management of the country's banks and securities brokerages, said Kotaro Tamura, the Cabinet officer in charge of Japan's financial regulator.

The Cabinet and the regulatory Financial Services Agency are in talks about measures to boost Tokyo’s image as a financial center. This includes ways to draw in more hedge funds, private equity firms, Islamic funds and other financial players, Tamura said.

“We must carry out reforms in three years, otherwise it'll be a failure,'' Tamura, 43, said. “Nationality doesn't matter as long as one can contribute to Japan's interest.” Japan is considering a merger of its securities and commodity exchanges, replicating London's ‘Canary Wharf' in Tokyo and easing rules separating bank and brokerage operations to win a bigger share of global investment. Tokyo lost its presence as Asia's financial hub in the past decade, with rival cities such as Hong Kong and Singapore gaining ground.Many Japanese financial firms with local management teams may face difficulties surviving the reform, he said. “Nevertheless, we're prepared for changes.”

The most urgent issue is reform of the Tokyo Stock Exchange, said Tamura. “We simply don't have the market in which a variety of new financial products can be traded.” Consolidation of Tokyo's exchanges, longer trading hours, timely disclosures in English, alliances with overseas markets and finding overseas companies to trade their shares in Japan are all needed, he said.

Japan will place strengthening of its financial markets as a priority item in a June economic reform paper, Yuji Yamamoto, Minister for the Financial Services Agency, said. It plans to replicate Canary Wharf, London's financial center, to encourage more overseas financial institutions to locate their Asia headquarters in Tokyo.

Many Japanese financial firms with local management teams may face difficulties with the reform. Will they survive? What should these firms do to prepare for the changes? Will the Tokyo Stock Exchange withstand the changes and emerge the victor over bigger rival New York Stock Exchange, or are we about to witness the imminent doom of the world's second-biggest bourse?

2007-05-15T11:40:00.000+08:00

Will South Korea sprint forward by loosening up?

South Korea will loosen regulations in the financial industry to aid in the development of capital markets in Asia's third-largest economy, Finance Minister Kwon Okyu said. In July 2006, authorities said they planned to allow securities companies to trade bond futures as part of its program to ease regulations and grant firms space to expand operations. In August last year, the government made known plans to allow overseas holding companies to be listed on local bourses.

The plan to ease regulations requires approval from South Korea’s parliament, Kwon said. The measures may encourage financial industry competition and also help attract investors to the nation's stock market, which is valued at $925 billion and has fell to sixth-largest in the Asia-Pacific region from fourth spot last year. “Once the bill is passed, obstacles that blocked competition among industries and regulations that limited the development of new and creative products will be eliminated,” Kwon said.

In a bid to loosen up, the government will consider permitting the flow of hedge funds into South Korea, he said. Hedge funds may provide new “opportunities for investors” and “promote the development of financial techniques, thereby upgrading Korea's financial markets to the next level.” However, hedge funds may also bring about an increase in market volatility as they pursue short-term profits and take advantage of fragile underdeveloped markets.

Many say Korea is still lagging behind because it failed to break down these financial barriers a generation ago when the west was doing so. Would the move of easing regulations be enough to thrust South Korea forward as an equal competitor in the area of capital markets? With plans for allowing the entry of hedge funds in the pipeline, would South Korea see a surge in investment or make matters worse by creating instability?

2007-05-09T16:04:00.000+08:00

Is Ibanking the way forward?

The banking sector has had to modernise its banking services and incorporate a web design to its banking strategies as the world moved towards mass consumerism with the development of the internet. The competition among the banks shifted to a wider level and banks changed strategies to reap the benefits of Ibanking. This was experienced recently in Japan with Hyakugo Bank Ltd.

Hyakugo Bank, Ltd. (head office in Tsu-shi, Mie Prefecture; President Hajimu Maeda) and Nihon Unisys, Ltd. (headquartered in Koto-ku, Tokyo; President Katsuto Momii) have teamed up to develop the BankVision(R)(1) online banking system, which went online. BankVision is a next-generation open banking system developed for Microsoft Windows Server and SQL Server.

