Saturday 20th December 2014
NEWS TICKER: FRIDAY DECEMBER 19TH 2014: Scotiabank’s Commodity Price Index dropped -4.8% m/m in November (-6.1% yr/yr) and will end 2014 in a ‘deflationary’ mode, says economist Patricia Mohr. "Significant capacity expansion and the defence of market share by major oil and iron ore producers— against a backdrop of lacklustre world economic growth — account for the softness at the end of the year," she says. Mohr adds that the decision by Saudi Arabia not to reduce output to shore up international oil prices, but instead to allow prices to drop to levels curbing US shale development appears to be having a negative impact on confidence in a wide variety of other commodity as well as equity markets. She predicts prices will fall further this month, but will start to rebound in mid 201 - Jonathan Hill, the EU's financial-services commissioner, says he plans to pursue rules that separate a bank's proprietary trading from retail operations. "The sensible thing to do is to seek to make progress quickly" on the issue, Hill said. "There are still areas of risk in some of the biggest and most complicated banks,” reports Bloomberg- CME Group, said yesterday that it will change daily price limits in its CME Feeder Cattle futures effective today, pursuant to its emergency action authority. The current daily price limit for CME Feeder Cattle futures is $3.00 per hundredweight and will change to $4.50 per hundredweight effective on trade date December 18th Additionally, effective December 19th (tomorrow) these limits will have the ability to expand by 150% to $6.75 per hundredweight on any business day in the event that one of the first two contract months settles at limit on the previous trading day. CME Feeder Cattle futures have been locked limit for five consecutive days as a result of various factors. The change to daily price limits is necessary to ensure continued price discovery and risk transfer, says the CME. Daily price limits for CME Live Cattle futures will remain unchanged at $3.00 per hundredweight. Effective Friday, December 19th, these limits will have the ability to expand by 150 percent to $4.50 per hundredweight in the event that one of the first two contract months settles at limit on the previous trading day - The Straits Times Index (STI) ended +16.42 points higher or +0.51% to 3243.65, taking the year-to-date performance to +2.49%. The FTSE ST Mid Cap Index gained +0.29% while the FTSE ST Small Cap Index gained +0.71%. The top active stocks were Keppel Corp (+2.68%), SingTel (-1.02%), DBS (+2.36%), Global Logistic (-3.21%) and UOB (+0.30%). The outperforming sectors today were represented by the FTSE ST Basic Materials Index (+3.13%). The two biggest stocks of the FTSE ST Basic Materials Index are Midas Holdings (+6.38%) and Geo Energy Resources (unchanged). The underperforming sector was the FTSE ST Telecommunications Index, which declined -0.98% with SingTel’s share price declining -1.02% and StarHub’s share price declining-0.73%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+2.56%), DBXT CSI300 ETF (+0.42%), STI ETF (+0.61%). The three most active Real Estate Investment Trusts (REITs) by value were Ascendas REIT (-0.42%), Keppel DC REIT (unchanged), Suntec REIT (+0.26%). The most active index warrants by value today were HSI23400MBeCW150129 (+7.32%), HSI22600MBePW150129 (unchanged), HSI24000MBeCW150129 (+12.50%). The most active stock warrants by value today were KepCorp MBeCW150602 (+21.95%), DBS MB eCW150420 (+29.29%), DBS MB ePW150402 (-18.03%) - Spain’s Director of Public Prosecutions, Eduardo Torres Dulce, has resigned from the post for “personal reasons”, Spanish daily El Mundo reported this morning. A spokesman for the Public Prosecutor’s office confirmed the news by telephone to The Spain Report, saying that Mr. Torres Dulce had informed Justice Minister Rafael Catalá of his decision: “but that it perhaps would not come into effect until they find a replacement”. That decision is taken at cabinet level. The next cabinet meeting for Rajoy’s government is tomorrow morning - Hedge funds including Marshall Wace, Odey Asset Management and Lansdowne Partners are shorting OTP Bank Plc, a Hungarian lender with a Russian subsidiary whose shares have fallen almost 6% this month reports Albourne Village. All three London-based funds took or increased their position this month in OTP, Hungary’s largest lender, according to data compiled by Bloomberg. The ruble rose today in Moscow after plunging as much as 19%against the dollar yesterday, when Russia’s central bank increased interest rates to 17% percent from 10.5 percent in an attempt to stem the decline. The ruble is down 52% this year and has taken a disproportionate beating in the wake of sanctions and falling oil prices. The country still has the third largest currency reserves in the world and so is unlikely to default. According to Eric Chaney, Manolis Davradakis and Greg Venizelos from AXA IM’s Research and Investment Strategy team Russia will likely resort to fiscal stimulus to contain the risk of social and political unrest. Capital controls, political unrest and even default on private hard currency debts are possible outcomes they say. They credit default swaps market is pricing a one-third probability of sovereign default within five years - Indonesia is ramping up financing for its $439bn development program, planning an almost fivefold increase in sales of project sukuk. The government is seeking to raise IDR7.14trn rupiah (around $568m) from notes that will fund particular construction ventures next year, compared with IDR1.5trn this year, which say local press reports, will help finance its estimated spending of about IDR5,519trn from 2015 to 2019 to build roads, railways and power plants.
Hisham Ezz Al-Arab, CEO, CIB. Hisham Ezz Al-Arab, CEO, CIB. Photograph kindly supplied by CIB, November 2011.

