India Morning Report : (Friday, Pre Closing Update) All round recovery from global mini crash on Thursday

Map: Asia (location), subregions as delineated...
Map: Asia (location), subregions as delineated by United Nations geographic classification scheme, except *: Northern Asia* Russia in Eastern Europe en:Central Asia territories geographically, wholly or partially, in Eastern Europe Western Asia territories geographically, wholly or partially, in Eastern Europe, Southern Europe, and Northern Africa Southern Asia Eastern Asia Southeastern Asia territories geographically, wholly or partially, in Melanesia (Oceania) (Photo credit: Wikipedia)

Asia in general recovered smartly after Amari’s comments were seen as blown out of proportion and BOJ followed up with huge injections of bond selling. Of course, India markets reacted similarily but are sure to go their own way from next week as the common thread from continuing global liquidity is bolstered by the local growth stories, continuing FII interest in India and a heady  IPO market led by resurgent demand including cross regional deal interest out of Hongkong, Qatar and Singapore.

Still on the yen machinations, China’s plans to go global to keep manufacturing competitive and flagging imports also add to Japanese and Korean discomfort, making local QEs a last build option that will grow in size for the late starters despite protestations yesterday of a synchronisation with G3 interests and/or the disaffection shown by the BOJ governor Haruhiko Karuda , leaving BoJ in early 2014.

The Yen at 101.7 again , the rupee may slide to further lows on a trot next week as the adjustment trade to make exports competitive is out of sequence of the improving fundamentals and the weakness of the US Dollar, an event unlikely stopped by this week’s global inverse trade days of Tuesday and Thursday . Amid the differences, one could see trends in currency markets continue to elude India inc but definitely RBI plans to grow an international role for rupee and continuing interest in rupee positions from emerging market bank trading desks incl hsbc and stanchart are not just paper scapes as india grows it trade pie in global trade.

However apart from equities and now a little bit of debt, India needs to open to more global currency products for a sustainable self reliant trade to emerge in chosen currency pairs to exclude the recurrent window ofdeep depreciation adjustments of the rupee especially as it is engendered by payment pressures alone and not borne by the strength of domestic consumption and growth as can be seen inthe people’s frepublic off that side of the Himalayas. Jet Airways and spicejet also report tonight though Jet traders are convinced of headwinds facing the airline’s deal with etihad

Results season is busy yet as a flurry of sells/hold ratings on SBI because of the continuing slide in Net NPAs ( now 2.1% from 1.8%) are still misplaced after yesterday’s 7% slide failed to take into account the bank’s growth in credit at more than 20% on a INR 10 trillion book even as the pressure to exit the restructuring habit of marginal corporates and the over dependence on SME accounts is still under process. NIMs have pegged lower on year because of pension liabilities but quarter/quarter decrease is still evident because of deposit costs

Full year consolidated profits at INR 180 Bln are not a trifle and help the bank establish itself in an important quasi policy role much like the dysfunctional governments we withstand as a non functioning opposition continues to get closer to leadership in parliament because of its non attendance of parliament, a sure sign that the upward climb of fundamentals in India is feverishly capped despite growing roots of literacy and a much more aware bueaucracy than is available to our neighbours

 

Foreign Banks in India: European Banks deleveraging in Asia Part II

English: Skyline of Mumbai from across Back Bay.
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According to the news flow, borrowing costs across Asia have risen upto 50%, that’ is a sizable loss on balance sheets too

where Asian swaps would have been incomplete rings and with this situation of freeze in financing however expected, those betting on Asia’s growth despite the picture of the slowdown ( not when you considered Asia in subdued growth but when you – and many did – bet on contrarian growth or that the globe did not matter )

There is no denying however that Asia will still grow at 4% and Central Asia & Africa as a region would grow albeit at its speculative trade/underdeveloped paradigm rate which was Europe’s version of an Emerging market European banks have to exit faster though if they want to be not caught in the flurry of exits. TThey will not get a penny’s worth in 3 months if deleveraging continues. Expecting banking assets to be illiquid is a readjustment that will cause such reactions in the market esp with Asian banks already suffering at the hands of repo financed Europe for a decade in Swaps and derivative contracts.

