Saw this article from Seeking Alpha. David Merkel on a book written by Homer and Sylla on "A History of Interest Rates 4th edtion".
Saturday, December 27, 2008
A History of History Rates
SEC Glass Seagall 99 and 04
SEC has really done a very bad job.
The Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called Sarbanes-Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002 in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of the affected companies collapsed, shook public confidence in the nation's securities markets. Named after sponsors Senator Paul Sarbanes and Representative Michael G. Oxley, the Act was approved by the House by a vote of 334-90 and by the Senate 99-0. President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt."
http://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission
The bill that ultimately repealed the Act was introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA) in 1999. The banking industry had been seeking the repeal of Glass-Steagall since at least the 1980s. In 1987 the Congressional Research Service prepared a report which explored the case for preserving Glass-Steagall and the case against preserving the act.
The argument for preserving Glass-Steagall (as written in 1987):
The argument against preserving the Act (as written in 1987):
The repeal enabled commercial lenders such as Citigroup, which was in 1999 then the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.
http://en.wikipedia.org/wiki/Glass-Steagall_Act
SEC 2004 - On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks. They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary. A lone dissenter — a software consultant and expert on risk management — weighed in from Indiana with a two-page letter to warn the commission that the move was a grave mistake. He never heard back from Washington. One commissioner, Harvey J. Goldschmid, questioned the staff about the consequences of the proposed exemption. It would only be available for the largest firms, he was reassuringly told — those with assets greater than $5 billion.
http://sites.google.com/site/ec510fall08/04-bank-rule
Cheung Kong Group
Cheung Kong (Holdings) Limited (Cheung Kong Holdings) is the flagship of the Cheung Kong Group, headquartered in Hong Kong, and one of Hong Kong's leading multi-national conglomerates.
In Hong Kong alone, the Group has nine companies.
Cheung Kong (Holdings) Limited
Hutchison Whampoa Limited
Cheung Kong Infrastructure Holdings Limited
Hongkong Electric Holdings Limited
Hutchison Telecommunications International Limited.
Hutchison Harbour Ring Limited
TOM Group Limited.
CK Life Sciences Int'l., (Holdings) Inc.
TOM Online Inc.
The Chairman of Cheung Kong Holdings is Mr. Li Ka Shing (李嘉誠), while his elder son, Mr. Victor Li, is the Managing Director and Deputy Chairman.
Cheung Kong Holdings is one of the largest developers of residential, office, retail, industrial and hotel properties in Hong Kong. With its long history of property development expertise and residential estates, Cheung Kong Holdings has built many of Hong Kong's most notable landmark buildings and complexes. Mr. Li Ka Shing founded Cheung Kong Industries in 1950 as a plastics manufacturer. Under his leadership, the company grew rapidly and eventually evolved into a property investment company. "Cheung Kong (Holdings) Limited" was developed in a successful way from 1970s.
1928 Li Ka-shing is born in Shantou, China
1940 Moves to Hong Kong
1950 Starts Cheung Kong factory making plastic flowers
1958 Makes first property investment
1964 First son Victor is born in Hong Kong
1966 Second son Richard is born in Hong Kong
1972 Li Ka-shing's company lists on Hong Kong stock exchange as Cheung Kong Holdings
1979 Li Ka-shing buys property and trading conglo Hutchison Whampoa from HSBC
1983-90 Victor Li works on real estate projects for his father in Vancouver
1985 Li Ka-shing buys Hongkong Electric, the territory's main power supplier
1985 Victor Li graduates in construction management and engineering from Stanford
1985 Hutchison Telecom to launch mobile phone service in Hong Kong
1987 Richard Li graduates from Stanford with a degree in computer science ?
1987 Richard Li becomes partner in Gordon Capital, a Toronto investment bank
1987 LKS bought 52 percent of Husky Oil from Nova of Canada.
1990 Victor Li returns to Hong Kong to work for Cheung Kong
1990 Richard Li returns to Hong Kong to work for Hutchison Whampoa
1991 Richard Li launches Star TV
1991 He bought Nova's stake and merged Husky with Renaissance Energy in 2000.
1993 Richard Li sells Star to News Corp. for $950mm, launches Pacific Century Group
1994 Li Ka-shing establishes Orange mobile phone service in Britain
1996 Richard Li establishes Pacific Century CyberWorks
1996 Launches Cheung Kong Infrastructure Holdings to consolidate construction ops
1996 Victor Li kidnapped. Father paid more than $100 million for his release
1999 Richard Li announces Cyberport, a government-backed real estate venture
1999 Li Ka-shing sells Orange to Mannesmann, gets 10% of German firm's shares
1999 Victor Li's kidnapper, Cheung Tze-keung, executed in China
1999 Victor Li becomes MD of Cheung Kong and deputy chairman of Hutchison Whampoa
2000 January Li Ka-shing establishes Tom.com
2000 Mannesmann bot by Vodafone in biggest takeover,ends up with USD15bn stock
2000 February Tom.com's IPO is oversubscribed 669 times
2000 February Richard Li buys Cable & Wireless HKT for $38 billion
2005 LKS sold USD1bn stake in CIBC and donates it to LKS foundation.
The story begins in 1979, when Li Ka-shing purchased what became the controlling interest in one of the oldest, 19th century British trading houses, or "hongs" of Hong Kong, known as Hutchison-Whampoa. Already a millionaire from real estate and property management investments, Li launched a diversification program through HW that involved trading, cargo and container operations, logistics, warehousing, engineering and even retail sales.
Li expanded into the utility and energy fields in 1985 by acquiring a 33 percent interest in Hong Kong Electric Holdings Ltd. Two years later in 1987, Li expanded overseas again, this time by taking a 43 percent interest in Husky Oil, an oil and gas company based in Canada. Since then, Husky Oil ownership has shifted to 46 percent ownership by Li and his family, 49 percent-owned by HW and 5 percent by the Canadian Imperial Bank of Commerce. Husky ranks among Canada's top producers of crude oil, natural gas and recovered sulfur.
The 1990s brought continued diversification and expansion to Li's holdings. In 1993, Li became involved in a bidding war over Hong Kong's Miramar Hotel & Investment Company. Interestingly, Li's partner in the bid was CITIC Pacific, the Hong Kong-listed arm of the China International Trust and Investment Corporation that is controlled by the Communist Chinese government. His "opponent" (to whom he "lost") in the Miramar bidding was Mr. Lee Shau-kee -- Li's partner in many other joint ventures. Li's partnerships with CITIC and Lee in various investment and development initiatives are frequent and diverse. Mr. Li's interest in hotels continued through 1994 when Hutchison International Hotels entered into joint ventures with the Beijing government over two of the oldest hotels in the capitol. The Chinese tycoon has also formed a subsidiary called Cheung Kong Infrastructure, as a diversified infrastructure company committed to the fast-growing Asian infrastructure market, especially mainland China. CKI divisions include:
CKI Materials, which is one of Asia's most successful cement, concrete, asphalt and aggregates operators.
CKI Energy, which has interests in power plants in four provinces in China, including Guangdong, Henan, Liaoning and Jilin.
CKI Transportation, the portfolio of which comprises a variety of road transportation systems, ranging from a section of the National Trunk Highway System to city roads and ring roads.
Then there is the arguably largest "public works" project in the world -- the Panama Canal. Under the terms of the Carter-Torrijos Treaty of 1977, the United States was due to relinquish control of the canal and associated port facilities in a time-phased process culminating in a complete turn over to the Panamanian government on Dec. 31, 1999. In 1996, the Panamanian government of President Ernesto Balladares opened bidding on the port terminal concessions at both the Atlantic and Pacific entrances of the canal. Under bidding practices and circumstances that were reportedly fraudulent, HW won the bidding. HW subsidiaries Hutchison Port Holdings and the Panama Ports Company now effectively control the Panama Canal.
HW has done well as the operator of Hong Kong International Terminals, the world's largest independently owned container terminal, and, profits from HW port and related services totaled $3,097 million in Hong Kong dollars. As the world's biggest independent port operator, Hutchison Port Holdings has invested in 17 ports, operates 79 berths and handles about 10 percent of global container traffic. Operating ports include Shanghai in China; Felixstowe, Thamesport, Harwich in the UK; Freeport Container Port on Grand Bahama Island; and a 50 percent interest in the Grand Bahama Airport Company, which comprises an 11,000-foot long runway capable of handling the world's biggest aircraft. This investment also includes a 780-acre tract of land between the airport and container port. Plans are being prepared to develop this into an industrial park, which will also contain a sea/air business center. Other investments in the Bahamas include three hotels and two golf courses.
Not satisfied with controlling Britain's three principal seaports and the Panama Canal, Li's European expansion includes a $357 million plan to acquire the continent's largest container handler, Europe Combined Terminals in Rotterdam, Holland. The European Commission launched a four-month investigation into the proposed deal, ending with a determination to allow HW to negotiate a 35 percent stake in ECT.
In further bids to "diversify," Li has purchased all of South Australia's electricity distribution and retail assets, also pledging to acquire a 25 percent stake in the Bangkok Transit Systems Company's "Skytrain" project -- costing Mr. Li between $100 and 200 million.
http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=18750
http://en.wikipedia.org/wiki/Cheung_Kong
Wednesday, December 24, 2008
PCCW Stock Crash
2 key things abt the PCCW - the cyberport project as well as the bidding for the HKT project. Alot of investors got hurt when the price dropped significantly.
RLI dropped out of Stanford shortly before graduation, he joined some financial company to learn deal making and was for a while trying things out in Canada, but was persuaded to join Hutchinson-Whampoa during which he started a number of initiatives. The best known being the establishment of a satellite TV company, a loan from the father, which was sold to the Murdoch group (profit US$400M); 6x return on a 3yr horizon. However, he soon launched out on his own, buying a small Singapore finance company, renaming it Pacific Century Regional Development and injecting some of his HK based high tech operations into it, so that PCRD became their holding company.
In 1999 the HK government initiated the Cyberport project, basically a business park specially designed to support high tech operations, and in early 2000 awarded it to Li's Pacific Century Cyber Works company without going through the full competitive bidding process, which aroused some criticism. This is a 2bn, 240k sqm venture.. but PCCW was allowed to build the project on prime RE without competitive tender.
This was overshadowed when PCCW bot over HKT in Aug 2000, sidestepping Singtel in the process. The bought over was financed by a package of USD11bn in debt and PCCW shares. It enticed investors with some high tech schemes that PCCW will be able to implement once in control. However, with the dot-com crash, stocks dropped from S$4 to 20c at one point. PCCW was the worst performing blue chip on HKSE on 2002 and 2003from intense local telco competition and a struggling international JV Reach with Telstra. In 2003, C&W cashed out of its 14.7% stake in PCCW, taking out USD1.9bn instead of the USD5bn worth in 2000. PCCW purported to hv launched a STG2bn bid for C&W but got rebuffed in feb 2003. RLI gave up CEO in jul 03 but remained chairman. Jack So left MTRC to run PCCW.
For a number of years PCCW diligently worked to reduce its debt burden, including inviting China Netcom to purchase a 20% share holding at HK$5.90 per share, well above the then market price (for US1bn capital injection). This brought hope that PCCW would be able to actively expand its business in China. A saving grace was an early bet on IPTV .
