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MONDAY, OCTOBER 31, 2011
BUSINESS
US regulator rebuts critics funds to fortify firms, not housing market WASHINGTON: Fannie Mae’s and Freddie Mac’s regulator on Saturday rejected criticism he was obstructing a housing recovery by taking too narrow a view of his mission to protect the financial health of the two massive, taxpayer-supported mortgage firms. Edward DeMarco, acting director of the Federal Housing Finance Agency, argued the $141 billion in taxpayer funds Fannie Mae and Freddie Mac had received since they were seized by the government in 2008 were
us to do really go beyond what Congress has given us the authority to do and the funds that have been provided,” he said. Fannie Mae and Freddie Mac, the two largest sources of US mortgage finance, were placed in government conservatorship in September 2008 as mortgage losses skyrocketed. Along with the Federal Housing Administration, they provide the funds for 90 percent of all new mortgages. Some Democratic lawmakers and former Obama
TOKYO: A homeless sits alone with his belongings at a park. The Japanese government said Friday unemployment rate dropped to 4.1 percent in September from 4.3 percent in August. —AP meant to get the companies back on their feet, not to provide “broad relief” to the housing market. “FHFA has been aggressively trying to assist the housing market to ensure that the country continues to have a liquid and stable and functioning secondary mortgage market,” DeMarco said in an interview with C-SPAN public affairs television that was set to air on Sunday. “Some of those things that are being advocated for
administration officials have taken aim at DeMarco’s position on the mandate of the two government-sponsored enterprises, or GSEs. They argue FHFA needs to do more to halt the record pace of foreclosures and cut loan balances for the estimated 11 million US borrowers who owe more than their homes are worth. Lawrence Summers, a former top economic adviser to President Barack Obama, said in a Reuters column last
Sunday that DeMarco had “taken a narrow view of the public interest” in his efforts to protect Fannie Mae and Freddie Mac’s health. “FHFA has not acted on its conservatorship mandate to insure that the GSEs act to stabilize the nation’s housing market, and taken no account of the reality that the narrow financial interest of the GSEs depends on a national housing recovery,” Summers wrote. New initiative In the interview, DeMarco touted a new initiative by his agency to widen a federal program that offers mortgage aid to so-called underwater borrowers. The effort-a retooling of the Home Affordable Refinance Program, or HARP-aims to make it easier for borrowers who hold loans backed by Fannie Mae and Freddie Mac to refinance. “Mortgage rates came down, but there was a set of borrowers who were not able to refinance,” DeMarco said. “Given the changes we’ve made, we estimate that maybe at least we’re roughly doubling what we’ve already seen come through the program.” When HARP was unveiled in March 2009, the Obama administration predicted it would help 5 million borrowers. But so far, fewer than 895,000 have refinanced through the program. DeMarco defended the steps he had taken as being well within his “statutory authority” to oversee the two firms. The regulator said he was now focusing on a way to sell foreclosed properties held by Fannie Mae and Freddie Mac to investors willing to convert them into rental properties. “We’re turning to this as the next priority,” DeMarco said. But he stood firm against suggestions the regulator open the door to principal reductions on loans backed by Fannie Mae and Freddie Mac. “On a stand-alone basis, principal forgiveness doesn’t accomplish our conservator mandate relative to the loan modifications tools and techniques that we have in place right now,” DeMarco said. He said it was up to Congress and the administration to decide how to restore the housing market. “That policy debate needs to take place and we need to await an act of Congress to give us clear direction on where we’re going forward and what the timeline for that is,” he said. “The longer this goes on, the harder it is for FHFA to know what to do.” —Reuters