20-20: CIB-Captain courageous

Thursday, 15 December 2011
20-20: CIB-Captain courageous CIB was borne in a cross-fire hurricane this year as the Arab Spring found form in Egypt with all the gusto of a force ten gale.  Despite the pouring rain of rubber bullets, tear gas and dissent, CIB kept at its job.  Like many chief executives in high-strung/high growth markets, Hisham Ezz Al-Arab, CIB’s chief executive officer, walks a tightrope between high finance and high politics.  Right now, it is a brave fellow who puts his head above the parapet in Cairo. In a heartfelt polemic on the hopes for change, Ezz Al-Arab shows how the staff of CIB are made of stern stuff. http://www.ftseglobalmarkets.com/media/k2/items/cache/c925b42be0bb1a72b320fe10c797fed2_XL.jpg

CIB was borne in a cross-fire hurricane this year as the Arab Spring found form in Egypt with all the gusto of a force ten gale.  Despite the pouring rain of rubber bullets, tear gas and dissent, CIB kept at its job.  Like many chief executives in high-strung/high growth markets, Hisham Ezz Al-Arab, CIB’s chief executive officer, walks a tightrope between high finance and high politics.  Right now, it is a brave fellow who puts his head above the parapet in Cairo. In a heartfelt polemic on the hopes for change, Ezz Al-Arab shows how the staff of CIB are made of stern stuff.

On February 11th 2011 Hisham Ezz Al-Arab, CIB’s chief executive officer was being interviewed by Bloomberg’s Margaret Brennan. As the interview went to air, the news came that President Hosni Mubarak had resigned. “Four days later at our board meeting we all agreed: it would be a rollercoaster ride so everyone would have to fasten their seat belt and enjoy it,” says Ezz Al Arab. “In practice, what this meant was that whatever was happening outside our doors, we had to remain focused. That focus kept us sane, it kept us in business and all the success we have enjoyed this year is build on that clear focus,” he adds.

The current troubles that blow through Egypt are not of the making of the so-called Arab Spring, suggests Ezz Al Arab. “It goes much further back, to before 2009 or even 2008. In the event, we firmly believe that change it is a good thing and forces us, as a country, to ask important questions of ourselves. Of course, in the run up to elections, there are and will be a lot of political games; and we reckon that it will be a good four to five years before everything settles down and we finally move along the right track. In the interim, we will continue to provide that focus to our clients and to our staff.”



For Ezz Al Arab, the strength to carry on as normal in the midst of apparent chaos is a mindset; and one that he has worked hard to instil in the day to day working culture of CIB “We are the only bank in Egypt where staff have not gone on strike.  We work hard to align our business culture both with our shareholders and our staff; we look after them as we would a family. In consequence we think the culture here at the bank is healthy and very strong,” he says. He explains that this cohesion has been built up over years and has involved some degree of ruthlessness.  “Most failures are down to having the wrong people in place and you are shy of changing them; we have no such qualms at the bank.”

