Friday, March 18, 2011
Morning Brief: 18 March 2011
| Banco Filipino placed under PDIC receivership By Michelle Remo Philippine Daily Inquirer
In a meeting, the Monetary Board of the Bangko Sentral ng Pilipinas decided to place BF under PDIC receivership, saying that the thrift bank had shown that it was unable to save itself from its financial woes. “The MB took note of the failure of the board of directors/management of BF to restore the bank’s financial health and viability despite considerable time given to address its financial problems, and after according the requisite due process,” the BSP said in a statement read by Deputy Governor Nestor Espenilla Jr. in a press conference. Losing since 2002 Espenilla, head of the BSP’s bank supervision division, said Banco Filipino had been losing money since 2002 and its losses averaged P2 billion a year since 2007. He said that in the last nine months, BF losses averaged P277 million. Moreover, he said, BF’s liabilities far outweighed its liquid assets. The net realizable assets of the bank stood at a negative P8.4 billion, he said. Espenilla said the BSP actually granted Banco Filipino an emergency loan of P3.5 billion in 2002 and that P2.6 billion of the loan remained unpaid. Espenilla said it was BSP’s policy to help an ailing bank try to recover from financial distress before placing it under receivership, noting that this was consistent with the objective of maintaining the stability of the banking system. Emergency loan In the midst of the bank holiday, BF asked the BSP for another emergency loan, this time amounting to P3 billion, to save it from its financial distress. The BSP, however, decided not to grant the loan on the advice of the Monetary Board. Espenilla said that for a bank to be granted an emergency loan, it must be approved by at least five of the seven members of the Monetary Board. Espenilla said BF did not get the required number of votes, but declined to be more specific. “In deciding to place BF under receivership, the MB took the following into consideration: BF is unable to pay its liabilities as they become due in the ordinary course of business; BF has insufficient realizable assets to meet its liabilities; BF cannot continue in business without involving probable losses to its depositors and creditors,” the BSP statement said. Unsound banking Espenilla said the BSP also found that BF had engaged in unsound banking practices. He said the bank was offering deposit interest rates of between 6.5 and 14 percent, which was much higher than the market average of one to two percent, thus further placing its financial situation at risk. Moreover, he said, Banco Filipino had also engaged in unsound lending practices. Of the P4.1 billion in loans it had extended, at least half were to entities that were related to officers and owners of the bank. When a bank is placed under receivership, all of the bank’s remaining assets and outstanding liabilities are taken over by the PDIC. The PDIC is also responsible for paying the deposit claims of bank clients. Under its charter, the PDIC is mandated to pay valid deposit claims of up to P500,000 per depositor. PDIC assurance In a separate statement, the PDIC assured BF depositors that valid deposit claims would be paid and that it would complete the processing of claims as soon as possible. “PDIC president Jose Nograles has directed the mobilization of the entire organization to fast-track the payment of deposit insurance,” the PDIC said in the statement. Data from the central bank showed that BF had 177,652 depositors with total deposits of P15 billion. Furthermore, 97 percent of the depositors had deposits of P500,000 or less and were thus covered by deposit insurance. Elmore Capule, BSP deputy general counsel, said in the same press conference that deposits in excess of P500,000 may still be recovered, but hinted that the probability was small. Once a bank is placed under receivership and proven to be incapable of being rehabilitated, Capule said, the PDIC sells its assets and the proceeds are distributed among creditors and other people or entities that have claims against the bank.
By Michelle Remo
The Bangko Sentral ng Pilipinas reported Thursday that the net inflow of foreign portfolio investments reached $534 million in February, rising by nearly three times from the $138.58 million recorded in the same month last year. This brought the net inflow of “hot money” in the first two months to $754.5 million, up by 144 percent from the level recorded in the same period last year. BSP officials said the significant increase in foreign portfolio investments as of February improved the country’s ability to meet external liabilities. Foreign portfolio investments mostly come in the form of placements in the country’s stock market and bond purchases. Officials said the growth in “hot money” inflows proved the improving confidence of foreign portfolio investors in the Philippine economy, at least for the short term. Meanwhile, the BSP also reported that remittances from Filipinos based in the United States and Europe grew at a faster-than-anticipated pace in January. Remittances are a closely watched economic indicator as these largely fuel consumption of Filipino households. Data from the BSP showed that remittances from US-based Filipinos reached $526.16 million, up by 8.5 percent year on year. The amount accounted for 35 percent of the total remittances of $1.48 billion for the month. Meanwhile, remittances from Filipinos based in Europe reached $276 million in January, rising by 9.3 percent year on year. Economic managers are optimistic that remittances will continue to rise this year despite the ill effects of the political turmoil in the Middle East and the twin disasters in Japan. |
U.S. Stocks Advance on FedEx Forecast, Speculation Japan to Contain Crisis
The iShares MSCI Japan Index Fund (EWJ) tracking 323 securities rose 4.6 percent, following a 14 percent slump over the previous five days. FedEx, which runs the biggest cargo airline and is considered a proxy for economic growth, gained 3.1 percent. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) added at least 1.7 percent as a person familiar with the matter said the Federal Reserve will tell some of the largest U.S. banks tomorrow whether they can raise their dividends or buybacks. The S&P 500 advanced 1.3 percent to 1,273.72 at 4 p.m. in New York. The gauge, which had declined 3.6 percent over the last three days, yesterday traded at 14.7 times reported earnings, the lowest valuation since November, according to data compiled by Bloomberg. The Dow Jones Industrial Average added 161.29 points, or 1.4 percent, to 11,774.59 today. “The market is oversold,” said Mike Ryan, the New York- based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees $741 billion. “The major focus is on whether or not Japan will be able to get any kind of containment on the nuclear reactors. The G-7 meeting is constructive as they are probably going to talk about what type of aid they may provide. There’s also the unrest in northern Africa and the Middle East. The corporate outlook will help, but it’s still going to be about headline and geopolitical risks.”
