Re: Capital MisAllocation...
China Stocks World’s Worst Losing $748 Billion on Slump
By Richard Frost & Weiyi Lim - Jul 31, 2013 1:56 AM MT
Four years after China’s growth helped lead the global economy out of a recession and won the admiration of luminaries from billionaire George Soros to Nobel laureate Joseph Stiglitz, the nation’s stock market has lost more money for investors than any other in the world.
The Shanghai Composite Index (SHCOMP), which doubled in 10 months through August 2009 as the government poured $652 billion of stimulus into building roads, railways and housing, has tumbled 43 percent from its high, destroying $748 billion in market value. Only Greece’s ASE Index (ASE) has fallen more in percentage terms. The Standard & Poor’s 500 Index, the benchmark gauge of American equity, erased all of the losses from the worst recession since the Great Depression and has gained 68 percent since the China peak, reaching a record this month.
China looked unbeatable in 2009, surpassing Germany as the world’s third-largest economy and growing 6 percent in the first quarter while the U.S. shrank 4 percent. Templeton Emerging Markets Group Executive Chairman Mark Mobius, who oversees about $53 billion, said in July 2009 that China’s stock market could be larger than America’s in three years. Now, China is poised for the weakest expansion since 1990 as the government orders more than 1,400 companies to close factories.
“The Beijing consensus as endorsed by some western observers as an alternative to the market economy is indeed a sham,” said Hao Hong, the Hong Kong-based head of China research at Bank of Communications Ltd., whose forecasts for stock losses have proved prescient. “Now we are all paying for it.”...
...The country’s stock market is like a “dead animal,” Carter Worth, the New York-based chief market technician at Oppenheimer & Co. who predicted the end of the Shanghai Composite’s rally as it peaked on Aug. 4, 2009, said by phone on July 23. While the index doesn’t have the same downside as four years ago, the likelihood of gains is low, Worth said.
For all of its destruction of wealth, the China bear market is dwarfed by the Great Crash when the Dow Jones Industrial Average declined 89 percent from a peak in 1929 to a low point in 1932, according to data compiled by Bloomberg. More recently, Japan’s equity market as reflected in the Nikkei 225 Stock Average, lost 63 percent of its value between 2000 and 2003.
The Shanghai Composite, comprised of mainland-listed shares restricted to local investors and qualified foreign institutions, rose 0.2 percent to 1,993.80 today, paring its 2013 drop to 12 percent, after the ruling Politburo pledged to stabilize growth while pressing on with economic reforms...
...China’s growth slowed for a second straight quarter to 7.5 percent in the three months ended June, extending the longest streak of expansion below 8 percent in at least two decades.
Exports fell 3.1 percent in June from a year earlier, the most since the financial crisis, while industrial profit growth slowed to 6.3 percent from 15.5 percent in May. Manufacturing contracted in July, according to a preliminary survey of purchasing managers compiled by HSBC Holdings Plc.
“The economy isn’t in great shape,” Wang Sheng, the chief strategist at Shanghai-based Shenyin & Wanguo Securities Co., the firm that warned clients of a “bubble” in Chinese stocks in August 2009, said by phone on July 26. “The transformation faces lots of uncertainty and investors have yet to fully realize its pain.”
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Re: Capital MisAllocation...
China HSBC PMI shrinks to 11-month low in July
BEIJING | Thu Aug 1, 2013 4:03am BST
(Reuters) - China's factory activity shrank for a third straight month in July to its lowest level in nearly a year as new orders fell, a private survey showed on Thursday, signalling the persistent pressure on the economy has extended into the third quarter.
The HSBC Purchasing Managers' Index (PMI), compiled by Markit Economics Research, fell to 47.7 in July from June's 48.2. It was the weakest reading since August 2012, and matched a preliminary figure published last week.
A reading below 50 indicates a contraction of activity while one above shows expansion.Leave a comment:
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Re: Yes Virginia...It's a Bubble...