RLI tried to sell PCCW in 2006 to potential buyers like Macqaurie and TPG. But got rejected. After the apparent China veto, Leung stepped on to the scene to buy the 23% stake for $1.2 billion in a shadowy deal that sent the company's stock plunging. Leung will borrow 70% of the acquisition price from PRCD, company 75% owned by the younger Li, and no explaination of the source of the remaining 30%. RLI will still hold on 3% of the company and walk away with USD991mm after resigning as chairman.
In 2008, Li’s PCRD and the China Unicom-China Netcom Group are proposing to buy out other shareholders of PCCW for US$1.9 billion, or at a 45% premium to its last traded price. Li and PCRD, and China Netcom currently own 28.5% and 19.5% of PCCW respectively. The deal is structured in such a way that China Netcom would increase its stake in PCCW to 33% and PCRD and Li’s to 67%. For one thing, there is more to the deal than meets the eye. PCCW will pay Netcom and Li/PCRD US$2.3 billion in dividends immediately after the buyout, which is expected to cost them US$1.9 billion upon completion. In other words, the reason the two major shareholders are able to do a deal like this in the midst of a severe global credit crunch is that they are actually getting paid to do it. For their part, Li and Netcom say they would be taking over a hugely indebted group — PCCW’s net debts will rise to US$4.7 billion after it pays out the dividends. But investment bankers are already being sounded out for a separate listing of PCCW’s telecom assets within 18 months of the holding company’s privatisation.
PCCW is the leading internt service provider in HK using the Netvigator brand for dialup modem and DSL service.
http://blog.360.yahoo.com/blog-XIIfDzQobqO5oCYM9UTvZzgKHH4Org--?cq=1&p=285
http://en.wikipedia.org/wiki/PCCW
Asia Peregrine Story
Alot of my ex-colleagues used to be from Peregrine. Doesn't it sound so familiar that the investment banks levered up on so much risk and now they hv to fire so many people? Why don't people ever learn?
Peregrine was founded in 1988 with an initial investment of $38 million by former race car driver Philip Tose and Francis Leung. Both ex-citibankers and had a large number of connections to Hong Kong's business elite including Li Ka-shing, Gordon Wu and Larry Yung. Goal was to profit from the expanding Asian economy by underwriting stocks and bonds to provide capital for the Asian countries.
The company was characterised as "arrogant", and thrived on taking risks. Commenting on their investing during the Tiananmen Square protests of 1989, Leung said, "These events were just a hiccup. We decided we wanted to take advantage of depressed market conditions at the time". In 1994, to create an Asian bond market, they hired Andre Lee from Lehman Brothers to head their fixed income department. Lee, a French Canadian-Korean who grew up within the American military presence in Seoul, was described as a "wild man" and "a salesman who could 'sell snow to the Eskimos.'" By 1996, Lee's operations provided one half of Peregrine's profits. In 1997, Lee stated that infrastructure deals will be "the real phenomena that will create Asian bond markets. Almost single handedly, Lee created the Asian junk bond market.
In 1998, financial markets were changing. Peregrine underwrote the bond issue by Steady Safe, an Indonesian transportation company of $265 million dollar, half of Peregrine's capital. On the surface, the deal looked secure, although repayment would be in Indonesian rupiah. The deal was undersubscribed, and Peregrine was left with the remaining bonds. Following the collapse of Steady Safe along with several other losses during the Asian financial crisis, the company lost all liquidity and after unsuccessful negotiations with would-be suitors and white knights, and closed in January 1998. The Greater China team stumbled into the arms of BNP Paribas, while a substantial portion of the Asia team (ex-China) was hired by Banco Santander.
BNP Paribas Peregrine is now the investment banking arm of BNP Paribas in Asia. At the end of 2006, BNP announced it was aligning its branding throughout Asia, and the Peregrine name was dropped.
http://en.wikipedia.org/wiki/Peregrine_Investments_Holdings
Friday, December 19, 2008
China Reform History - From FT
Long, slow path of reform
1976: Cultural Revolution ends with the death of Mao Zedong, bringing to a close a decade of economic stagnation
1978: Deng Xiaoping asserts himself as leader and sets the country on the path of “reform and opening”
1984: Dismantling of rural communes largely completed, allowing peasant farmers to farm their own land and sell any excess produce for a profit
1989: Against a backdrop of inflation above 20 per cent, protests erupt across the country in solidarity with students in Tiananmen Square calling for political liberalisation
1990-1991: China’s first stock exchanges since the Communist victory in 1949 are opened in Shanghai and Shenzhen
1992: Deng tours southern China to press for faster economic reforms and quell the influence of party conservatives opposed to market liberalisation, sparking a fresh wave of market growth
1997: Hong Kong returns to Chinese rule
1998: The Asian financial crisis hits China, contributing to widespread layoffs in the state sector
2001: China joins the WTO, sparking spurt in export and investment-led growth
2005: China unpegs the renminbi from the dollar, letting it float within a tightly managed band
Saturday, December 13, 2008
Reliance Group
The company was founded by the legendary Dhirubhai Ambani (1932-2002), is India's largest private sector enterprise, with businesses in the energy and materials value chain. Group's annual revenues are in excess of US$ 34 billion. The flagship company, Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector company in India.
Backward vertical integration has been the cornerstone of the evolution and growth of Reliance. Starting with textiles in the late seventies, Reliance pursued a strategy of backward vertical integration - in polyester, fibre intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and production - to be fully integrated along the materials and energy value chain.
The Group's activities span exploration and production of oil and gas, petroleum refining and marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals), textiles and retail.
Reliance enjoys global leadership in its businesses, being the largest polyester yarn and fibre producer in the world and among the top five to ten producers in the world in major petrochemical products.
The Group exports products in excess of US$ 20 billion to 108 countries in the world. Major Group Companies are Reliance Industries Limited (including main subsidiaries Reliance Petroleum Limited and Reliance Retail Limited) and Reliance Industrial Infrastructure Limited.
Reliance Anil Dhirubhai Ambani Group, a group of Indian companies headed by Anil Ambani, including:
- Reliance Capital
- Reliance Communications
- Reliance Entertainment
- Reliance Energy
- Reliance Power
Reliance Industries Limited (NSE: RELIANCE) is India's largest private sector conglomerate (and second largest overall) with an annual turnover of US$ 35.9 billion and profit of US$ 4.85 billion for the fiscal year ending in March 2008 making it one of India's private sector Fortune Global 500 companies, being ranked at 206th position (2008). [1] It was founded by the Indian industrialist Dhirubhai Ambani in 1966.
Though the company's oil-related operations forms the core of its business, it has diversified its operations in recent years. After severe differences between the founder's two sons, Mukesh Ambani and Anil Ambani, the group was divided between them in 2006. In September 2008, Reliance Industries was the only Indian firm featured in the Forbes's list of "world's 100 most respected companies". It is headed by Mukesh Ambani, son of late Dhirubhai Ambani. Reliance Industries Limited has a wide range of products from petroleum products, petrochemicals, to garments (under the brand name of Vimal), Reliance Retail has entered into the fresh foods market as Reliance Fresh and launched a new chain called Delight Reliance Retail and NOVA Chemicals have signed a letter of intent to make energy-efficient structures.
Once-inseparable brothers, Mukesh (right) and Anil (left) Ambani fought publicly and bitterly for months over control of Reliance Group. The company was founded by their late father and is now one of India's largest companies, with revenue equal to 2.6% of the country's gross domestic product. Rumor was that Mukesh was trying to tighten control over group's ambitious telecom venture. In mid-June, their mother Kokilaben brokered peace: Mukesh will now run Reliance Industries ($21 billion market cap) and IPCL ($1 billion) while Anil will get Reliance Energy ($2.8 billion), Reliance Capital ($1 billion), Reliance Infocomm (est. $3 billion) and reportedly more than $1billion in cash.
Key Dates
1948: Gujarat native Dhirubhai H. Ambani, aged 16, travels to Aden and begins working as a clerk at a service station.
1958: Ambani returns to India and sets up an import-export business, eventually focusing on the textile market, which becomes Reliance Textiles.
1966: Reliance launches textile manufacturing, building its first factory.
1977: Reliance goes public in one of India's first and largest public offerings.
1981: The company begins construction of a polyester filament yarn facility in Patalganga.
1986: After Ambani suffers a stroke, sons Mukesh and Anil take over day-to-day direction of the company; the company launches its first petrochemicals production as part of a vertical integration strategy.
1991: Reliance Refineries Ltd. is established in preparation for further vertical integration.
1993: Reliance Refineries goes public and changes its name to Reliance Petroleum.
1997: Reliance Petroleum launches construction of India's largest oil refinery at Jamnagar.
1999: Reliance wins a bid for 12 exploration blocks auctioned off by the Indian government.
2002: Reliance locates the largest Indian natural gas field in decades; Dhirubhai Ambani dies at age 69; Reliance Petroleum is merged into Reliance Industries.
2004: Reliance discovers a new natural gas field in the Bay of Bengal; the company acquires Germany's Trevira, becoming the world's leading manufacturer of polyester.
2006: Reliance Industries is broken up between the Ambani brothers.
http://en.wikipedia.org/wiki/Reliance#Companies
http://www.answers.com/topic/reliance-industries
The Rhone Valley
I really like the Rhone wines bcos it is quite value for money. Think it is quite a good balance of stength and body to go along with. Some of my fav producers include Marcoux, Domanine de Pegau, Pierre Usseglio and Vieille Julienne.
The Rhone river begins life way to the north of Switzerland. It widens to become the central region of the rhone valley, which spans roughly btw Lyons and Avignon. Divided into north/south at the town of Valence.
The Northern rhone is a land of steep slopes carved into the granite hillsides. Vines cling to near vertical surface. Predominant red wine area but some expensive wines originate here. Southern rhone gives way to a broad valley floor. Enormous quantity of mediocre reds produced but pockets of superb quality exist.
North Rhone - Syrah (called shiraz outside france) and Viognier for whites although it is used sparingly in reds as well. Marsanne and Rousanne are also grown for whites. In the South Rhone, grenache, syrah and Mouvredre and Cinsaut are used for red and Grenanche Blanc, Picpoul, Marsanne and Rousanne are used for the whites.
The famous wine of Hermitage takes it names fom the hill of Hermitage above the town of Tain. Deep, dark and serious, these are strapping, tannic and vigourous in youth as they grow more finese and complex as they age over 20yrs or more. White hermitage is also produced.
Cote Rote can contain up to 20% of white viognier. More often than not, its 100% syrah. More approachable than Hemitage, more aromatic and graceful. Crozes hermitage are more easily available made from less formidable slopes around hermitage. It is a syrah with some quality but lower priced. St Joseph and Cornas are other syrahs with strong personality but on opp bank of the river.
Northern rhone also produced some very rare and expensive white wines from viognier grape such as Condrieu and Chateau Grillet. Clean and highly aromatic and at the same time powerful and full bodied. Just south of Côte Rôtie we find Condrieu, and here the colour changes from red to white. This is a wine made solely from the Viognier grape, a lovely variety, which is also used to add interest to Côte Rôtie. This, in my opinion, is the Rhône's finest white wine. At its best it is heady and intense, but it maintains balance, with fresh acidity and sensible alcohol - this latter characteristic being the point on which all New World Viognier wines disappoint me - they can be intense, but generally have excessive, mouth-searing alcohol. Unlike many wines of the Rhône, Condrieu is best enjoyed young - within a few years of bottling. St Joseph is prob the North's most underrated appellation for red and white. Juicy and best drunk young <10yrs.
Top northern producers include Guigal, Jaboulet, Chapoutier, Chave and Grippat.