Bonds also dropped as reports showed initial jobless claims fell, consumer prices climbed more than forecast and Philadelphia-area manufacturing surged. Government debt pared losses as the U.S. began pushing for authorization from the United Nations to support Libyan rebels. “I don’t think we’ve ever had a situation where we’ve had such headline risk,” said Brian Edmonds, head of interest rates in New York at Cantor Fitzgerald LP, one of 20 primary dealers that trade directly with the Federal Reserve. “Pick your poison, whether it’s Japan, North Africa and the Middle East, economic fundamentals.” Yields on 10-year notes increased nine basis points, or 0.09 percentage point, to 3.26 percent at 5:01 p.m. in New York, according to BGCantor Market Data. The price of the 3.625 percent security maturing in February 2021 dropped 23/32, or $7.19 per $1,000 face amount, to 103 3/32. The 10-year note yield earlier touched 3.14 percent, the lowest level since Dec. 8, as investors sought refuge in the safest and most easily traded securities in the aftermath of Japan’s magnitude-9 earthquake and tsunami last week. The yield later increased as much as 12 basis points, almost erasing yesterday’s drop of 13 basis points, the most since Feb. 22. |
Crude Oil Climbs for a Third Day on Concern Middle East Unrest May Spread Oil advanced for a third day in New York as unrest in Bahrain and Libya renewed concerns that the turmoil may spread to the Middle East and disrupt crude supplies from the region. Futures surged 3.5 percent yesterday, the most in three weeks, after Libyan leader Muammar Qaddafi’s jets dropped bombs around Benghazi while Bahraini security forces arrested opposition leaders. Futures had slipped as much as 1.4 percent earlier amid concern damage from the Japanese earthquake and tsunami will curb demand for crude. “The situation in Japan has calmed down enough that attention has returned to the problems in North Africa and the Middle East,” saidStephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Qaddafi’s forces are on the offensive in Libya, the Saudis are in Bahrain to quell a Shiite uprising, and the trouble may spread further.” Crude for April delivery traded gained as much as 55 cents, or 0.5 percent, to $101.97 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $101.96 at 9:13 a.m. Sydney time. Yesterday, it jumped $3.44 to $101.42, the highest close since March 10. Prices are up 0.7 percent for the week and 24 percent higher than a year ago. Brent crude oil for May settlement advanced $4.30, or 3.9 percent, to end yesterday’s session at $114.90 a barrel on the London-based ICE Futures Europe exchange. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
BDO UNIBANK INC.