This new banking system buttresses the position of Hyakugo Bank as Japan's top regional bank. It will now be possible to offer all of
Hyakugo Bank's clients the latest high-value added services in a timely and personalized fashion.

Derived from Hyakugo Bank's long years of banking experience and Nihon Unisys's long years of technological experience building banking systems, and based on research by the S-BITS Consortium into online banking needs, BankVision is the first full banking system in the world designed for Windows Server and SQL Server.

BankVision is a cutting-edge banking system based on a software originally developed by Nihon Unisys using object-oriented design combined with a service-oriented architecture (SOA) approach. Nihon Unisys was the trailblazer in the industry in adopting these methods. With BankVision, what before could only be done on a mainframe can now be done on an open system, including instant switching for foolproof troubleshooting, and nonstop 24/365 operation.

With this new aspect of competition looming on the banking sector how do you think that banks in Asia will react in the future? How will customers adapt to the new Ibanking operations?

2007-05-03T17:27:00.000+08:00

Is tax probe really a routine audit?

Goldman Sachs Group has been under investigation by South Korean tax authorities for sixmonths over its investments in Jinro, local media reported. The National Tax Service began investigating Goldman in November over allegations it failed to pay taxes on about 1 trillion won ($1.1 billion) in profit from the sale of Jinro in 2005, according to the newspaper.

However, Goldman Sachs Group has said that a study of its business operations in South Korea by the nation's tax authorities is only a routine audit. “Today's newspaper articles which refer to a NTS tax investigation of Goldman Sachs unfortunately mischaracterize what is a routine tax audit of the firm's businesses in Korea,'' spokesman Christopher Jun said today.

Goldman and other creditors of Jinro won a legal bid in April 2004 to force the liquor maker's sale to help them recoup 3 trillion won ($3.2 billion) of debt. Hite Brewery, South Korea's largest beer maker, agreed in June 2005 to acquire Jinro for 3.4 trillion won, most of which went to the creditors.

Given that Goldman Sachs’ clean track record and trusted brand name, should we take their word that the investigation in South Korea is just a mere routine audit? Will the air of suspicion, which might very well spark a downfall of share prices, clear soon?

2007-04-23T18:02:00.000+08:00

Are Chinese commercial banks lending too rapidly?

Local Chinese Media reported this week that China may issue special Treasury bonds later this year to help curb excess liquidity, citing unidentified officials from the China Banking Regulatory Commission.

The report claimed the government may also again ask commercial banks to set aside more money as reserves to curb loan growth. It quoted the officials speaking at a work meeting discussing China’s economic performance in the first quarter.

The officials did not give a specific timetable or possible sizes for the bond issue and reserves increase. The regulator warned 10 commercial lenders, including China Construction Bank, Bank of China, and Bank of Communications, at the meeting for expanding lending “too rapidly” in the first quarter.

Do you think that lending has indeed expanded ‘too rapidly’ or is the pace just right for the Chinese potential? Can the Chinese government expect the commercial banks’ complete cooperation in this endeavour?

2007-04-05T11:02:00.000+08:00

Will ACL Bank succeed in finding a strategic investment partner?

Following the news of its two biggest shareholders slashing their stakes, ACL Bank may seek a strategic investor in Thailand or overseas, local media reported, citing Vice Chairman Charnchai Musignisakorn.

Thailand's finance ministry will pare its stake in ACL to 30 percent, while Bangkok Bank is compelled to put its stake up for sale by the end of 2007 to comply with central bank rules.

ACL will probably find another investor to acquire a major stake, Charnchai was cited as saying. ACL Bank, which is formerly known as Asia Credit, was given the license to practice banking in Thailand in 2004.

Given the promising outcome got GE Capital’s investment with Bank of Ayudhya, do you think ACL will be equally successful in attracting a partner? Or will the unstable political state of affairs hold them back?

2007-03-28T17:44:00.000+08:00

Is Stanchart being over-optimistic with its Taiwan acquisition?