From the South China Morning Post:
Debt risk looms large in Jiangsu
Mainland leadership's push to reduce reliance on massive investment to drive growth leaves the troubled province in a vulnerable position
Friday, 26 July, 2013, 5:24am
The nightmare scenario for China’s leaders as they try to wean the country off a diet of easy credit and breakneck expansion is a local government buckling under the weight of its own debt. Few provinces fit that bill quite like Jiangsu, home to China’s most indebted local government.
Hefty borrowings through banks, investment trusts and the bond market by Jiangsu’s provincial, city and county governments have saddled the province north of Shanghai with debt far higher than its peers, public records show.
Many of the province’s mainstay industries, including shipbuilding and the manufacturer of solar panels, are drowning in overcapacity. Profits are dwindling, and the government’s tax growth is braking hard...
...As part of that, Beijing has ordered a clamp down on provincial government borrowing and land sales, the mainstay income for many local administrations. But equally, Beijing expects local governments to absorb much of the cost of downsizing many industries, leaving provinces like Jiangsu caught between a rock and a hard place.
Standard Chartered, Fitch and Credit Suisse have estimated local government debt in China at the equivalent of anywhere between 15 per cent and 36 per cent of the country’s output, or as much as US$3 trillion based on World Bank GDP figures for last year.
“China’s local government debt, if not better managed, can potentially pose a systemic and macro economic risk to the country,” said Jun Ma, Deutsche Bank’s greater China chief economist...Leave a comment:
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Re: Capital MisAllocation...
Where to put all that surplus steel and cement? Why bury some of it underwater of course...now why didn't we think of that...
(Reuters) - Shares in Chinese rail and building material companies bounced higher on Tuesday morning fuelled by optimism that plans to boost railway expansion would ease a glut in sectors such as steel and cement.
The Chinese government planned to use investments in high-speed railways to help reduce overcapacity in those and other construction material sectors, the official Shanghai Securities News reported on Tuesday.
By 0220 GMT, shares of China Railway Construction jumped 5 percent in Hong Kong and 6.1 percent in Shanghai.Anhui Conch Cement rose 1.1 percent in Hong Kong and 1.4 percent in Shanghai. The Shanghai materials sub-index was a standout outperformer among sectors, rising 3.2 percent.
The report, along with reported comments from the country's Premier Li Keqiang and Vice Premier Zhang Gaoli, helped lift stock markets in Hong Kong and China in rising volumes. The China Enterprises Index of the top Chinese listings in Hong Kong jumped more than 3 percent.
The newspaper said, citing unnamed sources close to the government, that the railway department had completed only one third of its planned investment in the first half of this year, so there would be room for a quicker pace of investment in the second half of this year.
The investment could include the world's longest undersea tunnel across the Bohai Strait, linking China's eastern and northeastern regions, worth 260 billion yuan ($42 billion) as previously reported, the newspaper said...Leave a comment:
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Re: Yes Virginia...It's a Bubble...
Op-Ed Columnist
Hitting China’s Wall
By PAUL KRUGMAN
Published: July 18, 2013 142 Comments
All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most. Add a secretive government, a controlled press, and the sheer size of the country, and it’s harder to figure out what’s really happening in China than it is in any other major economy.
Enlarge This Image
Fred R. Conrad/The New York Times
Paul Krugman
Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be. Start with the data, unreliable as they may be. What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment. All successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume. China, however, seems to invest only to expand its future ability to invest even more. America, admittedly on the high side, devotes 70 percent of its gross domestic product to consumption; for China, the number is only half that high, while almost half of G.D.P. is invested.
How is that even possible? What keeps consumption so low, and how have the Chinese been able to invest so much without (until now) running into sharply diminishing returns? The answers are the subject of intense controversy. The story that makes the most sense to me, however, rests on an old insight by the economist W. Arthur Lewis, who argued that countries in the early stages of economic development typically have a small modern sector alongside a large traditional sector containing huge amounts of “surplus labor” — underemployed peasants making at best a marginal contribution to overall economic output.
