Standard & Poor's investment-grade composite spread tightened yesterday to 209 basis points (bps), while its speculative-grade counterpart compressed to 653 bps. By rating, the 'AA' and 'A' spreads tightened one basis point each to 144 bps and 180 bps, respectively, and 'BBB' tightened 3 bps to 264 bps. The 'BB' spread tightened 5 bps to 484 bps, 'B' compressed 6 bps to 654 bps, and 'CCC' tightened 15 bps to 1,040 bps.
By industry, financial institutions, banks, and industrials tightened 4 bps each to 366 bps, 288 bps, and 336 bps, respectively. Utilities and telecommunications followed, tightening 2 bps each to 212 and 318 bps, respectively.
Despite material tightening since their record highs in December 2008, the speculative-grade spread remains range-bound within a default cycle, and the investment-grade spread continues to face pressure from financial institutions and banks. In addition, speculative-grade defaults continue to accelerate, as does the preponderance of credit downgrades. Because of these factors, we expect spreads to remain at their elevated levels for some time as investors, the credit markets, and the economy cautiously tread through the current recessionary period.
Tuesday, December 15, 2009
JP Morgan continues escrow service expansion by launching capabilities in South Korea
JP Morgan today announced that it has continued its Escrow service expansion in Asia Pacific by launching its capabilities in South Korea. JP Morgan's Escrow services help clients mitigate risk associated with a range of critical business transactions such as mergers and acquisitions, initial public offerings, import and export payments, collateral trusts for reinsurance, and construction project funding. Acting as an independent third party, JP Morgan holds assets in escrow and disburses them when a performance or commitment is delivered upon. The service also includes document preparation, which can be customised to meet the specific needs of a transaction. JP Morgan already offers Escrow services in Australia, Brazil, China, Hong Kong, India and Singapore, the United Kingdom and the United States.
“JP Morgan’s Escrow services have been very well received in the Asia Pacific region. We remain focused on serving the evolving needs of our clients and helping them close their transactions quickly, accurately and securely through the use of Escrow accounts,” said Rocky Motwani, Escrow and Bankruptcy Services global executive for JP Morgan Treasury Services.
Linda McLaughlin-Moore, managing director, Asia Pacific product and delivery executive at JP Morgan.Treasury Services added: “Being able to offer Escrow services to our clients in South Korea helps us strengthen our in-country treasury management offering. Our clients value the depth and breadth of our services and our ongoing investments in the region. We will continue to build on our integrated service model by investing in our business and by growing with our clients.”
In South Korea, JP Morgan Treasury Services recently launched its liquidity management services with multi-bank sweep capabilities, and also enhanced its domestic cash management capabilities with a new Korean language internet banking platform for fund transfers. The platform enables JP Morgan's clients to maximise their working capital, increase their efficiency ratios, and mitigate counterparty risk.
“JP Morgan’s Escrow services have been very well received in the Asia Pacific region. We remain focused on serving the evolving needs of our clients and helping them close their transactions quickly, accurately and securely through the use of Escrow accounts,” said Rocky Motwani, Escrow and Bankruptcy Services global executive for JP Morgan Treasury Services.
Linda McLaughlin-Moore, managing director, Asia Pacific product and delivery executive at JP Morgan.Treasury Services added: “Being able to offer Escrow services to our clients in South Korea helps us strengthen our in-country treasury management offering. Our clients value the depth and breadth of our services and our ongoing investments in the region. We will continue to build on our integrated service model by investing in our business and by growing with our clients.”
In South Korea, JP Morgan Treasury Services recently launched its liquidity management services with multi-bank sweep capabilities, and also enhanced its domestic cash management capabilities with a new Korean language internet banking platform for fund transfers. The platform enables JP Morgan's clients to maximise their working capital, increase their efficiency ratios, and mitigate counterparty risk.
Investment-Grade Composite Spread Tightens To 212 Basis Points
Standard & Poor's investment-grade and speculative-grade composite spreads tightened on Friday to 212 basis points (bps) and 660 bps, respectively. By rating, the 'AA' spread tightened one basis point to 145 bps, 'A' compressed 3 bps to 181 bps, 'BBB' tightened 2 bps to 267 bps, 'BB' tightened 8 bps to 489 bps, 'B' compressed 7 bps to 660 bps, and 'CCC' expanded 3 bps to 1,055 bps.
