SpiegelOnline asks the big question of the day: Can the World Handle Higher Interest rates? It was always going to happen, of course. Part of the strategy of central bank’s around the world has been to cut interest rates to the bone in an effort to spark growth. It’s debatable what sort of impact this has had, but bond buying programs by the treasuries of the big nations are huge. Spiegel cites the Japanese example, in which 70% of demand for bonds is from the Bank of Japan.
It’s the topic of the moment because the American Federal Reserve has begun to hint that the days of easy money and huge bond buying programs could be numbered. And as you’ll have noticed, when the Fed makes hints, markets go haywire. It’s an interesting read, for starters, but you have to wonder what the long-term impact on real estate financing will be. Especially for existing loans. We’d welcome any thoughts on the issue you might have, anonymously or otherwise.
When the financial crisis escalated in 2008, the Fed, the European Central Bank and other central banks began their cash therapy. Almost in lockstep, they reduced prime rates to close to zero and began buying up bonds on a large scale. To this day, the leading central banks have inflated their balance sheets with such practices to $10 trillion (€7.5 trillion).
But now something is changing. “For the first time, it looks as though one country, namely the United States, is leaving the crisis behind,” says Ulrich Kater, chief economist at DekaBank. “And, also for the first time, a central bank, the Fed, is showing that it is thinking about normalization.” …
Those who watched the high-stakes drama over the holidays in which the U.S. got as close to the fiscal cliff as it could may have been reminded of an unruly 4-year old boy who insists on peering over the side of a precipice. Possibly just for the fun of annoying his parents, and proving that he can. The fact that lawmakers in Washington actually came to an agreement was greeted with immediate relief and rising markets, but there was never any doubt that more drama was on the way.
And it’s coming quick. In order to pay its bills, the U.S. Congress will have to raise its debt ceiling, once again, and angry Republicans are certain to make life difficult for President Obama to come to grips with spending. Not an unreasonable goal, in fact.
But if you were in any illusion over just how tough that fight could end up being, the trillion dollar coin should be enough to bring you back down to Earth. Apparently, because of a bunch of weird, arcane rules, while the Congress holds the country’s budgetary purse strings the President actually has the power to mint a coin whose value could literally be $1 trillion. So, theoretically, if Congress refuses to agree to a deal on raising the country’s debt limit, Obama could simply create $1 trillion out of thin air, deposit it in the Treasury, and pay the country’s bills.
For normal people, or possibly for about 99.9% of the planet, this seems crazy. It’s like a Black American Express card on steroids for superpowers, and something about it just feels absolutely wrong. How bizarre, then, to read Nobel prize winners taking the idea seriously, and the Financial Times writers discussing how the possibility of such a coin alters the negotiations dynamic between Congress and the President. So get used to hearing about this (hopefully) fictional coin. And/or follow the “debate” on Twitter at #MintTheCoin .
Is the Basel effect finally kicking in?
After talking quite with a variety of people around the region, it certainly seems as if there’s a shift afoot. It’s become so fashionable to talk about banks doing The Ostrich over the past few years, that it would be easy to miss the signs of a changing market place.
In fact, whether it’s the Basel III effect, the cumulative effect of loans coming up for renewal or the realization that holding on to real estate assets eventually requires capital expenses, the big freeze seems to be thawing just a bit. There are lots of signs of this, whether you look at the appointment pages, the creation of new funds, the collection of equity for debt funds or the willingness of banks to call it a day with some sponsors.
It’s still but a fraction of what it was, and the geniuses in Brussels look no closer to making any hard decisions. But as we’ll be discussing in the September issue of CIJ, there does appear to be a greater willingness, at last, to start just getting on with it. If you disagree violently, make sure to let us know.
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)
Interested to hear what people expect the topics of MIPIM to be. (hint, send emails) We suspect it’ll be mostly the same: where’s the money? One worrying comment we picked up recently was one banker saying most of his meetings down in Cannes would be in with other bankers. Seems like everyone’s looking for money.
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.
The Goodman European Logistics Fund (GELF) has launched a €400m underwritten rights issue, while announcing an agreement on terms for a new €800m debt refinancing package.
Goodman Group CEO and Chairman of the GELF Investment Committee, Greg Goodman said, “These are significant capital management initiatives for the Fund which will further strengthen GELF’s balance sheet and ensure gearing is maintained below 40% in line with the Fund’s long term gearing target. The initiatives will also provide approximately €500 million of investment capability giving the Fund capacity to increase gross assets to €2 billion and improving financial flexibility.”
The refinancing includes €400m of secured facilities and another €400m unsecured facility, structured in a way that’s supposed to let GELF “transition” to debt capital markets over time in order to diversify its long-term funding sources.