Standard Chartered, a U.K. bank which earns mostly from Asia, looks forward to more profits from Taiwan this year after the merge with Hsinchu International Bank.

“The combination of Standard Chartered's business with Hsinchu Bank's will give us greater profitability,'' said James McCabe, chief executive of Standard Chartered Bank Taiwan. An upturn in consumer spending and growth in the bank's wealth management and corporate banking operations will help earnings, he said.

The London-based bank expects to finish combining its operations in Taiwan with Hsinchu Bank's by late 2007. Standard Chartered became the first overseas company to take over a Taiwan bank, as the government is encouraging mergers to thin out an industry where about 40 banks and more than 300 credit associations compete for $700 billion of assets.

Hsinchu International Bank also will be renamed Standard Chartered Bank Taiwan in the second half, according to the London bank. Standard Chartered now has a stake of 98.5 percent in Hsinchu Bank and together they have 86 branches on the island.

Taiwan has been dealing with mounting credit-card defaults since the second half of last year. Taiwanese banks wrote off more than $3 billion of soured card debts in 2006. Hsinchu International Bank, with about 2.5 million customers, lost NT$1.7 billion ($51 million) for the first nine months of last year, compared with a NT$2.6 billion profit a year earlier.

Is Taiwan finally ready for foreign banking investors? Will the government’s dream of consolidation be realised or will the spectre of credit card defaults continue to haunt Taiwan’s commercial banks?

2007-03-23T09:23:00.000+08:00

Can DBS help boost TCL Communication’s profits?

China’s economy may be among the top in the world, but things are not as rosy in its communications industry. With a bit of aid from DBS, will things turn for the better for TCL Communication?

DBS Bank is looking into buying up to $45 million of convertible bonds from TCL Communication Technology Holdings, the mobile phone unit of China’s biggest publicly traded maker of consumer electronics.

The Singaporean lender may agree to buy $27 million of TCL Communication's zero-coupon bonds, with an option to buy a further $18 million of the securities, the mobile-phone company said. The bonds are convertible to TCL Communication shares at HK$0.375 apiece.

The mobile-phone company reported a net loss of HK$49.9 million for the first nine months of 2006 and a loss of HK$1.7 billion in 2005. TCL Communication said it will raise HK$204.6 million ($26.2 million) from the bond sale, and the money will be used as “general working capital” to repay existing debt. Trading in the company's Hong Kong-listed shares was suspended and resumed a day after.

If TCL Communication’s profits are not rolling in as steadily as other mobile companies, why is DBS still choosing to buy bonds from the company? Is the Singaporean bank hoping that the telecommunications industry in China will take a turn for the better, and perhaps eventually translate into a more successful 3G wireless infrastructure? What do you think?

2007-03-16T11:01:00.000+08:00

Will Australia's largest bank utilize India's job market?

Australia's largest bank is looking to shift as many as 424 domestic jobs to India in its intention to minimize costs, said Australia's Finance Sector Union.

According to a spokesman for Melbourne-based National Australia, Geoff Lynch, a review of jobs has started but it was premature to speculate how many might be moved. The jobs in lending services, direct sales and customer service "deal with a range of highly sensitive personal data including credit and lending details, account details and personal information,"said Paul Schroder, national secretary of the union, in a statement today.

CEO, John Stewart, cut employee numbers to 39,062 in the fiscal year ended Sept. 30 as National Australia reined in costs to help regain slumping profit growth. Operating expenses fell 4.4 percent in 2006 from a high 7.2 percent in fiscal 2005.

The bank's review follows a decision at the end of 2006 to move 175 data, administration and processing jobs to Accenture, the world's second-largest consultant and Genpact, a computer services company in India. The bank is likely to shift more jobs overseas. "We are calling on National Australia to weigh up the reputation risks associated with this pursuit of low-cost labor offshore,"said Schroder, whose union represents some bank workers. The latest review is being done by Genpact, he said.

National Australia looks to utilize the job market in India to maintain financial stability and profit growth. What would this mean for India? Will the bank shift more jobs to other less developed economies in Asia like India? The search for lower cost of labor in Asia may be beneficial financially for the banking giant but will it do so at the expense of its reputation? Your thoughts

2007-03-08T14:14:00.000+08:00

Is ABN's entrance into a lucrative Pakistan a blessing?

