Waiting

It has been more than a year since my I attended my first job interview. Till now, I have been in more than 2o offices, given self introduction to not less than 50 people, and sent application to more than 150 companies. I hope that my waiting will end soon.

“The LORD is my portion, saith my soul; therefore will I hope in him.” – Lamentations 3:24

Btw, here are some company that I have been unsuccessful in their recruitment process:

Image Courtesy of the company.

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10 banks are approved to repay $68 B of TARP funds

Picture courtesy of Reuters

Picture courtesy of Reuters

Without naming the banks allowed to repay the TARP funds, US Treasury Department officially announced today that 10 of the nation’s healtier banks are allowed to repay a total of $68 billion of taxpayer money; previously injected to help them out of the credit crisis. However, banks are likely to announce that they were making the repayment in the couple of days, according to Reuters.

US government received dividend-paying preferred shares and the repayments as the return of 700 billion taxpayer money pumped in under TARP programs. According to Reuters, “Banks that repay their preferred stock have the right to repurchase warrants that the Treasury holds in their firms at fair market value. The warrants give the government the right to buy common stock at a predetermined price for up to 10 years and are intended to give taxpayers a chance to share in the profits of healthy banks.”

Banks that are still in the government support will continue to have certain degree of restriction in spending, for example in the payment level of their executives. With repayment, the healthier Banks will be further separated and enjoy competitive advantage over their government-backed peers. These repayments, signal that some banks have actually capable and independent enough to raise money from private sector by issuing debt, without the help of government. Hopefully, the market will response with a gain in confidence that will speed up the recovery of the current financial crisis.

References:

http://www.reuters.com/article/ousiv/idUSTRE5582Y720090609

Will the US Treasury let Banks repay TARP fund?

The US Treasury is expected to announce on this week whether it let some of the US biggest bank repay the government bailout fund. The 10 healthier banks, including JP Morgan, Goldman Sachs, Morgan Stanley, and so on intend to buy back a combined $63 Billion of government shares in their asset.

The current financial crisis was once stimulated by sub-prime mortgage crisis. Many of these sub-prime borrower were not able to pay their loan as the morgtage rates increased, as the result of increased refinancing due to the home price drop. Sequrities that are backed by these mortgage lost most of their value. Banks, that hold these sequrities were forced to write many of these assets down. For these financial institutions, the loans which are in their “Asset” side of balance sheet, are financed by “debt” and “equity”. Thus, decreasing value of banks’ asset resulted in decline of capital and tightening the credit around the world.

The US Government poured $700 billion of Troubled Asset Relief Program (TARP) fund to help banks deal with balance sheet that is deteriorated by their toxic assets. Accepting these aid, were once made the recipient viewed as worthy to get taxpayer’s money. The TARP fund had helped banks to have more capital buffer, thus allow them to issue easier loans. However, many would nowadays think that the recipients of TARP fund is to weak to raise capital on their own, as well as have limited ability to return devidends and pay their best empoyees.

Nine of the 19 US biggest banks subjected to stress tests by U.S. regulators were told last month they needed no additional capital to withstand a deeper economic downturn. However, officials later told that some of the banks, including JPMorgan and American Express still needed to boost their common equity. In the past weeks, Morgan Stanley has raised $6.8 billion common equity, signalling a strong intend from banks to escape from government ties as soon as possible.

Nevertheless, Banks are going to push to pay for a lower price to return the warrants issued to government, but government with taxpayer money, would want to push back. Will they reach an agreement for government to let banks repay the TARP fund with an agreed warrant price? US Treasury Secretarty Timothy Geithner will be asked in a hearing with this Tuesday, 10.30 am, Washigton time. Well, I guess the decission will follow up after this hearing.

References:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a4KAOeb3LQPk

http://www.reuters.com/article/reutersEdge/idUSTRE5545T120090608?sp=true

Best Bank in the World will emerge from the crisis?

The Financial industry is one sector that is hit the most by the current crisis. According to Bloomberg, U.S. banks have posted a combined $583 billion in writedowns, losses and credit provisions since the collapse of the sub prime mortgage market in 2007.