The existence of this surplus labor, in turn, has two effects. First, for a while such countries can invest heavily in new factories, construction, and so on without running into diminishing returns, because they can keep drawing in new labor from the countryside. Second, competition from this reserve army of surplus labor keeps wages low even as the economy grows richer. Indeed, the main thing holding down Chinese consumption seems to be that Chinese families never see much of the income being generated by the country’s economic growth. Some of that income flows to a politically connected elite; but much of it simply stays bottled up in businesses, many of them state-owned enterprises.
It’s all very peculiar by our standards, but it worked for several decades. Now, however, China has hit the “Lewis point” — to put it crudely, it’s running out of surplus peasants.
That should be a good thing. Wages are rising; finally, ordinary Chinese are starting to share in the fruits of growth. But it also means that the Chinese economy is suddenly faced with the need for drastic “rebalancing” — the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place. The question is whether this can happen fast enough to avoid a nasty slump.
And the answer, increasingly, seems to be no. The need for rebalancing has been obvious for years, but China just kept putting off the necessary changes, instead boosting the economy by keeping the currency undervalued and flooding it with cheap credit. (Since someone is going to raise this issue: no, this bears very little resemblance to the Federal Reserve’s policies here.) These measures postponed the day of reckoning, but also ensured that this day would be even harder when it finally came. And now it has arrived.
How big a deal is this for the rest of us? At market values — which is what matters for the global outlook — China’s economy is still only modestly bigger than Japan’s; it’s around half the size of either the U.S. or the European Union. So it’s big but not huge, and, in ordinary times, the world could probably take China’s troubles in stride.
Unfortunately, these aren’t ordinary times: China is hitting its Lewis point at the same time that Western economies are going through their “Minsky moment,” the point when overextended private borrowers all try to pull back at the same time, and in so doing provoke a general slump. China’s new woes are the last thing the rest of us needed.
No doubt many readers are feeling some intellectual whiplash. Just the other day we were afraid of the Chinese. Now we’re afraid for them. But our situation has not improved.Leave a comment:
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Re: Yes Virginia...It's a Bubble...
I'm surprised that there's anything at all really worth looking at in China's museums. When Chiang Kai-shek had to bail for Taiwan, trunk after trunk after trunk of the very best, priceless artifacts were shipped to Taiwan (Chiang had his priorities straight.Originally posted by Southernguy View Post80 in 40000...hmmm. not so bad, not so bad...
That's why I very rarely visit museums...
) I think it's still true today but when I visited it, the Taiwan national museum had so much cool stuff that the museum wasn't large enough to show everything at once: they had to rotate the goods from a storage area to the display areas periodically.
The quality of the artifacts I saw in a few museums in Beijing absolutely paled in comparison to the stuff I saw in Taiwan.Leave a comment:
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Re: Yes Virginia...It's a Bubble...
More trouble in big China: http://www.bloomberg.com/news/2013-0...e-default.htmlOriginally posted by GRG55 View PostThe Americans peddle mortgage derivatives with fake credit ratings, the British fake LIBOR, the Greeks and Italians fake paying taxes, the Russians fake democratic elections...China is just trying to catch up.
Chinese museum found with 40,000 fake exhibits forced to close
Shanghai
1:24PM BST 16 Jul 2013
The 60 million yuan (£6.4 million) Jibaozhai Museum, located in Jizhou, a city in the northern province of Hebei, opened in 2010 with its 12 exhibition halls packed with apparently unique cultural gems.
But the museum’s collection, while extensive, appears ultimately to have been flawed. On Monday, the museum’s ticket offices were shut amid claims that many of the exhibits were in fact knock-offs which had been bought for between 100 yuan (£10.70) and 2,000 yuan (£215)...
