The New York Times has picked up on a story that’s been doing the rounds in Prague for some time now: the Czech banks are doing just fine. As in, they’re profitable – earning dividends for their western owners – and their level of non-performing loans has dropped from 6.4% to less than 6%. It attributes their stability to their having stuck to the rather more boringly traditional activities of banks, like lending money to people and companies, rather than seeking super-profits in the sexier areas of investment banking.
“The industry is in good shape; the sector is stable and has not needed any assistance in the recent crisis,” said Jiri Busek, an analyst with the Czech Banking Association. “It’s quite a unique position in Europe, and we are grateful for it. We are stable, healthy and profitable.”
Now, anyone who knows anything about the way things went down here knows that Czech banks have their share of issues in the property sector. Nobody came out of the boom smelling like roses. The Czech economy is currently in its longest recession and isn’t exactly galloping back to growth.
Does the name Ambrose Evans-Pritchard ring any bells? He’s the (self-acclaimed) prophet at the Daily Telegraph who back in 2009 tried to wreck all faith in this region’s banking sector by warning that western banks had billions of euro of exposure in the sewer of CEE. “Failure to save East Europe will lead to worldwide meltdown” (that’s the actual headline) made for thrilling, shiver-inspiring reading at the time. Reading the it today makes clear the dangers of quoting adrenalin-induced predictions of economists and doomsday headlines. Remember, this is 2009:
“A failure rate of 10pc would lead to the collapse of the Austrian financial sector,” reported Der Standard in Vienna. Unfortunately, that is about to happen.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a “monetary Stalingrad” in the East.
The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU “union bonds” should the debt markets take fright at the rocketing trajectory of Italy’s public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.
So we watch and wait as the lethal brush fires move closer.
If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?
It’s the same old story in Der Spiegel, but it’s really the story: big funds with tons of cash can’t figure out where to invest. The answer for some of them is emerging market real estate. Though by that, they no longer mean CEE. Maybe some of our readers have suggestions for these guys.
As head of the Norwegian sovereign-wealth fund, Slyngstad collects his country’s oil revenues, which currently total more than €100 million — per day. The fund is supposed to use these revenues to provide the country with prosperity for the long term. It’s no easy task, because the government expects Slyngstad and his staff of more than 300 people to generate a 4 percent return on investment.
In the past, investment professionals would have dismissed this requirement as uninspiring. But times have changed. Between 1999 and 2007, the Norwegian sovereign-wealth fund achieved an average annual return of almost 6 percent, but since then it has slumped to only about 1 percent.
Read the whole story here.
At the same time Orco Property Group’s board of directors welcomed new board members David Ummels (Astin Capital Management) and Benjamin Colas (MTone), it was bidding adieu to OPG veteran Ales Vobruba as well as to Ott & Co. SA.
“The board thanked them for their decision and validated the cooptation,” read the statement.
Ott & Co. is the personal holding company of Jean-Francois Ott, who stays on as president of the board.
Ales Vobruba is to stay on as deputy CEO and MD of Orco in Central Europe, and the company has vigorously denied any validity to reports that he was no longer at the company at all.
Ummels and Colas have won their seats as part of the deleveraging process at Orco, as bonds were traded in for equity. The shift in the structure of the board, says Orco, reflects the shift in structure of the shareholders. Mtone for example currently holds 9.8% of Orco (9.9% in voting rights). Orco also revealed that Credit Suisse Securities now holds a 4.2% stake in the company. Ott & Co. SA currently controls just 0.7% of OPG. (details here)
The make-up of the 12 member board now is:
-J.F. Ott, Nicolas Tommasini who are described as “executive members representing the management of the Company”.
-5 “independent members” (Silvano Pedretti, Guy Wallier, Bernard Kleiner, Alexis Juan and Robert Coucke)
-And 5 non-executive members “representing the shareholders” (Bertrand Des Pallieres, Gabriel Lahyani, Richard Lonsdale-Hands, Benjamin Colas and David Ummels)
An interesting article about AmRest, which runs brands like Starbucks, KFC and Burger King in CEE. Apparently AmRest could become the hamburger joint’s partner for expansion in India. Wouldn’t mind some of that continent’s food coming the other way…
If you haven’t seen the recent Fitch report, or FT reporting around it, it’s probably a good one NOT to miss. To be honest, it sort of sums up the mood at MAPIC this year, was that the banks have suddenly seemed to to have gone missing. Privately, investors and developers in CEE are complaining that banks are pulling out of deals at frustratingly late stages. Eurohypo, of course, announced it would end new lending except for Germany and Poland. It was tempting to hope that would be restricted to real estate mortgage banks, but you get the feeling this goes just a bit deeper.
Anyway, back to the post on the FT’s blog:
Once upon a time foreign ownership of domestic banking sectors was deemed a “rating strength” in central and eastern Europe.
Before the financial crisis, foreign banks had demonstrated their willingness and ability to support their subsidiaries, according to Fitch associate director Michele Napolitano. But those days are now long gone.
As FT Alphaville has already noted, foreign bank ownership, if the owners are from western Europe, usually only means one thing today: deleveraging. That’s bad news considering the scale of foreign participation in the CEE region
In fact, while the article does a good job of trying to scare you, it’s not as black as you’d expect if you read the whole thing. But the bit about the pressure on Austrian banks was unwelcome:
Austrian bank supervisors have instructed the country’s banks to limit future lending in their east European subsidiaries, a further sign of the potential knock-on effects of the eurozone crisis for economies around the world.
The restrictions come as Austrian officials seek to defend the country’s AAA credit rating, amid concerns that the government might have to bail out its banks because of losses in central and eastern Europe, where they are the biggest lenders, and their exposure to Italy.
The moves by Austria, which appear to be unilateral, show how even the eurozone’s strongest economies are feeling the pressure of the sovereign debt crisis.
More on this — obviously — to come.
It was a good MAPIC for Central European projects, at least when it comes to the awards that were handed out. First, Ballymore’s project in Bratislava, Eurovea, took the Best New Retail Development prize, to the delight of Mike de Mug who was on hand to collect the trophy. Eurovea, of course, won a slew of prizes at the CIJ Awards in Bratislava in 2010. Then to drive the Central European point home, Echo picked up the top honors in the Best Refurbished Development for Galeria Echo. An enthusiastic Marcin Materny did the honors for the Polish developer.
There’s mounting evidence that investment deals have been accelerating in Central Europe, with the latest numbers coming from a Cushman & Wakefield report.
Investment activity in Central Europe continues to accelerate, with € 2.32 billion invested in the core CE markets of Poland, Czech, Slovakia, Hungary and Romania in Q3 2011. This is significantly ahead of the € 706 million invested in Q2 2011. Year to date, investment volumes for the region stand at €4.61 billion, more than double the €1.95 billion invested over the same period in 2010.
The numbers of course with the caveat that recent deal activity appears to be slowing as a result of the current concerns over Europe’s debt issues.
“Transaction activity is back at 2005 levels and Q4 2011 is expected to be strong in Poland, Czech and Hungary,” says Charles Taylor, C&W’s MD in Budapest. “That said, we cannot ignore the increasing economic uncertainty which is starting to impact on investor confidence and also the availability of finance, both of which could slow market activity in the closing months of this year.”