I remember AIG spent two years trying to get anyone interested in its business last time  despite profits in Asia. Credit Suisse needing to deleverage its market book is not a good sign for its advisory business. nor UBS focus on private banking / wealth as its future. Credit Agricole is shutting shop in 21 countries after losing EUR 637 mln in the latest quarter and quitting 1000 jobs in Investment Banking businesses after 850 jobs in France and 650 jobs in Consumer Finance and Factoring

In India, the costs have risen on par despite the strong ECB performance till October by the sheer drop in the rupee not the whole 20% but the one from 50 – 55 ( 54.50 today) a further 10% even as only 3-4 FCCB borrowers are out of the race. Opacity in news flows continues to trouble those with exits firmly completed though, and that is the raison d-etre of having a TV channel to shout from as the index takes the wrong ones to 45 despite R Power, Welspun , Orchid and a couple of others having exited the Dollar debt that was to be a pain and / or matched with their Export inflows

Bharti has a $12 bln of External debt in Dollars on its balance sheet which it has not swapped or hedged. Suzuki gets an import bill of almost $1.6 bln dollars. Indian Oil companies’ entire Oil imports are a huge loss to the exchequer as they have the purchases of $5-10bln every other month again unhedged and miscommunication and bank managements will have to share the blame for these treasuries’ inefficiencies
It is not clear if the INR 80 bln announced by REC as external debt is converted at current rates another $200 mln is to be issued this year maximum from dollar markets apart from a current $250 mln issue. REC Ltd has otherwise worked with very low rates and is repaying $200 mln worth Its book is Rs 1 Tln (930 bln) and new $1 billion at 8.25% may be at least a percent higher

Foreign Banks in India: European Banks deleveraging in Asia

A key feature of transacting and building relationships with global banking brands in India is to note their reflexivity to pressures in Europe that gets limited to Sout East Asia and China and never impacts us in India. Most likely the current european banks deleveraging is also expected to go along the same lines.

While Middle East and Central Asia have long been given away to their culturally more akin regions in Africa for all Deals and management control globally in the Banking and Finance markets, even in Asia ex Middle East and Japan the two distinct splits of China and SE Asia  North Asia incl Taiwan, Hongkong and Korea and India and south Asia continue to move on distinctly independent lines. The banking business of HSBC and Stanchart for example , who are not deleveraging that frantically, business is in fact booming in China and remains dull in India in corporate and investment banking business. Those that are deleveraging however would be critically taking a call on Asia assets that total $560 bln of the $3 tln in lending assets of European

looking west towards UBS.
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banks. With Yuan business becoming dull and all not well on the home front those under fire would not be able to plan growth in China and may thus include India assets again in the Exit column

In China, FIEs have been bearing more than 50% of the trade and a significant chunk would work through Foreign banks from the volume of $1.67 tln. Foreign Banks exposure incl Off Balance sheet assets and Transaction Banking products is $1.6 Tln (BarCap)

While 40% of the deleveraging that banks need will be eked out of Risk optimization, changing risk weights of categories like manufacturing and even Geographic exposures and thus reducing RWA, the rest will be real deleveraging by selling down existing credit assets and reducing probability of considering new credit business in Asia. The required $300 bln in deleveraging, ostensibly over 5 years and more could come faster out of intractable portfolios in Asia if and when a choice arises for these European banks  as BNP , Credit Agricole and SocGen or those deleveraging or shutting down exposures in the market book like Credit Suisse Banks have started repatriating funds and cutting back on  loans

In the melee, it is unlikely that the 10% market share of the Foreign banks in India is hurt much though it is

ubs
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unlikely that they would readily incorporate RBI’s concerns about having grown off balance sheet or transaction exposures without committing to real lending in the country.