ABN Amro purchased a 93.4 percent stake in Pakistan's Prime Commercial Bank, for 13.8 billion rupees ($227 million). Investors are drawn by increasing demand for credit in South Asia's second-largest economy. Its government anticipates a 7 percent growth in the year ending June 30 2007, from 6.6 percent in 2006. Out of its 20 million bank accounts, Pakistan consumer's loans account for just 4 percent of the $129 billion economy in a nation of 160 million.

"The buyout means foreign investors have keen interest in the banking sector after growth in Pakistan's economy, boosted earnings," said Mohammad Imran Khan, head of research at First Capital Equities. Prime's shares have gained 9.3 percent this year. Bank loans to companies amounted to 402 billion rupees in the year ended June 30, exceeding the central bank's target of 330 billion rupees. Jeroen Drost, chief executive officer of ABN Amro Asia said "Pakistan has one of the world's fastest-growing financial markets and is a key growth market for ABN Amro Asia.This transaction presents tremendous opportunities to accelerate our activities in the Pakistan markets."

ABN Amro's purchase will make it the second-biggest overseas bank in Pakistan by branches, exceeding 80 branches and assets of 124 million rupees. Saeed Chaudhry, chief executive officer of Prime Bank said that the merger with a global bank like ABN Amro will further enhance and quicken the growth of the combined entity. London-based Standard Chartered , the biggest overseas bank in Pakistan, with 111 branches, bought a 95.37 percent stake in Union Bank for $487 million to create Pakistan's sixth-largest bank by assets.

In 2003, Pakistan sold a 51 percent stake in Habib Bank, the nation's second-biggest, to the Geneva-based Aga Khan Fund for Economic Development for $390 million. Singapore's Temasek Holdings and NIB Bank reached an agreement with shareholders of Pakistan Industrial Credit and Investment Corp, known as PICIC, to acquire a stake in the finance group, the lender said. Shamshad Akhtar, the central bank governor, said Pakistan's banking coverage is poor "in some areas". "It needs to be deepened to underserved segments of the population and business," she said. More mergers and acquisitions are needed and should not come at the cost of competition. According to Moody's Investors Service, Pakistan's banking industry has a stable outlook, citing robust credit growth.

Will ABN's merger with Prime Bank spark a trend and cause a scurry of foreign investors to snatch a piece of one of Asia's most promising economies? It could go either way. What are your thoughts on this?

2007-03-01T12:26:00.000+08:00

Will search for cheaper finance haunt India in the future?

Union Bank of India plans to raise as much as $150 million from yen-denominated loans to fund lending at home.

General Manager, Bhaskar Sen, says the lender has hired five banks which include Standard Chartered Bank, Citigroup and Bank of America to raise the three-year loan. An initial amount of $100 million was borrowed with another $50 million in the pipelines. Part of the funds will be used to make foreign-currency loans to exporters, and convert the rest into rupees to extend lending in India. With this, the bank expects loan demand to grow as much as 25 percent in the year to March 31.

"The primary reason why Indian companies, including banks, are looking for overseas money is that such funds are cheaper due to lower interest rates," said Rajesh Malhani, a banking analyst with a Mumbai-based brokerage. Indian banks are raising money overseas to meet credit demand in the country as gross domestic product expands fastest clip after China. Union Bank has lent about 10 percent of its borrowing to public works projects.

Should Indian banks look closer to home in order to increase liquidity in the lending market instead of seeking cheaper finance overseas? Your thoughts

2007-02-23T10:42:00.000+08:00

Will DBS reign with Taiwanese merger in the pipes?

Singapore's stocks rose on the first trading day of the week. DBS Group Holdings climbed after Taiwan's Far Eastern International Bank said it has been in talks with Singapore's biggest lender.Far Eastern International Bank, a Taiwanese lender, said it seeks a "strategic alliance" with a "world-class" financial company, and that it's been in talks with DBS Group.