The collapse of Lehman Brothers which is still recorded as the biggest bankruptcy in US history has brought the whole financial industry down. Goldman Sachs, together with Morgan Stanley was converted to traditional bank holding company on 22nd September 2008, bringing an ending to the era of Wall Street’s investment bank. The Standard & Poor’s 500 Index tumbled 41 % in the following two months and forcing the U.S. government to spend $700 billion bailing out banks.

chart1

Recently, JPMorgan, Goldman Sachs and Morgan Stanley have applied to refund a combined $45 billion of government bail-out funds, the biggest. Not surprisingly, the three banks have performed better than direct competitors in the stock market (see picture). Goldman has almost recoup all its lost in stock market since the collapse of Lehman. While one could argue that the financial crisis is not yet over, an increasingly clearer picture about who are the survivors has emerged.

 Reference:

http://www.bloomberg.com/apps/news?pid=20601109&sid=avji6hDU.wJk

GM’s Bankruptcy: Another Bristish Leyland Story?

130px-General_Motors_svg 120px-British_Leyland_Logo

On Monday, 1st June 2009, General Motors (GM) filed the Chapter 11 bankruptcy protection. The 100 year old company, once made almost half of the cars in American roads, followed the path of Chrysler — currenlty sold to Italian’s Fiat — leaving only Ford as the only Detroit’s big three that doesn’t declare bankruptcy.

United Auto Worker (UAW) was partially blamed as heavily burdened the big three with high wages and employee’s benefit. In November 2008, a New York Times editor claimed that UAW workers receive $74/hour of benefit while Toyota US’s workers only receive $44. However this is only a small part of the problem. GM’s road to failure is viewed as have been started since it began doing badge engineering– selling fundamentally the same car only with different brands. Moreover, in 1990 to 2000-s GM failed to keep technological innovation at its bay, as what Japanese manufacturer always did. While GM’s product has improved vastly in recent years (including Cadillac CTS and Chevy Cruze), it is still not fast enough to back trend the market share lost of its dated product to the Jap’s more technologically advanced, fuel efficient and reliable products (see picture below).

toyotausmarketshare

The story of GM somehow reminds us with to Bristish Leyland Motor Corporation (BLMC) story. BLMC was created in 1968 , as the merger between British Motor Holdings and Leyland Motor Corporation. In 1970’s the BMC became the monument of British car industry failure, as the result of intra-brand competition, unwanted badge engineeringproduct, and lack of innovation as compared to competitors like Ford. The company went bankrupt after complication of problem, including trade union relation and 1973 oil crisis. The Labour Government came to salvage and nationalize it under the umbrella of British Leyland Limited (BL). After the restructuring, situation appeared to be a bit better in 1980s, while modern product such as Austin Metro became one of the most popular car in British Road. However, market share continued to diminish and BL’s brands were purchased by other car maker one by one. By 1986, it changed its name to Rover Group, which finally defunct in 2000.

The US Government has so far injected $50 Billion to GM, in order to save its 21,000 workers and 1 million jobs which will be affected if GM go out of business. After emerging from bankruptcy, GM will be 72.5% owned by combined American and Canadian government, and will only have 4 core brands: Chevrolet, GMC, Cadillac, and Buick. The product portfolio of new GM will be focused in the two world’s biggest market, North America and China. Products like Chevrolet Cruze and Chevrolet Volt will be GM’s main contenders in the increasingly environmentally conscious world car market. Buick, at the other hand is as fancy as BMW in the US for nouveau rich China although it still hold the reputation as grandma’s careverywhere in the world. The question is, will the government intervention result in the much leaner, profitable, and competitive new GM as it intended? Or is it just another British Leyland story?

Source:

http://www.economist.com/business/displayStory.cfm?story_id=13764993&source=features_box_main

http://www.msnbc.msn.com/id/31048538/

http://en.wikipedia.org/wiki/British_Leyland_Motor_Corporation

Geithner’s China Visit and The US Treasuries

Photo courtesy of economist.com

Photo courtesy of economist.com

In the midst of concern of US’ budget deficit and possibility of losing the AAA debt rating, foreign demand of US Treasuries is as high as ever. According to data compiled by Bloomberg (31/5), Federal Reserve’s holding of Treasuries on behalf of central bank institution from countries like China rose to its 3rd highest level in history.