...Among the most striking errors were artifacts engraved with writing purportedly showing that they dated back more than 4,000 years to the times of China’s Yellow Emperor. However, according to a report in the Shanghai Daily the writing appeared in simplified Chinese characters, which only came into widespread use in the 20th century.
The collection also contained a “Tang Dynasty” five-colour porcelain vase despite the fact that this technique was only invented hundreds of years later, during the Ming Dynasty...
... Wei Yingjun, the museum’s chief consultant, conceded the museum did not have the proper provincial authorizations to operate but said he was “quite positive” that at least 80 of the museum’s 40,000 objects had been confirmed as authentic...
...China is currently in the midst of an unprecedented museum boom with nearly 400 new museums opening in 2011 alone, according to government figures.
But fake relics have proved a persistent thorn in the industry's side. In 2011, state media reported claims that 80 per cent of the fossils in Chinese museums were fake.
“Fake fossils are like poisoned milk powder that injure and insult visitors,” a scientist from the Chinese Academy of Social Sciences was quoted as saying...
China’s rating firms cut the most bond issuer rankings on record in June and brokerages said they are preparing for the onshore market’s first default as the world’s second-biggest economy slows.
A total of 38 issuers were downgraded last month, according to Guotai Junan Securities Co., the most since the nation’s third-biggest brokerage started compiling the data in 2005. Some 86 firms were upgraded, down from 88 a year earlier. China Chengxin Securities Rating Co. lowered Zhuhai ZhongFu Enterprise Co. (000659)’s debt rating to AA- from AA on June 28, causing the yield on the beverage package maker’s May 2015 bonds to almost triple to 15.39 percent.
“The government can’t save everyone,” said Xu Hanfei, a bond analyst at Guotai Junan in Shanghai. “In the future, downgrades may spread to high-grade bonds, especially those which rely heavily on support from the central or local governments.”
Premier Li Keqiang said July 16 that China shouldn’t change policy direction because of short-term changes in economic indicators, signaling he is ready to tolerate slower growth to rebalance investment away from industries with excessive capacity or which cause pollution. Economic expansionslumped to 7.5 percent in the second quarter, extending the longest streak of sub-8 percent growth in at least two decades.
The yield on one-year AA-rate bonds gained 16 basis points this week to 5.12 percent on July 17, according to data compiled by ChinaBond. The rate on similar-maturity AAA debt has risen 10 basis points to 4.66 percent. The gap between them was 46, the biggest since Feb. 5.
Debt, Bankruptcy
There have been no defaults in the publicly-traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s Investors Service. Haitong Securities Co., the second-biggest listed brokerage, forecast yesterday that the first onshore default may occur in six to 12 months as the government seeks to build a sound credit system.
Concerns have mounted since the biggest unit of Suntech Power Holdings Co. (STP) went into bankruptcy in March after defaulting on $541 million of offshore bonds. The next month, LDK Solar Co. (LDK) failed to fully repay $23.8 million in dollar-denominated securities.
More Downgrades
“Investors should no longer blindly invest in state-owned companies with overcapacities without good credit analysis,” said Jiang Chao, a bond analyst in Shanghai at Haitong Securities. “China can’t restructure the economy without a bond default.”
More downgrades may follow and help build China’s junk bond market, said Jiang, adding that an AA- rating in the nation is equivalent to non-investment grades overseas.
Most downgrades occurred in steel, chemicals and new energy last month, according to data compiled by Guotai Junan. These industries are facing overcapacity, falling earnings and high liability-to-asset ratios, according to a report released on July 8.
The rate on Anyang Iron & Steel Co.’s debt due February 2019 has risen 245 basis points to 9.34 percent since China Chengxin Securities Rating Co. cut the state-owned company’s rating to AA- from AA on June 28, according to exchange data. The yield on Huayi Electric Co.’s bonds due November 2016 is up 132 basis points at 8.21 percent since Pengyuan Credit Ratinglowered the power equipment maker to AA- from AA on June 28.