On 16 February this year, the Taipei-based company stated in the Taiwan Stock Exchange that although discussions with DBS have been taking place for the past two to three years, "no conclusion has been reached," "It's our policy not to comment on market speculation or M&A activity,"Jenny Lee, DBS spokeswoman said in a phone interview.

As it is, recent buck ups from foreign banks like Citibank's expansion shows that these "outsiders"are prepared to slug it out for retail banking supremacy in Singapore. DBS is also expected to see fairly fierce competition from close rival, UOB. UOB is expected to see a recovery in its domestic loan book as the operating environment improves and plans to step up its loan expansion to capitalize on better spreads and secular growth amidst reflation. UBS analysts forecast UOB's earnings to grow at 12 percent this year.

With "rivals"gunning for supremacy from all sides, will DBS be able to retain its stature as Singapore's top performing local bank?

2007-02-02T10:43:00.000+08:00

Can South Korea prevent massive loan defaults?

In an effort to curb soaring household debt that the government says may cause financial instability, South Korea has asked banks to tighten screening of applications for home mortgages from March.

Banks need to strengthen their evaluation of whether mortgage applicants will be able to meet their payments, the Financial Supervisory Service said in an e-mailed statement. Mortgages are currently based solely on collateral.

The Bank of Korea in November ordered banks to set aside more reserves to help reduce lending. Central Bank Governor Lee Seong Tae and Finance Minister Kwon Okyu have warned surging household debt raises the risk of loan defaults that might undermine South Korea's $788 billion economy.

South Korea's household debt as a share of gross domestic product rose to 67 percent in the third quarter of 2006, from about 64 percent a year earlier, according to figures from Lehman Brothers.

Is there really a cause for concern? What are the chances of a massive loan default happening?

Let us know what you think.

2007-01-16T17:41:00.000+08:00

Can Indonesian Banks help boost economic growth?

"Bankers must work harder, be more innovative and creative in giving out loans this year without sacrificing the prudential lending policies," Indonesia’s central bank Governor Burhanuddin Abdullah said in a dinner speech to bank executives at Bank Indonesia's headquarters in Jakarta recently.

In a bid to boost consumer spending and investment, Bank Indonesia has already cut borrowing costs eight times since last May. The Indonesian government is expecting growth to hit 6.3 percent this year, up from 5.6 percent according to Boediono, the coordinating Minister for the Economy.

Bank Indonesia last year forecasted 5.7 percent to 6.3 percent economic growth in 2007. Total outstanding loans of Indonesian banks at the end of October were 796.1 trillion rupiah ($86.9 billion), compared with 787.8 trillion rupiah the previous month, according to central bank data. Non-performing loans increased to 8.8 percent in October, from 8.5 percent a month earlier.

Abdullah emphasized that Indonesia's 131 commercial lenders must increase lending to companies and individuals to help push the economy. "The main challenge in 2007 is to increase an intermediary role of banks that's needed to help the economy grow faster."

So will the Indonesian banks step up to the challenge? If so, what are the steps they can take to increase loans? What else can the government do to push the economy?

Let us know what you think.

2007-01-10T10:05:00.000+08:00

Will Asian Finance Bank succeed in M'sia?

With the global Islamic financial services pie expanding about 15 percent a year, it's no wonder that Asian Finance Bank has decided to open its first branch in Malaysia this month, with future expansion plans across Asia.

The Kuala Lumpur-based bank is 70 percent owned by Qatar Islamic Bank, 20 percent owned by RUSD Investment Bank, the Labuan-based offshore unit of Saudi Arabia's RUSD Group, and 10 percent by Kuwait's Global Investment House KSCC. The group got a license from Malaysia's central bank in October 2004 to establish a new Islamic bank in the country. It plans to add as many as seven more branches around the country within the next two to five years.

"Malaysia is one of the pioneers in Islamic banking," said CEO Faisal Alshowaikh, 46. "We will be using Malaysia as a hub for the business in the Far East, including China and Japan. Asian Finance is set to be a bridge to channel funds from the Middle East into Malaysia and the region."

