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Posts Tagged ‘Chinese banks’

Moody’s Issues Stern Warning On China’s Pyramid Bank Recapitalization Scheme; Has CIC Entered A Funding Crisis?

Moody’s Issues Stern Warning On China’s Pyramid Bank Recapitalization Scheme; Has CIC Entered A Funding Crisis?

Courtesy of Tyler Durden

Moody’s is out with a surprisingly frank appraisal of the Chinese banking system’s precarious capitalization trend, by looking at the recent RMB 54 billion capital raise in the interbank market by the domestic arm of the Chinese Sovereign Wealth fund (CIC), which was "the first part of an RMB 187.5 billion overall fund-raising program mainly to provide additional capital to the three largest state-owned banks, a policy lender, and a policy insurance company."

As Moody’s oh so correctly concludes: "Recapitalizing banks with bond proceeds from banks is credit negative because it increases the effective leverage of the banking system. The transaction’s impact on the system is limited in this case because the increased leverage is not significant, but it would be problematic if effective leverage continues to increase and China’s economic growth stalls." Moody’s stops one step short of calling this transaction what it is: using debt purchased by other banks to recapitalize deteriorating loans on the banks’ asset side: "the increases in assets and equity are artificial and without real economic substance: the increase in reported equity on banks’ balance sheets enables the banks to lend more and effectively leverages up the system. Assuming banks fully deploy the capital raised, the resulting increase in the risk-weighted assets would be RMB 187.5 billion divided by 11.5% (the minimum capital requirement)." What is also not said, but is glaringly obvious, is that the Chinese sovereign wealth fund is likely in a major need of recapitalization, courtesy of its extensive US financial sector equity holdings.

From Moody’s:

Last week, Huijin, the domestic arm of China Investment Corp (China’s sovereign wealth fund), raised RMB 54 billion in the domestic interbank market. It was the first part of an RMB 187.5 billion overall fund-raising program mainly to provide additional capital to the three largest state-owned banks, a policy lender, and a policy insurance company. 

Recapitalizing banks with bond proceeds from banks is credit negative because it increases the effective leverage of the banking system. The transaction’s impact on the system is limited in this case because the increased leverage is not significant, but it would be problematic if effective leverage continues to increase and China’s economic growth stalls. Even without an official breakdown of the bonds’


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Chinese Banks Face Default Risk on 23% of $1.1 Trillion Loans; Chinese Rating Agency Criticizes Moody’s, Fitch, S&P

Chinese Banks Face Default Risk on 23% of $1.1 Trillion Loans; Chinese Rating Agency Criticizes Moody’s, Fitch, S&P

Courtesy of Mish 

Here is an interesting pair of stories at odds with each other, the first article is about problem loans at Chinese banks, the second is about a rating agency mud fight.

Bloomberg reports Chinese Banks See Risks in 23% of $1.1 Trillion Loans

Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation’s regulator.

About half of all loans need to be serviced by secondary sources including guarantors because the ventures can’t generate sufficient revenue, the person said, declining to be identified because the information is confidential. The China Banking Regulatory Commission has told banks to write off non-performing project loans by the end of this year, the person said.

The nation’s five-largest banks, including Agricultural Bank of China Ltd., plan to raise as much as $53.5 billion to replenish capital after the sector extended a record $1.4 trillion in credit last year.

“In China now, it is the same as the people getting loans in Phoenix here in the U.S. three years ago,” said Vikas Pershad, chief executive officer of Chicago-based Veda Investments LLC. “People who want money get money, and then they all lose track of it.”

Local governments set up the financing vehicles to fund projects such as highways and airports due to limits on their ability to directly borrow money. The central government this year restricted borrowing on concern money isn’t being used for viable projects.

“The issue is symptomatic of the way the stimulus package was rolled out in 2008,” said Nicholas Consonery, Asia specialist at the Eurasia Group. “It is difficult for local governments to finance these projects. It is written under the Chinese constitution that local governments cannot offer their own debt.”

Chinese Rating Agency Criticizes Moody’s, Fitch, S&P

The Financial Times reports China rating agency condemns rivals

The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.

“The western rating agencies are politicised and highly ideological and they


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Zero Hedge

Why Is Russia Building Massive Underground Bomb Shelters?

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Michael Snyder via The End of The American Dream blog,

Did you know that the Russians have a massive underground complex in the Ural mountains that has been estimated to be approximately 400 square miles in size?  In other words, it is roughly as big as the area inside the Washington D.C. beltway.  Back in the 1990s, the Clinton administration was deeply concerned about the construction of this enormous complex deep inside Yamantau mountain, but they could never seem to get any straight answers from the ...



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Promotions

Watch Phil on Money Talk on BNN Now!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show last night. As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. (And get this, Obama - the President - is following Phil on Twitter.) ~ Ilene

 

The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here. Part 2 is here. Part 3 is here.   ...

