Time is Finance

It's just a goodbye...

2008-11-27T13:06:00.000-08:00

The end of the semester at EBS is approaching and I will soon go back home to start a new part of my year, my internship in Paris.

This lecture in Financial Media and Communication was very interesting. Thank you at the teacher, very passionate one and involve in everything.

I have very appreciated to fact to do a blog, which is a kind of "homework" very pleasant and useful. Because we are all in a business school and concerned by the financial environment.

This semester was quite interesting due to the financial crisis and London a good place to study the change.

Everywhere, in the tube, shops, media, at school, Internet...people was talking about "The Financial Crisis", the recession of the UK, even the most popular London gossip had covered during months the financial crisis.

This blog was a good way to interact with the media sphere, as student we are. We have been part for 4 months to the attractive and booming blogasphere.

I have been aware to the event and I have tried in this blog to translate how the events affect us and how people react to this event.

I don’t know if I am going to continue the blog because of the lack of time, but I have understood one thing: always look under the Media.

Before to let you at this passionate blogasphere, I would like to thank all of those which have take the time to read my articles, even if my English is not perfect, and I put some interesting comments.

Thank You...And don't forget: Time is Money

Interest Rate & Co

2008-11-27T11:55:00.000-08:00

In the financial environment, The FED through the monetary policy plays a sort of funny game: FED has the power to make the interest rates higher of lower.

This fluctuation depends on "how the economy is doing...well or not", on the inflation which corresponds to the general level of prices, on the budget and many other economical factors.

Today, we are faced a current situation with interest rates very low and low more and more every weeks.

The current rate in the UK is 3% and many forecasts seen it to be at 0% in few times. This lowest point depends on two main factors: recession and inflation. The other important factor will be the time: if the recession is going to be long or not? the inflation is going to be higher or going into deflation?

What are your forecast about that?

Mine is: the interest rates are going to be cut again before Christmas because I think the relation between interest rates and the impact on the economy is too low.

The government should be concentrated on injection of funds which I think have a major impact on the economy.

But let's governments play with interest rates if they have decided to play...

AIG, too big to fail

2008-11-27T11:41:00.000-08:00

Today in Financial Media and Communication, me and my colleagues have made a presentation on AIG.

What we have to keep in mind is that:

The collapse is due to the correlation between the CDs and the Firm which had caused the main losses in the balance sheets.

Then, the firm has been downgraded by the three majors credit rating agencies which had caused a drop in its share price.

On the 16Th of September, the government intervened to saved AIG from the bankruptcy with a 85bn bail out.

After this bailout, the media sphere overreacted. Here we have some comments about the bailout:

•“’I am floored,’ said former Treasury counsel Peter Wallison in an interview. ‘No one could have possibly imagined this a few months ago.’” (bloomberg.com, 2008)

•"Its collapse would be as close to an extinction-level event as the financial markets have seen since the Great Depression » said Lewitt, president of a money management firm (nytimes.com, 2008)

•« We must not bail out the management and speculators who created this mess. They had months of warnings following the Bear Stearns debacle, and they failed to act. » Mc Cain said (bizjournals.com, 2008)

•

CNBC interview, Nouriel Roubini « Socialism on Wall Street »: http://www.cnbc.com/id/15840232?video=858667820&play=1

The most interesting is the one concerning Nouriel Roubini. The interview was during the meeting between Paulson and Bernanke. Nouriel Roubini said that it would be not the job of the government to help AIG because it is not its role. I invite you to have a quiet look at it.

After that, a second and a third bail out appear and the forecast concerning AIG is not very encouraging for the future.

What are your predictions?

They are very welcoming...

Canary Wharf, a second financial place in trouble

2008-11-27T11:03:00.000-08:00

In first position, we have La City, which is the First Financial place in London and also in the world. But since 1981, the West India Dock, currently called "Canary Wharf" is the second financial place. Well known for its modern area and the famous HSBC bulding and Citigroup Building, Canary Wharf is also the third place for shopaholics.

If I ask you "What does Canary Wharf represent?" Most of you will answer: Modern Builings, Working area, Financial place and others examples...

