Are We On The Verge Of 3rd Global Financial Crisis?

Well, that’s the vibe we have got after IMF’s annual meetings. We have got a hint of trouble at the recently concluded IMF annual meetings in Lima, the Peru Capital. You can draw comparisons to the weather in this city and the current global financial state – apparently both were gloomy.

IMF made a statement this week that the global financial growth would be the slowest this year’s post the Great Recession. In a reported published by the IMF, they cautioned that global economy is on the verge of a series of hard challenges. To be precise, we are looking at a reduction of 3% growth all thanks to the missteps in policy making.

What else did the report say? The report mentioned the borrowers in corporate sector in emerging markets. They could default as a result of US raising the interest rates. What are the challenges before global economy? Well, a new financial crisis and new credit crunch are the biggest challenges troubling the global economy.

Chinese economy

We are talking about a crisis trilogy here, says chief economist of the Bank of England. He says that the recent events we saw in the Chinese economy are just the beginning of a bigger crisis. Speaking of Chinese economy, ‘China is Not Game for a Federal Rate Hike” – click here to read more.

As for China’s growth, it was nothing but an unstoppable miracle for the past 30 years. But like every other good thing, it has finally come to an end this year. The latest crisis in China is the 3rd in line after 2008 and 2011.

Without any doubt, China can no longer dream about growth rates in double digits. But what does that mean for growth? At the end of this commodity boom, who is going to incur maximum losses?

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History repeats itself

Can you believe that it’s been almost 50 years since a South America meeting for the IMF? So, when did the last meeting happen? It happened way back in 1967 in Brazil; to be precise Rio De Janeiro. A French lawyer named Pierre-Paul Schweitzer was the one in charge of that meeting. They created an elite club of currencies named SDR.

Speaking of the recent meeting, yet another French lawyer named Christine Lagarde was at the helm of the affairs. Once again, it was a critical point for the IMF. At this juncture, quota reform was the need of the hour. Moreover, IMF’s suggestions for Greece were not given prominence.

The Asian Crisis

That brings us to the case of the Asian crisis back in the 1990s. Dollar was so strong back then that, the rich western countries became even richer at the cost of these emerging Asian countries. In this process, the currency value of these emerging markets suffered badly. So, we can’t blame the pessimists for drawing comparisons between the current crisis and the Asian crisis. How to reduce the impact? Well, as per optimists, flexible exchange rates played a big role in reducing the impact of the crisis. Moreover, the foreign reserves played their role in averting a bigger crisis that was looming.

It would be interesting to analyze the past crisis as it had very little impact on the advanced economies. However, that is not the case anymore as the emerging markets are controlling the global growth now. But one thing is definite; a lower growth is imminent.

Can You Name The Top 10 Most Valued ‘Nation Brands’?

According to a report published by Brand Finance, US tops the list of ‘nation brand’. India is in the 7th position.

Well, Brand Finance can tell you which countries have made into the ‘nation brands’ list. Can a nation be a brand? Of course it can. The international image of the country can play a big role in bringing FDI to the country. We believe that only celebrities have brand value. That’s wrong as we can predict the value of countries as well and Brand Finance has just done it. As stated already, US is the No.1 country on the list. India, regarded as a fast growing global economy, is at the 7th place on the list. What about the rest of countries on the list? Let’s find out.

India

Let’s see the case of India first. In the previous list, India was in the 8th position and the country has improved its brand value this year. As far as the brand value is concerned, it stands at USD 2.1bn. It recorded a 32% increase compared to the previous year.

Top 3

We have already seen that United States topped the list. It retained its position this year as well. As for US’s brand value, it stands at USD 19.7bn. Which country is at the 2nd position? China is in the 2nd position while Germany took the third position. These 3 countries continue to dominate the list this year as well.

93-7 positions

Now let’s see the case of the UK. It is at the 4th place. On the other hand, the “UK Economic Growth Slowdown is Feared” according to this article. Who is in the 5th position? Japan is in the 5th position. France occupies the sixth spot. As for the seventh place we already know that India is sitting there comfortably. France was in 7th place last year. Both India and France improved their performances this year. Speaking of top 5, one can see that all 5 managed to hold on to their previous rankings – there are no surprises there.