By industry, banks and telecommunications tightened by the largest margin of 4 bps each to 292 bps and 320 bps, respectively. Industrials followed, compressing 3 bps to 340 bps, trailed by financial institutions and utilities, which tightened 2 bps each to 370 bps and 214 bps, respectively.
Despite material tightening since their record highs in December 2008, the speculative-grade spread remains range-bound within a default cycle, and the investment-grade spread continues to face pressure from financial institutions and banks. In addition, speculative-grade defaults continue to accelerate, as does the preponderance of credit downgrades. Because of these factors, we expect spreads to remain at their elevated levels for some time as investors, the credit markets, and the economy cautiously tread through the current recessionary period.
By industry, banks and telecommunications tightened by the largest margin of 4 bps each to 292 bps and 320 bps, respectively. Industrials followed, compressing 3 bps to 340 bps, trailed by financial institutions and utilities, which tightened 2 bps each to 370 bps and 214 bps, respectively.
Despite material tightening since their record highs in December 2008, the speculative-grade spread remains range-bound within a default cycle, and the investment-grade spread continues to face pressure from financial institutions and banks. In addition, speculative-grade defaults continue to accelerate, as does the preponderance of credit downgrades. Because of these factors, we expect spreads to remain at their elevated levels for some time as investors, the credit markets, and the economy cautiously tread through the current recessionary period.
TRIS Rating Affirms Company Rating of “DBSVT” at “A-” with “Negative” Outlook
TRIS Rating Co., Ltd. has affirmed the company rating of DBS Vickers Securities (Thailand) Co., Ltd. (DBSVT), a wholly-owned subsidiary of DBS Vickers Securities Holdings Pte., Ltd. (DBSVSH) in Singapore, at “A-”. The outlook has been changed to “negative’ from “stable”. The rating is enhanced from DBSVT’s stand-alone credit profile to reflect its status as a strategically important subsidiary of the DBS Group, which provides DBSVT with both financial and non-financial support. The stand-alone rating is based on DBSVT’s ability to utilize the network and resources of the DBS Group, and also takes into account DBSVT’s adequate capital base and sufficient liquidity, which provide DBSVT with a cushion to absorb normal business risk. However, these strengths are partially offset by concerns over the company’s deteriorating market position in the stock brokerage business and its financial performance during the last three years which was lower than TRIS Rating’s expectation. The rating is also constrained by uncertainty of the Thai stock market and operating climate following the brokerage business liberalization in 2010 and the global capital market volatility. These might partly affect the company’s business and financial position in the future.
The “negative” outlook reflects DBSVT’s market position and financial performance in securities brokerage business during the last three year which was lower than TRIS Rating’s expectation. TRIS Rating will closely monitor the company’s operating performance and market position when the sliding brokerage commission scales implemented in 2010. Any future downturn in operating performance will negatively impact the rating. However, the success implementation of DBSVT’s wealth management business, as the company’s strategic plan, and the recovery of the market position to a sustainable level will support DBSVT’s credit strengths. TRIS Rating expects DBSVT to remain a strategically important entity of the DBS Group, sustain to play a role in Thailand’s securities market as part of the DBS Group’s international network and continue getting the DBS Group’s implicit support.
TRIS Rating reported that DBSVT provides brokerage services as its core business, as well as other non-brokerage services, including financial advisory, equity underwriting, and wealth management. In the brokerage business, DBSVT faced a gradual decline in market share over the past four years: share fell from 2.9% in 2005 to 2.8% in 2006 and 2007, and then declined sharply to 2.1% in 2008. The substantial drop in market share was mainly from increased competition, especially from foreign brokerage firms who have a Direct Market Access (DMA) trading system. However, even after DBSVT implemented the DMA system in 2008, volume from overseas investors dropped due to the global financial crisis. The overseas investors have contributed 40%-50% of the company’s trading volume during the last five years. Market share, therefore, slid to 1.9% for the first nine months of 2009, and DBSVT ranked 22nd in terms of market share among 38 brokerage companies, down from 15th for all of 2007. However, excluding the proprietary trade, the company’s market share was 2.2% for the first nine months of 2009, down from 2.4% in 2008 and 3.0% in 2007.