For the southern A vast amount of light, easy-drinking wine is made, sometimes using the technique of carbonic maceration found in Beaujolais. The Cotes Du Rhone consists of 17 villages. Rather like the Beaujolais Villages, the best are sometimes labelled with the village name, appearing only in tiny print: Cairanne, Sablet, St-Gervais, Seguret, etc. These should be superior wines, spicy, strong and suitable candidates for 5 to 10 years cellaring. They have lower yields and higher alcohol than the basic appellation. Whites in the south tend also to be blends. Modern techniques mean they are usually fresh and enjoyable.
The name CDP means "The Pope's new castle", a reference to when nearby Avignon became the home of the papal court in the 14th century. No fewer than 13 grape varieties are permitted in CDP, which is easily the leading wine of the Southern Rhone. In theory this means the wine-maker has various options at his or her disposal each vintage depending on how individual grape varieties have performed. In practice, most CDP is made up of the 3 highest quality grapes: Grenache, Mouvredre and Syrah. This is a wine which is invariably high-alcohol, heady and rich.
The wines of Gigondas and Vacqueyras are built in a similar style to CDP and can offer high quality, often substantially cheaper than their famous neighbour.
A good deal of quality fortified sweet wine is made too, the most famous example being the Muscats of Beaumes-de-Venise. These are "Vins Doux Naturels", that is they are fortified wines, made by adding spirit part way through fermentation. This produces a wine that is high in alcohol and sugar, and is dominated by grapey flavours.
The Rhône Valley has been fortunate with a recent run of good vintages in 2000, 1999 (north better), and 1998. 2001 was excellent in the south, whereas floods ruined the 2002 vintage. Other good vintages include, for the north, 1995, 1994, 1991 (Côte Rôtie and Cornas only), 1990, 1989, 1988, 1987, 1986, 1985, 1983, 1982, 1980 and 1978. For the south, 1995, 1994, 1990, 1989, 1988, 1985 and 1978.
Monday, December 08, 2008
"Six Decades of Dom Perignon"
"My only regret in life is that I did not drink more champagne"
John Maynard Keynes (1883-1946) economist.
Champagne - White sparkling wine produced from Champagne in NE France. 2bn bottles produced yearly, 250mm are champagnes. Apparently, there are 58 million bubbles in a opened bottle. First vintage luxury cuvee Dom Perignon was in 1921 and released 1936. Named after 17th century Benedictine monk DOm Pierre Perignon of the Abbey of Hautvilliers near Epernay, a viniculture visionary who had exceptional palate responsible for many ideas that are practised today. He is credited with introducing blending to champagnes and successfully contain the local sparkling wine in reinforced glass bottles by sealing them with spanish corks.
Cuvee Dom Perignon is a vintage, meaning that it is only made in the best yrs and all grapes used were harvested in the same yr. Current cellar master is Dr Richard Geoffrey. Geoffrey selects the best grapes from 25-50 vineyards to create cuvee Dom Perignon. Generally age in contact with lees in the bottle for abt 7yrs. Roughly a blend of pinot and chardonnay, abt 50% depending on vintage. Grand cru vineyards from Cotes Du Blancs for chardonnay and Montagne De Reims for Pinot Noir and a little bit of pinot from the premier cru Hautvillers is also always in the blend perhaps for sentimental or historical reasons. One innovations of Geoff is the Enotheque, a library collection of mature Dom Perignon min 10yrs but oftern 15 or more. Quite overwhelming stuff.
Pierre Gimonnet, Blanc de Blancs, Special Cuvée 1er Cru, 'Gastronome' Brut 2004
- Pale bright yellow. Finish clean and dry. Nice to start off dinner. S$98
2000 Dom Pérignon - Pale gold with white beads. Smoky aromas and toasty.
1990 Dom Pérignon - Elegant, best of the lot. Can taste the fine bubbles.
1985 Dom Pérignon Œnoteque - Floral, velvety and buttery. Better than 76. S$1299
1976 Dom Pérignon Œnoteque - chewy powerful,layered richness. A bit strong. S$1498
1969 Dom Pérignon - Honey nose and coffee. A little bubbly dessert wine?
1952 Dom Pérignon - Deep golden. leather and meat on palate. Chateau Yquiem without sugar.S$1380
1994 Reinhold Haart "Piesporter Goldtröpfchen" Auslese - Kerosene nose. S$252
Ambience at Prive was good. But food, i think is so-so.
The "Six Decades of Dom Perignon" Dinner
7:30pm, Saturday 6th December 2008 at Privé, Marina at Keppel Bay
Pre Dinner Canapes
Pierre Gimonnet, Blanc de Blancs, Special Cuvée 1er Cru, 'Gastronome' Brut 2004
Dinner
Carpaccio of Swordfish with Olive Oil, White Soya Sauce, Sesame Seeds and Chives
Dom Perignon 2000
Composed plate of Foie Gras, Hokkaido Scallop, Cured Salmon with Salmon Roe, Fines de Claires Oysters au naturel, and Morel Mushroom Soup
Dom Perignon 1990 & Dom Perignon 1952
Slipper Lobsters in Muscat de Beaumes de Venise Sauce with Polenta
Dom Perignon Œnoteque 1976
Chaource and Brie de Meaux
Dom Perignon Œnoteque 1985 & Dom Perignon 1969
Grand Marnier Soufflé
1994 Reinhold Haart, Piesporter Goldtröpfchen Auslese
Menu by Wayne Nish - One of few chefs in the world to have had a total of 16 stars bestowed upon him by The New York Times, as well as a Michelin star in 2006, Master Chef Wayne Nish's career spans nearly three decades, a considerable range of cuisines, and the reputation as one of America's most innovative culinary talents.
Drawing inspiration from New York City's historical and cultural diversities, the Japanese-Norwegian-Maltese Nish has made headlines for his iconoclastic approach in the kitchen, transcending global boundaries to create dishes that are truly his own.
Acclaimed for his work at NYC's legendary restaurants, La Colombe d'Or and The Quilted Giraffe, Nish went on to open his own restaurant, March (where he earned his Michelin star) that remained a centerpiece on the New York dining scene for nearly 17years. Nish and his restaurants have also received numerous other culinary accolades aside from the New York Times and the Michelin Guide, including four-star reviews by Forbes, Newsday, a "Best Of New York" Gault Millau Award, a "Restaurant Of The Month" award by Bon Appetit, and "The Golden Dishes" award by GQ Magazine.
Nish has participated as a guest chef and judge on many prestigious culinary programs, and other prominent special events including major fundraisers. He has also appeared as a special guest chef on numerous radio, cable, and TV shows including the original Iron Chef series in Japan, where he was the first American contestant.
Tata and India
India put in $60bn in spending to boost export, RE and infra. Budget deficit projected to be above 8% Mar 2009. Key repo rate slashed by 100bps to 6.5%. Also injected more than $60bn in primary liquidity. Tata Motors and Mahindra and Mahindra were hit badly. Hundreds of textile business went bust and exports dropped 12.1%. Vodafone to appeal against India tax ruling... another potential pitfall in investing in India.
Mr Tata family led conglomerate has a history of 140 years. Just 12 months ago the group and its statesmanlike chairman symbolised the ascendancy of Indian business, making bold acquisitions overseas and increasing its revenues at double-digit percentage rates.
A multinational with revenues in the year ended March of $62.5bn, 350k employees and ops in industries from steel to vehicles, telcos and retailing, the Tata group penetrates almost every area of Indian life. Tata Motors is India’s largest truckmaker, Tata Steel its biggest pte sector steelmaker and Tata Consultancy Services its largest info technology outsourcing company.
Controlled by three family-run trusts, an unlisted parent company, Tata Sons, acts as a provider of strategic direction and capital to the group, whose listed op companies are given leeway to run themselves. The group’s central figure is its 70-year-old chairman, a scion of the Tata business clan. The family hails from Mumbai’s Parsee community, an ethnic minority that traces its origins to Iran and follows the ancient Zoroastrian religion.
Mr Tata launched internationalisation by buying Britain's Tetley Tea in 2000. In 2006, the group followed this with the largest overseas acquisition by an Indian company: the £6.7bn acquisition by Tata Steel of Corus, the Anglo-Dutch steel producer. Previously, no Indian overseas acquisition had been worth more than $1bn. And Tata this year bought Jaguar and Land Rover, the lossmaking Ford marques, for $2.3bn. But perhaps the high point of Mr Tata’s career came in January when he unveiled the prototype of the Tata Nano – the world’s lowest-cost car, with a price tag of around $2,000 – at the Delhi motor show.
As the year wore on, the news started to turn sour. The first setback came when a firebrand politician named Mamata Banerjee began a blockade in September of the site of the Nano plant in West Bengal, the communist-ruled state in India’s east whose capital is Calcutta. Ms Banerjee accused the Tata group of using land forcibly taken from farmers for the plant.
Mr Tata countered that the politician’s supporters were violently obstructing his workers from completing the plant. Disgusted, he eventually shifted the plant to the western state of Gujarat, delaying production by a yr. The episode threatened to take the sheen off the Tata group’s reputation as the acceptable face of Indian capitalism. While Mr Tata accused Ms Banerjee of exploiting the farmers, studies show that the state had used force to appropriate the site of the factory, which stood on fertile rice fields.
But the group’s real troubles began with the worsening of the global liquidity crunch that followed the collapse of Lehman. In Nov, Mr Tata warned of tough times to come for at least 12 months, calling on them “drastically” to reduce costs so as to avoid getting into “irretrievable positions”. Tata steel by far the biggest subsidiary, half of rev, was hit badly. Tata India has the biggest margin compared to the lowest at Corus. Corus still has the technology to provide Tata. Tata Steel is down 81%. Tata Motors, another flagship, has seen auto sales collapsed in the past 2 months. forcing the plants to close 5x to reduce inventories. Struggling to refi loans $3bn loan for jaguar and rover. Hope is to keep on milking Tata cash cow's, Tata consultancy services.
The outsourcing industry has bot in $40bn of rev in 2007. But even that is slowing down. Larger groups include TCS, Infosys technologies and Firstsource.
Saturday, December 06, 2008
Pte Equity- TPG and Apollo
Profit in Adversity - Wall St Debt specialists back in demand. FT ~ 10Aug
When Michael Milken entered prison in 1991 from Drexel Burnham Lambert in LA, HY had revolutionised the mkt, developing a mkt for non-IG new companies and for corporate raiders who dont hv money. He is still banned by the mkt and 2nd career as philanthropist. Ex-colleagues at Drexel are applying lessons in 1980s to navigate the mkt and generate returns from risky debt. Unable to borrow money from the banks to take large companies private, they are looking to buy bombed-out debt at discount prices with the hope that a recovery will generate their customary big profits.
Turmoil has put a premium on credit analysis skills- the ability of companies to pay back their debt under a variety of economic scenarios. Apollo, Leon Black, was the first to recognize the significance of the deal. Apollo and GSO had bot $4.2bn LBO of the Clear Channel Communications from CSFB, DB and RBS. GSO was formed in 2005 by 2 ex-Drexel, Bennett Goodman and Tripp Smitth along with Doug Ostover, who worked in DLJ bot by CSFB in 2000. GSO had bot $13bn of debt with template for selectively buyout deals at bargain prices. They expect pte equity style high returns on the safest, most snr debt. Banks are still holding $500bn of loans and junks bonds ($40bn). Most of the buyout deals had few of the std terms and conditions - borrowers had the right to cease paying int in cash and issue more debt, with the slightest waiver fees. GSO, TPG and Apollo had been really active.