But before this current reputation, CW was only one of the busiest dock in the world. During the second WWII, the area was damaged and the contenarisation laws caused the closure of CW. But after this period, there is a "rebirth period". La City was saturated with old buildings and high costs for the firms. But the Financial Deregulation appeared in 1986, and the firms were asking for new area and space.

In 1981, the London Docklands Development Corporation decided to encourage commerce in this area by setting up an "Enterprise Zone". In 2004, a consortium of investors led by Morgan Stanley under the name of Songbird purchased the Canary Wharf Group.

Nowadays, Canary Wharf is the second financial place with a working population of 93 000, 30 buildings, 3 shop centers and many expansion plans.

At this moment, the economy of the UK is not doing very well, due to the current financial situation:

- Lack of confidence: FTSE 100 dropped by more 33% in one year

- GDP forecast for 2009 is very low: 0.1%

- The unemployment rose every day (look at City Group, HCBS...)

- Purchasing power is decreasing also everyday

In this context, How a financial crisis can affects a financial place like Canary Wharf?

The first step of the collapse was due to the bankruptcy of Lehman Brothers on the 15th of September: LB was contributed by 14% of the total revenu of Canary Wharf (leasing a very big bulding). LB fired 5000 employees. The group of Canary Wharf reacted very strongly because the share price dropped by 9% after this annoucement.

On the 26th of September, HSBC cut its workforce by 500 employees.

After that, Group's Plateau (famous restaurant in CW) had seen its booking decreasing by 25%, Ubon restaurant (sushi one) closed and the housing prices dropped by 10%.

The financial crisis affects the Financial Place. Songbird Estated annouced a loss of 470 million pounds, a possibility of default in leasing payment and an increase in the vacancy rates.

Since 2007, the share prices of Songbird Estates Collapse by 88%.

So even if London is well known for its superiority in term of financial place (London Stock Exchange, Largest FX center...), both La City and Canary Wharf are affected, because they are like a city in the city and directly correlated with the people which are working and suppose to earn money.

So what is going to happen if the economical centers like Canary Wharf began to collapse?

My sources are available here:

•Boyle, C (2008) Songbird Estates suffers a £470m loss as banking crisis at Canary Wharf bites, business.timesonline.co.uk

URL: http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article4828343.ece

Date viewed: 10th November 2008

•Reuters (2008), Canary Wharf firm says property values dip 10 pct, in.reuters.com

URL: http://in.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idINLP53459320080925

Date viewed: 10th November 2008

•Financial report (2007)

URL: http://www.songbirdestates.com/shareholder-information/Doc_2Annual%20Reports/20071231%20Report%20&%20Financial%20Statements.pdf

Date viewed: 10th November 2008

•Real time equity news (2008), advfn.com

URL: http://www.advfn.com/lse/ShareNews.asp?sharenews=SBDB&article=28120671&headline=stocks-news-europe-canary-wharf-owner-sinks-on-lehman-woes

Date viewed: 10th November 2008

• Economic and financial indicators (2008) The Economist 1st-7th November 2008, p121

Congratulations Obama!!!

2008-11-09T14:23:00.000-08:00

Obama is the now the president of the United States. This victory is the symbol that everybody can be a president, even a black man!!!!!

I am not going to explain why Obama has won, because everybody has its own ideas and the media does the rest.

I have just a question to you, blogger...

Do you think that Obama, can CHANGE the United States and solve the country from this financial crisis?

Debate is open....

Pay cuts or workforce cuts?

2008-10-28T11:48:00.000-07:00

500 senior employees of CLSA, the Asia focused brokerage arm of Crédit Agricole, have accepted to have a voluntary pay cut. They had chosen this reduction between 3 reductions: 15 per cent, 20 per cent or 25 per cent. Most of them have chosen the higher reduction (25%) for 2009. The forgone salary will be repaid plus a bonus in few time.

CLSA has already used this method in 2003, when its trading income suffered during the Sars Crisis.

The aim of this reduction is to maintain staffing levels in a situation of financial crisis and to reduce expenses.

Maybe is one solution before the final one which could be a cut in their workforce. If this principle is quite simple, why last week Goldman Sachs had announced a 10% cut jobs (3260 jobs)?

I think that the crisis is almost too strong to reduce the wages. Maybe in few days, CLSA will follow the same way that Merrill, Barclays, Goldman Sachs and others…or file bankrupt?

