FED Stress Test

See FRB announcement last nite.

What it involves?
BHC (Bank Holding Cos) or FIs (Financial Insitutions) with total consolidated assets > USD 50 b

Aim
1) To ensure FIs have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress.
2) Institutions will be expected to have credible plans that show they have sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions, and are well prepared to meet regulatory capital standards agreed to by the Basel Committee on Banking Supervision as they are implemented in the United States.
3) Boards of directors of the institutions will be required each year to review and approve capital plans before submitting them to the Federal Reserve

Required under the newly legislated Dodd Frank Act.
- the Federal Reserve annually will evaluate institutions' capital adequacy, internal capital adequacy assessment processes, and their plans to make capital distributions, such as dividend payments or stock repurchases.
-the Federal Reserve will approve dividend increases or other capital distributions only for companies whose capital plans are approved by supervisors and are able to demonstrate sufficient financial strength to operate as successful financial intermediaries under stressed macroeconomic and financial market scenarios, even after making the desired capital distributions.

Who?
-  the 19 firms* that participated in the CCAR in 2011, also the same 19 that took part in SCAP for TARP.
-  12 additional firms** with at least $50 billion in assets that have not previously participated in a supervisory stress test exercise.

Tests A : Instructions for the 19 firms
Tests B: Instructions for the 12 aditional firms

Tests A are considered one of the most stringent Stress Tests to-date.
Hypothetical stress scenario:
Unemployment  at 13 %
US GDP  fall 8%

Tests B are  scaled-back tests on the capital plans of 12 more financial firms  and considered less complex.

* The 19 bank holding companies participating in the 2012 CCAR are:

Ally Financial Inc., American Express Company, Bank of America Corporation, The Bank of New York Mellon Corporation, BB&T Corporation, Capital One Financial Corporation, Citigroup Inc., Fifth Third Bancorp, The Goldman Sachs Group, Inc., JPMorgan Chase & Co., Keycorp, MetLife, Inc., Morgan Stanley, The PNC Financial Services Group, Inc., Regions Financial Corporation, State Street Corporation, SunTrust Banks, Inc., U.S. Bancorp, and Wells Fargo & Company. These 19 firms also participated in the 2011 CCAR and the 2009 SCAP.

**The 12 bank holding companies participating in the CapPR are:

 BBVA USA Bancshares Inc., BMO Financial Corp., Citizens Financial Group Inc., Comerica Inc., Discover Financial Services, HSBC North America Holdings Inc., Huntington Bancshares Inc., M&T Bank Corp., Northern Trust Corp., RBC USA Holdco Corp., UnionBanCal Corp., and Zions Bancorporation.

Period
3Q2011 to 4Q2013  with exception for trading and counterparty positions according to the Basel III and Dodd‐Frank schedules.

Why?
1)  Key purpose, here is transparency in a time of great uncertainty.
Transparency breeds  and bolsters confidence and keeps out nasty "rumors" about BHCs  B/S exposure to assets in the Eurozone.

2) It will put the burden on the affected BHCs to prove they can make a capital distribution (aka dividends), NOT on the Fed to block it-------likely that BofA and CitiGroup will have to pare down dividends as a result!!

3) Tests B are NOT required under the Dodd Frank Act as these FIs are under the USD 50b cap.
Nevertheless, if they have to go to the FED for aid in a crisis they have to satisfy the tests requirements; and the FED seems to be very prudent and cautious in including these other 12.

KReit Rights Issue - Important Dates

Despatch of Offer Information Statement to Eligible Unitholders : 21 November 2011
Commencement of "nil-paid" rights trading : 21 November 2011 from 9.00 a.m.
Last date and time for splitting and trading of "nil-paid" rights : 29 November 2011 at 5.00 p.m.

Closing Date(1):
Last day for acceptance/application
of and payment for Rights Units/Excess
 Rights Units and close of the Rights Issue: 5 December 2011 at 5.00 p.m. (2),(3) (9.30 p.m. for Electronic Applications through ATMs of Participating Banks)
Last date and time for acceptance of
and payment for Rights Units by renouncees : 5 December 2011 at 5.00 p.m. (3),(4)

Expected date of issue of Rights Units : 13 December 2011
Expected date for crediting of Rights Units : 14 December 2011
Expected date for refund of unsuccessful applications (if made through CDP) : 14 December 2011
Expected date of commencement of trading of Rights Units on the SGX-ST : 14 December 2011

About This Blog

 

Qiaofeng (QF) Musings has its humble beginnings in the CNA Forum "Market Talk".
It started with QF posing his thots to articles he read under 2 threads:
"Good Articles N Such" and "Good Opportunities N Such"-- in response to the rapidly changing Macro environment  and its effects on  Investment or Equity Opportunities in 2007/2008.