Asian Finance is not the first to set up shop in South East Asia, home to more than half of the world's Muslim population of 1.5 billion. HSBC and Allianz are already offering products that comply with Shariah, or Islamic law.

Asian Finance will offer consumer products such as loans, wealth management, Islamic commercial, corporate and treasury services, along with investment banking, Alshowaikh said. The company may also open representative offices to offer investment banking services in Brunei and Singapore by early 2008, Alshowaikh said. It may also expand to Indonesia, which has the world's largest Muslim population, with operations that would originally focus on consumer banking.

Malaysia, Southeast Asia's third-largest economy, is the world's biggest issuer of Islamic debt, with the value of such bonds sold by companies and the government rising 23 percent to 131.3 billion ringgit ($37.4 billion) in 2005, according to the
central bank. About 20 billion ringgit to 30 billion ringgit of new Islamic bonds are expected from Malaysia this year, Alshowaikh said.

"If we can take 5 to 10 percent of that share, we will be happy with that initially," he added. The Islamic financial services industry worldwide, including banking assets, is estimated at $700 billion to $1 trillion, according to Malaysia-based Islamic Financial Services Board and Saudi Arabia's Islamic Development Bank.

How well will Asian Finance Bank fare? Will the growing Islamic Finance pie attract more financial institutions into Malaysia? What other possible measures could the Malaysian government adopt to attract more Islamic Finance?

Let us know what you think.

2007-01-04T17:44:00.000+08:00

Higher labour costs for Macquarie Bank pushes jobs to India: just how much will be outsourced?

Despite higher profits, increasing labour costs are prompting Macquarie Bank, Australia's largest securities firm, to shift as many as 100 administrative jobs to India, according to Bloomberg. Macquarie's profit climbed 51 percent to A$730 million in the six months ended Sept. 30 from a year earlier as Chief Executive Officer Allan Moss increased income from buyouts and got higher fees for arranging takeovers and managing investment funds. But labour expenses at the bank also surged 54 percent to whopping A$1.8 billion in the same period, according to company reports.

Positions from divisions including payroll services will be moved from Sydney and London, said the people, who declined to be identified because details haven't been announced. The bank plans to combine its global human resources functions as part of a “strategic review,” said Macquarie spokesman Stephen Yan in Sydney. He declined to comment further.

But it’s not a first. Macquarie joins Credit Suisse Group and Australia & New Zealand Banking Group among banks that are hiring in India to take advantage of the nation's lower labour costs and pool of skilled workers. Credit Suisse, Switzerland's second-biggest bank, said in November it will employ 1,500 people in India to support business in 50 countries. UBS, HSBC, Aviva and Barclays are also hiring in India, which produces three million graduates a year.

Macquarie has tripled its workforce to almost 9,000 spread across 24 countries since 1999. The plan, being managed by Accenture, means job losses in Australia and the U.K., said the people familiar with the company's plans for India.

Right now it is only the administrative workload which is being transferred to India. Is it just a matter of time before other work processes are outsourced as well? And what are these other processes that can be outsourced? Can technology truly lead to a global workplace, where even the core functions of a bank are decentralised?

Tell us what you think.

2006-12-21T21:17:00.000+08:00

Just how big is the underground economy in China?

Chinese police this year shut down seven large underground banks which laundered more than 14 billion yuan ($1.75 billion), the state-run Xinhua News Agency reported, citing the Ministry of Public Security.

Forty-four suspects have been arrested in Guangdong, Shanghai, Beijing, Inner Mongolia, Liaoning and Heilongjiang, and 58 million yuan has been recovered, Xinhua said.

China recorded an 11-fold increase in "suspicious" foreign-exchange fund flows last year, according to the central bank's report in August. The number of suspicious yuan- denominated transactions jumped sevenfold to 283,400 cases.

A combined 61 percent of the suspicious transactions came from eastern China's Zhejiang province and southern China's Guangdong province, where money laundering through the trafficking of goods, underground moneychangers and border trades were frequent, the central bank said.