French banks saved by €10.5 bn bailout?

2008-10-21T12:54:00.000-07:00

French banks have accepted the 10.5 bn euro bailout of the government in exchange for guarantee on lending to households and firms. Officially, these 10.5bn are going to help the economy but in reality it's for saving the french banks.

The 10.5bn is divided into 6 french banks:

- Credit Agricole with 3bn

- BNP Paribas with 2.55bn

- Societe Génèrale with 1.7 bn

- Crèdit Mutuel with 1.2bn

- Caisse d'Epargne with 1.1 bn

- Banque Populaire with 950 million

One week ago, Crédit Agricole annouced in a statement that the bank is really strong and in good health. CA also said that "CA doesn't need any help".

In the same way, BNP Paribas, which appears like the most strongest bank in France, has accepted one bit of chesse...

It's a compleate paradox because french banks want to show that they are solid, but in reality when the government proposes a bailout, all of these "solid banks" accept...

Is it strange, isn't it?

My best place to live in 2009

2008-10-21T12:18:00.000-07:00

The Economist Intelligence Unit worked on an ingenious model for measuring and comparing the quality of life in different countries. The worldwide quality of life index was calculated in 2005 for 111 countries based on factors like:

- Material wellbeing (GDP...)

- Health

- Political stability and security

- Family life

- Community life

- Climate and geography

- Job securities

- Political Freedom

- Gender equality

The best place to live in 2005 was Ireland. At the 7th rank, we can find Iceland, at the 13th rank the USA and the United Kingdom at the 29th rank.

Nowadays, the situation has changed and Ireland is going to recession, Iceland is completely bankrupt and the US is the heart of financial crisis.

So what are your predictions concerning 2009?

Caisse d’Epargne affected by a trading loss of €600 million

2008-10-17T10:50:00.000-07:00

One of the third largest savings banks lost 600 million on equity derivates due to several traders when the market crashed last week. These traders have been fired because they have taken unauthorized positions.

On the investor’s relations web site, only one statement announces the lost. A brief one that begins by the actual unfavourable situation in the market that has caused a loss of 600 million. The company says that this loss has been denounced thanks to usual control procedures made by the group. Caisse d’Epargne, 9 months after Kerviel, wants to reassure these customers by putting in light its assets of more than €20bn. The loss, according to this statement, would not impact its financial solidity of affect the customers.

On the web site, it is hard to find more about this story. The statement says that the people concerned by this loss have been fired and others moved to other positions.

It is funny to see how the bank wants to keep secret this statement: on the main news, we have a link concerning the last statement of the company (which talks about this loss) but no title, nothing alarming.

The part concerning investor’s relation is more focused on the next merger concerning Caisse d’Epargne and Banque Populaire. Indeed, French state encourages banks to combine each other to fight again financial crisis. Both of them are the main shareholders of Natixis. On the web site, this news is put in light.

But, like a story already known, (after Sociétè Génèrale), Finance Minister Lagarde said “I’m particularly frustrated and discouraged by this event” “this loss doesn’t come at the best moment”. Members of the banking commission are examinating all trading activities.

Caisse d’Epagne does not want to alarm more the investors and hopes this story does not affect his brand image and his confidence. In fact, I think that this story comes at the best moment; because the financial economy is more focused on others think more important.

8 days in a luxury place, with sunshine and colleagues

2008-10-08T14:24:00.000-07:00

When a chairman and its workers decide to take some fresh air, we think that they take fresh air to think about future strategy and how to increase profit. All incentives are very profitable for all the companies and the place is very important. When you choose a good resort with all services your workers can breathe and de-stress. But I have a funny story or an ironical one, depend on your point of view…

The 17 of September AIG has wangled an $85 billion emergency loan from the Fed (and directly from Amercican taxpayers). In return for the loan, the government received warrants to purchase up to 80% of AIG.

10 days after, the world’s largest insurance company spent $400 000 on a lavish corporate retreat at one of the best California’s resorts ‘St Regis resort in Monarch Beach’.

The team spent $140,000 on rooms, $150,000 on meals and drinks, $25,000 on spa treatments and $6,939 on golf.