As a value seeking bottoms-up investor, QF had an inherent disdain for the Macro news as a catalyst for investment decisions. However, through out the GFC (Global Financial Crisis),  QF discovered that the Global investing and biz world is too  closely interlinked and intertwined----  that the web of cross border finances   and that rapidly changing news flow can affect and effect  biz decisions and outcomes in very "unpredictable" ways.

For example, when Lehman collapsed, the MMF (Money market funds ) almost collapsed and the the "trust" amongst FIs (Financial Institutions) were so low that LCs (Letter of Credits) seized and  global trade collapsed causing many biz models and entire industries to collapse in countries remote from the epicentre because they were linked through the USD, as reserve currency of choice.


QF wrote many of his musings on the CNA Forum predicting the rise  and regionalisation of the RMB, its use by countries that trade with China, and a eventual internationalisation of the RMB; way back when the crisis first started in 2007/2008.

There were many other musings on the TARP issue, QE1.0, QE2.0 for the Macro environment and on Stocks such as Pac Andes and MIIF. Those that followed the 2 threads would know.

However, the CNA Forum went through a format change, recently--- so  the 2 threads were entirely lost and deleted. To make matters worse, the "new" CNA Forum has many posting issues and was too "unfriendly" for QF's liking.

At the prompting of some friends, QF finally embarked on the 1st tentative step to blogging when he failed to join the "Valuebuddies Forum", due to some technical issues which the administrator there has since resolved.

Blogging takes up quite some effort and QF has had great inertia making the change.
QF's musings on the CNA Forum had  like some 1000 plus page views for each of the 2 threads, over each weekend before it ceased due to the forum format change, as such there were many faithful followers whom I had communicated and reached out to.

QF does not profit monetarily from his postings. But, I do have a deep sense of satisfaction in the sharing of my thots and my lessons in investing, in my CNA Forum sojourn.

Hence, I am continuing that sojourn through my own blog here.

Who are snapping up the High End condos?

A 3,003-sq-ft, 4-bedroom apartment in the The Marq (Premier Tower) at Paterson Hill is reported by the BT, to have sold for nearly $6,850 psf ($20.5 m), topping the previous record set in August for $6,394 psf

Who are snapping up these High End  condos?

Excerpts...

'The majority of buyers in this segment are foreigners. Singaporean buyers typically aim for Good Class Bungalows, since the absolute price for a GCB is quite similar to that for a luxury apartment in a project like The Marq,' says Jones Lang LaSalle's head of residential and national director Jacqueline Wong.

'It is foreigners, who don't qualify to buy a GCB, who are the main players looking at luxury condos right now. Their interest in buying property in Singapore has never dissipated; their interest is still there. But due to the global uncertainty including European debt crisis, everybody's more cautious, more selective now. They want value buys or fire sales - but these are difficult to find in Singapore as our high-end developers are deep-pocketed,' added Ms Wong.



Why ?
A possible reason is design, and exclusivity, it seems.....

....the developer's track record of consistently improving its product in terms of quality, design and concept. 'It has always reinvented itself. Take The Marq, for instance. The Signature Tower has an interlocking design for each of the apartments (which are over 6,000 sq ft) so that it feels like a penthouse even for units on lower floors - with double-volume ceiling height in the living and dining area and a private pool for each apartment.

'(SC Global chairman and chief executive) Simon Cheong has paid careful attention to the project's details even in the common areas like the lobby. There's a club lounge/ library where they serve drinks, and the gym is fully equipped. There's a concierge service, and sculptures and other artwork on display in various parts of the development.'

So it seems, the foreigners are still snapping up despite the resilently high prices.

What is Kepland up to?

What is Kepland up to?