Its largest deal, it bought debt in Alltel at the same hefty discount and will be paid off at 100 cents on the dollar, as the telco company’s owners – GS and TPG – sold it to Verizon two months later. Another big payday came when GSO bought debt of Tribune, a troubled newspaper, at 66 cents on the dollar, watched it rise to 75 cents when Tribune sold Newsday, one of its crown jewels, and quickly sold out.
GSO locked in funding for 12 yrs. We hv learnt that there can be zero liqudiity when you most need it. We saw how quickly a firm can go down. We hv all lived through cycles.
"The last thing you want is to be big and junior in the capital structure," says Mr New. "If you are too early, you lose money." Last month, GSO bought Stolle Machinery, which makes the machines used to produce beverage and food cans. GSO also provided the bulk of the debt for the buy-out of Weather Channel by its parent, Blackstone, acting in a group with Bain Capital and NBC Universal. Also looking to clear out b/s for dresdner and csfb and take adv of the gap left banks to buy companies.
Apollo Management has pursued a similar brand of credit-oriented analysis. Along with Blackstone-owned GSO, it has been the most aggressive in buying up non-distressed debt from distressed sellers at bargain prices, steering clear of sectors such as car parts, automakers and airlines.
In a letter to investors five months ago, Mr Black boasted that only one of his investments, Linens-N-Things, had not worked out according to plan. Since then, however, Apollo’s portfolio of private-equity investments has taken a turn for the worse, with fashion retailer Claire’s Stores, property broker Realogy and Harrah’s Entertainment all ailing.
Thursday, December 04, 2008
Chinese Property ~ Reuters article
This is such a slow death ~ Xover hitting over 1000 and every single hedge fund is setting up gates for their redemption.
Some key extracts from the article
- Month long rally in prop shares could end soon.
- Govt stimulus plan subbed developers.
- Govt plan for social low income housing and to secure ind like cement and steel.
- Chinese prop 10%GDP, recovery in 2001 cos of supply glut,consumer,lending cond.
- CSFB exp drop in further 10~15% in 2009.
- $7bn hot money from property funds in 2007.
- Vacancy in office space to go to 18% from 12%.
- LT trend of urbanisation slowing .. 8m flock to cities but may not do so now.
BEIJING/HONG KONG, Dec 3 (Reuters) - A month-long rally in Chinese property shares could end soon and fresh losses may be in store after a massive government economic stimulus plan snubbed developers who are struggling to survive slumping home sales.
"The winter has really come, and it'll last one or two years," Zhang Baoquan, chairman of Beijing-based developer Antaeus Group, said at a conference in Beijing. "Developers will get no real benefit from the government money," he added. "It's for social (low-income) housing, to secure industries like cement and steel." Rampant real estate speculation, which sucked in billions of dollars in foreign capital last year, led China's stock markets into a bubble in 2007 that burst this year. The Shanghai composite index .SSEC has most more than 60 percent of its value in 2008.
Still, property stocks listed in Shanghai have rallied 32 percent since Beijing unveiled a $585 billion fiscal stimulus package and China's central bank cut rates by an aggressive 108 basis points in the last month. The sector's rise has exceeded the broader market's 7 percent increase in that time.
But recent gains may be a false hope, industry experts and money managers said. A lasting recovery in China's property market, which makes up 10 percent of the economy, could be as far off as 2011 as developers deal with a glut of supply, consumers put off big purchases and tight lending conditions linger.
Credit Suisse strategists expect property prices to fall a further 10 to 15 percent in 2009. "We suggest investors use short-term technical rebounds as exit opportunities to trim their exposures to the sector. Long-term investors should reenter the market only when a more sustainable recovery trend is confirmed, which could come asearly as in the second half of 2009," they said in a research note.
Beijing's stimulus package is focused on infrastructure and building 4 million low-income housing units, projects that are eschewed by big developers because of their low profit margins. Fat-cat developers also garner scant central government sympathy because of big profits they made during a speculative boom.
After a five-year bull run, home sales slumped at the end of 2007, especially in southern cities like Guangzhou and Shenzhen, as government efforts to cool the overheated sector took effect. As a result, unsold housing inventory has piled up to about 20 months' worth of sales, economists say, a bigger oversupply than in the United States, where it is about 11 months.
Nick Yao, a fund manager with Aberdeen Asset Management in Hong Kong, had been trying to find opportunities to tap growth in Chinese property stocks for a long time.
But with many developers struggling with high debts, he decided to take what he called a "conservative" approach by owning Hong Kong-based developers with some commercial Chinese exposure, such as Hang Lung Properties (0101.HK: Quote, Profile, Research, Stock Buzz), Swire Pacific (0019.HK: Quote, Profile, Research, Stock Buzz) and Sun Hung Kai Properties (0016.HK: Quote, Profile, Research, Stock Buzz).
"Hong Kong companies have been through a few cycles of their own so are more conservative and more capable of managing a downturn," Yao said. "And their balance sheets tend to be stronger, with the cash flow they can generate from Hong Kong."
FOREIGN MONEY
Aside from Hong Kong developers, foreign property funds invested about $7 billion in China in 2007, according to KPMG.
Earlier this year, MGPA, a private equity real estate firm partly owned by Australia's Macquarie Group Ltd (MQG.AX: Quote, Profile, Research, Stock Buzz), raised a $3.9 billion fund to invest in Asia, some of which was leveraged and spent on Chinese commercial property.
However, the fund is bit more gun shy on China now and would rather wait until the second half of next year. "Now that property values are falling, it's certainly coming back on our radar, but I think it's too early go in and buy at the moment," said Simon Treacy, the firm's Asia chief executive.
Treacy expected vacancy rates in office buildings to rise to 18 percent in the next year from around 12 percent now. Investors in Chinese developers, and foreign funds run by institutions like ING (ING.AS: Quote, Profile, Research, Stock Buzz), Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), are betting on a long-term trend of mass urbanisation, which has seen some 8 million Chinese flock to cities each year.
However, a sharp slowdown in export manufacturing, particularly in the Pearl River Delta, will probably slow the migration to big cities. And most rural people cannot afford the downpayments on homes in the city, said Ha Jiming, chief economist at China International Capital Corp (CICC).
"People want to work in the cities for 10 years and then go and build their own house back in their village," Ha said. Of course there are China property bulls out there. Adrian Ngan, executive director of research at CCB International in Hong Kong, has been telling investors to buy mid-cap residential developers like KWG Property Holdings (1813.HK: Quote, Profile, Research, Stock Buzz), CC Land Holdings Ltd (1224.HK: Quote, Profile, Research, Stock Buzz) and Shimao Property Holdings Ltd (0813.HK: Quote, Profile, Research, Stock Buzz).
He said valuations have become attractive, with some stocks trading close to book value, and local governments will likely be more flexible on building regulations to put people to work.
That developers would turn to provincial government connections is perhaps not surprising given Beijing's unspoken message to property tycoons, as it tries to focus on shoring up employment -- fend for yourselves.
Monday, December 01, 2008
Healthy Lifestyle
- Healthy lifestyle
- No smoking
- Dont consume excessive alcohol
- Cut down caffeine
- Avoid preserved food
- Avoid charred food
- Reduce stress level
- Adequate sleep
- Exercise more
Friday, November 28, 2008
Average Credit Safety of Industry Groups
High A - Telcos, Independent finance, Natural gas utilities, Beverages, High quality Electric Utilities.
Mid A - Food processing and Bottling.
Low A - Domestic Bank Holdings, Tobacco, Medium quality electic utilities, Consumer product industry, High grade diversifed Mfg/Conglomerates, Leasing, Auto Manufacturers, Chemicals, Energy.
High BBB - Natural gas pipelines.
Mid BBB - Paper/Forest products, Retail, Property and Casualty Insurance, Aerospace/Defence, Info/Data technology.
High BB - Supermarkets, Cable and Media, Vehicles, Textile/Apparels.
Mid BB - Low quality electric utilities, Gaming, Restuarants, Construction, Hotel Leisure, Low quality manufacturing.
Low BB - Airlines.
High B - Metals.
Sunday, November 23, 2008
RIP - Orienwise
China Orienwise - personal gurantee company. A case of someone expanding too fast and aggressively. In this mkt environment, this guy is going to be thrashed big time.
Headquartered in Shenzhen, China Orienwise Limited -- is a private guarantee company in China. As of August 31, 2006, the company had total assets of CNY 2.6bn (USD 329m). The company is 100% owned by the ultimate parent Credit Orienwise Group Limited, which is in turn majority owned by the founder Mr. Zhang Kai Yong through Orienwise International Holding Limited. Other strategic investors for Credit Orienwise include the Asian Development Bank, Citigroup Venture Capital International and Carlyle.
Live within yr Means
Lehman has been the No.1 biggest company to go bankrupt. This week, I am looking at Citi going under ~ 2 trillion in assets and followed by GM and Chrysler. Obama looking to create 2.5mm jobs in 2011 in schools, infrastructure spending, alternatives energy eg solar and wind farms. Think it is time for us to reprice risk premium. I like the following article written by Goh Eng Yoew, ST Mkt correspondent.
Something good will come from these bad times. It is worth noting that during the Great Depression, formidable businesses were being established in the United States, such as Walt Disney, IBM and Hewlett-Packard. These turned into the global household names they are today. People will have to start living within their means, learn how to preserve capital and reduce debt.
..........
Many have described the current upheaval as the worst financial crisis since the Great Depression 80 years ago. Let's put things in perspective. The few people who still remember those bleak times have observed that such talk is quite exaggerated. One 86-year-old businessman here recalled that during the Great Depression which occurred during his childhood, many people went hungry in the streets as the rubber trade in Singapore crashed. Yet, the British colonial authorities did not lift a finger to help them. In contrast, the Government is already rushing to put together a series of measures to combat the current downturn.
But the vast destruction of wealth now under way in global financial markets is not something that happened overnight. It may actually be the result of many years of risk-taking gone awry. The problem has been simmering beneath a surface calm during the last couple of boom years, but no one paid any attention to it, given the obsession with instant gratification. It is easy to get carried away and pin all the blame on the mortgage crisis in the United States. But look around us. Didn't we suffer from similar excesses as well? Until recently, some banks literally made it a virtue to approve risky unsecured personal loans within 24 hours - never mind the credit checks they are supposed to do on the borrower. Even while the super-bull run was hitting its peak early last year, there were already warning signs that the stock market might come crashing down. These signals were mostly ignored.
Companies bled dry by years of losses, such as Rowsley, Equation and Ban Joo, were valued at more than $200 million each even though they were literally shell firms with few viable assets left in them. In May last year, one audacious China solar start-up even wanted to inject its fledgling operations into Rowsley at a hefty price tag of $2.7 billion. While it offered investors a $300 million profit guarantee for each of the financial years ending June 30, 2008, 2009 and 2010, it gave precious few details on how it intended to fulfil its side of the mega-size bargain. Small wonder, then, as the US sub-prime crisis started to bite, these counters tumbled like tenpins as the sexy stories surrounding them turned sour. They have since fallen to about one-tenth of the prices reached during the feverish penny stock price run-up in July last year. It is now quite possible that we will have a few lean years ahead of us - as the excesses are being drained out of the system - but that is nothing to fear, really.
..........