Why India surprised everyone?

Well, India witnessed a huge growth this year as far as ‘nation brand’ value is concerned. As we have already stated, India witnessed a 32 % jump. As for growth, this is the highest when it comes to the top 20 list. That says a lot about the pace at which the country grows, how it can continue to surprise us in the coming years as well.

China

Let’s see the case of China. Did China’s brand value increase? No, it didn’t. In fact, China faced 1% decline in its brand value. Despite that the country managed to stay in 2nd place with USD 6.3bn brand value.

How did they calculate the brand value?

How did Brand Finance come up with the conclusion? Well, according to the company, they closely followed the method adopted in finding companies with the highest brand value. In case of companies, they relied upon royalty relief mechanism. They followed the same technique here as well. First and foremost, it follows a complex process. What they did was they considered 5 year sales forecasts of all brands in all these countries they effectively used GDP as a proxy for total revenues.

Greece’s Banks Need More Fresh Capital

Greece’s banks are struggling to deal with the financial mess they are in, says ECB. ECB adds that these banks are in need of €14bn as fresh capital.

ECB recently unearthed this information after their health check conducted on Greek banks. According to this report, the top 4 lenders are in dire need of €14bn as fresh capital in order to withstand the crisis.

As we all know, the Greek’s economy is undergoing the worst crisis and by 2017 one can expect the Greek’s economy to shrink by 6%. It is officially acknowledged that the banks are in need of €14bn as capital.

The 4 banks

We are talking about 4 banks here – Eurobank, Alpha Bank, National Bank of Greece and Piraeus Bank and they need fresh capitals €2.1bn, €2.7bn, €4.6bn and €4.9bn respectively.

As for Piraeus Bank, the highlighted the significance of a strict treatment when it comes to their loan portfolio concerning business loans (both small and medium). They were specifically looking for a 12-15%. They are the biggest lender in the sector they are functioning.

As for Alpha Bank, they were stressing their capital requirements. According to them the stricter asset quality review had played its role in increasing the requirements for provision. By the way, did the financial crisis in Greece affect the careers in finance? Well, click here to learn more on “Finance Hold Steady despite Global Turmoil”.

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An investment banker’s take

According to an investment banker, who was chosen to advise the banks in Greece, €14.4bn plan is a tough one when it comes to these banks, especially in the case of the NGB and Piraeus. He added that it is a big amount for these banks to rise within a short time frame. These banks are supposed to raise this by the end of this year. Therefore, these banks need extra funding to ensure trouble-free bailout.

If we take a closer look at the scenario in the past five years, these banks have lost 95% of their share value. If we combine the market capitalization of all these banks, we will have just €5bn.

Speaking of NGB, they already have a plan B. They are trying to deal with the situation by selling their Subsidiary in Turkey Finansbank. As of now, Finansbank is getting offers worth €3bn.

Where does the government stand?

What did Yiannis Dragasakis (Deputy Prime Minister) say? He said the government is ready to accept the loan restructuring. However, he added that the government was against selling o loan portfolios that are nonperforming.

He made it very clear that the government won’t be accepting any proposal that suggests selling and buying loans. He said this to the Parliament during his speech.

As of now, the banks will get time till November 6 to come up with a plan. The banks have already taking necessary steps to deal with the situation. As per the bailout deal, €25bn is already allotted to the banks.

When asked about this, Eurobank said that they are planning to deal with the capital problem by liability restructuring. They added that they are in favor of attracting more private capital.

However, investors are looking at it with caution. They fear that the government will use this to control the banks.

According to a US investor, investors won’t be comfortable providing new equity capital to these banks since they are being nationalized. He also said that these capital controls came into existence because of the government’s actions. This move also led to the need for equity.

Alibaba Sales Shrug off Fears of a Slowdown

Sales on Alibaba have defied expectations and that is bringing new hope for stability and growth in the Chinese economy.