In the same time, American economy suffers, most of people are losing their jobs, homes and health insurance and all the central banks try to save the “world”.

To finish, the Federal Reserve Board has authorized the FED to borrow securities from certain regulated US insurance subsidiaries of AIG ($37.8 billion).

Most of people are less concerned by the crisis and arrive to take some fun…

European markets collapse

2008-09-29T10:56:00.000-07:00

All the European markets collapse due to the American contagious disease.
Paris stock exchange finished his day with a 5.04% decreased (its his lowest level since may 2005), CAC 40 lost 209.90 points, Index Footsie-100 lost 269.70 and DAX lost 4.23%.

The US plan of rescue, Paulson Plan, has not saved the economy and the confidence betrothed by the US appears now like a fairy tale. It is the panic on the European markets, it is the panic everywhere. After the collapse of many american firms, european firms are now affected:
-DEXIA lost 28.50%
-NATIXIS lost 25%
-Partial nationalization of FORTIS
-Dismantling of the British bank Bradford and Bingley
-Hypo real estate, Germany's second-biggest commercial- property lender saved by a nationalization
-Citigroup absorbed the losses of Wachovia

The credit crisis reverberated around the world and the central banks are the rescuers of the economy. The European Central bank plans to inject €120 billion in the market to save the market and his European firms.

The shocks of the US earthquake affect everyday one part of the world: US economy, European economy...Who is the first on the list?

Expression of confidence

2008-09-25T08:29:00.000-07:00

Over the past two weeks, financial markets suffer and are not really stable. Since the bankruptcy of Lehman Brothers and the repurchase of Merrill Lynch by Bank of America, the shares of Goldman Sachs fall.

Buy Tuesday 24th of September, the most talented stock-pickers and also one of the richest men of the world, Warren Buffet, has decided to invest $ 5 billion of perpetual preferred stock in Goldman Sachs. This investment carries 10 percent dividend.

This announcement intervenes two days after the decision of the Fed to convert two of the most important investment bank (Goldman Sachs and Morgan Stanley) to a bank holding company, which is the most common structure of many commercial banks.

Warren Buffet through Berkshire Hathaway Inc, which has total assets of nearly $278 billion, including significant stakes in well known companies like America Express, Wells Fargo & Co…, will receive warrants. These warrants allow to Buffet to buy $5 billion in common stock at $115 per share any time over the next five years.

Shares of Goldman Sachs rose 8.5% following the announcement. In regular trading, the shares rose by 3.5 percent. On the other hand, Goldman Sachs plans to sell $2.5 billion of common stock to improve his balance sheet.

Also, a Japanese bank Sumitomo Mitsui Financial plans to plough several hundred billion yen into Goldman Sachs.

This announcement is one of the biggest expressions of confidence in the financial system since the credit crisis.

These weeks are crazy!!!!

2008-09-16T13:23:00.000-07:00

Since last Monday, financials markets collapse, dollar collapse, US housing market collapse fear and Lehman Brothers file for bankrupcy.

First of all, last Monday one of the giant of investment bank, Lehman Brothers annouced his critical financial position. In 12 months, its shares loose 94%, from $67 to $3.65. This announcement creates chaos on the market.

On Sunday, Fed and 10 others companies decided to support financial market. JP Morgan Chase, Goldman Sachs, Bank of America, Barclays, Citigroup, Crédit Suisse, Deutsche Bank, Merrill Lynch, Morgan Stanley and UBS injected $70 billion to set up a collateralized borrowing facility, in case of difficulties.

By this hostile crisis, dollar collapse during Asiatic Markets opening hours. Monday, Euro coasted $1.4402 and at the end of the falls $1.4229. The preassures of the market and the doubts concerning Lehman Brothers have caused partly this collapse.

This Monday, Lehman Brothers asks for the "Chapter 11" bankcruptcy to protect it of its creditors. His branch of Asset Management still working, but try to seels its brokerage activities.

This crisis has affected an other bank: Merrill Lynch. Sunday, Bank of America and Merrill Lynch were in talks about a future fusion. And Monday, Bank of America buys Merrill Lynch for $50 billion to create a unique financial services firm: the first financial institution of the world.

We can say that these two weeks have been spectacular, unpredictable and dramatic in the history of financial market.

Carine Giubergia