Jonathan Ravelas
Chief Market Strategist
(632) 858-3145
Rhys Cruz
Junior Researcher
(632) 858-3001
Thursday, March 17, 2011
Morning Brief: 17 March 2011
Gov’t projecting budget gap in Jan-March to reach P112B MANILA, Philippines—Although it posted a budget surplus in January, the government expects to incur a deficit of P112 billion in the first quarter, as efforts to shore up revenue collection are not expected to take full effect until the latter part of the year. The Department of Finance has set the deficit ceiling for the period at P112 billion, according to this year’s fiscal program. This will result from the programmed expenditure of P431 billion and the expected revenue of only P319 billion for the first quarter. The first quarter is seen to register the lowest amount of revenues compared with the three other quarters. Revenues are likely to rise in the succeeding quarters given the efforts to go after tax cheats and the government’s resolve to strictly implement the country’s tax laws. Under the 2011 fiscal program, revenues in the second, third, and fourth quarters are seen to reach P367 billion, P354 billion and P370 billion, respectively. Expenditures are seen hitting P407 billion, P437 billion, P436 billion in the same periods, respectively. The budget gaps are seen to settle at P40 billion, 82 billion, and P66 billion in the second, third, and fourth quarters, much lower than the first-quarter figure. For the entire year, the deficit is seen to reach P300 billion, lower than the actual budget gap of P314 billion last year. The government had targeted to achieve a balanced budget position in 2008. However, it had to back-track given the global economic turmoil then. Finance officials said the global crisis forced the government to spend more on infrastructure and social services. Without the pump-priming initiatives, they said, the Philippines could have succumbed to recession in 2009. Now that the global crisis is over, the Aquino administration’s economic team said the government had started implementing a deficit-reduction plan. Under the plan, the deficit-to-GDP (gross domestic product) will be reduced to 3.2 percent this year and to less than 3 percent by the end of President Aquino’s term. Last year, the deficit-to-GDP ratio stood at 3.7 percent. The unfavorable fiscal situation has been cited by credit-rating agencies as one of the reasons why the country’s credit scores remained below investment grade. They said the country’s outstanding debt, estimated at P4.7 trillion, is higher compared with those of similarly rated economies. The rising debt level was blamed on the yearly deficits incurred by the government. |
S&P 500 Erases Advance for Year as Japanese Nuclear Concern Intensifies U.S. stocks retreated, sending the Standard & Poor’s 500 Index to the lowest level since December, amid concern that Japan’s nuclear crisis will worsen. The iShares MSCI Japan Index Fund (EWJ) tracking 323 securities slumped 3.7 percent. KB Home and D.R. Horton Inc. slid more than 2.2 percent, pacing declines in homebuilders, as housing starts plunged to the lowest level in almost a year. International Business Machines Corp. (IBM) fell 3.8 percent as Sanford C. Bernstein & Co. cut its rating on the shares. Apple Inc. (AAPL) sank 4.5 percent after JMP Securities LLC downgraded the maker of iPads. The S&P 500 fell 2 percent to 1,256.88 at 4 p.m. in New York. The Dow Jones Industrial Average slid 242.12 points, or 2 percent, to 11,613.30, the biggest drop since August. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, rose 21 percent to 29.40, the highest level since July. “The risks have risen and you have to be mindful of them,” said David Joy, chief market strategist at Columbia Management in Boston, which oversees $350 billion. “It’s difficult to nail down what’s accurate information coming out of Japan and what isn’t. There’s concern that the problems at the nuclear plants are far more serious than the problems associated with the earthquake. In addition to that, there’s ongoing housing weakness in the U.S. and a fear premium built into the oil market. That’s why you have to hedge your bets.”
The Federal Reserve delayed buying Treasuries after as a plunge in yields at the time of the schedule close of the transaction added to volatility. The Standard & Poor’s 500 Index erased its gain for the year and the yen strengthened to a post- World War II high versus the dollar as the rising risk of radiation leaks boosted speculation Japanese investors sell overseas assets to finance repairs. “It’s a classic flight to quality trade,” said Alex Li, an interest-rate strategist in New York at Deutsche Bank AG, one of the 20 primary dealers who trade with the Fed. “There’s lot of uncertainty as to what’s happening with the nuclear situation. When people don’t feel comfortable in other asset classes, they move into Treasuries.” Yields on 10-year notes fell 13 basis points, or 0.13 percentage point, to 3.17 percent at 5:36 p.m. in New York, according to BGCantor Market Data. It dropped as low as 3.14 percent, the least since Dec. 8. Two-year note yields fell 6 basis points to 0.544 percent. Treasury 10-year note yields fell to a record low of 2.04 percent on Dec. 18, 2008, as investors sought safety in U.S. debt as global credit markets froze and the U.S. economy lapsed into recession. |
Oil Pares Increase as Japan Nuclear Crisis Outweighs Unrest in Middle East Crude pared gains as concern over Japan’s nuclear crisis overshadowed fighting in the oil-rich regions of the Middle East and Northern Africa. Futures retreated more than $1 after EU Energy Commissioner Guenther Oettinger told a European Parliament committee that Japan’s Fukushima Dai-Ichi power plant “is effectively out of control.” Oil rose as much as 2.5 percent earlier as escalating violence in Bahrain increased concern that unrest will spill into Saudi Arabia, the world’s biggest crude-exporting country. “It was a blow to the market to hear the situation in Japan described as ‘out of control’ by such a senior and important person,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We’re looking for anything that gives us a signal of how strong Japanese energy demand will be.” Crude oil for April delivery rose 80 cents, or 0.8 percent, to settle at $97.98 a barrel on the New York Mercantile Exchange. Futures were up as much as $2.42 to $99.60 before the commissioner spoke. Oil is 20 percent higher than a year ago. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
BDO UNIBANK INC.
Jonathan Ravelas
Chief Market Strategist
(632) 858-3145
Rhys Cruz
Junior Researcher
(632) 858-3001
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