Is this just the tip of the iceberg? Just how big is the underground economy in China? Any possibilities of terrorism-financing at all?

Let us know what you think.

2006-12-13T16:28:00.000+08:00

JPMorgan sued by noteholders. Profit vs reputation?

JPMorgan Chase didn't disclose that Sons of Gwalia, an Australian metals producer, was in the midst of a financial crisis when the bank sold its notes, investors say in a lawsuit.

The noteholders claim in their suit that JPMorgan, the third-largest U.S. bank, raised tens of millions of dollars in fees by selling Gwalia notes, prior to the mining company filing for bankruptcy in August 2004.

U.S. investors holding more than $170 million in Gwalia notes "have been significantly damaged as a result of Chase's conduct," the complaint says.

The plaintiffs in the case, including Jana Master Fund, a Cayman Islands company, are seeking more than $80 million in damages. The suit doesn't name Gwalia, which supplies more than half of the world's tantalum, a grey-blue metal used to make capacitors for regulating electricity flow in products such as video-game consoles and mobile telephones.

JPMorgan spokeswoman Kristin Lemkau declined to comment.

The suit was filed on Nov. 17 in state court in New York. JPMorgan today asked that the case be transferred to Manhattan federal court.

JPMorgan knew when it sold Gwalia notes that the company had undisclosed liabilities of more than $443 million, was in default on some debt obligations, and "was experiencing an internal financial crisis so severe that it had just fired its CFO," the complaint says.

The suit is Jana Master Fund v. JPMorgan Chase, Southern District of New York (Manhattan).

Profit is undoubtedly the main objective of every corporate company. But at what cost? The charge against JP Morgan could have cost them their reputation. I believe they were fully aware of the consequences of their actions, yet they still went ahead with it.

They still have their side of the story to tell but to trade reputation for profit would be terribly silly, wouldn't it?

2006-12-01T09:48:00.000+08:00

More rules for China banking: Another barrier to entry?

It seems as if they keep coming up with more and more rules. China will give foreign banks operating in the country a grace period of five years to meet domestic loan-deposit ratios when they incorporate locally under new rules.

Overseas banks must meet the requirement that loans have to be no more than 75 percent of deposits by Dec. 31, 2011, the China Banking Regulatory Commission said on its Web site. Their loans in China exceeded deposits by $54.9 billion to $33.4 billion at the end of September, according to a statement from the regulator on Nov. 16.

Foreign banks in China will have to incorporate locally to offer yuan-denominated bank cards and mass-market banking services under the new rules issued on Nov. 15. The nation will remove all geographic and business restrictions on foreign banks on Dec. 11, under commitments made when it joined the World Trade Organization in 2001.

Overseas lenders are eager to offer local-currency loans, mortgages and credit-card services to spur expansion in China's $5.1 trillion industry. Their growth in the nation so far has been hampered by operating restrictions and a branch approval process that typically takes six months.

Foreign banks won't be allowed to lend more than 10 percent of their equity to one single borrower after Dec. 31 2009, according the announcement. During the three-year grace period the limit is set at no more than a quarter.

Will these new restrictions hinder new banks from setting up shop in China? Or will the pull of China's rapidly-expanding economy be strong enough to attract more foreign banks?

Let us know what you think.

2006-11-23T13:22:00.000+08:00

Is Jeffrey Koo Jr's time at Chinatrust over?

Chinatrust Financial Holding Co. Vice Chairman Jeffrey Koo Jr. may be arrested for failing to respond to subpoenas related to alleged misuse of funds in acquiring a stake in Mega Financial Holding Co., a spokesman for Taiwan prosecutors said. Prosecutors issued a second subpoena to question Koo today, Lin Chin-chun, spokesman for the Taipei District Court Prosecutors' Office, said in a phone interview. Koo also didn't show up on Nov. 7 for the first subpoena, Lin said.

"Koo, via his lawyers, said he couldn't come because of family reasons, but prosecutors didn't think the reason is good enough," Lin said. "We now may intend to issue an arrest warrant." He declined to say when prosecutors will decide on the matter.