First, they sold OFC to KReit-Asia.
Now they are selling Robinson Centre housed under Alpha  Core Real Estate Fund, managed by Keppel Land unit, AIP ( Alpha Investment Partners).
Alpha bought Robinson Centre for $145 million in 2006 from GuocoLand.
According to BT, they are selling it to  a Taiwanese investor for nearly SGD 300 m ( $2,240 psf NLA).

Excerpts....
The price being paid by the Taiwanese party set to buy Robinson Centre is thought to reflect a net yield in the region of 3.5 per cent, based on the building's current rental income stream. The prospective buyer is looking at Robinson Centre as an investment - that is, with a view to collecting rental income from it - rather than for redevelopment, BT understands.
Robinson Centre was completed about 11 years ago. Investment sales of office blocks have gathered momentum since last month, say market watchers.

KReit-Asia is paying $2,380 psf net of rental support, for OFC.

Question is:
What is Kepland up to?
Is there an impending buying opportunity coming up?

Other Big Q is:
Why are all the Institutional Investors snapping up the Office Towers now?
If U read the Research reports by  local Equity Analysts and Property Analysts, Office Properties are facing a downturn. But, the smart money seems to think otherwise.

Excerpts...
....last month, Royal Group Pte Ltd, controlled by Asok Kumar Hiranandani and his son Bobby, acquired two adjacent 999-year leasehold office blocks at Phillip Street in the Raffles Place area for a total of about $283 million, or an average price of $2,350 psf. One Phillip Street was sold for $2,050 psf and Commerce Point (at 3 Phillip Street) at $2,490 psf.

Another deal last month involved the sale of a 50 per cent stake in a company whose sole asset is the 12-storey freehold Finexis Building, a smallish office block at 108 Robinson Road.
The transaction was based on the office block's latest valuation - in July - of $110 million or about $2,043 per square foot on its total strata area of 53,830 sq ft, which is understood to be close to the building's net lettable area.


Go figure.

El-Erian on the Global Economic Uncertainty

The Anatomy of Global Economic Uncertainty

2011-11-18

NEWPORT BEACH – The sense of uncertainty prevailing in the West is palpable, and rightly so. People are worried about their futures, with a record number now fearing that their children may end up worse off than them. Unfortunately, things will become even more unsettling in the months ahead.

The United States is having difficulties returning its economy to the path of high growth and vigorous job creation. Thousands of people have taken to the streets of US cities, and thousands of others in Europe, to demand a fairer system. In the eurozone, financial crises have forced out two governments, replacing elected representative with appointed technocrats charged with restoring order. Concern about the institutional integrity of the eurozone – key to the architecture of modern Europe – continues to mount.

This uncertainty extends beyond countries and regions. Those looking around the next corner also worry about the stability of an international economic order in which the difficulties faced by the system’s Western core are gradually eroding global public goods.

It is no coincidence that all of this is happening simultaneously. Each development, and certainly their occurrence in tandem, points to the historic paradigm changes shaping today’s global economy – and to the anxiety that comes with the loss of once-dependable anchors, be they economic and financial or social and political.

Restoring these anchors will take time. There is no game plan as of now, and historic precedents are only partly illuminating. Yet two things seem clear: different countries are opting, either by choice or necessity, for different outcomes; and the global system as a whole faces challenges in reconciling them.
Some changes will be evolutionary, taking many years to manifest themselves; others will be sudden and more disruptive. Yet, as complex as all of this sounds – and, by definition, paradigm changes are complicated affairs that, fortunately, seldom occur – a simple analytical framework may help shed light on what to look for, what to expect and where, and how best to adapt.

The framework relies on an often-used analytical shortcut: identifying a limited set of explanatory variables in what statisticians call “a reduced-form equation.” The objective is not to account for everything, but rather to pinpoint a small number of variables than can explain key factors, albeit neither perfectly nor fully.

Using this approach, it is possible to argue that the future of many Western economies, and that of the global economy, will be shaped by their ability to navigate four inter-related financial, economic, social, and political dynamics.

The first relates to balance sheets. Many Western economies must deal with the nasty legacy of years of excessive borrowing and leveraging; those, like Germany, that do not have this problem are linked to neighbors that do. Faced with this reality, different countries will opt for different de-leveraging options. Indeed, differentiation is already evident.

