China’s central bank adjusted the yuan downwards for the second consecutive day, sending markets and currencies reeling.The ringgit continued its fall against the US dollar, hitting a new low of RM4.0275 (S$1.43), largely due to the devaluation of the yuan. All currencies in the region also continued with their decline against the US dollar. On a year-to-date basis, the ringgit is the worst performer among its Asian peers, and is down 13.33 per cent. This is followed by the Indonesian rupiah, South Korean won and Thai baht at 9.88 per cent, 8.35 per cent and 6.99 per cent, respectively.
Comparatively, the yuan is now down approximately 4.61 per cent. The impact on the ringgit is worse compared to other countries because Malaysia is viewed as a net exporter of energy and prices are depressed now – hovering below the US$50 per barrel mark. Stock markets across the region fell with the Jakarta Composite Index leading the pack by falling 3.1 per cent followed by Hong Kong’s Hang Seng Index which dropped 2.38 per cent.
There was a “bloodbath” on Bursa Malaysia where about 90 per cent of the 1,000-odd stocks listed closed lower. The benchmark KLCI fell for the fifth consecutive day, shedding 26.8 points yesterday to close at 1609 points. Since last Thursday, the index has been down by 116 points. On Tuesday, the People Bank of China (PBOC) moved the guiding rate for the yuan 2 per cent downwards and yesterday it set it at 1.6 per cent lower. The guiding rate is the band within which the yuan is allowed to trade. The downward movement is viewed as a devaluation of the yuan and the biggest currency movement for the world’s second largest economy since 1994.
Although China abandoned its currency peg in 2005, the central bank manages the yuan in a tight range. The devaluation of the yuan has sparked concerns that China’s economic slowdown was more severe than anticipated and the central bank had to devalue the currency to export its way out of the situation. Independent economist Lee Heng Guie said that the devaluation that has sparked a global currency war may end up with no winners. The impact on depreciating ringgit is likely to be felt most by companies which import their raw materials, consumers and parents with children studying overseas.
U.K. Banks Said to Lobby to Avoid Billions in Fresh PPI Payouts
Bloomberg) — Britain’s largest banks are lobbying regulators to stop a court ruling from sparking a new wave of redress for improperly sold insurance, people familiar with the matter said, payments that may cost tens of billions of pounds.
The British Bankers Association, which represents lenders including Lloyds Banking Group Plc and Barclays Plc, asked the markets watchdog to publicly say the ruling, known as the Plevin case, won’t set a fresh precedent for wrongly-sold payment protection insurance, said the people, who asked not to be named because the talks with the regulator are private.
The U.K.’s biggest financial firms could face as much as 33.5 billion pounds ($52.2 billion) in provisions to compensate customers for undisclosed commission payments on products like car loans if the decision is widely applied, analysts at Autonomous Research LLP have said. The original PPI scandal has cost the banks about 26 billion pounds so far, but only to compensate customers for the policies they didn’t want or need, rather than any improper commissions attached to them.
The people familiar with the talks didn’t elaborate on the size of any potential redress. Britain’s Financial Conduct Authority may issue guidance to deal with the November Supreme Court ruling that found Paragon Personal Finance Ltd. broke consumer-protection rules by failing to inform Susan Plevin, a widowed college lecturer, that her PPI policy included large commission payments.
In the Plevin case, commissions accounted for about 72 percent of the PPI premium she paid and were “deemed to be so material as to mean that non-disclosure made the relationship unfair, even though there was no regulatory requirement for Paragon to disclose them,” according to Autonomous.
If the ruling applies to all sales of PPI, buyers may be able to go back over their policies and seek further restitution, potentially costing the banks billions of pounds more in fresh claims. Autonomous also says a “Plevin snowball” could result if the ruling’s logic on unfair commissions was applied to loan products other than PPI.
Lloyds, Barclays, HSBC Holdings Plc and Royal Bank of Scotland Group Plc have warned the Plevin case could have a financial impact, although they stressed it’s too early to calculate any potential cost. Barclays and RBS said in their half-year earnings statements that they are in “active dialogue” with the FCA and the Financial Ombudsman Service.
The FCA plans to make a statement about Plevin when it publishes the results of a review into banks’ handling of PPI claims near the end of this month, said a person with knowledge of the situation, who asked not to be named because the details aren’t public yet. The regulator said in January it would consider whether further interventions were appropriate. Some lawyers say the FCA will probably want to prevent a costly, industry-wide outcome from the Plevin case.
