FIVE BANKING SECTOR PREDICTIONS FOR 2009

Beginning of the year is a time when everybody reviews the past year, draws some conclusions and makes the prediction for the new year. The article below was taken from the blog of the Financial Services Club the analysts of which have provided their own prediction for 2009.

For most, 2009 is fairly obviously a year of rationalisation and implementation.

1) More major European and American banks disappear

We’ve seen plenty of this in 2008 already with JPMorgan gaining Bear Stearns and Washington Mutual, Wells Fargo soaking up Wachovia, and Lloyds TSB taking over HBOS. Expect more.

Already the major banks are closing parts of their businesses in order to try to save costs. Citi is selling off large parts of the group and withdrawing from many overseas markets, and Royal Bank of Scotland is doing the same as they get rid of their insurance divisions.

Expect a lot more of that.

Meanwhile, even with all of that frenetic activity of rationalisation of businesses, expect a few more major bank failures in the US and Europe.

Most likely contenders? Some banks share prices are so low today that the Governments of those banks in those nations will either nationalise them or force them to merge with a stronger player, as the UK Government did with Lloyds TSB and HBOS.

2) There will be some spectacular failures in the BRIC economies. The BRIC economies are interconnected with this debacle, and are also extremely vulnerable to it.

China has seen its growth thanks to European and American consumption of their goods. Those consumers have now disappeared, and China will see some spectacular industry failures this year, along with the banks that back those industry players.

Equally, Brazil and Russia’s growth was fuelled by the need for raw materials for those Chinese manufacturers. As those manufacturers fail, so will some of these suppliers.

Therefore, the BRIC economies won’t come riding to the rescue of the West, but expect to see those markets suffer some of the turbulence Europe and America suffered in 2008.

3) A Global Financial Regulatory Body is formed.

The G20 have started this process already and meet again in April in London.

By that time Barack Obama will be in attendance, and he will want to see urgent action to ensure that this situation never happens again, as do Gordon Brown, Angela Merkel, Nikolas Sarkozy, Hu Jintao and the other nation’s leaders.

Therefore, they will all be as one in agreeing that the Financial Stability Forum needs to go much further, and become the Financial Regulatory Forum, comprised of the leaders of the Fed, FSA, Bafin, AMF and other nation’s regulators.

This global regulatory body will review and refresh Basel II, as well as many other requirements for solvency and reporting.

It may even mean that some key underpinnings of regulatory change already under way such as Europe’s Capital Requirements Directive (CRD) and Markets in Financial Instruments Directive (MiFID) are changed, refreshed and reformed by new rulings focused upon Global Regulatory harmony.

All that starts up again, just as you thought you had finished your regulatory change programmes.

4) The US will drop IFRS Accounting Rules. Mark-to-market accounting will be reworked, and the IFRS will lose the impetus it had in the USA. All of this just after we had gotten to the stage of understanding what the hell these things meant.

The American movement away from GAAP to IFRS will falter as a result of mark-to-market rules, which are even more stringent in IFRS structures. This will see US firms being allowed to either re-interpret IFRS rulings or stick to GAAP.

Either way, it will be significant climb-down from the Bush administrations’ championing of the IFRS accounting approach, which was meant to become the standard for US firms. Barack Obama’s administration will not care a jot for that history though, and will want to make the accounting requirements for banks as simple and supportive as possible.

Therefore, the US Government will drop any promotion of IFRS accounting in the near-term, and will reinterpret GAAP to allow a ‘breathing space’.

5) Solvent banks gain major market share. Related to point (1) is that the biggest difference between 2009 and 2008 will be signs of the real winners starting to shine through. Some are already showing signs such as JPMorgan, Wells Fargo, Santander, HSBC and Standard Chartered.

Expect to see a few more.

These banks are winning on two fronts:

(a) they can acquire and cherry-pick the best of the weak competition, and buy them for a song as Wells Fargo did in grabbing Wachovia off Citi; and

(b) they can acquire and cherry-pick the best of the prime customer markets, as demonstrated by HSBC’s recent campaign to say: “we’ve got money to lend”.

By the end of this year therefore, expect to see a new World Order in the banking markets.

By way of example, Stifel Nicolaus announced their American bank stock tips for 2009 last Friday , which included BancorpSouth, City Holding, Danvers Bancorp, First Horizon, People’s United Financial and TCF Financial. In their report on the sector, the firm states:

“Though not unscathed by the credit cycle, these institutions maintain adequate capital levels, in our view, and, in many cases, will capitalize on weakened competitors … The list represents our best ideas in a sector that we believe will remain troubled from an earnings perspective for the next several quarters.”

Not much confidence in the industry there then.

However, other observers, such as Grant Thornton, say: “Banks, as a sector, may be thoroughly depressed, but we know by the Government’s own actions that they will not be allowed to fail. That makes it almost a one-way bet.”

With this one-way bet, focus upon the winners and the ones with capital.

These are my five market sector predictions for 2009:

1) More major European and American banks disappear

2) There will be some spectacular failures in the BRIC economies

3) A Global Financial Regulatory Body is formed

4) The US will drop IFRS

5) Solvent banks gain major market share.

