Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
2Activity
0 of .
Results for:
No results containing your search query
P. 1
Tracking The World Economy ...-07/09/2010

Tracking The World Economy ...-07/09/2010

Ratings: (0)|Views: 362|Likes:
Published by Rhb Invest
Investors Are Still Concerned Over Europe Banks’ Holdings Of Sovereign Debts

Only seven out of 91 European Union banks that had subjected to stress tests failed with a combined capital shortfall of €3.5bn (US$4.5bn) when the tests result was unveiled in late July. Investors greeted the data as a much-needed dose of clarity since the uncertainty surrounding bank sovereign-debt holdings was fanning fears about the health of Europe’s banking system.
Investors Are Still Concerned Over Europe Banks’ Holdings Of Sovereign Debts

Only seven out of 91 European Union banks that had subjected to stress tests failed with a combined capital shortfall of €3.5bn (US$4.5bn) when the tests result was unveiled in late July. Investors greeted the data as a much-needed dose of clarity since the uncertainty surrounding bank sovereign-debt holdings was fanning fears about the health of Europe’s banking system.

More info:

Published by: Rhb Invest on Sep 07, 2010
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF or read online from Scribd
See more
See less

09/07/2010

 
Economic Highlights
7 September 2010
Page 1 of 3
1Investors Are Still Concerned Over Europe Banks’ Holdings Of Sovereign Debts2US Plans Stimulus Spending On TransportationInfrastructure3Indonesia Raised Banks’ Reserve Ratio
Peck Boon Soon(603) 9280 2163bspeck@rhb.com.my
Please read important disclosures at the end of this report.
Tracking The World Economy...
Today’s HighlightInvestors Are Still Concerned Over Europe Banks’ Holdings Of Sovereign Debts
Only seven out of 91 European Union banks that had subjected to stress tests failed with a combined capital shortfallof €3.5bn (US$4.5bn) when the tests result was unveiled in late July. Investors greeted the data as a much-needed doseof clarity since the uncertainty surrounding bank sovereign-debt holdings was fanning fears about the health of Europe’sbanking system.However, fears have flared up again as economies and financial systems in heavily indebted countries continue tostruggle. Europe’s largest financial companies hold more than €134bn in Greek, Portuguese and Spanish governmentbonds, according to Bloomberg’s compilation in May. Even after a €750bn (US$960bn) emergency bailout fund was setup to help the weaker economies in the Euroland, investors are still skeptic about sovereign debt and especially the banksthat hold the region’s government bonds. This was because not all investors are convinced with the results of the stresstests, as they argued that it was not stringent enough. Indeed, the stress test understated some lenders’ holdings of potentially risky government debt, according to an analysis by the Wall Street Journal of banks disclosures.As a result, investors are still demanding a high premium for buying Greek debt. As it stands, the yield of 10-year Greekbonds was at 11.28% on 3 September, compared with 2.34% on similar German bonds. At the end of August, the gapbetween the two, the yield spread, was the widest it has been since the peak in May, just before European leaders agreedon the bailout. Similarly, Irish bonds yield spread versus German bonds climbed to the highest in at least 20 years, afterStandard & Poor’s on 24 August cut the country’s credit rating by one notch to AA-, citing concern that the rising costof supporting Ireland’s struggling banks will increase its budget deficit.The hesitancy among investors also shows up in the spreads on bank bonds, with some European institutions payinghigher borrowing costs compared with their US counterparts. As of 2 September, buyers demanded an extra 383 basispoints over the yield on government debt to own 5- to 10-year bonds sold by Paris-based BNP Paribas SA, accordingto Bank of America Merrill Lynch index data. The comparative premiums were 275 basis points for US based CitigroupInc. bonds and 192 basis points for JPMorgan Chase & Co. bonds.With yields on European bank debt so high, the market has shrunk and lenders have been slow to raise the capital theyneed. As a result, many European institutions continue to rely on central banks for funding. In July, the European CentralBank (ECB) loaned €132bn for three months to 171 financial institutions. Wary of lending to each other, banks are alsokeeping record amounts of their cash with the ECB. On 9 June, lenders in the Euroland deposited a record €369bnovernight with the ECB, more than in October 2008, during the credit meltdown. Knowing the situation, the ECB on 2September extended emergency lending measures for banks into 2011. The ECB will keep offering unlimited one-weekand one-month loans until at least 18 January, and will offer additional three-month funds in October, November andDecember.
      G       l    o     b    a      l 
MARKET DATELINE
 
       •
 
PP 7767/09/2010(025354)
A comprehensive range of market research reports by award-winning economists and analysts areexclusively available for download from
www.rhbinvest.com 
 
7 September 2010
A comprehensive range of market research reports by award-winning economists and analysts areexclusively available for download from
www.rhbinvest.com 
Page 2 of 3
IMPORTANT DISCLOSURES
This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHBInvestment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances asmay be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliableand are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group asa result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell thesecurities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon suchstatement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time havean interest in the securities mentioned by this report.This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstancesand objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends thatinvestors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. Theappropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI,RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activitiesas well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financingactivities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account orthe accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and therespective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or willseek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report orin RHBRI’s previous reports.
The US Economy
US Plans Stimulus Spending On Transportation Infrastructur
The
US may announce a six-year plan to rehabilitate the nation’s transportation infrastructure withan initial allocation of US$50bn to help spur economic activities that are slowing down
. The USPresident will work with Congress to ensure that the plan is fully funded, and a significant portion of the newinvestments would be front-loaded in the first year to help create jobs starting in 2011. Construction jobs in theUS have declined by 940,000 since President Barack Obama took office in January 2009, even after a 19,000 gainin August. The US government plans to pay for it by eliminating tax deductions for oil and gas companies. Muchof the economic stimulus package of US$787bn approved in early 2009 has already been spent, according to theCongressional Budget Office. Of the total, US$223bn has gone to tax relief, about US$144bn has gone to statesto help prevent layoffs and provide health care and US$145bn has gone towards contracts, grants and loans. Of the amount of US$38.6bn allocated for the Transportation Department, only US$18.5bn has been paid out thus far.
Asian Economies
Indonesia Raised Banks’ Reserve Ratio 
Bank Indonesia
, on 3 September,
ordered banks to increase their deposits with the central bank asprimary reserves to 8%
, from 5% previously, in a move to absorb 50 trillion rupiah (US$5.6bn) of excessliquidity from the system. The central bank, however, kept its benchmark interest rate unchanged at 6.5%. BankIndonesia indicated earlier that it may raise banks’ reserve requirement to absorb liquidity, while refraining fromraising its key policy rate, in a move to contain inflation. Indeed, the central bank has not changed its key policyrate after reducing it to 6.5% in May 2009. Meanwhile, the country’s inflation accelerated to a 16-month high of 6.4% yoy in August, higher than the central bank’s target of 4-6% for two consecutive months. The new primaryreserve level will take effect on 1 November, and beginning in March next year, the central bank will introduce anadditional reserve requirement that is linked to how much of its funds a lender gives out in loans. It will imposea penalty for banks whose loan-to-deposit ratio is below 78% or more than 100%. The additional reserverequirement for banks whose loan-to-deposit ratio is above 100% will be waived if those banks also have a capitaladequacy ratio of at least 14 percent. Currently, 30 banks have loan ratios below 78 percent and no banks areabove 100%.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->