Sales of Alibaba Group Holding have risen to heights that have crossed the expectations of the market experts. This has definitely defied the signs of slowdown of the native Chinese economy. The sales of the company have risen by a third which is a large jump as its share in the mobile shopping arena has increased. The shares of the company have risen in value sharply. The sales have moved up to 32 percent, leading to a total earning amount of 2.2 billion yuan. This has been the earning for the three months to September as the end month. This has defied the estimates of the market experts. As a result of the surge in sales figures the shares have risen by twelve percent in the pre trading scenario. The company had launched its public offering last year, after which its stocks are at the best high this month.

Performance of the company

Part of the success story of the company can be attributed to the partnerships that have been forged with retailers like Suning Commerce Group which is a chain of electronic stores. It also offers cloud based services to the different merchants. This has helped to increase transactions even when the economy has been growing slowly at a rate that is the lowest in the last 25 years. Similar signs of a sluggish economy are surfacing like in the UK (check out UK Economic Growth Slowdown is Feared from Second Quarter Performance).

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Promotional activities

Another reason that can be attributed to the success of the company is increased events for promotions that the company has driven consistently. The Tmail.com is a forum for promotions on the site as well as Taobao marketplace that has driven sales on shopping events in the country.

Effects seen

The result of the right strategies and promotional deals was seen when its net income reached the 22.7 billion yuan level which was a 32 percent jump. There was also a gain in the market value of Alibaba Health Information Technology Ltd which is a separate company in which the parent company has a measurable stake. The combined effects have been startling and surpassed the expectations of the experts.

Economic state of the country

The economic growth of the company has dropped to its lowest level, which was last seen in the late part of the seventies. However, the chairman of the company, Jack Ma is confident of the economy being able to support the growth of the company and he has plans to take on more acquisitions. The company has been involved in deals worth fifteen billion this year, which has tripled from the figure achieved in 2014.

The company’s growth might show the nascent demand for mobile shopping that is surging up and which has been undermined in the latest state of affairs. With the online world opening up more and more of the country, Alibaba is aggressively looking at investing in several services that involve online to offline transactions. This might be one of the signs that the slowdown of the Chinese economy is not as bad as it looked and the winter might just bring about a ray of hope for the New Year for the global economy as well.

 

The UK Economic Growth Slowdown is Feared

Britain might be feeling the effects of the global slowdown headed by the Chinese economy as its construction and manufacturing sectors have contracted in the second quarter.

The signs of economic slowdown of growth are apparent in the UK economy. The construction sector has seen a fall by 2.2% in the third quarter, while the manufacturing sector has shrank by about 0.3% last quarter. However, business and service growth sectors have shown signs of increment by about 0.7%, which is less than the fall in the construction and manufacturing sectors combined.

Britain is falling prey to global slowdown?

Many economic experts who are seeing the slowdown of the construction sector and manufacturing sector in the country, a trend not seen since 2012, are worried that this might indicate the effects of the global slowdown affecting Britain’s economy. The slowdown that has been seen in the second quarter of 2015 has been from 0.7 percent to 0.5 percent, which is a sharper figure than what economists had estimated. The shrinking of demand in the construction sector over two percent and the contraction of the manufacturing sector by 0.3 percent led to the production growth falling from 0.3 percent to 0.7 percent.2

Effects of the slowdown

The report that came in might signal that the slowdown of the emerging markets has impacted the expansion and growth plans of the British economy. Experts are stating that there are clear risks in the goal economy, which are making their impact on the UK economy. The global strategist Kit Juckes of Societe Generale stated that the peak rate of growth has passed and what one can look forward to is a steady growth rate which would be sluggish. The impact was seen in the share markets as well. The pound’s value fell the day the economic data was published and it then, since trades at the rate $1.5329 from Monday. Foe the US the GDP growth reports for the third quarter is awaited as well. That will come after the policy decision of the Federal Reserve is announced. Economics however, fear a slowdown of the annualized rate. UK has expanded by two percent is down from the previous quarter figures of 2.6 percent.

What remains to be seen?