'Nothing is moving. The decline is not confined to the US market; Europe, Japan are also down significantly, with slowdowns in the emerging markets as well.' The situation is most dire in the US, the biggest car market in the world. Sales there have plummeted to their lowest in 17 years, putting General Motors, Ford and Chrysler on the brink of disaster.
The Big Three are asking for US$25 billion (S$38 billion) in federal assistance - which was rejected by Congress - with GM and Chrysler warning that they could go under in weeks. Europe has suffered six consecutive months of declining car sales, with a drop of almost 15 per cent last month. Renault, Peugeot, Opel, Mercedes-Benz and Audi have announced either cutbacks or layoffs, and in many cases, both.
Japan, home of some of the world's most efficient, affordable cars, has not been spared. Toyota, Honda, Mazda and Nissan have all announced production cutbacks and staff layoffs in domestic as well as overseas plants. The slowdown of the auto industry is potentially devastating for not just the carmakers, but also the countries they operate in. A report by the Centre for Automotive Research shows that if one of the Big Three goes bankrupt, the US could lose 2.5 million jobs and US$125 billion in personal income in the first year alone.
In Germany, where the auto industry is estimated to provide one in eight jobs, a slowdown for carmakers will also hit the electronics, transport, chemicals, engineering and advertising sectors. Even countries such as Thailand and South Korea have already been hit by production cuts.
But what ails the industry? Most firms lay the blame squarely on the current economic crisis, dropping demand and weak consumer confidence. Not only are cars seen as luxury items that people can go without in these lean times, but loans from banks are also drying up.
'That's in nobody's business plan,' Ms Kimberly Rodriguez, an automotive specialist with global accounting firm Grant Thornton, told Time magazine. 'The best planning in the world cannot survive that fluctuation.'
But others blame structural weakness in the carmakers, especially in the US. Long criticised for their inefficiencies, US carmakers are coming under greater fire for their cost management. Much of the bailout money that they want, for instance, will go to keeping overpaid workers in their jobs, their pensions and their retirement benefits.
Critics also slam the US automakers for failing to develop smaller, fuel-efficient cars, and concentrating instead on fuel-guzzling sport utility vehicles - whose sales have been devastated by high fuel prices.
Despite all this, some carmakers are keeping their hands firmly on the gearshift, ready for a comeback.
Saturday, November 22, 2008
Music ~ Somebody + Bcos I Love U
Two songs that I like quite alot - Somebody + Bcos I love u.
Sombody ~ Depeche Mode
I want somebody to share
Share the rest of my life
Share my innermost thoughts
Know my intimate details
Someone wholl stand by my side
And give me support
And in return
Shell get my support
She will listen to me
When I want to speak
About the world we live in
And life in general
Though my views may be wrong
They may even be perverted
Shell hear me out
And wont easily be converted
To my way of thinking
In fact shell often disagree
But at the end of it all
She will understand me
Aaaahhhhh....
I want somebody who cares
For me passionately
With every thought and
With every breath
Someone wholl help me see things
In a different light
All the things I detest
I will almost like
I dont want to be tied
To anyones strings
Im carefully trying to steer clear of Those things
But when Im asleep I want somebody
Who will put their arms around me
And kiss me tenderly
Though things like this Make me sick
In a case like this
Ill get away with it Aaaahhhhh....
BECAUSE I LOVE YOU -(Gordon Campbell); Shakin' Stevens
...
If I got down on my knees and I pleaded with you,
If I crossed a million oceans just to be with you,
Would you ever let me down?
If I climbed the highest mountain just to hold you tight,
If I said that I would love you every single night,
Would you ever let me down?
Well, I'm sorry if it sounds kinds sad,
It's just that I'm worried,
So worried that you'll let me down.
Because I love you,
Love you,
Love you, so don't let me down.
If I swam the longest river just to call your name,
If I said the way I feel for you would never change,
Would you ever fool around?
Well, I'm sorry if it sounds kinds bad,
Just that I'm worried,
'Cos I'm so worried that you'll let me down.
Because I
(Instrumental Break) (love you love you)
Love you, love you.
Well I'm sorry if it sounds kinds bad,
Just that I'm worried,
'Cos I'm so worried that you'll let me down.
Because I love you, love you
Oooooh, I love you,
Love you,
Love you.
(Contributed by Ferda Dolunay - April 2006)
Friday, November 21, 2008
US pensions ~ this is a time bomb
The Wall Street Journal reported on October 30, 2008,that at the end of 2007,the combined pension-plan surplus of all the S&P 500 companies was $60 billion, but that by late September of this year it had become a $75 billion deficit.
http://www.larouchepub.com/other/2005/site_packages/strategic_bankruptcy/3221pensions_gone.html
http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States
Bloomberg article - funded Pension Liability: Lenders And Buyers Beware 2008-11-21 06:10:44.640 GMT By Mr Brad Scheler
Introduction
Underfunded defined benefit pension plans have always carried a certain amount of risk. With the current uncertainty and downturnin the markets, low interest rates and the impact of new pension rules, pension plan sponsors with underfunded pension plans, and those who seek to acquire companies with defined benefit plans or lend to such companies, have a heightened exposure to risk. Underfunded pension plans appear to be significantly impacting the ability in certain cases to get financing in today's tough financial markets. Although the new FASB Statement No.158 requiresa company to recognize the underfunded status of defined benefit plans as a liability on its balance sheet and to recognize changes in that funded status in the year such changes occur, the ultimateliability is still uncertain. The company's consolidated balance sheet and the footnotes to its financials provide certain historical information based on assumptions made as of the date of such statements and do not have sufficient detail to make an exact determination as to the company's potential liability.Furthermore, members of a company's controlled group are joint and severally liable for Pension Benefit Guaranty Corporation("PBGC") claims. Therefore, significant due diligence asto the scope of the company's pension liabilities needs to be performed by a lender or buyer.
Lenders obviously need to examine carefully all pension liabilities before they make loans. Even a company with a fully funded plan in prior periods may now be significantly underfunded,due to the dislocation of various markets. For existing credits, lenders should regularly examine the pension funding requirements, particularly for troubled credits. Given the recent economic turmoil, the amounts required to satisfy underfunding maybe significantly greater than the amounts anticipated when the loan was entered into.
Lenders may also want to make sure that their loans are guaranteed by subsidiaries of the parent company, so they are not structurally subordinated to any PBGC claims due to controlled group liability. Even more beneficial for lenders would be security for borrower's obligations, which would make their claim senior to any PBGC claims with respect to the lender's collateral.
Companies looking to purchase other companies also need to take particular note of potential pension liabilities. Underfunded pensions can be a critical issue when examining the costs and risks of an acquisition, since potential liabilities cannot be determined with certainty at the time an acquisition is made.
The Pension Protection Act of 2006 (the "PPA") addednew funding requirements that were designed to ensure that pension plans become fully funded within seven years. These funding rules became effective for plan years beginning in 2008; all pension plans will need to be fully funded by 2015. This memorandum explains briefly the contours of these funding rules and their requirements with respect to underfunded pension plans in the United States. It also covers the impact of bankruptcy on those pension plans whose underfunded pension plan obligations generally rank equal to any unsecured financing of the parent entity (if those underfunded pension obligations are obligations of the parent entity). This memorandum also discusses similar issues in other countries, focusing especially on France, Germany (where pension liabilities are not always prefunded), and the United Kingdom. This memorandum also suggests how to mitigate against additional plan liabilities in the current volatile market.
New Funding Rules for US Underfunded Pension Plans ~ Effective for plan years that start in 2008, plan sponsors must begin making funding contributions sufficient to meet full funding targets and to eliminate funding shortfalls over a seven-year period, so that all plans are fully funded within seven years. For existing plans, the new funding requirements went into effect in 2008; all existing pension plans will need to be fully funded by 2015.
The PPA also adopted new requirements for plan funding assumptions, including interest rates and mortality tables. Under the new funding rules, plan sponsors must make minimum required contributions to plans where the value of plan assets is less than the funding target (the present value of all benefits accrued or earned as of the beginning of the plan year). Benefit limitations and participant notice requirements may also apply to certain underfunded plans.
There are additional funding requirements and a higher funding target for "at-risk" plans. If a plan is at risk for the current year and two out of the previous four years, an additional "loading factor" of 4% of the funding target, plus $700 per participant, is added to the at-risk liability. Plans will be considered at risk generally when (i) the plan's funding target attainment percentage (the ratio of the plan's assets to the plan's funding target for the year), determined without using special at risk assumptions, is less than 65% in 2008, 70% in 2009,75% in 2010, and 80% thereafter and (2) the plan's funding target attainment percentage, determined using the special at-risk assumptions, is less than 70%.
Plan sponsors are subject to penalties if they fail to make the required minimum funding contributions to their plans. A sponsor is generally subject to an excise tax of 10% of the aggregate unpaid minimum required contributions if the required contributions are not met. If the deficiency is not corrected in a specified period, a tax of up to 100% of the unpaid minimum required contribution can be imposed.
Accordingly, lenders and acquirers of businesses need to take the underfunding amount, and the period over which it must befunded, into account when determining how much to lend to, or pay for, a company. In the current market, at times when stock and asset values are falling precipitously, significantly greater amounts than anticipated may be needed, and it will be difficult to determine the actual amounts that may be required to be paid in the future. Businesses will need to have sufficient liquidity availabl eeach year, in the form of a line of credit or otherwise, to makesure they can make the required payments and not be subject to the penalties described above.
Bankruptcy of Plan Sponsors and Underfunded Pension Plans ~ In bankruptcy, while claims arising from pension plan obligations may have priority over general unsecured claims in particular circumstances and with certain monetary limits, they areusually treated as general unsecured claims without any priority or subordinated status in connection with any distributions in bankruptcy. Therefore, they usually rank equal with any unsecured lender and senior to subordinated lenders who have agreed to be subordinated to pension liabilities. Many subordinated lenders do not agree to be subordinated to pension liabilities and agree to subordinate themselves only to indebtedness for borrowed money. Accordingly, a secured lender will be entitled to recover its allowed claims in full to the extent of the value of its interest in the collateral, while the claims of an unsecured creditor,including those arising from a pension plan, will have lower priority. Pension plans are not automatically terminated in bankruptcy and can sometimes survive the bankruptcy process intact.When a pension plan is terminated in bankruptcy, the PBGC steps in and uses its own assets to ensure that participants do not lose all their benefits.
A pension plan can be terminated in bankruptcy in one of two ways; either the company can voluntarily terminate its plan in a distress termination or the PBGC can terminate the plan in an involuntary termination. A distress termination may occur only if certain notice requirements are met and the PBGC determines that the plan sponsor and its corporate affiliates meet any one of four tests relating to the financial state of the company. In an involuntary termination, the PBGC terminates a plan on its own initiative if certain tests are met, regardless of the intentions of the plan sponsor. A plan cannot be voluntarily terminated in violation of a collective bargaining agreement, although the PBGC can impose an involuntary termination. In bankruptcy, collective bargaining agreements can be rejected (thus removing the barrier toa voluntary distress termination) only if the debtor leaps significant hurdles imposed by the Bankruptcy Code.
If the pension plan is terminated in bankruptcy, the PBGC has three primary types of claims in the bankruptcy case: (1) the unfunded benefit liability, which is the difference between thepresent value of the plan's liabilities and the fair marketvalue of the plan's assets (although bankruptcy courts do not agree on the appropriate methodology for determining funded status), (2) the unpaid minimum funding contributions that the plansponsor owes the pension plan and (3) the unpaid pension plan termination insurance premiums owed to the PBGC.