Banks such as CA and BNP may not like to continue in India with the limitations facing them and their own myopic concerns in committing to asset based growth even as ANZ that re-0entered India in 2006 and NAB and CBA continue with single branch existence in India to base growth in Corporate Investment Banking in the region without planning any roll outs for their retail franchise.

Australia and New Zealand Banking Group
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As Wealth managers like UBS already have offshore business out of Singapore or sometimes Hongkong nad Dubai, they can well reduce their risks in India and go back without a loss to India and their own even as they pass up growth opportunities in a growing consumption economy.

The impasse over the impracticability of transferring extra licences from the RBS sale to HSBC who has made the purchase continues in a stalemate , banks noting they would abide by RBI’s direction

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Foreign Banks in India: Losing the premium mark in Delhi, Bombay

ABN Amro Bank in Dubai
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Though Bangalore remains buoyant and probably by extension Calcutta and Hyderabad, I would posit that Metropolitan megatrons of Delhi and Bombay have quit on Foreign bank custom esp after the derivatives market wound down and limits on Swaps created business in Credit warned by RBI in June. Of course at both StanC and HSBC CIB business has grown Even Indian Banks have pointed to recent growth (HDFC Bank) coming from Tier II and Tier II towns ( which would be towns of 1- 5 lacs pop)

Stanchart produces $9 mln lower CB results

The India business of SCB and that of HSBC talked of static consumer banking income and/or loan book sizes. Asia’s GBP 6.8 bln ($10 bln) EBITDA for HSBC and $3.1 bln for StanC boasted of almost 80% Hongkong contributions in the profits for HSBC and the largest 25% for StanC with India coming in at $451mln (Op Profits) for HSBC and $378 mln for StanC. SCB extrapolates INdia GDP at 7.7% and 8.3% for the next 2 years.

SCB Op Proft or EBITDA is down 39% for the HY over the same period last year as income dipped 12% in India. Consumer Banking ex India grew at a fast clip for SCB and is $404 mln fo China , a relatively new piece of growth for the bank

For both banks markets in Hongkong, Singapore, Korea, Malaysia/Thailand and Indonesia, have delievred extreme growth on the runrate normally ascribed to a secular Indian banking market

India business will grow to $1 bln in Op Profits for HSBC by 2013 Hongkong business for SCB matched the groups overall growth in NII as China renminbi business grew on the islands of Hongkong for both the banks  with the India  CEO for HSBC Stuart Davis cautious in lending over growing NPAs

SCB’s deposits grew by 9% for the 6 months ended June 2010 Operating exepnses  in CB grew to $174 mln at a faster clip with continuing investments by the bank Op profit from India at $44 mln speaks volumes about the bank’s challenges in their largest market so far

Stanchart doubles Offshore WB, HSBC builds fee income worth $375mln

HSBC relied entirely on the CIB business to produce profits, wth $393 mln from Investment Banking and Loan income doubled to $78 mln as the business staying with the bank would be amenable to cross product business and insensitive to rate increases, being a part of the corporate’s business to banks and not the relationship as lead bank still in many cases. The Advances for HSBC are a mere $4.2 bln on its total loan book of $6.1 bln or INR 25000 Crores

StanC doubled its offshore income from Wholesale Banking to $185 mln but operating income (Topline is static for H1 2011 at$760 mln over $770 mln in the second half of 2010 WB assets grew in India by 10% and India remains an important market to break open for both the Emerging markets dominant banks

Hiring

Even with 15000 new jobs in Asia,  India is unlikely to be a big growth market for HSBC, SCB stepping in to wean away the common DNA as HSBC drags on consolidating RBS business and looks to India and China out of their Top 5 businesses. all in Emerging MArkets like Mexico, Singapore and Malaysia

StanC’s India costs have been growing due to the extra hiring planned for the India business where HSBC will be managing 300 new ABN AMRO staffers in Bangalore alone StanC also delivered a much healthier cost income ratio globally

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