A little cricketing truism goes "Everyone scores runs in Antigua. But only Lara breaks records."

BNP Paribas feature in today's news in what at first sight is a fairly banal piece from Bloomberg. The bank, like many peers, is repaying state aid because that aid has "fully achieved its objectives" and, in any case, BNP are doing so well in the "changing environment" that the capital is not needed.

Back in August 2007 the "changing environment" led Baudouin Prot, CEO, to first declare that "As far as the U.S. subprime crisis is concerned, BNP Paribas's exposure is absolutely negligible" and 8 days later have the bank's spokesperson announce that BNP Paribas was freezing three of its negligibly exposed funds due to the "complete evaporation of liquidity in certain market segments of the U.S. securitization market."

Fast forward and under an agreement with the French state to increase domestic lending to the retail sector by 3% to 4% annually BNP took a total of €5.1bn from taxpayers in December 2008 and March 2009. The bank was meanwhile putting aside €1bn for investment banker bonuses which the French central bank said was fine for it did not break any G20 rules.

Enter Fortis, the wreck of a Dutch-Belgian bank the mooted 2008 sale of which to BNP was so contentious it had already brought down one Belgian administration. In March 2009 BNP offered sweetened terms worth an additional €510m to enraged shareholders and also agreed to take a €1.4bn stake in a Belgian insurance unit via Fortis Bank. The deal, worth a total of circa €10.4bn and including some very generous guarantees by the Belgian taxpayer worth €3.5bn to BNP, went through two months later.

Come August 2009 and BNP, batting on the benign, Antigua-like, wicket of artificially low interest rates and asset price recovery thanks to public underwriting and fiscal stimuli, reports a €261m net income contribution from Fortis on top of scoring €815m of negative goodwill ("badwill"?) from the purchase.

Interesting timeline and not bad work. Suspicions from the European Union that the French aid package would end up subsidising the purchase of cheap banking assets abroad (for the banks and the French state always claimed recapitalisation was not needed) have long since died. Repaying French taxpayers will now relieve BNP of its rather modest domestic lending obligation as well as free - or help free depending on the prevailing political requirements - its bonus policy from state interference. Despite that, Monsieur Prot kindly pledged commitment on both counts to toeing the government's line.

If only banks could play in this "changing environment" every week.

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From the Economist. Possibly not the antidote it might be for equities soaring on the back of massive public sector mortgages but interesting. Click the image to go there and see it in action:


A piece of the press release blurb:

"The Global Public Debt Clock was developed using data and forecasts from the Economist Intelligence Unit database. It is, of course, inspired by the 'National Debt Clock', a rolling measure of the US public debt that physically resides in midtown Manhattan. This clock was originally sponsored by a real estate developer, Seymour Durst, who wanted to make people aware of the rising public debt, which at the time was less than $3 trillion. The Global Public Debt Clock includes historical data on sovereign debt back to 1999 and forecasts through 2011. Data can be parsed to view country comparisons, including figures on public debt per capita, debt as a percent of GDP, and yearly rate of change.

The worst global economic storm since the 1930s may be beginning to clear, but another cloud already looms on the financial horizon: massive public debt. Across the rich world governments are borrowing vast amounts as the recession reduces tax revenue and spending mounts—on bail-outs, unemployment benefits and stimulus plans. New figures from economists at the IMF suggest that the public debt of the ten leading rich countries will rise from 78% of GDP in 2007 to 114% by 2014. These governments will then owe around $50,000 for every one of their citizens Not since the second world war have so many governments borrowed so much so quickly or, collectively, been so heavily in hock. And today’s debt surge, unlike the wartime one, will not be temporary. Even after the recession ends few rich countries will be running budgets tight enough to stop their debt from rising further. Worse, today’s borrowing binge is taking place just before a slow-motion budget-bust caused by the pension and health-care costs of a greying population. By 2050 a third of the rich world’s population will be over 60. The demographic bill is likely to be ten times bigger than the fiscal cost of the financial crisis."

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A small island importing nearly 90% of its energy needs ought to be acutely concerned that its auction of offshore oil exploratory licences attracted but one successful bidder (BHP Billiton). A clarion call to governmental action stations, perhaps?