Pursuant to the Employment Retirement Income Security Act of1974, the members of a sponsor's "controlled group" are jointly and severally liable for PBGC liabilities. A controlled group generally consists of a parent company and its 80%-ned subsidiaries, as well as any brother-sister corporations of a common parent. Because of joint and several liability, a lender should receive, if possible, guarantees from all members of acontrolled group in order not to be structurally subordinate to PBGC claims. In that way, a lender would be pari-passu to PBGC claims. Of course, it would be desirable for a lender to have a security interest in order to be senior to the PBGC'sunsecured claims with respect to the lender's collateral.
Foreign Underfunded Pension Plans - In addition to the US underfunding issues described above, multinational companies will have similar issues in each of the countries in which they operate. Every country has its own pension schemes. Below, we summarize those of France, Germany, and the United Kingdom. Buyers and lenders will need to consult experts inthe countries in which borrowers or targets (or their subsidiaries)have pension obligations in order to understand the ultimate pension liability.
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France
In France, defined benefit pension plans have been gradually phased out for new employees and progressively replaced by defined contribution pension plans, known as PERCOs (Plan d'EpargneRetraite Collectif) or "Article 83" retirement accounts. A number of large-cap French companies have nevertheless accumulated significant retirement liabilities through historical underfunded defined benefit pension plans or through their ownership of subsidiaries with such plans in foreign jurisdictions.
In light of the relatively small weight attributed to defined benefit pension plans in the overall French pension scheme, the funding of these plans is not heavily regulated. French corporations that do not report their financial statements using International Financial Reporting Standards may elect either to book pension liabilities as provisions on their balance sheet or to disclose them in notes to their financial statements. As a consequence, plans may be unfunded, with plan sponsors contributing to them on a "pay as you go" basis. In light of the significant risks associated with this approach, corporations often book provisions on their balance sheet to cover future liabilities. They increasingly turn to insurance companies that set funding targets to eliminate funding shortfalls and manage the plans on the corporation's behalf.
Such group insurance plans do not,however, entirely remove the risk that those funding targets, as determined by the insurer's actuarial analysis, might not be sufficient to cover the plan's future funding needs.
..........
Germany
The German system has five basic types of occupational pension schemes that an employer can implement: pension promise, relief fund, direct insurance, pension plan and pension fund. The essential differences between these schemes are in
whether they are funded or unfunded, the asset classes that are available for investment, and certain other features. It is, within certain limits, up to the employer to elect the pension scheme it intends to offer an employee. The pension scheme may be funded by employer contributions, employee contributions or a mixture of both.
Of the five pension schemes, four are externally funded, and one, the pension promise, is a pure payment obligation that is not externally funded. Under certain limited circumstances, a semipublic institution exists that may provide relief to employees and may assume certain occupational pension scheme obligations of the employer in the case of an employer insolvency. Correspondingly, employers who engage in pension promises are obliged to make contributions to this semi-public institution. Suchcontributions do not constitute the funding of pension obligations but rather a mandatory contribution to a semi-public institution.Otherwise, as a general principle, employee entitlements from occupational pension schemes are not given preference in employer insolvency proceedings and are treated as equal to those of otherunsecured creditors.
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United Kingdom
A UK pension plan must be sufficiently funded to meet plan liabilities on an ongoing basis, as determined by the plan'strustees and based on criteria set by the UK Pensions Regulator. Asa general rule, a plan's funding standard is often significantly higher than the liabilities shown on a company accounting basis, so corporate accounts often are not a true reflection of the costs associated with a plan. As in the US,insolvent pension plans in bankruptcy are generally treated as unsecured creditors with no priority status. However,commencementof a UK insolvency procedure results in: (1) a debt on the employer, calculated by reference to the full cost of securing all of the plan's accrued benefits through purchasing annuities,and (2) the Pension Protection Fund (a statutory body) assessing whether it will assume the plan. If the Pension Protection Fund assumes the plan, it will also assume the plan's right to attempt to recover the debt from the insolvent employer.Additionally, the UK Pensions Regulator may have the power to compel other affiliates (including subsidiaries) to support the pension plan, even if these entities are located outside the UK.
..........
Strategies to Avoid Pension Plan Issues in the Current Market
Owners of businesses and those who lend to them may want to consider how to protect their pension plans from incurring increasingly large funding obligation liabilities in the current volatile market. In particular, the new funding rules described above require annualized payments, which may fluctuate significantly in the current economic climate. If a plan is fully funded, one option is to place pension assets into fixed income or other investment products to match liabilities. The potential downside is that, if the pension plan is not fully funded at the time this approach is adopted, then this approach may require contributing substantial amounts of money.
Lenders will also want to make sure that they have a security interest in the pension obligor's assets in order to be senior to the pension liabilities with respect to the collateral or are at least pasipassu with the pension liabilities by obtaining guarantees of subsidiaries so that the lender will not be structurally junior with respect to the subsidiaries' assets. The recent pension funding changes will also require more regular funding of pension amounts, and companies and acquirers will need to make sure they will have sufficient liquidity to make any payments.
Lenders may want to include amounts payable to pension plans as a cash obligation for purposes of determining covenant levels and calculations of cash flow for determining compliance with financial covenants. Buyers of businesses should obviously take into account the cost of pension liabilities and the timing and amounts of annual contributions (as well as the risk that such amounts may change)in determining the amount they are willing to pay for a business.
Mr Brad Scheler
Fried Frank Harris Shriver & Jacobson
Structured Investment Vehicle - SIV
Structured Investment Vehicle - SIV - invented by Citi in 1988 and popular till they crashed in 08. Borrow short term at low interest and then buy longer dated securities at higher interest. Classified as structured credit product ranging from size USD1~30bn. Reinvested in ABS and corp bonds. Open ended and evergreen structure.
Twofold risk - solvency risk if asset value drops and liquidity risk. A SIV may be thought of as a virtual bank. It borrows money using CP, which it traditionally issues close to LIBOR. It then uses money to purchase bonds. The bonds usually selected by a SIV are predominantly (70-80%) Aaa/AAA ABS and MBS - hence the SIV is effectively providing funds for mortgages, credit cards, student loans and similar products. A SIV would typically earn around 0.25% more on the bonds than it pays on the CP. This difference represents the profit that the SIV will pay to the capital note holders and the investment manager. The capital-note holders are the "first-loss investors," in that if any of the bonds purchased default, the capital-note investor will lose his investment before the CP investors do.
The short-term securities that a SIV issues often contain two tiers of liabilities, junior and senior, with a leverage ratio ranging from 10 to 15. The senior debt is invariably rated AAA/Aaa/AAA and A-1+/P-1/F1 (usually by two rating agencies). The junior debt may or may not be rated, but when rated it is usually in the BBB area. There may be a mezzanine tranche rated A. The senior debt is a pari passu combination of medium-term notes (MTN) and commercial paper (CP). The junior debt traditionally comprises puttable, rolling 10-year bonds, but shorter maturities and bullet notes are becoming more common.
In order to support their high senior ratings, SIVs are also obliged to obtain liquidity facilities (so-called back-stop facilities) from banks to cover some of the senior issuance. This helps to reduce investor exposure to market disruptions that might prevent the SIV from refinancing its CP debt. To the extent that the SIV invests in fixed assets, it hedges against interest-rate risk.
Oct 2007 - US govt wanted to set up Super SIV bailout fund but pull back last min. Stanchart got killed on Whistlejacket SIV. Citibank rescue SIV and bring them on balance sheet. BOA 4Q07 results got killed on SIV. Northen Rock got killed in SIV since Aug07 and nationalised in 2/8. Cheyne another victim.
http://en.wikipedia.org/wiki/Structured_investment_vehicle
On bloomberg - NI SIV
Couple Jokes
Love Your Enemy
From his death bed, the husband called his wife and said, 'One month after I die I want you to marry Samy.' 'Samy! But he is your enemy!' 'Yes, I know that! I've suffered all these years so let him suffer now.'
Why divorce?
In a divorce court a woman requested the judge: 'Your honor, I want to divorce my husband.' 'But why ?' asked the judge. She replied, 'Because he is not faithful to me.' The judge asked, 'How do you know?'
She replied, 'My lord, not a single child resembles him.'
Wedding Ring
At the cocktail party, one woman said to another, 'Aren't you wearing your wedding ring on the wrong finger?' The other replied, 'Yes I am, I married the wrong man.'
Why?
'Dad, I was away for a week. Yesterday I sent a fax to my wife I'd be home that night, and when I got into my room I found my wife in another man's arms. 'Why, Dad? Tell me why!'
Dad kept silent for a few minutes, then coolly said, 'Maybe, Son, she didn't get the fax.'
Same Service
A husband visited a marriage counselor and said, 'When we were first married, I would come home from the office, my wife would bring my slippers and our cute little dog would run around barking. Now after ten years it's all different, I come home, the dog brings the slippers and my wife runs around barking.'
'Why complain?' said the counselor. 'You're still getting the same service!'
Talk about Husband
One woman told another: ' My neighbour is always speaking ill of her husband, but look at me, my husband is foolish, lazy and a coward; but have I ever said anything bad about him?'
Love To Do
A wife, one evening, drew her husband's attention to the couple next door and said, 'Do you see that couple? How devoted they are? He kisses her every time they meet. Why don't you do that?' 'I would love to. 'Replied the husband. 'But I don't know her well enough.'
No Answer Back
A man was telling his friends, 'When my wife is infuriated, she starts shouting at me, my children and even at our dogs and nobody dares answer her.'
One of his friends asked. 'And when you are angry, what do you do?'
The man replied, 'I also shout angrily at the windows and doors of the house and none of them dares to answer back.
Come Home Late
A woman was complaining to the neighbour that her husband always came home late, no matter how she tried to stop him. 'Take my advice,' said the neighbour, 'and do what I did. Once my husband came home at three o'clock in the morning, and from my bed I
called out: 'Is that you, Jim?' And that cured him. 'Cured him!' asked the woman, 'but how?'
The neighbour said, 'You see, his name is Bill.'
Problem Father
'You looked troubled,' I told my friend, 'what's your problem?'
He replied, 'I'm going to be a father.'
'But that's wonderful,' I said.
'What's so wonderful? My wife doesn't know about it yet.
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MARRIAGE ~ The Ten Commandments
COMMANDMENT 1
Marriages are made in heaven; But so are thunder and lightning.
COMMANDMENT 2
If you want your wife to listen and pay strict attention to every word you say, talk in your sleep.
COMMANDMENT 3
Marriage is grand -- and divorce is at least 100 grand!
COMMANDMENT 4
Married life is very frustrating.
In the first year of marriage, the man speaks and the woman listens.
In the second year, the woman speaks and the man listens.
In the third year, they both speak and the neighbours listen.
COMMANDMENT 5
When a man opens the door of his car for his wife, you can be sure of one thing:
Either the car is new or the wife is.
COMMANDMENT 6
Marriage is when a man and woman become as one; The trouble starts when they try to decide which one.
COMMANDMENT 7
Before marriage, a man will lie awake all night thinking about something you say.
After marriage, he will fall asleep before you finish.
COMMANDMENT 8
Every man wants a wife, who is beautiful, understanding, economical, and a good cook.
But the law allows only one wife.
COMMANDMENT 9
Marriage and love are purely matter of chemistry.
That is why wife treats husband like toxic waste.
COMMANDMENT 10
A man is incomplete until he is married.