Secondary Market
“It’s hard to tell whether the deterioration will spread to other industries, and we can’t tell when the first default will come,” said Sun Zhipeng, a bond analyst at Orient Securities Co. in Shanghai. “But the massive downgrades will certainly have an impact on the secondary market. Investors are turning cautious on lower-grade bonds.”
China companies accounted for eight of the 10 financially weakest issuers of dollar-denominated notes in Asia outside of Japan, according to a July 5 Standard Chartered Plc report.
Borrowers from the nation have the equivalent of $112 billion of all types of bonds maturing this month, the most since April 2011, according to data compiled by Bloomberg. Another $110 billion of notes sold by Chinese borrowers are due by the end of August, data compiled by Bloomberg show.
Guotai Junan’s Xu said investors should allocate assets to AAA-rated bonds to protect against rising credit risk. He forecast China’s economic growth may decelerate to 7 percent next year, the slowest since 1990, from 7.5 percent in 2013. The government in March set a 7.5 percent target for this year.
Economic Crisis
There is a “de facto phenomenon of economic crisis,” Xia Bin, a former central bank adviser, wrote in a China Business News commentary on July 15. A crisis will mean bankruptcy for some companies and financial institutions, Xia said.
The cost of insuring Chinese sovereign debt against non-payment jumped to a 17-month high of 147 basis points last month, before easing to 102.5 basis points on July 17, according to data provider CMA. The yuan weakened 0.1 percent to 6.1413 per dollar in Shanghai yesterday, according to the China Foreign Exchange Trade System.
China’s economy is in urgent need of supportive fiscal and accommodative monetary policies, Hu Yifan, Hong Kong-based chief economist at Haitong International Securities Group Ltd., wrote in a note yesterday. “With lackluster domestic and foreign demand, liquidity issues have arisen in SMEs amid the tightened credit policies of banks.”
She added that co-guarantee loans are common and have triggered chain reactions when one firm is at risk.
Cash Supply
Chinese regulators reined in money supply in June in an effort to force investors to shift funds out of shadow banking, which allows lenders to bypass controls and capital requirements. It includes entrusted loans, trust lending, bills and underground lending.
“The government’s crackdown on shadow banking has left fewer financing channels available for lower-graded companies,” said Dong Hui, a bond analyst at China Securities Co. in Beijing. “Fewer ways to raise money they are in need of will increase those companies’ default risk.”
Total fundraising in the economy declined to 1.04 trillion yuan in June, from 1.19 trillion yuan in May and 1.78 trillion yuan a year earlier, central bank data showed on July 12. New loans accounted for 83 percent of aggregate financing last month, up from 52 percent in June last year.
“The downgrades show that the rating agencies have reached a consensus that the economy will be on a downward trend and companies’ financials will worsen,” said Cheng Qingsheng, a bond analyst at Evergrowing Bank Co. in Shanghai. “The first bond default is getting closer and closer.”Leave a comment:
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Re: Yes Virginia...It's a Bubble...
80 in 40000...hmmm. not so bad, not so bad...
That's why I very rarely visit museums...Leave a comment:
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Re: Yes Virginia...It's a Bubble...
The Americans peddle mortgage derivatives with fake credit ratings, the British fake LIBOR, the Greeks and Italians fake paying taxes, the Russians fake democratic elections...China is just trying to catch up.
Chinese museum found with 40,000 fake exhibits forced to close
Shanghai
1:24PM BST 16 Jul 2013
The 60 million yuan (£6.4 million) Jibaozhai Museum, located in Jizhou, a city in the northern province of Hebei, opened in 2010 with its 12 exhibition halls packed with apparently unique cultural gems.