Some, like Greece, face such a parlous situation that it is difficult to imagine any outcome other than a traumatic default and further economic turmoil; and Greece is unlikely to be the only Western economy forced to restructure its debt. Others, like the United Kingdom, have moved quickly to take firmer control of their destiny, though their austerity drives will inevitably involve considerable sacrifices.
A third group, led by the US, has not yet made an explicit de-leveraging choice. Having more time, they are using the less visible, and much more gradual, path of “financial repression,” under which interest rates are forced down so that creditors, including those on modest fixed incomes, subsidize debtors.

De-leveraging is closely linked to the second variable – namely, economic growth. Simply put, the stronger a country’s ability to generate additional national income, the greater its ability to meet debt obligations while maintaining and enhancing citizens’ standards of living.

Many countries, including Italy and Spain, must overcome structural barriers to competitiveness, growth, and job creation through multi-year reforms of labor markets, pensions, housing, and economic governance. Some, like the US, can combine structural reforms with short-term demand stimulus. A few, led by Germany, are reaping the benefits of years of steadfast (and underappreciated) reforms.
But growth, while necessary, is insufficient by itself, given today’s high unemployment and the extent to which income and wealth inequalities have increased.

 Hence the third dynamic: the West is being challenged to deliver not just growth, but “inclusive growth,” which, most critically, involves greater “social justice.”
Indeed, there is a deep sense that capitalism in the West has become unfair. Certain players, led by big banks, extracted huge profits during the boom, and avoided the deep losses that they deserved during the bust. Citizens no longer accept the argument that this unfortunate outcome reflects the banks’ special economic role. And why should they, given that record bailouts have not revived growth and employment?

Calls for a fairer system will not go away. If anything, they will spread and grow louder. The West has no choice but to strike a better balance – between capital and labor, between current and future generations, and between the financial sector and the real economy.

This leads to the final variable, the role of politicians and policymakers. It has become fashionable in both America and Europe to point to a debilitating “lack of leadership,” which underscores the extent to which an inherently complex paradigm change is straining traditional mindsets, processes, and governance systems.

Unlike emerging economies, Western countries are not well equipped to deal with structural and secular changes – and understandably so. After all, their histories – and certainly during what was mislabeled as the “Great Moderation” between 1980 and 2008– have been predominantly cyclical. The longer they fail to adjust, the greater the risks.

Those on the receiving end of these four dynamics – the vast majority of us – need not be paralyzed by uncertainty and anxiety. Instead, we can use this simple framework to monitor developments, learn from them, and adapt. Yes, there will still be volatility, unusual strains, and historically odd outcomes. But, remember, a global paradigm shift implies a significant change in opportunities, and not just risks.

Mohamed A. El-Erian is CEO and co-CIO of PIMCO, and author of  When Markets Collide.

Project Syndicate

http://www.project-syndicate.org/commentary/elerian11/English

___________________

My Thots....
El Elrian coined the term "New Normal" at a time of great uncertainty during the GFC, so as to help his PIMCO believers see the "new paradigm". Many like myself, took to the refreshing manner and the simplicity with which he made the volatilities and uncertainties look manageable.
But, his "New Normal" of  low growth and low low interest rates were perhaps an inducement to encourage investments in fixed income bonds and the likes.
PIMCO under Gross and El Elrian did many right calls, but  missed some too (especially on US Treasuries in the previous Qs, this year).
So opportunities can be missed too, even called wrongly, by the fixed income experts in times of great uncertainties.
It just go to show how unpredictable the politicos are, when put together;  and in the EU, there are 27, with 17 in the Eurozone!!

Lucas Papademos

Analysis: Lenders seen swallowing Greece's 80 bln euro demand
  Ben Harding
ATHENS | Thu Nov 17, 2011 5:24am EST

ATHENS (Reuters) - Greece needs 10 times more aid in January than the 8 billion euros it is scrambling to secure by next month. International lenders are likely to grit their teeth and pay both bills to prevent a messy default that could take down Italy as well.Greece says lenders will need to frontload their proposed 130 billion euro bailout for Athens with an initial 80 billion euros because of the vast sums needed to cut private sector debt without destroying Greek banks in the process.

European leaders say Greece has consistently failed to sell state assets, chase tax evaders and slash the public sector as promised, prompting the exasperated leaders of France and Germany to openly suggest last month Athens might quit the euro.

"While they may well want to threaten Greece, when push comes to shove, euro zone governments may opt to put off disorderly default ... and the Greek government is aware of that," said Ben May at Capital Economics.