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Phil's Favorites

For Robots Only: Amazon Sponsored Contest; Soft Fingers Needed

Picture from Amazon Picking Challange

Courtesy of Mish.

Amazon is sponsoring a robot warehouse automation contest to see to who can pack the most boxes in the least amount of time without dropping any packages or crushing anything delicate such as cookies.

In the contest, in which human workers are not eligible to apply, the robots will have to work without any remote guidance from their creators.

Please consider the MIT Technology Review, Amazon Robot Contest May Accelerate Warehouse Automation.

Packets of Oreos, boxes of cra...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Insider Scoop

Stifel, Bank Of America Are Talking About Apollo Education

Courtesy of Benzinga.

Related APOL Stocks Hitting 52-Week Lows Morning Market Losers Apollo falls on sales, outlook (Investor's Business Daily)

On Thursday, Stifel issued a report on Apollo Education Group Inc (NASDAQ: APOL) as the stock's volume has not recovered. Stifel lowered its target price from $35 to $25, but still rates Apollo Education as a Buy.

"Our Buy thesis which ...



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Chart School

S&P 500 Snapshot: Four-Day Selloff

Courtesy of Doug Short.

The S&P 500 dropped at the open, despite a good jobless claims report, and hit its -0.75% intraday low. A slow rally took the index to its 0.30% intraday high in the early afternoon. But subsequent selling pushed the index back into the red. It closed with a modest 0.24% decline, the forth consecutive daily loss.

The yield on the 10-year Note rose 8 bps to 2.01%.

Here is a 15-minute chart of the past five sessions.

Here is a daily chart of the index, where trading volume was right at its 50-day moving average.

A Perspective on Drawdowns

Here's a snapshot of selloffs since the 2009 trough.

...



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Sabrient

Sector Detector: Bulls retake the wheel, with a little help from their friends at the Fed

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Scott Martindale at Sabrient Systems

Well, it didn’t take long for the bulls to jump on their buying opportunity, with a little help from the bulls’ friend in the Fed. In fact, despite huge daily swings in the market averages driven by daily news regarding timing of interest rate hikes, the strength in the dollar, and oil prices, trading actually has been quite rational, honoring technical formations and support levels and dutifully selling overbought conditions and buying when oversold. Yes, the tried and true investing clichés continue to work -- “Don’t fight the Fed,” and “The trend is your friend.”

In this weekly update, I give my view of the cur...



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OpTrader

Swing trading portfolio - week of March, 23rd, 2015

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

Bitcoin vs. Uber: Bitcoin Lovers Respond to Mish

Courtesy of Mish.

I recently commented that it would not surprise me if bitcoin plunged to $1.00. That was not a prediction, it was a comment.

Still, I still feel a collapse in bitcoin is likely.

For discussion, please see Cash Dinosaur: France Limits Cash Transactions to €1,000, Puts Restrictions on Gold; Bitcoin End Coming?

In response, reader Creighton writes ...

Hello Mish

While I'm not going to argue the point about the possibility that Bitcoin drops to $1, or less, (that could happen yet, but not for the reasons you propose) I felt it necessary to point out something you seem to have overlooked.

While it's likely that the US government watching Bitco...



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Market Shadows

Kimble Charts: South Korea's EWY

Kimble Charts: South Korea's EWY

By Ilene 

Chris Kimble likes the iShares MSCI South Korea Capped (EWY), but only if it breaks out of a pennant pattern. This South Korean equities ETF has underperformed the S&P 500 by 60% since 2011.

You're probably familiar with its largest holding, Samsung Electronics Co Ltd, and at least several other represented companies such as Hyundai Motor Co and Kia Motors Corp.

...



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Option Review

Cypress Semi Draws Bullish Option Plays

Bullish trades abound in Cypress Semiconductor options today, most notably a massive bull call spread initiated in the July expiry contracts. One strategist appears to have purchased 30,000 of the Jul 16.0 strike calls at a premium of $0.89 each and sold the same number of Jul 19.0 strike calls at a premium of $0.22 apiece. Net premium paid to put on the spread amounts to $0.67 per contract, thus establishing a breakeven share price of $16.67 on the trade. Cypress shares reached a 52-week high of $16.25 back on Friday, March 13th, and would need to rally 4.6% over the current level to exceed the breakeven point of $16.25. The spread generates maximum potential profits of $2.33 per contract in the event that CY shares surge more than 20% in the next four months to reach $19.00 by July expiration. Shar...



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Pharmboy

2015 - Biotech Fever

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

PSW Members - well, what a year for biotechs!   The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down!  The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months.  What could go wrong?

Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.

Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies.  A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly.

Click here and sign in with your user name and password. 

 

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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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