After that, he is finished..
BONUS COMMANDMENT STORY
A long married couple came upon a wishing well.
The husband leaned over, made a wish and threw in a penny.
The wife decided to make a wish too.
But she leaned over too much, fell into the well, and drowned.
The husband was stunned for a moment but then smiled and said,
"Hey!...This thing really works!"
Thursday, November 20, 2008
Iceland - FT article .. this is sad
This is quite a sad story - good people being screwed by the govt and their banks. I was scratching my head when I was selling Kaupthing tier 1 paper and how they managed to come up with their smart investments, like buying West Ham.
Kaupthing, Landsbanki and Glitnir sported all the trappings of fully fledged international banks. They had offices around the world, slick PR, extravagant parties and huge amounts of debt. Iceland’s banks borrowed more than $250,000 for every man, US75bn of debt for 300k people. $75bn = 10X annual GDP. Coupled with the currency, savings are down 60% and cost of living up 20%. Potential loss of STG8bn for half a million savers in northern europe, esp UK. UK froze Landsbanki and one week later, Kaupthing went under. Iceland still owed UK 2.2bn, included under the IMF plan. When banks were privatized in 2002, govt sold it to a group of rich businessmen. These new shareholders used the banks to support their other businesses. For example, FL Group (which then became Stodir) – an investment company owned by the Icelandic retail entrepreneur Jon Ásgeir Johannesson – was both Glitnir’s biggest shareholder and one of its significant borrowers. Does it smell right?!!
Letter from Iceland
By Robert Jackson. Photographs by Bjarki Reyr
Published: November 14 2008 11:51 | Last updated: November 14 2008 11:51
Hallgrímskirkja cathedral looms up out of the mists and gloom of downtown Reykjavík
Think of Ireland. Rotate it 90 degrees clockwise, make it a third bigger and hang it like a pendant from the Arctic Circle. Crack open the earth’s crust below to release limitless supplies of geothermal steam, then fill its territorial waters, all 200 miles of them, with an abundance of cod.
Give it a population of 300,000, about the same as Coventry, 70 per cent of them in the cities of Reykjavik and Akureyri. Ensure they are all related and give the majority the ability to trace their ancestry back to the times of settlement, more than a thousand years earlier. Endow these people with industry and ambition. Give them their own language – all but unchanged for a millennium – a literary tradition, three national newspapers, two television channels, free universal healthcare and education and close to zero unemployment. Give this country a consistently high ranking in the world standard-of-living charts and you have the Iceland of the recent past. Not a bad place, all in all.
Now allow this country’s banks – virtually unregulated – to borrow more than 10 times their country’s gross domestic product from the international wholesale money markets. Watch as a Graf Zeppelin of debt propels its self-styled “Viking Raiders” across the world’s financial stage, accumulating companies like gamblers hoarding chips. Then sit on the sidelines as the airship flies home and explodes, showering its blazing wreckage over this once proud, yet tiny, nation.
There you see the Iceland of today – the victim of an economic 9/11 and one of the very few places in the world where the words “financial meltdown” can be used without fear of exaggeration.
. . .
There is no daytime TV in Iceland. Parents are at work and children at school, so the test card, that feature of a bygone age, is the only thing aired. For the transmitters to be switched on in mid-afternoon and a sombre-looking Geir Haarde, the prime minister, to appear behind a desk, a national flag at his side, it had to be serious – and it was. The country was on the verge of bankruptcy; the government was taking control of the banks and was going to assume far-reaching powers to secure the safety of the nation and its savers.
As I watched, I felt a detached sympathy for those poor people living on a blighted island – until it dawned on me that I was one of them. Recent events had savaged my net worth by 60 per cent and pushed up my cost of living by more than 20 per cent. Iceland’s plight was mine, too. What I failed to appreciate at the time was the emotion of this unprecedented television address, particularly in the way it finished:
“Fellow countrymen ... If there was ever a time when the Icelandic nation needed to stand together and show fortitude in the face of adversity, then this is the moment. I urge you all to guard that which is most important in the life of every one of us, to protect those values which will survive the storm now beginning. I urge families to talk together and not to allow anxiety to get the upper hand, even though the outlook is grim for many. We need to explain to our children that the world is not on the edge of a precipice, and we all need to find an inner courage to look to the future ... Thus with Icelandic optimism, fortitude and solidarity as weapons, we will ride out the storm.
“God bless Iceland.”
Edda, my partner, was in tears on the sofa beside me.
A drive across town later that afternoon, October 6, at first gave grounds for comfort. The roads were as full as usual for the Reykjavik rush-hour – a half-hour build-up of traffic. Aircraft flew in and out of the downtown airport, students made their way home from schools and universities – note the plural – while visitors went to hospitals and fitness fiends to sports clubs. Reykjavik showed all the outward appearances of carrying on.
But a different picture began to emerge from the hourly news bulletins on the car radio. The Icelandic krona’s freeze in the capital markets had now spilled over into the day-to-day transactions of Icelanders abroad. Holidaymakers and business travellers venturing “til Útlanda”, as it is called, found their credit cards refused, and those wishing to buy foreign currency could not find willing sellers, aside from one or two who limited their purchases to €200.
Trust in the banks had evaporated and people were trying to find a safe haven for their cash. One man had waited for six hours in a bank while his life savings, more than £1m in kronur (at IKr200 to the pound), were counted out in cash in front of him. “I feel like an innocent man dragged from his bed, put in a barrel and hurled over Gullfoss!” wrote one journalist that morning. “We have been brought down by a handful of men who bet our nation’s wealth, fame and prosperity on a throw of the dice.” Gullfoss is one of Iceland’s tourist attractions – a majestic 100ft waterfall.
On collecting our daughter from her handball practice, I learnt the news that her club could not obtain the foreign currency it needed to release their new team shirts from customs. The city’s myriad sports teams rely on local sponsors and our daughter also brought the news that this source of funding for her team was likely to dry up in the months to come. Later that evening, Skype, our communications lifeline, would not renew our credits with an Icelandic credit card. E-mails began to arrive from friends overseas, alarmed by news reports and asking if we were all right.
But all this was trivial compared with the financial distress, in some cases ruin, that now faces a significant proportion of the population.
Easy access to 100 per cent mortgages has seen a change to the traditional pattern of young Icelanders living with their parents until their mid-twenties. The suburbs of Reykjavik have grown by a third in the past decade, most of it housing for first-time buyers. Whole new neighbourhoods have emerged. New streets house young couples, many with children, most with two cars in the drive and furnished with the best that Ikea can provide. All bought with 100 per cent loans, many in foreign currencies.
Iceland is the only country in the world that indexes its loans in addition to charging interest. This means that when Icelanders borrow IKr1,000 from the bank and inflation increases by 5 per cent, the bank increases their debt to IKr1,050 at the end of the year. A great deal for the bank and fine for you, too – so long as the property’s value and your salary are increasing by inflation and more. The majority of Icelandic mortgages are based on this punitive system and with inflation running at nearly 20 per cent, they will see their IKr1,000 loan turn into a IKr1,200 loan. The interest burden will increase proportionally. This is bad enough, but when coupled with falling house prices, it means that many face a particularly savage variety of negative equity. The impact on highly geared borrowers, which in practice means most Icelanders, would be hard enough even with two incomes, but with unemployment set to soar, many households are going to go under.
A recent first-time buyer, a woman in her late twenties, said: “I took a 100 per cent loan to buy an apartment. I placed my savings in Kaupthing’s money market account, because it promised high interest rates, and my pensions in Kaupthing’s Vista 1 at the prospect of becoming a millionaire retiree. Both of these funds were based on stock investments and I knew that they were risky – but I took the bait and the risk. Now most of this money, if not all, is lost.”
Icelanders are by nature frugal people. It was one of the few countries in the world, perhaps the only one, that had a pension system that could meet the needs of its ageing population. But in recent years, many older people have been persuaded by the banks to invest their savings in high-yielding money-market accounts. As a result of the collapse of the banking system, many of these accounts have seen huge write-downs and some are now worth less than half of their previous values. The additional money people had put aside to top up their pensions has been hard hit.
Bjork, Iceland’s ambassadress of cool, summed it up in The Times on October 28: “Young families are threatened with losing their houses and elderly people their pensions. This is catastrophic. There is also a lot of anger. The six biggest venture capitalists in Iceland are being booed in public places and on TV and radio shows; furious voices insist that they sell all their belongings and give the proceeds to the nation. Gigantic loans, it has been revealed, were taken out abroad by a few individuals and without the full knowledge of the Icelandic people. Now the nation seems to be responsible for having to pay them back.”
A homemade banner, made of sheets, hangs over the main motorway in Reykjavik, tied to the railings of a bridge. “Stondum Saman!” it cries out. “Let us stand together!” It’s the new rallying cry of a beleaguered nation.
A cyclist in Reykjavík on a gloomy day
Icelanders have seen their economy swell and shrink from time to time over the centuries, and always handled it calmly. Perhaps their heritage in fishing and agriculture enabled them to meet good years and bad with equanimity. Now they must cope equally well with an attack of economic bulimia. To understand what makes this crisis – kreppa, as it is known here – so unlike any other, a little history is needed.
For Icelanders, the golden years were the early years, shortly after the land was settled in the ninth century. The Viking tradition, the Althing – the legislative assembly dating to 930 – and the literary canon of Sagas and Eddas are the nation’s cultural bedrock. But after that, Iceland almost disappears from the history books. While the agricultural revolution, the Renaissance, the industrial revolution came and went, while the fine cities of Europe were being built, while artists from Michelangelo to Mozart were pouring forth their creations, while the great inventions and discoveries were being invented and discovered, Icelanders were hunkering down in their turf houses, meeting the hardest challenge of all – survival.
They survived plague, famine, earthquakes and volcanoes. There were times when some even considered abandoning the island. But they stayed on. They stayed and survived. Icelanders will tell you that only the fittest survived, but that is only half the story, because survival requires another key attribute: stubbornness. And Icelanders have it in spades. It is a national trait, and they view it not as a weakness but as a virtue. It comes from experiencing hardship and enduring it. It means finding satisfaction in a simple task done well and sticking to it; finding comfort and solace in family and kinship and being bound by those familial bonds and duties. And perhaps most important of all, it means believing in the independence of the individual as part of the fabric of nationhood, and fighting for that independence. Put simply, the country has values.
And this is what sets this catastrophe apart from the earthquakes and plagues of former years. This is a man-made disaster and worse still, one made by a small group of Icelanders who set off to conquer the financial world, only to return defeated and humiliated. The country is on the verge of bankruptcy and, even more important for those of Viking stock, its international reputation is in tatters. It hurts.
. . .
Picture a pig trying to balance on a mouse’s back and you’ll get some idea of the scale of the problem. In a mere seven years since bank deregulation and privatisation, Iceland’s financial institutions had managed to rack up $75bn of foreign debt. In his address to the nation, Haarde put the problem in perspective by referring to the $700bn financial rescue package in America: “The huge measures introduced by the US authorities to rescue their banking system represent just under 5 per cent of the US GDP. The total economic debt of the Icelandic banks, however, is many times the GDP of Iceland.”
And here is the nub. Iceland’s banks borrowed more than $250,000 for every man, woman and child in Iceland, and placed an impossible burden on the modest reserves of the central bank in the event of default. And default they have.