Most experts are now looking towards BOE and the kind of policies it might announce. The economy could slow down more or pick up the momentum again, depending on the prediction and the strategies that the head bank takes. Economists point out that the UK economy has been dependent on the services sector entirely in the last quarter, which can lead to a slowdown this quarter.

Some experts are giving a more upbeat review and forecast like ING whose officials feel that the domestic growth rate is robust and will continue to show improvement in the third quarter. Even China has been seeing a spurt of sales and profits among companies like Alibaba and Apple, whose full details can be found in the article Alibaba Sales Shrug off Fears of a Slowdown of the Chinese Economy”.

 

China is Not Game for a Federal Rate Hike

China has cut down its interest rates. But, it’s hoped that the Federal Reserve does not nullify its rate cut with an increase in the U.S. Fed rates.

Eye on the Fed Meeting

There is no doubt that the recent cut in the interest rates by China is due to the struggle that its economy is facing currently. The experts are of the opinion that the rate cut made By China is testimony to the fact that the Chinese government is also aware of the weakening of its economy in the world market. Now, China will be keeping a close eye on what is going to happen in the United States.

In September, the Federal Reserve of the United States had voted to retain the earlier interest rates. This was a step taken by the Fed as a reaction to the financial issues that China was going through. Also, there was very low inflation in the United States. The Federal Reserve is all set to meet next week and China is hoping that the Fed does not increase its interest rates.

Chinese Finance Minister’s Hope

Lou Jiwei, the Finance Minister of China, had said during the International Monetary Fund meeting in Lima this month that the Federal Reserve interest rates must not be increased by the U.S. He also called upon the developed countries like the United States to give a boost to the trade between them and the developing countries like China and India.1

The Finance Minister is worried about the basic growth in the United States could result in a hike in the federal interest rates. This is not a good sign for China as if the hike comes, then it is coming at a time when the monetary conditions of China are not looking good and it is not able to stand up against the much stronger U.S. currency. If the growth of the U.S. economy loses its steam midway, then it could lead to a meltdown of the global economy.

What U.S. Economists Feel?

There is no doubt that the U.S dollar will in all likelihood appreciate if the Federal Reserve interest rates are hiked at the end of this month, according to many economic analysts. If there is a close association of the Chinese Yuan to the United States dollar, then an increase in the dollar price means that Chinese Yuan also increases. This will not be the reality as China’s economy is going through a lull at the moment and the Chinese Yuan has every possibility of weakening against the dollar.

China’s Foreign Exchange Reserves

The foreign exchange reserves of China touched a new peak of about $4 trillion in the month of August in 2014. Since then, it has been going through a lull period. The foreign exchange reserves of China saw a huge decline of $94 billion in the month of August 2015, which is a huge figure. One of the ways forward for China is to use some of the reserves to meet the expectations of the currency. As pointed out in an earlier article titled Currency Wars Solution to the Current Global Growth Dilemma is Debatable, China will be looking to not sell most of its reserves and will be holding on to around $3 trillion. The Chinese government is looking for stability in its economic reforms.

The Reasons Behind GE Finance Being Unwounded

It has been in the news for a while now that GE Capital has been unwinding its finance arm. Many might wonder what could be the reasons behind it and whether it signifies fading profits of the venture. That is partly true and there have been changes in regulations that have made it less profitable for the venture to continue, leading to the decision taken by GE Capital.

How GE Finance started

Indeed, this venture came about when Michael Neal, the then boss of GE Capital, had walked into a room where auto loans were being bid upon by Goldman Sachs bankers in the late nineties in Bangkok. The result was a car loan division started by the financial arm of an American venture that had initially focused on providing finance to the consumers of the electronics goods of the company. The company flourished mainly due to cheap capital being available from the parent company and due to the regulations that were light from the federal point of view. As a result, the company had even competed to offer investments and loans against larger companies in the lines of credit for vehicle purchases even.