But the museum’s collection, while extensive, appears ultimately to have been flawed. On Monday, the museum’s ticket offices were shut amid claims that many of the exhibits were in fact knock-offs which had been bought for between 100 yuan (£10.70) and 2,000 yuan (£215)...
...Among the most striking errors were artifacts engraved with writing purportedly showing that they dated back more than 4,000 years to the times of China’s Yellow Emperor. However, according to a report in the Shanghai Daily the writing appeared in simplified Chinese characters, which only came into widespread use in the 20th century.
The collection also contained a “Tang Dynasty” five-colour porcelain vase despite the fact that this technique was only invented hundreds of years later, during the Ming Dynasty...
... Wei Yingjun, the museum’s chief consultant, conceded the museum did not have the proper provincial authorizations to operate but said he was “quite positive” that at least 80 of the museum’s 40,000 objects had been confirmed as authentic...
...China is currently in the midst of an unprecedented museum boom with nearly 400 new museums opening in 2011 alone, according to government figures.
But fake relics have proved a persistent thorn in the industry's side. In 2011, state media reported claims that 80 per cent of the fossils in Chinese museums were fake.
“Fake fossils are like poisoned milk powder that injure and insult visitors,” a scientist from the Chinese Academy of Social Sciences was quoted as saying...Leave a comment:
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Re: Capital MisAllocation...
IMF record about prognosticating the future is so abyssal that if I were the Chinese I would be much encouraged by the report.
In Latin America we know very well what following the IMF "recommendations" bring.
The list of economic-financial-social crises we have endured since IMF began managing our economies through venal governments is pretty long.
Every one of our countries have experienced more than one of those.
And each of them was the result, mainly, of consistently following such advice.
I don´t know where China is heading, nobody does, really.
But it´s for sure the worst thing they could is pay attention to IMF.Leave a comment:
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Re: Capital MisAllocation...
China defies IMF on mounting credit risk and need for urgent reform
If you think China's Communist Party fully understands the mess it has created by ramping credit to 200pc of GDP and running the greatest investment bubble know to man, read its shockingly complacent response to warnings from the International Monetary Fund.
8:00PM BST 17 Jul 2013
The IMF's Article IV report on China states - as clearly as the IMF dares - that excess credit has been pushed to the outer limits of sanity, and that there is a growing risk of an "adverse feedback loop" as the financial system and the economy take each other down in a mutually reinforcing spiral.
As you can see from the first chart, total credit has jumped from 129pc to 195pc of GDP since 2008, and has completely departed from its historic trend. The great mistake, plainly, was to keep the foot on the floor in 2010 and 2011, long after the Lehman crisis had subsided.
Total credit is higher in many rich countries but that means little. China's ratio is double or triple the level in states with a similar per capita income.
The Fund said wealth products (WMP) and trusts - a disguised second balance sheet of banks, worth $2 trillion - "could over time evolve into a systemic threat to financial stability". A sudden loss of confidence could "trigger a run" and set off "a severe credit crunch".
"As of now, the authorities still have sufficient tools and fiscal space to address potential shocks. However, failure to change course and accelerate reform would increase the risk of an accident or shock that could trigger an adverse feedback loop," it said. China has been warned.
Beijing's replied dismissively that "vulnerabilities were well under control". It said the fast growth of wealth products and trusts were a healthy sign of "market-based intermediation". Any risks were "manageable". Bad loans in the banking system "remained low and Chinese banks had some of the highest capital and provisioning ratios in the world"...
...Professor Michael Pettis from Beijing University expects growth to fall to 3pc or 4pc over the 10-year term of President Xi Jinping, which would come as a shock to many. He argues that this may be no bad thing provided the government bites the bullet on reform, and provided the Chinese people are at last given a bigger share of the pie...
...Unfortunately, the reform drive has yet to advance much beyond hot air. "Progress with rebalancing has been limited and is becoming increasingly urgent. A decisive shift toward a more consumer-based economy has yet to occur," said the IMF.
