In a rare Spanish takeover of a US company, family-controlled pharmaceutical group Grifols bought plasma specialist Talecris for $3.4bn in August.
Month: December 2011
China seeks Daylight
China’s voracious appetite for energy assets saw a division of petro-chemical group Sinopec agree a $2.1bn all-cash purchase of Canada’s Daylight Energy in October.
Alpha bank Euro
The embattled Greek government heaved a sigh of relief when Alpha Bank and Eurobank EFG agreed to merge in August. Not only did it create an institution with €150bn ($216bn) in assets, it paved the way for similar exercises that should strengthen a beaten-up financial sector. The Athens stock market jumped 15 percent.
Michel de la Belliere, Rick Lester, Francesco Nagari | Deloitte UK | Video
UK Solvency II, the new solvency regime for European insurers and reinsurers, comes into force in January 2013. Messrs de la Belliere, Lester and Nagari explore the implications for the financial industries.
Pakistan flood pain lingers
The 2010 floods in Pakistan started late in July, following heavier than normal monsoon rains in Balochistan, the Punjab, Sindh, Pakhtunkhwa and the Khyber; in fact the whole Indus River Basin was affected.
At one stage nearly 20 percent of Pakistan’s land area was covered with water, a total of some 307,374 square miles (796,095 square kilometres). According to the Pakistani government the floods affected nearly 20 million people, mostly as a result of destroying infrastructure, property and crops. The death toll was nearly 2,000.
Initially, Ban-Ki-Moon, Secretary General of the UN, asked for emergency relief amounting to some $460m, noting that he had never seen a flood of this magnitude before. By August 15 only 20 percent of these funds had been received, which was a huge concern for the UN. The World Health Organisation reported, at the time, that 10 million people had no other choice but to drink polluted water.
The damage to the already frail Pakistan economy was immense. Infrastructure damage was calculated to be in the region of $4bn; wheat crops to the value of $500m were destroyed by the floodwaters and the total crop loss was estimated to be in the region of $1bn, much higher according to Pakistan’s own calculations. The impact on the country’s economy could well have been as high as $43bn.
More than 100,000 animals died during the floods and 17 million acres of agricultural land was submerged by the raging waters.
The last thing Pakistan needed was a disaster of this magnitude; the country’s economy was already extremely fragile and depended on a support package of some $11.3bn from the IMF. Even before the floods, the government was finding it difficult to adhere to the fiscal discipline required by the package. The country has an oversized public sector, a relatively small tax base and perpetual problems with its balance of payments.
Pakistan’s Finance Minister, Abdul Hafeez Sheikh, said in an interview with TIME magazine, “Now, it alters all the calculations, all the projections, all the scenarios. It is still too early to assess the full impact of the disaster, but the damage is colossal, it’s still unfolding. It will run into billions and billions of dollars.”
Aid donors did not come forward with the help that was needed, which forced the Pakistani government to take up a World Bank loan of $900m. This only added to the country’s already huge debt burden of $55.5bn and will make it even more difficult for the government to balance its budget in future.
Moody’s subsequently downgraded its rating of Pakistan government bonds, causing interest rates on them to increase even further. Standard & Poors affirmed its B-rating for long-term Pakistan government debt on November 15 last year.
Financial institutions, such as Nomura, UBS and Morgan Stanley, have warned that Pakistan will not be able to service such a large debt indefinitely, especially taking into account the high interest rates involved.
Dr Victor Marroquin on Peru M&A | Marroquin & Merino
The recent success of the Peruvian economy is being driven by light touch regulation of business creation, investment and acquisition. Dr Victor Marroquin outlines Peru's investor-friendly tax and regulatory regime, and updates us on the state of the local M&A market.
State entities in Dubai show $101.5bn debt
Moody’s Investors Service on Tuesday said Dubai and its state-owned non-financials have outstanding debt of $101.5bn and could require further financial support to meet their obligations.
The credit rating agency’s report showed that it remains concerned about the emirate’s maturing debt in spite of the “significant process” made by the authorities and state-owned companies to deal with it.
Figures published by the agency showed that Dubai’s government has about $27.9bn of direct debt, while State-owned corporations have $68.6bn in debt.
The FT reported quoting an unnamed senior government official that Dubai may restructure by next year some issued bonds to assist these companies to meet their $3.8bn debt payments.
US realty to recover
The chief economist of the National Association of Realtors is very upbeat about the US real estate market for 2012. In fact he predicts an across the board increase of two percent in house prices for the year. Lawrence Yun was addressing the NAR annual conference in November when he predicted the start of a ‘modest recovery’ in 2012.
He said, “Tight mortgage credit conditions have been holding back homebuyers all year and consumer confidence has been shaky recently. Nonetheless, there is a sizable pent-up demand based on population growth, employment levels and a doubling-up phenomenon that can’t continue indefinitely.”
Yun further predicts that rents could increase by as much as three percent and mortgage rates might go up by 4.5 percent next year.
His forecast for 2013 is even rosier, when he predicts that home sales will grow by six percent and that house prices will on average increase by three percent. Rents, he says, will increase by 3.5 percent in 2013 and the mortgage rate will creep up to 4.8 percent.
In 2014, says Yun, there will be a six percent increase in home sales. Prices will go up by four percent, rents will increase by 3.5 percent and the mortgage rate will stand at 5.5 percent.
These are averages for the country as a whole. Conditions in specific areas or cities will vary, with some being better off and some faring worse. If mortgage standards are loosened or tightened in the meantime, the situation could look quite different added Yun. The so-called ‘shadow inventory’ will also play a significant role here.
Yun is of the opinion that once real estate prices start to consistently show a positive return, it will restore consumer confidence and the broader economy will also improve. Mortgage-underwriting standards, he says, should be ‘sound and reasonable’. He described the current standards as ‘overly stringent’.
Yun also cited a number of additional reasons for his positive outlook. Among them being the fact that house prices have stabilised, that houses have once again become very affordable and that there is a low inventory of new property.
Whether one should take Yun’s predictions seriously or not is a matter for debate. It sounds quite similar to statements made by David Crowe, Chief Economist of the National Association of Homebuilders in January 2011. He predicted that there would be 575,000 housing starts during this year, a 21 percent increase over the figure for 2010. His forecasts were based on the assumption that the US jobless rate will not increase and that 200,000 new jobs would be created every month.
It has to be remembered that there are still a large number of unsold properties already on the market. There is also a large backlog of foreclosed homes, which will only worsen if jobless figures increase further.
Non-distressed properties have also built up a considerable backlog. Add to that the anti-inflationary actions by the Fed, which have done nothing to stimulate the economy and it is indeed hard to see the reasons for Yun’s optimism.
Italian cabinet approves radical austerity measures
Italy’s new Prime Minister Mario Monti announced late on Sunday and ahead of a crucial EU summit on Thursday and Friday, that his cabinet has approved a €30bn package of austerity measures to help “reawaken” the Italian financial system.
Europe’s third biggest economy is scheduled to present the plan to parliament today in a bid to help pull Italy back from the verge of insolvency and assist in saving the common currency from collapse.
The austerity plan includes budget cuts, a higher pension age and instruments to help fight tax evasion.