Based on the support from the DBS Group and the flow of investable fund resulting from liquidity injections by the US and EU governments, TRIS Rating said DBSVT might be able to regain market share from overseas investors. Regarding the retail client base, the company plan to enlarge the market share through Internet trading, wealth management teams, and a company strategy to expand margin loans. However, recovery of both the overseas and retail volume with stable contribution has yet to be monitored, after the sliding scale of brokerage commission is implemented in 2010. In the investment banking business, the company targets medium-sized firms. DBSVT was the lead underwriter for the Asiasoft PLC deal worth Bt840 million in 2008. This is a sharp turnaround from only Bt74 million in deals in 2007. However, the company had no fee-based income for the first half of 2009. As investment banking is highly related to prospects for the stock market, DBSVT is expanding to offer other advisory services including mergers and acquisitions (M&A), and financial advisory work through the resources and international franchise network of its parent company. However, the revenue contribution from these activities was only 4% of total revenue for the last five years. The company does not expect any sizable amount of revenue from this business during the next 2-3 years.
Net profit gradually declined from Bt209 million in 2005 to Bt172 million in 2006 and Bt132 million in 2007, due to unfavorable market conditions and increasing competition among securities firms. In 2008, the company reported a net loss of Bt22 million due to substantial losses on margin loans, a direct result of the stock market turmoil during the last quarter of 2008. The unfavorable market conditions continued through the first quarter of 2009. DBSVT reported a net loss of Bt9 million for the first half of 2009. However, performance is likely to reverse for the second half of the year, because the market volume has improved since the second quarter of 2009. The average daily trading volume on the Stock Exchange of Thailand (SET) during April to September 2009 was around Bt21,000 million, up sharply from a daily average of trading volume of around Bt8,600 million for the first quarter of 2009.
DBSVT’s total assets ranged from Bt1.6-Bt1.9 billion during 2005-2008, before significantly increased to Bt2.31 billion as of June 2009. This remarkable increase arose from higher market trading volumes. However, outstanding margin loans remained flat at around Bt500 million from the beginning of 2008 through June 2009, due to the imposition of more stringent credit criteria. Margin loans outstanding were accounted for 31.3% of total assets in 2008 and 22.7% as of June 2009. However, the company plans to re-expand the margin loan portfolio when the opportunity arises, with the support from the DBS Group. The policy to maintain a high level of margin loans could raise the market share of retail customers. However, the loan expansion could expose the company to higher credit risk, particularly when the company has high concentration risk on large customers. Based on the current amount of outstanding margin loans, the company still has a sufficient capital to cover any losses from margin loan transactions. As of June 2009, the Net Capital Rule (NCR) was 49.56%, far above the requirement of the Securities and Exchange Commission (SEC) of Thailand.
TRIS Rating said, DBSVT has only a small exposure from its own investments. DBSVT invested Bt14 million in shares of TSFC Securities Ltd. (TSFC). This investment was a mandated poll-fund for all financial institutions to subsidize the establishment of TSFC. The investment was totally written off during the first half of 2009. Liquidity and financial flexibility remains sufficient, even after DBSVT started utilizing credit facilities from various financial institutions and the DBS Group to finance the margin loan portfolio expansion. As of August 2009, the company utilized 3.0% of the total available credit facilities worth Bt2.3 billion from several financial institutions and had a Bt200 million of subordinated loan from the DBS Group. However, TRIS Rating expects the DBS Group to provide timely financial support if needed. DBSVT has an adequate capital base despite a decrease from Bt1,273 million as of December 2007 to Bt964 million as of June 2009. The drop was due to a Bt277 million extra dividend payment and from net losses from operations.
The “negative” outlook reflects DBSVT’s market position and financial performance in securities brokerage business during the last three year which was lower than TRIS Rating’s expectation. TRIS Rating will closely monitor the company’s operating performance and market position when the sliding brokerage commission scales implemented in 2010. Any future downturn in operating performance will negatively impact the rating. However, the success implementation of DBSVT’s wealth management business, as the company’s strategic plan, and the recovery of the market position to a sustainable level will support DBSVT’s credit strengths. TRIS Rating expects DBSVT to remain a strategically important entity of the DBS Group, sustain to play a role in Thailand’s securities market as part of the DBS Group’s international network and continue getting the DBS Group’s implicit support.