The euro’s wild week: Peek behind the scenes BRUSSELS: Berlusconi ordered to shape up, Merkel and Sarkozy at odds, banks arm-twisted-the race to save the euro before last week’s summit saw moments of high drama in the corridors of European power. On October 19, Jean-Claude Trichet, the outgoing head of the European Central Bank, invited the cream of Europe’s financial world to a Frankfurt concert hall for a last drink to celebrate his departure from the ECB. But the fancy get-together quickly turned sour. An EU summit had been scheduled the following Sunday to contain Europe’s debt crisis but there was no
deal on the table. So at the last minute French President Nicolas Sarkozy decided to join the other VIPs, flying out of Paris just as his wife prepared to give birth. Putting glasses to one side, those now known as “the Frankfurt group” gathered to set things right-Sarkozy, German Chancellor Angela Merkel, the ECB chief, the head of the euro-group, Luxembourg premier Jean-Claude Juncker, and EU leaders Herman Van Rompuy and Jose Manuel Barroso. “Everybody was extremely surprised in Frankfurt by the deep difference of opinion between the French and
German suggestions on the EFSF,” the eurozone rescue fund, said an official briefed on the talks. Paris dug in its heels over its suggestion the EFSF be given a licence to operate as a bank that could borrow without limit from the ECB. An angry Merkel, backed by Trichet, put her foot down, saying “Nein!” Finally giving in, the French leader turned to the ECB, asking it to give a signal it was ready to come to the rescue of Italy and Spain by buying back their debt on the market. This time Trichet turned a darker shade of red. “He did not appreciate
this idea at all” and reacted “sharply,” said one negotiator. The ECB’s mandate to remain completely independent is dear to Germany so Merkel demanded that a reference to the ECB that had slipped into a draft summit statement be struck out to avoid all future misinterpretation.Sarkozy nonetheless phoned Trichet’s successor, Italy’s Mario Draghi and on the day the summit finally took place the Italian proclaimed he would continue to take “non conventional” measures. For Paris, that amounts to a clear message the ECB would never let Italy down. —AFP
DENVER: A man is arrested while clashing with police during the Occupy Denver protest, Saturday, Oct 29, 2011. —AP
US protesters defy curfew a 3rd time NASHVILLE: Occupy Wall Street protesters and state officials in Tennessee squared off for a third consecutive night Saturday, even though a local judge has consistently refused to jail the demonstrators. The protesters have been galvanized by the friction between state officials and the local magistrate. Several new demonstrators showed up at the state-owned plaza near the Capitol for the first time earlier in the day. Fifty to 75 people remained after the curfew that started at 10 p.m. local time and runs until 6 a.m. Police did not immediately move in. In previous nights, the defiance has led to arrests. The Nashville arrests came after a week of police crackdowns nationwide on Occupy Wall Street activists, who have been protesting economic inequality and what they call corporate greed. Clashes have occurred in other cities, including Oakland, California, Denver and Atlanta. “My heart has been here all along, but the arrests gave me the momentum to come,” said Vicki Metzgar, 61, director of a Nashville Public Schools science and math initiative. “This (plaza) belongs to us, not the politicians.” In Oakland, California, an Iraq War veteran was seriously injured during a protest clash with police Tuesday night. In Atlanta, helicopters hovered overhead Wednesday as officers in riot gear arrested more than 50 protesters at a downtown park. In San Diego, police arrested a similar number of people who occupied the Civic Center Plaza and Children’s Park for three weeks. And in Denver on Saturday evening, authorities moved into an encampment of protesters and began arresting demonstrators just hours after a standoff near the steps of the Colorado Capitol turned into a skirmish that ended in police force, including pepper spray and reports of rubber bullets. Nashville magistrate Tom Nelson has said there’s no legal reason in his city to keep the demonstrators behind bars and he has released them after each arrest. He has refused each night to sign off on arrest