China is still diverting 48pc of GDP into investment, the highest in the world and far higher than the figure in Japan or Korea during their catch-up spurts. Consumption is still stuck at around 35pc of GDP, which matters for the rest of us. It means that the country is still reliant on export-led growth, flooding Western markets with excess goods by means of a suppressed currency and subsidised state credit...
...Chart 3 shows that China will fail to replicate the break-out spurt achieved by Japan and Korea if it clings to the status quo. Per capita income will languish at around 25pc of America GDP per capita through the decade.
This will happen just as China's aging crisis and demographic crunch hit in earnest. The workforce is already shrinking. It shed 3m people last year. The IMF says the 160m "reserve army" of cheap labour in the country will dry up by the end of the decade - the long-feared Lewis Point. This will turn into a drastic shortage of labour by 2030...
...Given that the US will keep growing towards 400m people as China's population shrinks, the basic maths imply that America will continue to be the world's dominant economic (and strategic) power for the next century. All those extrapolation charts of a Chinese-led planet that enthralled us all in the BRICS hysteria of 2008 will look very silly indeed...
Leave a comment:
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Re: Yes Virginia...It's a Bubble...
Canada didn't have a Clinton/Rubin/Summers/Greenspan combo. The Canadian banking industry is highly concentrated in the hands of 6 institutions that have historically enjoyed high levels of official government protection within the regulatory framework within which they are expected to operate.Originally posted by Milton Kuo View PostEither the Canadian banks are a lot smart than American banks or they've been duly chastened after seeing what happened in 2008. [If the music's playing, you *don't* have to get up and dance.] Even if Scotiabank had bought into the China boondoggle and lost every penny of its investment, it's "only" $719 million (pocket change among banksters) and I'm assuming there would have been no additional liability unlike what happened with a bust Bank of America buying and assuming all liabilities of a bust Merrill Lynch and a superbust Countrywide Financial.
Back when the USA was dismantling Glass-Steagall, up in Canada the Finance Minister was not amused by two merger proposals involving four of the big six banks, and the government vetoed them over the very vocal objections of the powerful banking lobby. Probably saved the banks from themselves...
2 Canadian Bank Mergers Likely to Be Vetoed
December 14, 1998
OTTAWA — Canada's finance minister is expected to block two proposed bank unions, which would have ranked among the largest transactions in Canadian history, because of concern they would erode competition, sources said Sunday.
Finance Minister Paul Martin will deliver a decision on merger proposals by four of the country's Big Six banks this morning, a Finance Department spokesman said...
...Sources told Bloomberg News that Martin and the government will prevent a proposed acquisition of Bank of Montreal by Royal Bank of Canada, valued at $12.24 billion, and a planned merger of Canadian Imperial Bank of Commerce and Toronto-Dominion Bank, with a value of $8.7 billion, at least until new legislation is drafted.
"The banks are going to get hammered," said Bill MacLachlan, a partner at Calgary, Alberta-based Mawer Investment Management. "A veto is a veto, and that's information the market hasn't accounted for."
Bank of Montreal spokesman Joe Barbera said the bank is waiting for the minister's official announcement before taking any action. "Our increasing frustration is that while we may have been advanced with our action on Jan. 23, what we did has now been confirmed by 11 straight months of developments domestically and internationally that prove that in order to compete, we must evolve and change," Barbera said...
...Most investors expected that the proposed unions would have to undergo changes, but investors may be disappointed by the uncompromising tone of Martin's statement. The stocks of the four banks may help send the market lower...
Leave a comment:
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Re: Yes Virginia...It's a Bubble...
Either the Canadian banks are a lot smart than American banks or they've been duly chastened after seeing what happened in 2008. [If the music's playing, you *don't* have to get up and dance.Originally posted by GRG55 View Post] Even if Scotiabank had bought into the China boondoggle and lost every penny of its investment, it's "only" $719 million (pocket change among banksters) and I'm assuming there would have been no additional liability unlike what happened with a bust Bank of America buying and assuming all liabilities of a bust Merrill Lynch and a superbust Countrywide Financial.