Finance Minister Evangelos Venizelos is frank about Greece's urgent need for a big slice of the second bailout -- even before its lenders from the European Union, International Monetary Fund and European Central Bank have signed off on the release of the prior loan, needed by mid-December.

"The next loan tranche ... is not like the sixth tranche of 8 billion euros but more than 80 billion euros in total," he told parliament on Tuesday, adding Greece would need it by early February at the latest.

GREECE HOLDS THE CARDS
New prime minister Lucas Papademos, a respected former European Central Bank vice-president, has made the bailout, agreed in Brussels last month, his coalition's top priority.

But while euro zone lenders appear to have the whip hand as the clock runs down, the trauma of a Greek default would still be too painful for the rest of the common currency area.

Though Greece, with 360 billion euros of debt, is a far smaller systemic risk than Italy, any withholding of financial aid would shatter an assumption that the euro zone will support any member in trouble.
Italian bond yields have burst through the psychologically key 7 percent barrier as political turmoil has stoked fears it lacks the means or will to fund its 1.8 trillion euro debt pile.

"Maybe the effect of Greece leaving the euro zone is priced in ... but the likelihood that Italy would then default has increased, so it becomes even more expensive to save Italy," said Christian Schulz, Senior Economist at Berenberg Bank in London.

Diego Iscaro, at IHS Global Insight in London, said he expected Paris and Berlin to grumble but ultimately to agree to the large tranche since Europe's EFSF bailout fund lacks the firepower to save Italy, making a Greek firewall more important.

"I think Athens' position is stronger than many on the outside realize."

THE 80 BILLION EURO QUESTION
One risk is that Greece's feuding parties use Papademos to secure the massive first installment of a new bailout program, then once his three-month mandate expires, revert to politics as usual. Since they will have had most of the money in one dollop, some may feel the remainder is not worth all the political pain.

Still, Athens can ill afford to slacken the pace of austerity as it will see little of the 80 billion euros before it flies out the door again.

Thirty billion will go to recapitalize Greek banks in order to absorb losses on a key pillar of the deal -- an agreement between banks, the EU and Greece to halve Athens' 200 billion euro debt to private sector bondholders.

To secure this private sector involvement (PSI), a further 30 billion euros will go to bondholders to sweeten the haircut, with one suggestion that they receive 30 percent of the discounted bonds in cash.
Greece said earlier on Thursday it had begun negotiations with banks to thrash out the swap of existing bonds for longer maturing, discounted paper.

Charles Dallara, head of the Institute of International Finance (IIF), which represents the banks, said before meeting Papademos in Athens on Wednesday that there was limited flexibility on the plan's terms to ensure it remained voluntary.

Adding urgency to the PSI negotiations is a tentative target for fresh parliamentary elections on February 19.

Only 20 billion euros of the 80 billion estimated by Venizelos will flow into state coffers and what it will be used for is unclear, reflecting the embryonic state of the PSI talks.

Five billion euros will go toward clearing debts to suppliers who have kept the country running, leaving the remaining 15 billion euros to pay for bond redemptions.

That war chest could be swallowed whole by a 14.5 billion euro bond which matures on March 20, according to Reuters data.

Creditors on the three-year issue are unlikely to accept any significant haircut or extension of its maturity this close to redemption, analysts said, particularly since the hit to net present value would be all the greater.

Neither Greece's finance ministry nor the country's debt agency would comment on what debt it would target with the 'spare' 15 billion euros.

In all, Greece has still to repay 8.7 billion euros up to the end of this year and 22.4 billion euros from January to end-March, Reuters data shows.

Athens estimates the PSI deal will save it 4.5 billion euros a year in interest repayments, but analysts say even that will not prevent a further default down the line, since Greek debt would still be at an "unsustainable" 120 percent of GDP by 2020.

"We would not be surprised to see further debt restructurings down the line," says Capital Economics' May.

"Greece could continue to play ball if it feels that the costs of defaulting are greater than the benefits, but in our view, at some point, Greece will feel it needs to restructure its debt again because it's simply too costly."

____________________



My Thots...
The greatest uncertainty in Greece is that of political risks.
Lucas Papademos will deliver but can he stay after Feb?
Will Antonis Samara honour the agreements that Greece under Papademos made with the Troika, should he be elected?