My only other prediction would be that I expect the major market indices to rise by over 20% by end of year. After all, most of them were halved last year. It will only get better.

Source: Financial Services Club blog

NIGERIA TO BENEFIT FROM OBAMA’s “USE IT OR LEAVE IT” POLICY

The expectant echoes of the Barack Obama’s soon to be inaugurated presidency in the United States of America might have recorded its first true translation of the high hopes of Nigerians over the Obama presidency to a commitment of assistance soon after the inauguration of the first black man to emerge president of the United States of America.

Yet, this support, in its present form, is not a programmed or any of the contemplated official aids or support for Nigeria by the United States of America’s president elect. Rather, Fortune and Class Weekly has been informed that a USA based non for profit, info-tech focused organization, Saigant Technologies, was alert enough to locate an immediate opportunity that can be utilized for the benefit of Nigerians in the first set of economic stimulus package the president elect as assured Americans he is going to introduce to revitalize the recession bound American economy.

Mr. Obama, had on Saturday, December 6, 2008, in a radio address on the economy reviewed how 533,000 jobs were lost in the US and how jobs lost alone in November became the single worst month of job loss in over three decades.

“Yesterday, (December 5, 2008) we received another painful reminder of the serious economic challenge our country is facing when we learned that 533,000 jobs were lost in November alone, the single worst month of job loss in over three decades. That puts the total number of jobs lost in this recession at nearly 2 million.” Obama said in the broadcast

Highlighting the areas of worries for the average American, Obama said:

“But this isn’t about numbers. It’s about each of the families those numbers represent. It’s about the rising unease and frustration that so many of you are feeling during this holiday season. Will you be able to put your kids through college? Will you be able to afford health care? Will you be able to retire with dignity and security? Will your job or your husband’s job or your daughter’s or son’s job be the next one cut?”

“These are the questions that keep so many Americans awake at night. But it is not the first time these questions have been asked. We have faced difficult times before, times when our economic destiny seemed to be slipping out of our hands. And at each moment, we have risen to meet the challenge, as one people united by a sense of common purpose. And I know that Americans can rise to the moment once again.”

The president elect thereafter informed the American public of his economic recovery plan when he assured that:

“But we need action – and action now. That is why I have asked my economic team to develop an economic recovery plan for both Wall Street and Main Street that will help save or create at least two and a half million jobs, while rebuilding our infrastructure, improving our schools, reducing our dependence on oil, and saving billions of dollars.

“We won’t do it the old Washington way. We won’t just throw money at the problem. We’ll measure progress by the reforms we make and the results we achieve — by the jobs we create, by the energy we save, by whether America is more competitive in the world.

“Today, I am announcing a few key parts of my plan. First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won’t just save you, the American taxpayer, billions of dollars each year. It will put people back to work.

The economic stimulus plan which is now known in some circle as the “Use it or Lose it” policy has as part of the plans the creation of millions of jobs by making the single largest new investment in America’s national infrastructure since the creation of the federal highway system in the 1950s:

“We’ll invest your precious tax dollars in new and smarter ways, and we’ll set a simple rule – use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.”

It is, however, in the president elect economic recovery plan to launch sweeping effort to modernize and upgrade school buildings and to repair broken schools by making them energy-efficient, and putting new computers in the classrooms that Nigerians stand to benefit in the immediate.

An official of Saigant Technologies, an organization that was established by a US based Nigerian, said a review of the US president elect radio broadcast of December 6, 2008, provided an immediate answer to the limitation to owning lap tops and desk top computers by Nigerian students.

“You should recall that the Mr. Obama talked about renewing American schools and highways, and about renewing information superhighway. For the president elect, it is unacceptable that the United States ranks 15th in the world in broadband adoption. He argued that in the country that invented the internet, every child should have the chance to get online, and promised that they’ll get that chance when he becomes President – because that’s how he wished to strengthen America’s competitiveness in the world. Now for us in Nigeria, the specific highlight of information technology overhaul as part of the economic stimulus plan of the president elect presented a begging opportunity to imagine what the incoming American government would do with those computers, lap tops and those IT accessories the government would be replacing in order to galvanize the American domestic economy.”

“We realized that the US government would have problems disposing off these equipment which, if compared to our standard of usage here in Nigeria, would look relatively new and in the light of the limited access to computer sets and lap tops in Nigeria, the simple logic was to approach the likely channel through which we could connect with the president elect to present our proposal of moving the American used laptops and computers to those that would need them in Nigeria.” The Saigant source said.

“We made a direct offer to the president elect through Change.Gov website of the president elect and the response is quite assuring. There is a commitment to accessing about 200,000 computer sets and laptops free of charge over the next two years that Mr. Obama would be implementing the first leg of the economic stimulus programme. Our responsibility will only be limited to footing the transportation and clearing cost of the laptops and computer sets here in Nigeria.” The source further affirmed.

“This will be the first major impact of the Obama presidency on the average Nigerian; our intention is to use the opportunity to present the 200,000 plus laptops and computer sets to Nigerians at a no price rate, to boost the nation’s capacity for information technology.”