Daily Archives: Aug 21, 2012

Banco Cruzeiro do Sul, literally Southern Cross Bank, is the kind of horror story every regulator should fear.

Though small and systematically irrelevant, the flagrant malpractice allegedly committed on its books is the kind of thing that can bring a whole system into disrepute.

To recap, the bank was taken over by the central bank and put under the administration of the FGC, the country’s deposit guarantee fund, after the discovery of “non-existent assets” on its books. This from Moody’s:

On August 15, 2012, the FGC published a Special Opening Balance Sheet as of June 4, 2012, which presents a negative equity position of R$2.237 billion after adjustments of R$3.11 billion largely related to non-existent assets, insufficient provisions for loan losses and contingencies, and the reversal of profits on repurchased loans.

 

Lately the economic news out of Argentina has been gloomy: flat growth plus high inflation, against a backdrop of foreign exchange and trade restrictions and a tough international environment.

And yet foreign direct investment in the first half rose 33 per cent year-on-year, according to the central bank. How come?

The answer is mining. Investment in the mining sector, which has been less affected by government restrictions than others, fuelled the rise in FDI in the second quarter, rising to $478m from $184m in the second quarter of 2011. 

There was a curious moment on Venezuelan television last night when Hugo Chávez – never one to like to be interrupted while he’s talking – had a nationwide address cut short while he was in full flow.

Although the official explanation put it down to technical problems, many suspected it had to do with the fact that the state steel workers Chávez was addressing had begun to protest and were simply getting too unruly. 

Magnit, Russia’s second biggest food retailer, has decided to diversify into market gardening in a move that might test its reputation for good logistics. The plan, announced as X5, Magnit’s larger rival, reported lacklustre financial second quarter results, highlights the pressure Russian food retailers are under to cut costs and generate profits. 

The Ethiopian prime minister Meles Zenawi, whose death was announced on Tuesday following prolonged ill health, won’t be mourned by the dissidents that he repressed or their supporters.

But he will be missed by those who value his role in creating political stability and in promoting growth in an impoverished country.

While Ethiopia remains one of the world’s poorest countries (ranked 174 out of 187 on the UN’s Human Development Index) real growth in GDP has averaged 11 per cent over the past 6 years, well above the sub-Saharan Africa average. 

Poland’s Lotus Group’s hunt to diversify away from its reliance on downstream refining and sales for the bulk of its income has run into huge trouble thanks to problems with the ill-fated Yme North Sea oil platform, in which the Polish refiner has a 20 per cent stake. 

Does Banco Santander know something we don’t? Trawling through the 323-page prospectus the Spanish bank submitted to the US Securities and Exchange Commission  last week as it prepares the sale of part of its Mexican subsidiary, a few details catch the eye.

From page 27, it details a range of “risks” such as the challenge of detecting money-laundering operations in Mexico: 

We may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis.

 

Over the past few weeks, Indian television has carried an advertisement for Ireland starring an unlikely pair: two of Bollywood’s biggest stars, Salman Khan and Katrina Kaif.

The ads were created by Tourism Ireland using footage from Khan and Kaif’s blockbuster movie, Ek Tha Tiger (“Once There Was a Tiger”), which the tourism board helped to bring to the Emerald Isle for filming through tax incentives and other measures.

The reason? Bollywood movies bring Indian tourists. 

Romanian president Traian Basescu has narrowly escaped the chop.

The constitutional court ruled on Tuesday that the referendum vote to impeach Basescu was invalid because the turnout was less than 50 per cent. So, by a majority of 6-3, the judges ruled that Basescu could remain in office even though 87.6 per cent of those who voted in the July 29 poll wanted him out.

The combative Basescu will quickly throw himself back into the political fray, resuming his battles with the centre-left government of Victor Ponta. But the court decision should appease European Union partners anxious about Romania’s democratic stability. So, the verdict should be mildly positive for investors. 

* Ethiopia leader Meles dies aged 57

* Arrest of Vietnam tycoon unnerves markets

* IGT launches Indonesia dark pool 

Wienerberger, the world’s largest brickmaker with extensive operations in eastern Europe, saw its share plunge by over 5 per cent on Tuesday after it warned of  hard times ahead, and abandoned earlier forecasts of strong sales and profits growth for 2012.

The group’s gloomy prediction confirms that the economic malaise is spreading from weaker economies such as Romania to stronger markets, including Poland and western Europe. 

With Africa at the forefront for investors looking for new opportunities, it is no surprise to see established companies highlighting their Africa exposure.

At Barclays Bank, the effort  is already well underway, with the British lender last year moving its Africa headquarters from Dubai to Johannesburg and integrating its operations with Absa, the big South African bank that it controls.

On Tuesday, Barclays announced its next move – combining the two businesses into one.  It’s logical and well-intended. But it could still prove tricky given the many national regulators involved. Not for nothing did Barclays warn that there was “no certainty” the proposals would succeed. 

Telenor has settled $1.76bn in loans of its Indian joint venture, Uninor – co-owned with real estate developer Unitech – in a sign that the Norwegian company is serious about staying in India despite sky-high 2G spectrum prices. 

Russia looks to develop its eastern regions to strengthen economic ties with Asia, but who wants to live in Siberia? Asia’s infrastructure will be increasingly funded by Asian state export credit agencies rather than western banks; the violence at the Marikana platinum mine has damaged a struggling Lonmin; plus, the high cost of electricity taxes in Brazil. 

Vietnam’s stock market fell nearly 5 per cent on Tuesday on the arrest of banking millionaire Nguyen Duc Kien, one of the best-known men in the country’s business elite.

Shares in Asia Commercial Joint Stock Bank, which he founded, plunged nearly 7 per cent dragging down other banking stocks in its wake, as investors struggled to grasp the implications of the shock news.

There could be more trouble on the way in Vietnamese banking, with the sector under intense financial pressure with credit contracting in response to government efforts to cool an over-heated economy – and bad loans mounting.