This shows sign that US Treasuries are still viewed as the best asset to preserve value. Recent rise in yield and risk of weakening dollar has increased the risk to investor holding The Treasuries. However, most of the investors are left with few other choices. China, the largest holder, has been using it as one way to control its currency exchange rate. Although Chinese economist agreed that holding Treasuries is “great risk’ to nation’s economy, Bloomberg’s figure suggested that China’s holding has increased 3.2 %, the most since November 2008.

US Treasury Secretary Timothy Geithner is currently in Beijing for a visit, many viewed as critical to reassure China that its holding of US government debt is safe. In his visit Geithner has told Beijing’s officials that strong dollar is of a US Interest, and showed that US can prevent the value of Chinese investment from being eroded by weaker dollar, as the result of stimulus money being pumped to help America out of recession. In an interview with Bloomberg recently, The Treasury Secretary promised that the administration will cut its deficit to 3% from 12.9% projected earlier.

References:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a2SyGn6BWbWA&refer=home

http://www.bloomberg.com/apps/news?pid=20601087&sid=afg8MXnVGSGo&refer=home

Geithner visit to China, an optimism of healthier US-China economic relation?

US Treasury Secretary is scheduled to make a 3 day visit to China on 31/5. This is, a very important visit to foster a healthier ties between to great power in current world economy. The visit, will hopefully be able to settle these urgent and important issues:

1) China should allow its currency to appreciate.

The low value of China’s currency, the yuan, has been a point of friction between the US and China for more than a decade. Although Geithner is still believing that Yuan is undervalued, he, on (16/4) has refrained from labelling China  a currency manipulator, as opposition to an earlier statement made on 22/1, when he said that China had taken illegal steps to maintain its fixed exchange lower than real-weighted trade (see picture below, courtesy of Economist.com). 

CLD527

China’s fixed exchange rate has allegedly contributed to US massive trade deficit with China, which according to US Census Bureau, topped US$ 266 bn in 2008. This deficit, will somewhat be balanced if China allows its currency to float. The mechanism behind this is when a China exports more goods to US than the other way around, demand for Yuan will exceed that of US dollars, to pay for these goods. This will in turn, push the Yuan/USD exchange rate up and reduce Chinese products’ competitiveness, a proposition that will definitely be avoided by Beijing.

However, data only finds that China export to US of US$ 337 bn is only 4.2% of its almost US$ 7.8 T of GDP. On top of that, stronger Yuan will benefit China in reduce raw material cost and stronger domestic demand due to increase in Purchase Parity. If the share of export is so small in relative to GDP, (in contrast to what most people believe that China’s economy is heavily dependent on export) and benefits of strong Yuan to China macroeconomic, why Beijing worries to go for it? Probably, because it lends US so much.

2) US should control its massive public debt

According to economist.com, China currently holds about $1.5 Trillion (!!!) of US$ denominated asset as reserves, half of which is in US treasuries. The exposure of US$ asset has reduced to around 70% from 80% in 2002, but this is mainly due to the relatively weaker dollar in recent years. In fact, China has been worried about the capital value deterioriation of its foreign reserve to weaker dollar and has floated an idea of commodity based currency to replace the greenback as the international currency of reserve. However, China also knows that US Treasuries will be the one of the safest (if not the safest) way to store its reserves. Backed by the ability of US government to tax its citizens or simply print money (although at the expense of inflation), Treasuries holds value relatively well when gold value is fluctuated sharply.

From US perspective, weaker dollar and inflation in long term could mean that the capital value of its soverign debt will be lower in the future, thus easier to meet its obligation. The effect, actually bounces back against US when it was found that the yield of US treasuries soar to the highest in 6 months, at the concern of US creditworthiness. Cost of borrowings may increase sharply and cancel out the effect of reduction in obligation’s capital value. Massive fiscal deficit has done nothing but help to deteriorate the giant’s financial health.

China, needs a firm commitment from Obama and Geithner that US Government will reward their biggest investor as they should be. US, as the world largest soverign borrower, is in need to cuts its massive spending that leads to investor unconfidence if it still wants to benefit from the low cost of borrowing.  As the economist said, “It will take political courage for the Chinese to eschew a weak currency and for an American treasury secretary to unveil fiscal details in Beijing. But the parlous state of the world economy demands nothing less”.