“They will want to maintain the status quo,” said Celyn Armstrong, counsel at law firm Linklaters LLP in London. “But they can’t stop people going to court. The FCA will probably be concerned to say it’s done the work to put in place a complaints process, and to ensure that firms follow it.” A spokesman for the BBA said in an e-mailed statement that the group was providing “whatever assistance we can to the FCA” in its review of whether to issue rules or guidance on the implications of Plevin. Any fresh wave of payouts may draw the attention of the Bank of England’s Financial Policy Committee, which is concerned about the risk to Britain’s financial system posed by fines and redress.
Total charges for wrongdoing paid by U.K. banks, at 30 billion pounds, are equivalent to about all of the capital they have raised privately since 2009, the BOE said in its July financial stability report. It said the FPC will review banks’ future projections of misconduct costs in its 2015 stress test.
Authorities with a dual mandate of stabilizing the financial system while enforcing rules have used their discretion when punishing banks before. On Tuesday, Co-Operative Bank Plc was censured for past misconduct but avoided a fine as British regulators were concerned about weakening its finances even further.
Australian Banks’ Capital Raisings Surpass Crisis After CBA
In response to stricter regulatory requirements put in place partly to buttress lenders against a possible slump in the country’s booming property market the bank and its three largest rivals have now revealed plans to raise A$16 billion this year. That exceeds the A$13 billion raised to bolster balance sheets in the aftermath of the 2008 financial crisis. The banking regulator has increased the average capital the banks need to hold against potential home-loan losses. The Australian Prudential Regulation Authority also said they would need to add 200 basis points of capital to be considered among the world’s safest. “CBA needed to boost capital to match its peers,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.
National Australia Bank Ltd. sold shares worth A$5.5 billion in the country’s biggest rights issue earlier this year, while Westpac Banking Corp. raised A$2 billion. Australia & New Zealand Banking Group Ltd. is raising A$3 billion after garnering about A$480 million earlier this year through a dividend reinvestment plan, where investors swap all or part of their dividends for new shares.
Commonwealth Bank shareholders can buy one share for every 23 they own at A$71.50 each, or a 13 percent discount to Tuesday’s closing price, it said in a statement Wednesday. The Sydney based lender also reported cash profit, which excludes one-time items, for the six months ended June 30 of A$4.5 billion, a 2 percent increase from a year earlier.
The bank’s stock, which has been halted for the rights offer, declined 4.1 this year through Tuesday, compared with the benchmark S&P/ASX 200 index’s 1.2 percent gain. ANZ shares lost 0.4 percent and Westpac dropped 0.3 percent, while National Australia sank 0.8 percent as of 1:29 p.m in Sydney on Wednesday. The ASX 200 index fell 1 percent. Commonwealth Bank said the capital raising will boost its common equity Tier 1 ratio, a measure of its ability to absorb future losses, to 10.4 percent compared with 9.1 percent as of June 30. ANZ said last week that its ratio will rise to 9.3 percent after its capital raising, while National Australia said Monday its level stood at 9.94 percent as of June. Westpac reports its capital position Aug. 17.
“The rights offering puts Commonwealth Bank’s capital levels ahead of its main competitors,” Brett Le Mesurier, a Sydney-based analyst at BBY Ltd., said by telephone. The company should be able to “sustain these levels with some dividend reinvestment plans.”On a conference call with analysts, Commonwealth Bank’s Chief Executive Officer Ian Narev refuted speculation of asset sales to bolster capital. The lender may explore a partial sale of its global asset management unit, the Australian newspaper reported Aug. 4, without saying where it got the information. “I’m aware there has been lot of speculation about what businesses we’d own and what we might not own,” Narev said. “There is no divestment there that we are going to contemplate for capital reasons. There’s no asset sale program that is going to be driven by capital requirements.”
Top Australian Stock Picker Trims Banks on Capital Raisings
Sean Fenton, of Tribeca Investment Partners, said he trimmed his positions amid signs a pickup in economic growth may be further away. Platypus Asset Management is also holding fewer bank shares than are represented in benchmarks amid concern tougher capital rules will curb earnings. “We are mildly cautious,” Sydney based Fenton, who helps oversee $1.7 billion and manages the top ranked Tribeca Alpha Plus Fund, said by phone. “We are keeping a close eye on how the economy performs going into next year to see whether we become more bearish on them or not.”
Commonwealth Bank of Australia is attempting to raise A$5 billion ($3.6 billion) through a rights offer, joining its three largest peers as they attempt to attract a total of at least A$16 billion in new capital this year to meet stricter regulatory requirements. That would top the A$13 billion raised during the global financial crisis and comes as the country’s central bank last week pushed back its projection for an upswing in economic growth by one year, to 2017.
