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TICKER: MONDAY July 28th 2014: The Union Bank of the Philippines (UBP) released a 49% drop in net earnings in the first half of 2014, as it came in to just PHP3.2bn, almost half of its net earnings in the same period last year. In the April to June period alone, net income fell 36% from PHP2.18bn in the second quarter of 2013 to PHP1.6bn in the second quarter of 2014. However, it is important to note that net interest income grew by 29% year-on-year, as it came in at PHP5.2bn in the half of 2014 – Rangold chief executive Mark Bristow will present the firm’s Q2 results at noon on Thursday this week at The Forum, London Stock Exchange Around 10.00 am today some traders on Moscow Exchange’s Derivatives Market reportedly experienced difficulties entering orders via the FIX protocol, with some valid messages rejected with an error code. The FIX protocol has been functioning as usual since 11:37 am says the exchange. Moreover, the exchange stresses other protocols to access the Derivatives Market’s trading system have been functioning as usual - Société Générale Securities Services in Luxembourg has been mandated by wealth manager Bedrock, with $6bn in assets under management, to provide custody, fund administration and registrar services for its range of UCITS funds - Moody's Investors Service has assigned a first-time provisional (P)B3 corporate family rating (CFR) to Empik Media & Fashion SA Group. At the same time, Moody's has assigned a provisional (P)B2 rating to the firm’s proposed senior secured notes due 2019 to be issued at EM&F Financing AB, a wholly owned and guaranteed subsidiary of EMF, reflecting its overall ranking within the debt capital structure. The outlook on the ratings is stable. This is the first time Moody's has assigned ratings to EMF - Lithuania will adopt the euro on January 1st next year. Lithuania will become the 19th member state to adopt the euro. "Lithuania's consistent efforts have paid off: today the eurozone has opened the door for us," said Algirdas Butkevičius, prime minister of Lithuania, on the announcement. The entry of Lithuania into the euro family is of great importance for the whole euro area. "It's a demonstration of the continuing attractiveness of the single currency project and its relevance for the future of our community," added Sandro Gozi, State Secretary for European Affairs of Italy and President of the Council of the EU. The conversion rate has been set at 3.45280 Lithuanian litas to the euro – Global macro hedge fund manager Atreaus Capital is now live with SunGard’s Hedge360 Risk Reporting Service. Delivered as a managed service, the Hedge360 Risk Reporting Service provides highly customized daily risk reports, offering transparency to investors and integrated internal risk management to hedge funds. Trading a broad range of products with an emphasis on FX and commodities, in the form of both OTC derivatives and futures - AnaCap Financial Partners LLP, the specialist European financial services private equity firm, together with HIG and Deutsche Bank, have completed the acquisition of a €495m portfolio of non-performing and sub-performing loans from Volksbank Romania. Under terms of the agreement, funds advised by AnaCap will jointly acquire the entire portfolio with HIG and Deutsche Bank. The portfolio of 3,566 loans in total is backed by a mix of primarily residential, commercial real estate and development land. APS Romania will be appointed as Master Servicer. The transaction is the largest of its kind in Romania to date, and came about as a result of the ongoing pressure on financial institutions across Europe to restructure and divest assets in order to clean up balance sheets and comply with new capital requirements. After a prolonged correction following the financial crisis, the property market in Romania is now showing strong signs of improvement. GDP and unemployment have recovered on the back of labour market reforms in 2011 and an IMF financing package. House prices, which declined 38% since their peak in mid-2008, are now on the rise, with the areas surrounding central Bucharest and other main cities increasing 4% for 2013.

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The European Review

By Patrick Artus, chief economist at Natixis

Avoid investing in German financial assets

Wednesday, 09 May 2012 Written by 
Avoid investing in German financial assets It may seem tempting to invest in German financial or property assets: Germany's economic and financial situation is at present far better than that of the other euro-zone countries, and German assets have outperformed those of the other euro-zone countries. http://www.ftseglobalmarkets.com/

It may seem tempting to invest in German financial or property assets: Germany's economic and financial situation is at present far better than that of the other euro-zone countries, and German assets have outperformed those of the other euro-zone countries.

But it should be realised that: German assets are overvalued because the euro zone's monetary policy is too expansionary for Germany and because German investors have a very significant domestic bias while the supply of assets is small and Germany risks economic and financial overheating which could lead to a correction in asset prices in the medium term.

German financial assets might seem attractive
German financial and property assets might seem attractive for two reasons. First, because the present economic and financial situation in Germany is far better than in other euro-zone countries. This is reflected in its public finances, current-account balance, the size of its industry and export capacity, its cost-competitiveness, corporate profitability and investment drive, and in its labour market - which is now experiencing rises in real wages, compared to falling real wages in the rest of the euro zone. All in all, given that Germany does not need to reduce its fiscal deficit, and given the rise in real wages, better export performance, increasing business investment and job creation, the growth outlook is at present far better in Germany than in the other euro-zone countries.

The second reason why German assets could seem attractive is that their recent performance has been strong. This is true for government bonds, equities, corporate bonds, bank debts and residential real estate (but not commercial real estate), since 2008.

But in reality, investment in German assets should be avoided, because they are too expensive and Germany could start overheating

German assets are too expensive
Since 2006, Germany has witnessed and will continue to maintain stronger growth than the euro zone as a whole. This means that the euro zone's current monetary policy is too expansionary for Germany, as it was for the rest of the euro zone from 2002 to 2007. This of course tends to cause a rise in asset prices.

Also, Germany has excess savings (by households and companies, as shown by its external surplus) with an increasing bias for investing domestically, while at the same time the supply of assets is small: meaning the fiscal deficit has almost disappeared, companies are self-financed and issue few bonds and residential construction is at a low level. There is therefore ex ante excess demand for German assets, which has driven up asset prices, especially for safe-haven government bonds.

Germany could start overheating in the medium term
Germany is practically in a situation of full employment, and since its companies are very profitable, wage growth is accelerating. In 2012-2013 an increase in the unit wage cost approaching 3% can be expected, with productivity gains that are fairly low. This will probably lead to a rise in underlying inflation towards 2%, and hence to even more abnormally low long-term interest rates, which will continue to push up the prices of other assets.

It is well known that such a situation of overheating (full employment and interest rates that are too low relative to growth) is potentially unstable and can lead to a downward correction in asset prices (as it occurred in Spain, Ireland and the United States, for example).

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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