TRIS Rating reported that DBSVT provides brokerage services as its core business, as well as other non-brokerage services, including financial advisory, equity underwriting, and wealth management. In the brokerage business, DBSVT faced a gradual decline in market share over the past four years: share fell from 2.9% in 2005 to 2.8% in 2006 and 2007, and then declined sharply to 2.1% in 2008. The substantial drop in market share was mainly from increased competition, especially from foreign brokerage firms who have a Direct Market Access (DMA) trading system. However, even after DBSVT implemented the DMA system in 2008, volume from overseas investors dropped due to the global financial crisis. The overseas investors have contributed 40%-50% of the company’s trading volume during the last five years. Market share, therefore, slid to 1.9% for the first nine months of 2009, and DBSVT ranked 22nd in terms of market share among 38 brokerage companies, down from 15th for all of 2007. However, excluding the proprietary trade, the company’s market share was 2.2% for the first nine months of 2009, down from 2.4% in 2008 and 3.0% in 2007.
Based on the support from the DBS Group and the flow of investable fund resulting from liquidity injections by the US and EU governments, TRIS Rating said DBSVT might be able to regain market share from overseas investors. Regarding the retail client base, the company plan to enlarge the market share through Internet trading, wealth management teams, and a company strategy to expand margin loans. However, recovery of both the overseas and retail volume with stable contribution has yet to be monitored, after the sliding scale of brokerage commission is implemented in 2010. In the investment banking business, the company targets medium-sized firms. DBSVT was the lead underwriter for the Asiasoft PLC deal worth Bt840 million in 2008. This is a sharp turnaround from only Bt74 million in deals in 2007. However, the company had no fee-based income for the first half of 2009. As investment banking is highly related to prospects for the stock market, DBSVT is expanding to offer other advisory services including mergers and acquisitions (M&A), and financial advisory work through the resources and international franchise network of its parent company. However, the revenue contribution from these activities was only 4% of total revenue for the last five years. The company does not expect any sizable amount of revenue from this business during the next 2-3 years.
Net profit gradually declined from Bt209 million in 2005 to Bt172 million in 2006 and Bt132 million in 2007, due to unfavorable market conditions and increasing competition among securities firms. In 2008, the company reported a net loss of Bt22 million due to substantial losses on margin loans, a direct result of the stock market turmoil during the last quarter of 2008. The unfavorable market conditions continued through the first quarter of 2009. DBSVT reported a net loss of Bt9 million for the first half of 2009. However, performance is likely to reverse for the second half of the year, because the market volume has improved since the second quarter of 2009. The average daily trading volume on the Stock Exchange of Thailand (SET) during April to September 2009 was around Bt21,000 million, up sharply from a daily average of trading volume of around Bt8,600 million for the first quarter of 2009.
DBSVT’s total assets ranged from Bt1.6-Bt1.9 billion during 2005-2008, before significantly increased to Bt2.31 billion as of June 2009. This remarkable increase arose from higher market trading volumes. However, outstanding margin loans remained flat at around Bt500 million from the beginning of 2008 through June 2009, due to the imposition of more stringent credit criteria. Margin loans outstanding were accounted for 31.3% of total assets in 2008 and 22.7% as of June 2009. However, the company plans to re-expand the margin loan portfolio when the opportunity arises, with the support from the DBS Group. The policy to maintain a high level of margin loans could raise the market share of retail customers. However, the loan expansion could expose the company to higher credit risk, particularly when the company has high concentration risk on large customers. Based on the current amount of outstanding margin loans, the company still has a sufficient capital to cover any losses from margin loan transactions. As of June 2009, the Net Capital Rule (NCR) was 49.56%, far above the requirement of the Securities and Exchange Commission (SEC) of Thailand.