warrants for more than two dozen people taken into custody. Some legal experts agreed with the judge. The arrests appeared to be a violation of Constitutional rights that allow for people to peacefully assemble, said attorney David Raybin, a former prosecutor. He and others said the nature of the arrests, coupled with the judge’s refusal to sign off on the warrants, could become ammunition for lawsuits. Nelson did not return an email seeking and a phone number for him could not be found. State troopers began enforcing the cur few at the Legislative Plaza on Thursday night. Others questioned the timing of the curfew. The protesters had been demonstrating for about three weeks before it took effect, a point that Nelson said he factored into his decision. “You can’t pass a curfew mid-protest because you disagree with this group of protesters,” said criminal defense attorney Patrick Frogge, who is representing some of those arrested. The state Department of Safety has been carrying out the arrests. Commissioner Bill Gibbons, who until he joined the Haslam administration was the district attorney in Memphis, said he didn’t have a role in developing the cur few but assured Haslam his department could enforce it. Gibbons developed a reputation as an able and tough prosecutor in Memphis, where gang and drug violence have been problems for years. He ran against Haslam for governor in the GOP primary, touting his law-and-order credential and sharply attacking his multi-million-dollar opponent for refusing to divulge how much income he gets from the familyowned chain of Pilot truck stops. Cecily Friday, one of the original Occupy Nashville protesters, said the administration’s attempt to get rid of the demonstrators has “completely backfired.” “Over 1,000 people have been added to our Facebook page since the arrests,” she said. —AP
Banking sector in GCC maintains stability KAMCO MARKET RESEARCH KUWAIT: Albeit the never-ending repercussions of the global financial crisis sparing no financial system across the region along with massive provisioning booked against credit losses and impairments on investments, the banking sector in the GCC region has upheld its enviable position as the key sector in the region. The sector has managed to maintain a relatively sound profitability and asset quality levels while repairing balance sheets, securing adequate provisions reser ves for potential credit losses, and booking impairments on investments. Looking ahead, notwithstanding the sector’s policy to maintain a safe level of provisions along with cautious strategy in extending loans to certain sectors, the combined net profit of Banks in the GCC region is expected to grow further at 15 percent during 2011 to a record high of $21 billion, and therefore exceeding the $20 billion profits recorded during 2007. Moreover, the sector is seen to head towards a favorable operating environment fueled by governments’ massive expenditures on infrastructure projects and real economic sectors along with a positive economic outlook for the GCC states fueled by robust oil prices that are forecast to remain above $100 per barrel. Credit growth in the GCC region improved during the first half of 2011 on the back of robust economic growth across the region which spurs a pickup in lending to the private sector. Credit remained tight in UAE and Kuwait, where the property market correction and troubled investment companies, real estate developers, and GRE (in Dubai) are hampering the banking sectors’ recovery in both countries. The Gulf region’s prominent economic outlook supported by fiscal stimulus plans implemented
by most governments along with robust oil prices should eventually prompt greater lending by banks, with credit growth is forecast to pick up by the end of the year. Access to credit became difficult, as banks gradually tightened their credit lines after booking massive provisions when the downturn in the property and equity markets led to a sharp drop in asset prices and rise in credit risk. Exposure to Dubai World and Saad Group and Ahmad Hamad AlGosaibi, added fuel to the fire and forced banks to follow a more cautious lending policy.
Governments in the GCC region are seeking many ways to encourage resumption in bank lending after a stagnant growth in the last two years. Economic recover y in the region should be associated with increasing the contribution of the private sector in economic activity (Kuwait, Qatar and Saudi Arabia) in addition to the huge infrastructure projec ts implemented by some countries (Saudi Arabia & Qatar) that will act as the major catalyst for economic development. We do expect a further improvement in credit growth in the GCC region, especially in Qatar, Saudi Arabia, and Oman in the last quarter of this year and throughout 2012.