Leave a comment:
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Re: Yes Virginia...It's a Bubble...
The "we-have-to-be-in-China-no-matter-what-it-costs" phase seems to be over...
Last updated
Bank of Nova Scotia abandoned a China acquisition it once touted as having “strategic importance” as the deal stalled in the country’s approval process.
Nearly two years ago, Scotiabank announced its agreement to buy 19.99 per cent of Bank of Guangzhou in southern China for $719-million in a deal that would let the bank tap the third-largest urban market in China behind Shanghai and Beijing. “Asia is a region of strategic importance for Scotiabank and enhancing our investment in China supports our long-term growth strategy,” the bank said in its September, 2011, statement.
But Scotiabank walked away from the deal Friday, saying only that the partnership failed “in light of changing conditions.”...Leave a comment:
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Re: Yes Virginia...It's a Bubble...
Originally posted by GRG55 View PostThe use of the word "surprise" in (alleged) financial journalism is exceeded only by the use of the word "unexpected". And that should come as no surprise to any of us here...
"Surprise"?
Really?
China Posts Surprise Drop in Exports
By Dow Jones Business News, July 10, 2013, 06:05:00 AM EDT
BEIJING--China Premier Li Keqiang repeated his commitment to steer clear of stimulus for the world's second-largest economy, even as contracting exports added to fears of a slowdown.
China's export sector shrank 3.1% in June compared with a year earlier, down from 1% year-on-year growth in May and the first contraction in a non-holiday month since the height of the financial crisis in November 2009. Imports fell 0.7% year-on-year, pointing to weak demand at home as well as abroad.
Coming after a raft of disappointing data in April and May,
June's weak trade results add to fears that economic growth in the second quarter has continued to slow. The median forecast of 18 economists surveyed by The Wall Street Journal tips gross domestic product growth of 7.5% year-on-year in the second quarter, down from 7.7% in the first.
Financial markets appeared to shrug off the negative data, with stock indexes in Shanghai and Hong Kong up in trading through mid-afternoon.
Even as growth edges perilously close to the government's 7.5% target for the year, Mr. Li--who holds the reins on China's economic policy--reiterated his commitment to steer clear of any fresh stimulus.
"As long as the economic growth rate, employment and other indicators don't slip below our lower limit and inflation doesn't exceed our upper limit, [we'll] focus on restructuring and pushing reforms," Mr. Li said at a meeting of provincial chiefs on Tuesday...
...Despite the slowdown, China's labor markets appear robust as government data released Tuesday show demand for workers continues to healthily outstrip supply. For every 100 job seekers in the second quarter, there were 107 job opportunities, slightly lower than the 110 job opportunities in the first quarter.
Tight labor markets reflect continued expansion in the services sector, which is helping to offset the slack from contractions in manufacturing. A shift in China's demographics, with the working-age population now shrinking, is also a contributing factor.
Falling exports reflect a combination of strong wage growth and the yuan's strength, both of which dent the competitiveness of China's manufacturers relative to low cost rivals in countries like Vietnam. Average wages in China's manufacturing sector have risen 71% since 2008, and the yuan has gained 25.9% in real trade-weighted terms over the same period.
Sluggish demand in significant export markets compounds the problems of China's factory owners. Exports to a debt- ridden Europe slumped 8.3% year-on-year in June, and sales to the U.S. were down 5.4%. A crackdown by regulators on abuse of the trade system to bring illegal funds into the country also weighed on the results.
Signs that weakness in the export sector could persist might test the resilience of China's labor markets, and the government's bottom line on growth. Imports of parts for assembly in China's factories--a leading indicator of export growth--fell in June. "We can't be too optimistic about exports for the third quarter," said Customs spokesman Zheng Yuesheng.
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