TRIS Rating said, DBSVT has only a small exposure from its own investments. DBSVT invested Bt14 million in shares of TSFC Securities Ltd. (TSFC). This investment was a mandated poll-fund for all financial institutions to subsidize the establishment of TSFC. The investment was totally written off during the first half of 2009. Liquidity and financial flexibility remains sufficient, even after DBSVT started utilizing credit facilities from various financial institutions and the DBS Group to finance the margin loan portfolio expansion. As of August 2009, the company utilized 3.0% of the total available credit facilities worth Bt2.3 billion from several financial institutions and had a Bt200 million of subordinated loan from the DBS Group. However, TRIS Rating expects the DBS Group to provide timely financial support if needed. DBSVT has an adequate capital base despite a decrease from Bt1,273 million as of December 2007 to Bt964 million as of June 2009. The drop was due to a Bt277 million extra dividend payment and from net losses from operations.
Thursday, December 3, 2009
Macro Roundup - Taking the Temperature of Retail Trade
Coming months will show whether consumers in the Asia-Pacific region have faith in the economic recovery or have merely been spending their stimulus cheques. The key to solid retail sales is low unemployment and government stimulus measures. The region's labour markets are improving, but industrial production shows weakness.
Australian retail sales kept growing
The good news: Australian retail sales never contracted on an annual basis during the slowdown. The country managed to steer clear of recession, and the unemployment rate stopped climbing in June. Retail sales have been helped by government stimulus spending. Money was deposited into the bank account of every citizen who met income limits, and pensioners received extra cash transfers. Yet, even with these measures, nominal retail sales growth has slowed. Australians have in particular been spending less on clothes and soft goods.
New Zealanders have been spending less on retail goods than Australians have. The New Zealand economy grew only 0.1% q/q in the second quarter, and the labour market is under stress from a 6% unemployment rate. With well-developed welfare states and ample access to credit, consumers in Australia and New Zealand are able to smooth their consumption, resulting in a more modest slowdown in retail sales.
Consumers in export economies cut back
When their economies began weakening, consumers in Asia's most export-dependent countries were quick to scale back their spending. Retail sales hit bottom in February and have recovered remarkably, not unlike the recovery in exports. The recovery of retail sales in Hong Kong and Taiwan is noteworthy, since unemployment is still increasing in these two economies. In August, Hong Kong's unemployment rate was 5.8%, well above 2008's average of 3.4%. In Taiwan, August's rate was 6.1%, also above the 2008 average of 4.1%.
Consumer spending in Taiwan has been helped by shopping vouchers distributed in January. Most of the spending from these vouchers is estimated to have taken place early in the year, and more recent increases in retail sales have likely come from improved sentiment; consumer confidence has been improving since midyear. Higher retail sales in Hong Kong in August have been attributed to more tourism and higher asset prices, which support retail sales through the wealth effect.
South Korea's retail sales did not drop as low as those of the other major exporters in the region and have recovered swiftly. South Korea narrowly avoided recession, and its unemployment rate has eased since June. Japanese consumers spend conservatively even in good times, and Japan's retail sales have not dropped greatly, perhaps because consumers have access to high household savings and credit. Also, the Japanese government has made a huge effort to stimulate household spending through cheques and subsidies for energy-efficient cars and appliances.
Though Singapore's retail sales for August surprised on the upside, they were 5.2% lower than a year earlier. The city-state's consumers have been remarkably slow to respond to the upturn in the domestic economy. Second quarter GDP added 5.1% q/q, and the advance estimate for third quarter GDP growth is 3.5% q/q. The unemployment rate, though, is uncomfortably high. A shift toward durable goods—in particular motor vehicles—could mean Singaporeans are taking advantage of lower prices rather than feeling more confident.
Retail sales in Thailand weakened during August after recovering along with sales in other export-oriented economies. Political uncertainty and lower industrial production and exports kept shoppers away from the malls.
What happens when the stimulus runs out?
In coming months, the stimulatory effect of cash transfers, shopping vouchers and retail subsidies will run out. Taiwan's vouchers were valid until the end of September, and cash transfers in Japan and Australia were one-off measures. Japan's subsidies for environmentally friendly cars and appliances will continue into 2010.