Credit facilities for the whole banks in the Gulf region are expected to reach by the end of the current year $750 billion, representing an annual growth rate of 8 percent during 2011 fuelled by the robust growth in Saudi Arabia and Qatar which are forecast to add further $22 billion and $19 billion in 2011, respectively. In Saudi Arabia, credit growth is at two-year highs, but it’s still stagnating in the UAE and Kuwait. Credit growth in the Kingdom accelerated to 8.7 percent year- on-year in August, the highest since April 2009 and is expected to record 12 percent
during 2011. In Qatar, credit growth remains robust at 18 percent yearon-year in August and is forecast to continue throughout the coming year; credit facilities extended by Qatari banks grew at 18 percent in September, year-on-year, and are expected to continue their upward trend to grow at 22 percent during full year 2011. However, in the UAE credit growth slowed to 1.5 percent (y-o-y) in June and in Kuwait it remained sluggish at 1.4 percent. Credit growth is forecast to remain low in Kuwait at 1 percent during the year 2011 on the back of challenging business environment for banks, low demand for credit, and delay in implementing the develop-
ment plan, deleveraging along with volatility in local bourse and correction in property market. In the UAE, the wait for the final completion of Dubai World’s debt restructuring by the end of the year or early 2012 continues to act as an obstacle to any improvement in credit growth, especially in Dubai. A pick-up in credit growth in Dubai is not expected in the last quarter as weak economic activity and the continued pressure on the real estate market along with debt restructuring and high levels of provisions pushed banks to reduce lending to the private sector to
improve liquidity. In Abu Dhabi, credit growth is picking up in line with the government ’s fiscal stimulus plan. Profitability of GCC banks Despite the retreat in profitability levels from its record high in 2007, deterioration in assets quality for some key players in the sector triggered by the challenging business environment and credit risk, the GCC Banking Sector upholds its high reputation and remains the backbone of the GCC states economies; it is also continued to be seen as one of the prime, prominent and most attractive sectors that would benefit from the fiscal stimulus policies adopted
by the GCC governments and the improvement in life conditions of local citizens that is fueling consumption and economic activities. Despite diminishing financial results of the GCC banking sector in 2008 and 2009 when combined net profit dropped by 16 percent and 6 percent respec tively, the Sec tor enjoyed a solid financial standing, remained profitable and highly liquid and was able to expand its balance sheet supported by governments’ policies which aimed at strengthening the financial position of the sector and boost liquidity in
the credit market. During 2010, the Sector returned back to record positive growth rates in its bottom line figures with combined net profit growing at 13 percent to record $18.3 billion compared to $16.1 billion in 2009. The upbeat performance came in spite of the tight credit conditions, downturn in the property market along with the high volatility in equity securities forcing many banks to book further provisions and impairments which stood at nearly $9.3 billion in 2010. Even though, provisions remain above the $4 billion level during the First Half of 2011, the combined net profit of GCC banks hiked 20 percent versus 1H-10 to record $11.3 billion.
This was mainly fuelled by a healthy growth in operating profits before accounting for loan loss provisions (LLPs) and impairments which grew at 12 percent to $15.4 billion driven by an improving operating environment and growth in the loan portfolios. Accordingly, and in line with the GCC banks’ performance during 2010 and 1H-11, core profitability ratios saw gradual improvements where Return on Average Assets (RoAA) and Return on Average Equity (RoAE) for the sector improved during the last 12 months period ended June-11 to 1.9 percent and 13.9 percent, respectively, yet still below its five year average (2005-2010) of 2.4 percent and 18 percent. This drop in profitability ratios is mainly attributed to high credit risk which forced banks to book massive provisions and impairments, thus weighing down heavily on bottom line figures. GCC Banks’ operating profits The GCC Banking Sector has managed to record growth in operating profit before LLPs and impairments during 2008 and 2009; this growth was achieved despite the challenging operating environment over the same period along with declining interest rates and weak economic activities. Operating profits before LLPs grew by 8 percent and 12 percent during 2008 and 2009 to reach $25 billion and $27.8 billion, respectively. However, the year 2010 witnessed no growth in operating profits before LLPs, while the First Half of 2011 witnessed a 12 percent rise versus 1H-2010 on the back of a 7 percent increase in net interest income, thus reflecting the improvement in operating environment and the increase in lending activity despite the low profit margins resulted from depressed interest rates that are currently hovering around their lowest levels in years.