Australia’s four biggest lenders are CBA, National Australia Bank Ltd., Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. Fenton said he owns all four stocks and has trimmed his underweight position in recent weeks, meaning he holds fewer shares than are represented in his benchmark. His fund placed first in a Mercer Investments ranking of Australian equities funds during the 2015 financial year that ended in June.
Australia’s banking regulator is forcing lenders to increase buffers against potential home-loan losses. Banks comprise 30 percent of Australia’s benchmark S&P/ASX 200 Index, compared with just 9.7 percent on the MSCI World Index. A gauge of the four biggest banks fell 1 percent in Sydney on Wednesday, having lost 7 percent last week for its biggest slide since 2011.
Commonwealth Bank and ANZ were the biggest drag on the country’s S&P/ASX 200 Index this year through yesterday. ANZ slipped 1.9 percent on Wednesday and trading in CBA was halted until the capital raising is completed.
“The macro environment justifies an underweight position” on bank shares, Don Williams, Sydney-based chief investment officer at Platypus Asset Management, whose fund has topped 91 percent of peers in the past year, said by phone. “We’re likely to go more underweight. It’s all about earnings growth and higher capital intensity means growth will be lower. There’s better things out there.” He owns CBA and NAB shares.
China’s Yuan Puts Asian Central Banks on Defensive With New Risk
Just as Asia’s central banks were bracing for an expected increase in U.S. interest rates, China has given them another headache to deal with. The decision by the People’s Bank of China to let its yuan weaken by the most in two decades is creating a bind for policy makers grappling with slowing growth and sluggish exports. If they let their currencies follow to stay competitive, they risk reviving inflation and a rush of money exiting to the U.S. dollar.
“Devaluation is a beggar-thy-neighbor policy,” said Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore. “Domestic demand is very weak in most economies in Asia. This could be a race to the bottom.” First to follow the State Bank of Vietnam, which widened the dong’s trading band on Wednesday, citing the “negative impact” on its economy of China’s devaluation. The move marked an official confirmation of the fallout across Asia’s currencies, which had their biggest two-day selloff since 1998, during the region’s financial crisis. Malaysia’s ringgit weakened beyond 4 to the dollar for the first time since 1998 on Wednesday. Indonesia’s rupiah slid the most since Dec. 15. Bank Indonesia views the rupiah’s recent declines as excessive, causing the currency to trade far below its fundamental value, Governor Agus Martowardojo said in a statement, adding the authority will remain in the market to stabilize the exchange rate.
“By actively depreciating the currency, China risks triggering further currency wars,” Gabriel Stein, Oxford Economics director of asset management services in London, wrote in a note. “Some countries are already acting.” Yet central banks from Indonesia to Singapore have already eased monetary policy this year to support growth. A currency war gives them even less room to maneuver, as excessive weakening gives funds an incentive to flee. Asia has been “hit by a perfect storm” of tighter fiscal policy, moderating credit growth, increased exposure to China and lower commodity prices, said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. “Expect growth around the region to be quite lackluster.”
The region is in the midst of a deep “trade recession” that is likely to endure, Australia & New Zealand Banking Group Ltd. said in a note Wednesday. The bank cut its growth forecasts for India, Indonesia, Malaysia, the Philippines, Thailand and Singapore. “Asia’s ability to consume will be diminished along with weaker currencies in the short term,” said Wai Ho Leong, an economist at Barclays Plc in Singapore. “We don’t know how much demand is destroyed by this currency move, how much producer confidence is lost.”
Even currency weakening may not help these economies when shipments have been faltering all year due to slower demand in key markets such as Europe.“In an environment of weak final demand, competitive devaluations are unlikely to have the effect that policy makers would expect them to have,” said Glenn Maguire, a Singapore- based economist at ANZ.
Taiwan is trying to find a middle path, quietly easing monetary conditions to spur growth and prevent capital flight as its currency plunges. The island’s central bank, which has kept benchmark borrowing costs unchanged since 2011, cut the rate on overnight certificates of deposit for a second day on Wednesday and said it will pay less on 14-day debt at a sale scheduled Friday. The Monetary Authority of Singapore said late Wednesday it “stands ready to curb excessive volatility” in its dollar, even as the currency remains within the policy band set by the central bank. MAS said its policy stance of a modest and gradual appreciation announced in April remains appropriate.happy wheels
Feb 21, 2018 0Christy Walton was born in 1955 .Walton has described...