Future retail sales figures will show whether consumers have faith in the economic recovery or whether they were merely spending their stimulus cheques. Improved labour markets are prerequisites for a sustainable recovery of the region's retail sales. Since employment appears to be improving in some economies, there is hope. But Asia's frugal shoppers are hard to persuade to spend.
Tine Olsen is an economist in the Sydney office of Moody's Economy.com. Tine covers Taiwan, Greece and Israel. She has worked for the International Monetary Fund, the Copenhagen Stock Exchange, and the Danish Ministry of Foreign Affairs. She holds a Ph.D. from Monash University and an MSc and a BSc from the University of Copenhagen.
Australian retail sales kept growing
The good news: Australian retail sales never contracted on an annual basis during the slowdown. The country managed to steer clear of recession, and the unemployment rate stopped climbing in June. Retail sales have been helped by government stimulus spending. Money was deposited into the bank account of every citizen who met income limits, and pensioners received extra cash transfers. Yet, even with these measures, nominal retail sales growth has slowed. Australians have in particular been spending less on clothes and soft goods.
New Zealanders have been spending less on retail goods than Australians have. The New Zealand economy grew only 0.1% q/q in the second quarter, and the labour market is under stress from a 6% unemployment rate. With well-developed welfare states and ample access to credit, consumers in Australia and New Zealand are able to smooth their consumption, resulting in a more modest slowdown in retail sales.
Consumers in export economies cut back
When their economies began weakening, consumers in Asia's most export-dependent countries were quick to scale back their spending. Retail sales hit bottom in February and have recovered remarkably, not unlike the recovery in exports. The recovery of retail sales in Hong Kong and Taiwan is noteworthy, since unemployment is still increasing in these two economies. In August, Hong Kong's unemployment rate was 5.8%, well above 2008's average of 3.4%. In Taiwan, August's rate was 6.1%, also above the 2008 average of 4.1%.
Consumer spending in Taiwan has been helped by shopping vouchers distributed in January. Most of the spending from these vouchers is estimated to have taken place early in the year, and more recent increases in retail sales have likely come from improved sentiment; consumer confidence has been improving since midyear. Higher retail sales in Hong Kong in August have been attributed to more tourism and higher asset prices, which support retail sales through the wealth effect.
South Korea's retail sales did not drop as low as those of the other major exporters in the region and have recovered swiftly. South Korea narrowly avoided recession, and its unemployment rate has eased since June. Japanese consumers spend conservatively even in good times, and Japan's retail sales have not dropped greatly, perhaps because consumers have access to high household savings and credit. Also, the Japanese government has made a huge effort to stimulate household spending through cheques and subsidies for energy-efficient cars and appliances.
Though Singapore's retail sales for August surprised on the upside, they were 5.2% lower than a year earlier. The city-state's consumers have been remarkably slow to respond to the upturn in the domestic economy. Second quarter GDP added 5.1% q/q, and the advance estimate for third quarter GDP growth is 3.5% q/q. The unemployment rate, though, is uncomfortably high. A shift toward durable goods—in particular motor vehicles—could mean Singaporeans are taking advantage of lower prices rather than feeling more confident.
Retail sales in Thailand weakened during August after recovering along with sales in other export-oriented economies. Political uncertainty and lower industrial production and exports kept shoppers away from the malls.
What happens when the stimulus runs out?
In coming months, the stimulatory effect of cash transfers, shopping vouchers and retail subsidies will run out. Taiwan's vouchers were valid until the end of September, and cash transfers in Japan and Australia were one-off measures. Japan's subsidies for environmentally friendly cars and appliances will continue into 2010.
Future retail sales figures will show whether consumers have faith in the economic recovery or whether they were merely spending their stimulus cheques. Improved labour markets are prerequisites for a sustainable recovery of the region's retail sales. Since employment appears to be improving in some economies, there is hope. But Asia's frugal shoppers are hard to persuade to spend.
Tine Olsen is an economist in the Sydney office of Moody's Economy.com. Tine covers Taiwan, Greece and Israel. She has worked for the International Monetary Fund, the Copenhagen Stock Exchange, and the Danish Ministry of Foreign Affairs. She holds a Ph.D. from Monash University and an MSc and a BSc from the University of Copenhagen.
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