Yet, unless press reports last month misquoted the Director of Barbados’ Natural Resources Division, no decision has been made about initiating a second round of bidding. There is thus no timetable to confirm (or not) a US Geological Survey that suggested Barbados may have 1.2 billion barrels of oil and 254 billion m3 of gas in its territorial waters.

The context of the auction’s failure and the actual lack of urgency in pushing on is this: current oil markets, despite current demand weakness, are beset by long-term under investment. When demand does recover tightened global supplies, in hand with the under investment, are likely to produce persistently higher energy prices than those prevailing today.

For Barbados, where public debt is over 70% of GDP and a painful BDS$730 million (10% of GDP) was spent importing energy last year, that outlook is particularly discouraging.

But there is reason for hope. Until two weeks ago São Tomé and Príncipe, another potential oil producer, faced some similar circumstances: an uncomfortable balance of payments position, one unsuccessful deep water test and little further interest since as the capacities of explorers diminished with the evaporation of global credit.

Then, as this WSJ piece reported last month, along came China's Sinopec with Addax Petroleum, its latest acquired toy. And presto! Drilling resumed!

Now, feelings about China's global hunt for resources are ambivalent. But fair exchange is no robbery and in a credit scarce world there are not many more other than Sinopec, CNPC and COOC who can readily finance deep water energy exploration.

For Barbados it is a quite remarkable constellation of events: a local economy in the grip of a global credit crisis; potentially transformational energy revenues off its shores requiring exploration partners; 32 years of friendly diplomatic relations with a cash-rich China actively scouring the planet for hydrocarbons. And China, in a particulalry funny turn of events, has a geologist as its Premier.

The conclusions the makers of economic policy in the island should draw would seem straightforward enough. Yet governmental fanfare heralding its new Beijing embassy suggests that top priorities are the buying of Chinese military uniforms and hardware, persuading Chinese money to recapitalise a regional airline and cultivating tourism ties with China.

Whatever the merits of those ideas, it would be an travesty were the list not broadened to include a concerted diplomatic-led effort to bring the Chinese integrated oil producers to the bidding table.

The potential payoff is immense, the outlay minimal.

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Sober in Helsinki

Monday, September 07, 2009 | , | 0 comments »


Some noticeable things on a recent trip to Helsinki. €7 beer. Habour-fulls of motor yachts, including a little US$200k/day Vincentian domiciled charter (includes a skipper and a chef - bargain). Handsome and clean buildings of mostly Swedish influence (though there is no concealing the occasional Soviet inspired blot). And residential property prices as high as €15k/m2. In fact, the more one walks the heart (and monied part) of the city the more the apparent lack of economic distress becomes.

One of my Finnish acquaintances (central bank) explained it thus: the rich get richer, especially in a downturn. Another (high tech start-up) said out of Helsinki the picture was quite different and don't even ask about venture capital liquidity. And another (commercial property) said sentiment was now very high again amongst his investors.

This last view stuck with me for his firm is present in Sweden, Finland, Lithuania (claim to fame: we aren't Latvia) and Estonia (claim to fame: we aren't Lithuania).

Sweden has famously financed Baltic expansion and one of its main players in that game, Swedbank, is a now popular short (some background from the NYT here). Estonian GDP shrank nearly 17% in Q2 whilst retail sales fell 16%. Lithuanian GDP fell over 20% with retail sales dropping nearly 28%. Course Swedbank needs to raise capital to "strengthen" its "compeitive position".

Yet Baltic occupancy rates for my acquaintance's firm are high and steady. Moreover, rental agreements are denominated in euros in order to protect the landlord (theoretically) from devaluation. And with his debt maturities covered through 2010 all, it seems, is rosy.

However, there are not many ways back for Estonia and Lithuania other than through lower wages and prices (in order to boost exports and assuming they continue to protect creditor banks by not devaluing).

So some deterioration of these defiant retail property actuals, surely, approaches. And, for the broader economy, it is straightforward to see the linkages from stressed trading partners back to even the sensibly run Finnish banks and property companies - but not so easy to judge impact.

In the meantime in 'old' Helsinki (relatively speaking since there appears not to be a single stone edifice over 150 years old in the place), one of the few conspicuous signs of current stress is that of giveaway hotel prices (after a very gentle haggle). But they'll get you back on the liquor.

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