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?
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…
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.”
Details as they come in, but for now, just know that ProLogis is merging with AMB Property Corporation. The deal will create an industrial giant that owns and manages $46bn worth of property around the world. While it’s being billed as a merger of equals, ProLogis has 40 million sqm, compared AMB’s 15 million sqm. The transaction is expected to close in the second quarter 2011, though a number of hurdles have to be cleared before that actually happens.
Speaking again with Bloomberg, Orco Property Group CEO JF Ott reveals that he’s considering selling shares in some of the listed company’s subsidiaries.
“It’s a smart idea for Orco,” he said in an interview in Prague. The developer will hold “serious” talks with some investors in the next “few” weeks. “My goal for the future would be to buy them out.”
There is no explicit clarification on this in the article, but the next paragraph of the story mentions the shareholdings Orco has in MaMaison, Orco Germany, and the Endurance fund, which it manages.
Orco’s announcement a couple weeks ago that it planned to unwind the Endurance fund raised eyebrows, not least because it appeared to admit frayed relations with the fund’s investors, who are demanding greater control over the liquidation process.
Ott told Bloomberg he believes 2011 will be “a year of growth” for Orco, adding that in particular, former and current US investors in the company had a “fundamental appetite” for real estate exposure in CEE.
More Orco news today, as it happens. Bloomberg is reporting that Orco will wind down the Endurance fund it manages beginning in 2011. Ales Vobruba of Orco’s executive board said that there had been disagreements with investors over management fees, and that recessions across Europe had hit the volume of office and residential sales over the past two years. Vobruba suggests that now might not have been the ideal moment for the move.
“We’d rather wait a year or two when markets are in a better recovery to maximize profits, but investors are demanding to proceed.”
Assuming this unwinding proceeds as announced, Vobruba’s revelation of an apparent rift between Orco and the Endurance fund’s investors could make it interesting to see who ends up controlling the actual sale of the assets remaining in the fund.
Either someone forgot to tell us things were looking so good, or this headline on a Bulgarian website is just a tad optimistic: Eastern Europe’s Real Estate Market Headed for Full Recovery – Colliers
If you actually get around to reading the article, Colliers International’s Bulgarian MD Giorgi Kirov sounds a bit more realistic than whoever wrote the headline for novinite.com:
“New investment transactions in Bulgaria could be expected during the next few months. However, it would be yet early to say whether the market is ready to rebound”, says Mr. Kirov.
It reminds us of a tweet we read recently from Liz DeHoff: (Best headline ever) Detroit real estate is a really good investment, say people selling Detroit real estate
Posted in Bulgaria, CEE
Tagged Bulgaria, CEE