The issue may lead to Koo's departure from the company. Chinatrust Executive Vice President Jason Wang said if Koo doesn't get in touch with the company, "we'll have to do something to be responsible to our shareholders, including options such as allowing him to resign." Wang, who spoke to Bloomberg in a phone interview, declined to say when the company will decide on the matter and said he didn't know where Koo was. Koo was expected to return to Taiwan on Nov. 18 after finishing a two-month Eisenhower Fellowship study program in the U.S.

Taiwan's fourth-largest financial services company by market value is being investigated for allegedly using funds earmarked for another purpose when it bought a stake in Mega. Acquiring Mega would make Chinatrust the island's second-largest financial group by market value, ahead of Fubon Financial Holding Co.

Prosecutors last month detained Chinatrust's former chief financial officer, Perry Chang, and the company's head of compliance Y.D. Deng, and Senior Vice President Sean Lin. Their detention was part of the investigation, Lin said on Oct. 17. Chinatrust got regulatory approval to buy as much as 10 percent of Mega in February. In June it won four of 15 board seats with control of 15.5 percent of Mega's shares, including those held by affiliated companies.

The stake includes $390 million of notes entitling it to Mega shares bought by Chinatrust's Hong Kong branch last year, the Financial Supervisory Commission said in July. The bank bought the notes using a fund earmarked for customer loans without first consulting the regulator, the commission said.

Koo approved the use of the funds, it said. Prosecutors said Oct. 11 they are investigating Koo, who resigned as Chinatrust Commercial Bank chairman in July. The commission in July ordered Chinatrust Financial to cut its ownership in Mega, the island's second-largest financial group, to 6.1 percent from 9.6 percent, and banned it from raising capital as a penalty.

Chinatrust is already in trouble with bad loans plaguing its balance sheets and the erosion of its assets due to rising provision expenses. Coupled with this possible arrest, is this finally the end of the road for Jeffrey Koo Jr?

What do you think?

2006-11-13T14:05:00.000+08:00

Will US$3.8b revive Mizuho from Japan's Retail Banking ashes?

The last listing of a Japanese Bank on the New York Stock Exchange was 17 years ago. November 8th 2006 was a momentous occasion for Mizuho Financial Group as its listing underscored the revival of the nation's financial firms after repaying public money given in a bailout after the recessions of the 1990s. Japan's second-largest bank by market value will use most of its capital in the next three years to focus on expanding its retail banking operations, adding branches and increasing sales.

It plans to invest about 450 billion yen ($3.8 billion) on 100 new branches and computer systems to help it sell more products and private banking services, said Chief Executive Terunobu Maeda in an interview with Bloomberg News. So what's its strategy? The Tokyo-based firm's main focus is to rebuild at home and win a greater share of the 1,700 trillion yen in financial assets held by Japanese citizens. "We will be left behind unless we focus on Japan where the economy is recovering from deflation," Maeda said in Tokyo.

"It's a bit too early to operate an aggressive investment banking business overseas as it would eat capital." Mizuho, which has 460 Japan branches compared with the 5,800 Bank of America Corp. has in the U.S., is modeling itself on San Francisco-based Wells Fargo, which added branches and used them as a platform to sell more services. In 2002, Mizuho had 699 retail outlets. The lender is aiming to boost revenue by selling more investment trusts, mortgages, foreign currency deposits and insurance products to so-called Japanese baby boomers, who will receive 80 trillion yen in lump-sum retirement payments in the five years from 2007.

Maeda's decision to focus on the home market and not its overseas franchise underscores the symbolic nature of its NYSE presence, and indicates it does not want a re-run of the past. "In the late 1980’s, Japanese banks rushed into the international market," said Keisuke Moriyama, a Tokyo-based banking analyst at Nomura Holdings Inc. "They got caught in a vicious circle after buying assets irrelevant to their core business, which lowered profitability." Will Mizuho succeed in capturing the hearts (and bank accounts) of Japan? Will spending 450 billion yen be enough to conquer the 1,700 trillion yen market? Tell us what you think.