Recapitalisation of Banks

January was a stellar month and a great start to the new year. Lets stay humble and see whether February can work in the same direction.



Its cold outside, but will it be a "hot" February?

It seems the US bank bailout plan might now be the best version launched so far. The UK launched its own version a couple of weeks back but has since partly been redone and now shows US similarities. Remains to be seen whether the US version will be copy pasted by other countries or whether they launch various versions of it.

To me, the "Toxic asset"/"bad bank vehicle" is to be preferred ahead of state money buying Bank shares anyway. Finally it seems the Germans have come around to launch a "bad bank" version. This is definitely a step forward from the firm "no" attitude just a few weeks ago. However, they seem more inclined to ringfence the toxicassets wherever needed and then passively hope for the assets to go up again. Dont like the passive and "fingers crossed" variables there.

With the RUB under pressure, CEE countries sliding and most neighbouring fixed exchange rate regimes under high risk of being let go, creditlosses are bound to badly hurt the banks involved in those areas.

Bank asset valuations should become an increasingly important theme before long as more and more countries are hit by bank recapitalisation issues. This should make them rise to the forefront of more government agendas.

As banks toxic assets are lifted out of banks into specific "toxic vehicles", owned by the state and taxpayers, bank asset writedowns, balancesheet valuations, ensuing holes and recapitalisation needs should be in the headlight.

We do know that there will be big gaps in balance sheet valuations as few "bad loan"assets are "marked to market".
The price at which these "toxic assets" are lifted out will obviously be key since it will define the size of the upcoming Bank recapitalisation needs as well as splitting the cost between the taxpayers and the Banks. In these recapitalisation cases the shareholders should be left with nothing. Question will of course be how big the recapitalisation needs will be on the back of it and how they will be funded. So far it is "only" the US and the UK that has really recapitalised on any grand scale. The rest of the world hasnt reached that point as of yet, but it might be sooner than most think.

Hence, it seems there is a risk for a massive recapitalisation need building up before long - and this is "just" the banks. Corporates will most likely increasingly be left to fend for themselves and that could become gruesome, creating other and more complicated problems.

Not all countries will be able to fund this themselves. It is likely they will then turn to the IMF.

At a speech in Davos, Mr John Lipsky, First Deputy Managing director of the IMF, claimed IMF would need another 500 BN USD in funding in order to meet expected needs from various nations. I doubt it is enough, but Ill keep my fingers crossed. Question is how long the IMF can receive additional funding without running into funding difficulties? Hopefully for a few TRN Usd out anyway.



Competition for global savings has started?

In Davos, both Russia and China warned that excessive budget deficits in the developed world,(mainly US and UK thus far), risked "crowding out" Emerging markets.
Both Russia and China have substantial assets so perhaps this is not mainly in reference to themselves (but assetprices deteriorate in a deflationary environment), however any countries with huge twindeficits are definitely in the riskzone.
CEE and South Africa stands out, as well as all the neighbouring fixed currency regimes.
In the developed world Australia and New Zealand comes to mind.
Seems like a receipe for further volatility - now theres a challenge for the G7.
Time for some outdoor activities.





As always, good luck











Unfortunately it seems they will be adapting a setup whereby they will ring fence toxic assets but not actively managing them. Fundamental approach being that the assets will rebound over time.
I would prefer an approach whereby the assets would actively be managed and sold over time as buyers were found.




The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.