How the scene changed for GE Finance

The finance arm has assets as diverse as a drill ship of Brazilian origin as well as a Japanese bank. As a result the company had set up a global empire, which was a profitable venture under the US regulations.FILE - In this Dec. 2, 2008 file photo, a General Electric (GE) sign is displayed at Western Appliance store in Mountain View, Calif. GE Capital said Friday, Dec. 24, 2010 it will sell a Mexican consumer mortgage business that includes a $2 billion loan portfolio to Grupo Financiero Santander Mexico. The lending unit of Fairfield, Conn.-based General Electric Co. will receive about $170 million, according to a company official who wasn't authorized to talk about the deal. (AP Photo/Paul Sakuma, File)

Today the scene has changed and the following factors have emerged which have brought about its downfall:

  • GE was being accused of having stagnant stock and the risks that were included did not make the investors happy.
  • When the idea to unwind the financial arm as raised by the CEO Jeffrey Inmelt, the board decided to go for it.

 Process of unwinding

The process of unwinding the company has been completed and it has been sold to the Wells Fargo company. The terms of the sale were not disclosed however. The company being dismantled might have come about due to the toughened guidelines that the federal regulators have adopted towards banks after the crisis that came about around 2008. The loans that were offered by the company were funded by debt and money also came in through IOUs of the short term nature. This market crashed when the financial crisis came about. Since then the regulators have been strict on how borrowed money can be circulated as loans in the market.

The financial scenario in the country has changed, which the Financial Leaders Need to Notice and lending is not so easy and attractive any more. As a result, GE Capital stated that they were left with lower earnings as well on loans that were given to industrial ventures. GE Finance was one of the largest banks of the country that has been unwound in a systematic manner. Its leases, assets and loans total about 360 billion in US dollars. Its assets in real estate are being handed over to Blackstone Group while financial assets are being offloaded to a Canadian pension fund and Wells Fargo.

What is expected from a Leader in Modern Finance?

For those who are in the world of finance, they might find that the old rules that they lived and worked by do not apply anymore. It is being seen that, those who are clinging onto technologies that are old and strategies that are traditional are unable to stop more efficient competitors from moving ahead.

CFOs of companies

For the chief financial officers there is much change to note. The daily responsibilities of a corporate office that consisted of reports, taxes and compliance are being looked at from a more strategic point of view. If you interview the CEOs of the company, whether the CFOs have evolved in their financial, strategic thinking with the times, they might answer in the negative. This is as per a study finding that was conducted by KPMG and Forbes Insights in 2014.

Private sector in a state of flux

This kind of a mindset might reduce the financial competence of the firms and prevent them from taking advantage of the opportunities that open up. The global economy is in a state of change and hence, the financial leaders need to do more than simply open up to the increasing responsibilities and change in strategic thinking. If the indices are checked, from the year 2010 to 2015, the US has lost out about forty companies including GE Finance which were listed on the index. In case of China the count is almost double, hovering around a figure of 98 where the top 12 companies are owned by the state. China is the largest economy; this trend should raise concerns among finance leaders.

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Most of the Western world is viewing China’s success in a suspicious manner due to the collapse that it has suffered in recent times. Indeed, it is difficult to analyze the economic scene of China as it does not have an economic development like the Western countries. Today, with the collapse of the China’s forex many experts are criticizing several aspects of the country and what could have gone wrong. While many are stating that structural reforms were overlooked and demand was driven up more than investment flow from 2013, it might not be completely true. However, it remains to be seen what exactly brought about the collapse that sent the global economy on a slowdown mode as well.

An upcoming financial forum

These are signs of changes and issues that are developing on the global front which have repercussions on the countries as well. Oracle is holding a comprehensive session on 28th and 29th October this year at San Francisco, which would be the perfect forum to discuss these issues and strategies for the way forward. There would be foremost finance and business experts from all over the world to participate and discuss pertinent issues at this conference. In this global state of change, it is imperative that financial leaders understand where the opportunities lie and how to make the most of it.

Financing a Vineyard Might Become a Difficult Dream to Achieve

Today, more and more banks are seeing vineyard buyers emerge, ready to pursue the dream of becoming wine makers in places like Silicon Valley or San Francisco. The end dream of these entrepreneurs is to have their own label of wine which they will use to lure friends and customers and wine and dine with them.