All business sectors in Egypt have been affected by the aftermath of the collapse of former president Hosni Mubarak’s regime, particularly the country’s banking sector, which in recent years has worked hard to improve liquidity, introduce tighter monetary regulations and adopt various reforms. Although in general terms Egypt remains under-banked (only around 15% of the population have bank accounts); over the last decade the sector has undergone substantial consolidation, and the number of banks has decreased from 57 to 39. Both private and public banks were closed during the 18-day uprising that toppled Mubarak, then closed again for a week due to workers’ protests demanding wage parity. CIB was the exception.

Moreover, at the height of the crisis, on February 1st, CIB staff came into work to ensure that customer salaries were processed as normal. “We brought in our own security companies, to ensure that people needing cash could get it. The staff came in and secured our buildings over the worst of the crisis; it wasn’t a drill, but one of the best stress tests we could have had. It showed we could operate in the most uncertain of times. I am proud to say that the staff had the courage to do it.”

The crisis has been tough on the bank as most lending is for corporate business; with mortgages and car loans still a discrete business. “Most of this business is based around payroll and rolls through cards and personal loans,” says Ezz Al Arab, adding that: “the business was launched back in 2009. After the shutdown, the business came through at expected limits; so we cannot complain. The corporate side is a very deep culture at the bank and goes back to our Chase Manhattan days. We are still strongly committed to the cash flow based credit models that we adopted decades ago, and most players in the region followed later on.”

This year the banking segment has also had to work towards adopting Basel III requirements which, in practice, means banks have had to adopt broader measures of risk and demonstrate that they adhere to sound risk management practices that are publicly disclosed.  Basel III also solidifies the definition of capital and calls for stronger conditions for managing liquidity. The banking segment was set to conclude the final phase by this summer, but further reforms may be delayed due to the current circumstances. Even so, several banks continue to raise their capital reserves. What this means explains Ezz Al-Arab is capital adequacy running at 15%, double that of banks in the United States or Europe. We also run a loans/deposit ratio of around 50%, giving us the opportunity to grow. The financial strength of the bank surpasses Basel requirements; but we continue to be penalised by country ceilings.

Whatever the outcome of impending elections in Egypt in mid December 2011 (it appears to be a closing tie between the Muslim Brotherhood and the rising Noor Party), the challenge for any incoming government will be to integrate the official and the grey economy, tackle political corruption and lay the groundwork for economic prosperity. If the country is lucky, it will go down a similar route to Turkey where an Islamic governing party adheres to pragmatic capitalist principles; with all the attendant opportunities that this will provide for the Egyptian banking segment. “If the government insists on collections and paying of duties and the processing of these payments electronically, then obviously the banks will benefit,” explains Ezz Al Arab. “Traffic fines, car licences, etc all have to go through the banks; at the same time it will cut petty corruption and the grey economy. In Egypt the grey economy is at least equal to the GDP; in some ways it is good, because it employs the sometimes unemployable. In other ways it is bad, as the government misses out on substantial tax revenue.”

For Ezz Al Arab, the business of integrating political changes, of lessening corruption and creating conditions for growth centres around trust: “which must operate at every level of society,” he states.

For the time being CIB is focusing on doing more of the same:  “We will have opened five branches by the end of December in new urban areas and we are planning for more branches in 2012, with further growth on the loan book and deposits,” says Ezz Al Arab.  Up to now the policy has been working; the bank claims a growth of 10% in market share overall, backed up by growth of 8.4% in the bank’s loan book and 7.19% growth in deposits up to September 1st, despite  the introduction of some impairments which impacted on overall profits for the year. “The important thing in this regard, is that the bank did it by the book. That was important for us,” he says.

Ezz Al Arab, remains optimistic about the long term: “Our focus is Egypt and we are sure that political changes will bring the accountability that the market needs and we believe this will all be in place within the next three to four years. When you are accountable it changes everything; because everything is done properly, by the book and business is about what you know, rather than who you know. That has to be a good thing.”

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