Basel requires top banks to have core capital buffer equivalent to at least 7% of assets
Pimco sees Asia advantage as bright outlook shrinks spreads
Asia’s stronger balance sheets and better economic outlook will see the yield premium investors demand to own the region’s debt versus US bonds shrink, Pacific InvestmentManagementCo(Pimco), manager of the world’s biggest fixedincome fund, predicts.
Sectors to watch include energy, financials and high yield, where corporate issuance since Dec 31 set a record with 76 new deals totalling more than US$30.4bil, the Newport Beach, California-based fund manager said in its latest Asia Credit Perspectives report, released yesterday.
Theextraspreadinvestorsdemand to hold Asia dollar bonds has fallen 25 basis points this month to 333 basis points, Bank of America Merill Lynch indexes show. That compares with a 3 basis-point fall to 152 for debentures from US companies.
“There are many advantages to investing in Asia,” said Raja Mukherji, the Hong Kong-based head of Asian credit research at Pimco, which had US$1.97 trillion in assets under management as of June 30. “The region enjoys decent rates of growth which exceed much of the developed world.”
Developing nations in Asia are forecast to expand almost four times faster than developed economies in 2014, according to International Monetary Fund world growth estimates released in July.
The last several years had seen some extraordinary growth in Asian credit markets and ongoing trends, including supply and demand dynamics, banking sector deleveraging and increasing demand for energy across the region painted a vivid picture for credit investment opportunities, Pimco said.
Borrowers in Asia outside Japan sold some US$93.1bil of US dollardenominated bonds this year versus US$84.1bil the same period of 2012, according to data compiled by Bloomberg.
Issuance ground to a halt in June after the Federal Reserve signalled it might begin tapering stimulus this year, sending bond yields to a oneyear high as funds demanded compensation for the cost of future interest-rate rises. – Bloomberg
The top 42 banks in the European Union will need an extra 70.4 billion euros (US$95bil) of capital to comply with new rules that take full effect in 2019, according to the bloc’s banking watchdog.
Markets and regulators have been putting pressure on banks to move early to comply with the new global Basel III accord being phased in, to dispel any doubts about their ability to thrive and encourage investors to buy their bonds and shares.
The European Banking Authority (EBA) published its latest update, estimating that by the end of 2012 the 42 banks’ capital shortfall had been cut by 29.1 billion euros compared with six months before that when it released its previous report.
Basel roughly triples how much capital banks must hold compared with before the 2007-09 financial
Americans are losing faith in the nation’s economic recovery even as forecasters expect growth to accelerate, according to a Bloomberg National Poll.
Fewer people anticipate improvement in the economy’s strength over the next year than in the last survey in June, with 27% saying the expansion will be more robust, down from 39% who expected improvement three months earlier.
About 44% of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same, while 28% see it weakening.
“We’re still in a recession; I don’t know why they say it’s over,” said Chris Sams, 28, a disabled Navy veteran from Daingerfield, Texas. “It may be over in Washington DC where the per capita income is higher than anywhere else, but down here the minimum wage is the highest wage.”
The results of the Sept 20-23 poll reflect public impatience with an economy that has grown at an average rate of 2.1% since the recession’s June 2009 end, a full percentage point below the 50-year average, according to data compiled by Bloomberg. Growth will slip to 1.60% this year, according to the median forecast in a survey of economists, before rebounding to 2.65% growth crisis when many undercapitalised lenders had to be rescued by taxpayers. It requires banks to have a core capital buffer equivalent to at least 7% of their assets on a risk-weighted basis by January 2019.
Under Basel III, banks must also have separate buffers of cash and government debt by 2019, known as a liquidity coverage ratio, to survive market shocks of up to a month unaided. The rules apply to all banks, but they are mainly aimed at the big global banks.
The EBA said that by December last year the top 42 banks already held more liquidity than they are required to by 2019.
In Britain, top banks are being encouraged to tap some of their excess liquidity to lend out and aid economic recovery.
There was, however, a liquidity shortfall of 225 billion euros among the remaining 128 smaller, more domestically-focused banks in the sample of 170 lenders studied by the EBA.
A third element of Basel is a leverage ratio set at 3% from 2018, meaning banks must hold capital equivalent to at least 3% of their total nonrisk-weighted assets. It is meant to serve as a simple back-stop in case banks have incorrectly added up their risk weightings to calculate core buffers.
Regulators in Britain have been pushing hard for UK banks to meet this target as soon as they can.
The EBA said that by December last year, the average leverage ratio for 40 large banks it surveyed was 2.9%, with 58% of them reaching 3%.
The combined capital shortfall of those top banks that did not meet the 3% target was 106.6 billion euros, the watchdog said. The EBA and the European Central Bank will carry out a health check of banks across the European Union later this year which is expected to show shortfalls in capital that will have to be plugged. – Reuters next year.
Public dissatisfaction with the economy is also linked to growing distress over the nation’s political conflicts. Only 25% of those surveyed said the United States was on the right track – the lowest mark since September 2011, a month after Standard & Poor’s downgraded US government debt. About 68% say the country is headed down the wrong track.
Disputes between Democrats and Republicans over the federal budget, the nation’s borrowing limit and President Barack Obama’s new healthcare law are threatening to trigger a government shutdown or a debt default.
Amid the political turmoil, those polled give little indication they anticipate major financial moves.
More than eight of 10 say they don’t plan to take on more debt or borrow money to make ends meet. And pluralities of 40% or more say they see no change in either their overall financial security, job security for members of their households, retirement savings, investments, or their ability to spend on vacations or entertainment.
Poll respondents are less optimistic about the job market over the next year than they were in June. The percentage of those foreseeing stronger employment fell to 36% from 42% in the previous poll. That findingcomesas the averagenumber of jobs created each month declined to about 148,000 over the past three months from 172,000 in the three months preceding the last poll.
Fewer Americans also forecast improvement in the housing market with 42% saying the situation will get better, down from 51% three months ago. – Bloomberg