Demand for vineyard loans

As the demand for loans from vineyard buyers is increasing more and more, many banks are now formalizing loan programs for these buyers and investors. The loans are being defined for a period of ten to fifteen years and come with fixed rates, which makes them perfect for this kind of investments. Many California based banks are offering loan products in adjustable rates where the rate can be reset within a period of ten years.

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Existing lending trends

Most vineyard buyers usually visit agricultural banks or community based banks to borrow the funds than going to the big lenders in the business. That is mainly due to the loan terms that are more difficult to bear as compared to the standard home loan products in the market. The mortgages that vineyards attract come with higher rates of interest and have shorter completion terms. What’s more, if you apply for a vineyard mortgage, you might have to face an underwriter’s scrutiny, even for a property that is about one acre in order to evaluate the risks and define the rate and terms for the loan.

The other obstacles that buyers face in case of vineyard purchases are that the loans include larger down payments. That is mostly about thirty percent of the total amount which is much higher than the standard big loans in the home segment where the down payment necessary are ten or fifteen percent.

When one wonders how the interest rate is set for a loan taken for a vineyard, the banks will state that the rates are decided as per the business aspects of the place. That places a higher risk on the property than simply a face value of the place. For that reason most mortgages are priced at least one fourth or one eighth higher than a home loan. The minimum credit scores that the banks require for a vineyard purchase loan to be approved ranges from 680 to 700.

The homes that are purchased with a vineyard also need specialized assessment and appraisal that adds to the cost. While purchase a home will not include a separate appraisal, but in case of a vineyard purchase, an underwriter will be assigned to rate the risks associated with the property and from the point of view of the business flourishing. In these cases the probability of success of the wine making business also needs to be considered in light of the present or past economic scenario as mentioned in article on what is expected from a leader in modern finance as well as the physical weather conditions and the likelihood of the vineyard being able to convert to a successful wine making business within a period of four to five years.

Policy Makers are Confused About the Way Forward

With the China market slowing down in August, the international world of finance is feeling its impact even now. The policy makers are now worried about signs of the global economic growth slowing down. The need of the hour is to find growth engines that can help to take the global economy forward. The topic was highlighted in the annual meeting of the International Monetary Fund. The meeting saw a conglomeration of top finance officials across the world confront a reality of a slowing down global economy and how to arrest the symptoms before it becomes apparent.

Evidences of a spluttering global economy

There are several points that showcase evidence of a global economy whose growth rate is slowing down:

  • Emerging countries like Brazil and China are seen as the main propellers of global economic growth. However, these countries have been contracting in their demand capacity as well as showing signs of slowing down. The capacity to take on more is seen without supporting infrastructure or framework for economic growth. As a result, these economics are showing weak growth rates and there are less signs being seen of the economies moving up their demands within a short span of time.
  • Sluggish growth indications are bringing in more complications. For instance, emerging countries which have reduced their poverty levels are unable to maintain the social gains as a result, in developed countries the policies that will help to push the economies forward seem to be missing.

These are some of the signs that are troubling the policy makers, which were discussed at the annual meeting. The governor of the Bank of England pointed out that the global economy is suffering from vicious circles that are hard to come out unless the right policies are taken up to propel the different countries towards growth and demand.

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Impacts and consequences

The impact of uncertain policies in global finance is falling on the investment sector. As investors are not assured by strong policies at the helm of their country or abroad, there is hesitancy to make further and significant investments in new or expanded areas. As pointed out in the article about currency wars, Beijing is taking steps to tweak its exchange rate which is pegged against the dollar. This was first done in August when there was a series of repercussions seen across the different economies. However, the underlying reason and the main factors which are bringing on the sluggishness of the global economic growth need to be looked at.

There was considerable unease at the IMF meeting as the policy makers are still uncertain about the steps to take. The tweaking of the currency rates is still being seen as the only way to encourage growth through global demand and supply, but if the slowdown of demand becomes a global phenomenon, this theory might still fail to push the sputtering economy along.