Voices of caution – there were many in Iceland – were drowned out by a media that became fixated on the nation’s emergence from drab pupa to gaudy butterfly. Yet, Icelanders’ opinions were divided. For some, the success of their Viking Raiders, buying up the British high street, one even acquiring that most treasured bauble of all, a Premier League football club, marked the arrival of a golden era. The transformation of Reykjavik from a quiet, provincial fishing port to a brash financial centre had been as swift as it was complete, and with the musicians Bjork and Sigur Ros and Danish-Icelandic artist Ólafur Eliasson attracting global audiences, cultural prestige went hand in hand with financial success. Icelanders could hold their heads high before the rest of the world.
Hallgrimur Helgason, well-known for his novel 101 Reykjavik, said in a letter to the nation in a Sunday newspaper on October 26: “Deep down inside we idolised these titans, these money pop-stars. Awestruck we watched their adventures and admired them when they supported the arts and charities. We never had clever businessmen, not for a thousand years, not to mention men who had won battles in other countries...”
For others, the growth was too rapid, the change too extreme. Many became uncomfortable with the excesses of the Viking Raiders. The liveried private jets, the Elton John parties, the residences in St Moritz, New York and London and the yachts in St Tropez – all flaunted in Sed og Heyrt, Iceland’s equivalent of Hello! magazine – were not, and this is important, they were not Icelandic. There was a strong undertow of public opinion that felt that all this ostentatious celebration of lavish lifestyles and excess was causing the nation to disconnect from its thousand-year heritage. In his letter to the nation, Hallgrimur continued: “This was all about the building of personal image rather than the building of anything tangible for the good of our nation and its people. Icelanders living abroad failed to recognise their own country when they came home.”
What international sympathy there was for Iceland’s plight evaporated with the dark realisation that the downfall of Iceland’s three main banks – Landsbanki, Kaupthing and Glitnir – brought with it the potential loss of £8bn for half a million savers in northern Europe, the bulk of whom were British. The shrill media response in the UK was reported extensively in Iceland. The British government’s use of anti-terror legislation to freeze the assets of Landsbanki pushed Iceland’s banking system into the abyss. It was a move viewed in Iceland as hateful and unnecessary. A few days later the one remaining viable bank, Kaupthing, went under.
Pedestrians brave the cold in Reykjavík, beneath a poster of young Icelanders. The prime minister recently urged people to explain to children that ’the world is not on the edge of a precipice’. Then Landsbanki was placed on a British Treasury list of groups subjected to financial sanctions, along with al-Qaeda and the Taliban. A copy of the UK government webpage appeared in Icelandic papers and a new website, www.indefence.is, was launched. A picture on it shows a young girl with a placard that reads: “I am not a terrorist, Mr Brown.”
At this time of year, the most-watched TV show in Iceland is Saturday night’s Spaugstofan, which translates literally as The Spoof Room. It’s a hit-or-miss affair, but events of the past few weeks have provided the writers with a rich seam of source material. A recent episode featured a well-worked lampoon of the film Titanic, entitled Icetanic, with Geir Haarde and the chairman of the governors of the central bank, David Oddsson, standing on the bridge of “the economy that could not sink”. A sketch shows Gordon Brown throwing Icelanders off a life raft. “Get back in the water where you belong, you terrorist bastard!” he shouts as he throws another one overboard.
When I tried to explain Iceland’s plight to a friend in the UK who works in banking, I received short shrift. “You must have gone troppo, Robert! They may not have dressed up in burkas and strapped several kilos of Semtex around their waists. But to go into the high street, persuade charities, pensioners, local authorities to deposit money and then disappear, having trousered nigh on £8bn is, even by City standards, bad. Financial terrorism, grand larceny, call it what you will, but the government had to act and act quickly to stop funds leaving the country.”
Troppo can hardly apply one degree south of the Arctic Circle, but if its northern equivalent is to go polar, then evidently I have.
. . .
Fear, outrage, jealousy and guilt have mingled to form a volatile cocktail of emotions as the blame game has started, and Icelanders attempt to come to terms with it all. They are divided between those who blame the Viking Raiders and those who blame successive governments and central banks for allowing them to behave the way they did.
There have been demonstrations, previously almost unheard of in Iceland, in which families have marched on the parliament buildings, stringing up an effigy of Oddsson along the way.
Of the various Viking Raiders, only one, Jon Ásgeir, of Baugur fame, has had the guts to turn up and face the music on a TV chat show. But any temporary benevolence towards him evaporated when it emerged that he had arrived back in Iceland with high-street billionaire Sir Philip Green in tow. Together they proposed to buy Baugur’s debt, reported at the time as £2bn, thereby acquiring the group’s UK retail assets, including House of Fraser and Hamleys at a significant discount that would involve massive debt writeoffs.
One of the most telling images was the departure of Jon Ásgeir’s private jet on news that the government had nationalised Glitnir Bank (in which his investment vehicle Stodir was a leading shareholder), wiping out his shareholding and rattling the debt-burdened house of cards that is his Baugur business empire. Painted black and as sleek as a Stealth bomber, the aircraft was photographed taxiing from its hangar by Morgunbladid, a daily newspaper. Like the last helicopter out of Saigon, the departure of Ásgeir’s jet symbolised the end of an era, the last act of Iceland’s debt-fuelled spending spree.
Bjorgolfur Thor and his father Bjorgolfur Gudmundsson have, to date, disappeared from the radar. Together they own a majority stake in Landsbanki, and Gudmundsson owns West Ham United football club. Their jets have also flown the coop. Downtown, beside the harbour, construction work on a landmark project underwritten by them, the National Concert Hall, is expected to stop any day now. Like Hallgrimskirkja, the striking cathedral that presides over Reykjavik and that took more than 40 years to complete thanks to a lack of finance, the concert hall might need a change in the country’s fortunes before it can be completed.
The government has announced that it will carry out a thorough investigation into what happened and determine who is to blame. It will be called “The White Book”, and “leave no stone unturned in getting to the truth”. It will not be a slender volume.
. . .
We live now in a foreign-currency lockdown, and although the government has assured everyone that there are sufficient reserves to buy essentials such as oil, grain and medical supplies for the winter, such assurances only serve to create a further sense of unease in a people who have learnt to take such commodities for granted.
There is some encouraging news. The International Monetary Fund is putting the finishing touches to a $2bn bailout package and this is likely to lead to a further $4bn from a consortium of Nordic central banks. These funds will come with stringent conditions that will impose external financial controls and impinge heavily on Iceland’s hard-won sovereign independence. But they should inject some much-needed confidence into the currency and into an embattled people.
There is an Icelandic expression: “We started with two empty hands.” Whoever coined it could not have expected that it would still be so pertinent in 2008, as the nation begins the process of rebuilding its economy and that thing it covets most of all, its reputation.
It is going to be a long, hard struggle.
Robert Jackson is a British journalist who has lived in Iceland since 2003
............................................................................
How the Icelandic banks got it all so wrong
“Let me get lunch,” I said, fumbling in my handbag for my wallet. “Your bank’s just gone bust after all.” But old habits die hard and anyway, the Icelandic banker wanted to find out if his company credit card still worked. He handed it over and drummed his fingers nervously on the bar in the gloomy City pub, writes Sarah O’Connor.
The payment went through. And with a whimper – two sandwiches and two lemonades – the bank’s six-year debt-fuelled spending spree sputtered to a stop. The next day his card was refused.
Barely a month earlier, at his bank’s annual September shindig in Iceland, international financiers who had arranged loans for the bank were treated to quad-biking, axe-throwing, belly-wrestling and copious alcohol – and challenged to run round a traffic cone 10 times while resting their foreheads on top of it. “Believe it or not, but some of the participating bankers fell over. And over. And ... well, you understand,” chortled Euroweek, a trade magazine also flown out for the party.
Kaupthing, Landsbanki and Glitnir sported all the trappings of fully fledged international banks. They had offices around the world, slick PR, extravagant parties and huge amounts of debt. That culture alone could have been enough to pitch them into trouble as the credit cycle turned. But at their core, something deeper was amiss. Two things, actually. The first has been picked over and over since the trio’s calamitous demise: they were too big, and the economy upon which they rested too small to support the huge liabilities they had taken on.
The banks don’t mind this explanation; neither do Iceland’s politicians. It paints them as fearless – if foolhardy – in their expansion, but ultimately as the casualties of a global crisis. They would have survived in spite of their size, they argue, if Lehman Brothers and Washington Mutual had not collapsed, leaving their creditors empty-handed.
In September, creditors’ sense of security evaporated, and soon Glitnir was facing demands for extra money from the increasingly nervous institutions from which it had borrowed. It just didn’t have the money.
Glitnir went to Iceland’s central bank and asked for a bridging loan to see it through to the end of the month in which it was due to pay back a big bond issue. The central bank refused, and took a 75 per cent stake in Glitnir instead. The move triggered panic in international markets. Maybe the government was big enough to bail out Glitnir, but what about the other two Icelandic banks? It surely couldn’t afford to support all three.
In the face of a massive run on Landsbanki by foreign depositors and creditors, the government seized that bank, too, and soon after Kaupthing imploded as well.
A week later, in an upstairs room of the Ministers’ Residence in Reykjavik, Geir Haarde the prime minister looked weary but unruffled as he shook my hand and poured out coffee. “We spoke before didn’t we, earlier this year? As I remember you were very aggressive.”
His special adviser had called me out of the blue in March. She had heard I was writing a story about fears the government was not strong enough to underwrite the banks if they ran into trouble. Would I like to speak to the prime minister about it? I would.
In the interview, he seemed perplexed about the stratospheric cost of insuring against a default by Iceland’s banks on their debts. “If you’re worried about not being repaid, which is what the creditworthiness is about, you shouldn’t be worried when it comes to the Icelandic banks, let alone the Icelandic government,” he said.
But would the government be capable of supporting the banks, given that their foreign currency liabilities dwarfed the country’s ability to generate cash? He didn’t give a clear answer.
It was an odd episode, and highlights the other, deeper problem at the heart of Iceland’s banking system. How did the prime minister’s office know that a junior journalist in London was writing a story about Iceland? Presumably because someone from one of the banks told them. If so, why are they in such close contact? Because the whole system is run by a small group of men who go back a long way and, in the words of one businessman, “sit in the same hot tub three times a week”.
When the banks were privatised in 2002, the government – headed by David Oddsson, then prime minister, and Geir Haarde, then finance minister – sold chunky stakes to a select group of rich businessmen. Father and son team Bjorgolfur and Bjorgolfur Thor Gudmundsson, recently returned from Russia flush with cash, took a 45.8 per cent stake in Landsbanki after a process some have criticised as uncompetitive. These new shareholders used the banks to support their other businesses. For example, FL Group (which then became Stodir) – an investment company owned by the Icelandic retail entrepreneur Jon Ásgeir Johannesson – was both Glitnir’s biggest shareholder and one of its significant borrowers.
There were rumblings of discontent in Iceland over the way the system was being run, but few spoke out. Iceland’s government and supervisory authority did nothing to break up the close-knit network of relationships.
Sveinn Valfells is one malcontent. A private investor now living in London, his grandfather played a key role in setting up one of the banks that were merged to form Glitnir. Sveinn left Iceland in 2004 when he decided the banking system was spiralling out of control. “This was like Eastern Europe, this was like Russia ... In most respects it is a developed country, but the political system and business culture are significantly underdeveloped.”
The banks looked and sounded just like their large international peers. But as one businessman in Iceland says: “Astute investors should have asked themselves, ‘Does this smell right?’”