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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (84306)	12/9/2011 6:07:28 PM
From: TobagoJack	Respond to of 218387

keeping track of an enveloping situation that could affect asia and everywhere, just in in-tray From: G Sent: Friday, December 9, 2011 9:36 PM Subject: Re: Comments - Week of December 5 Guys. As one of biggest users of such european bank largesse. It is interesting to see how much of this is in usd, and also other local currency Ie european banks make up a very large percent of australian lending. They were competing and beating the australian banks to lend aussie dollar to australian corporates This curtailment is going to hit. A lot of international corporates. As the local banks are simply not going to pick up the slack And usa banks are also not there, even though they have the usd to lend Best regards G ----- Original Message ----- From: M Sent: Fri Dec 09 16:12:46 2011 Subject: Re: Comments - Week of December 5 From RW Baird. $425 Billion from non-British European banks lent to Asia. How much of that needs to shrink? 20%? more? I disagree with his assertion that Chinese banks have the capacity to pick up the slack. If it was so, then why are lending rates so high in China outside of those SOE's that are preferred customers? M There is, however, a secondary mechanism through which economic woes in the eurozone could affect East Asia, namely via cross-border lending. We have recently discussed that European banks have been seeking to shrink balance sheets as a means to trying to achieve the core capital ratio of 9% mandated by eurozone banking regulators. Raising fresh capital in the current environment is a tough task when underlying trust of bank asset quality, notably sovereign debt, is low. Shrinking balance sheets is seemingly the only way to achieve mandated capital ratios to the detriment of macroeconomic activity. Under intense political pressure to maintain domestic credit lines, European banks have been pulling back from Asia in a disproportionate manner. Since 2009 Q1, European banks have been busy ramping up their presence in Asia. At the end of June 2011, cross-border claims of European banks on Asian banks were $935bn, of which the overwhelming bulk ($510bn) came from United Kingdom banks. This implies that eurozone and Swiss banks provided the bulk of the remaining claims. This compares to $585bn at the end of 2009 Q1, of which United Kingdom bank claims were $255bn. This implies that non-United Kingdom European bank claims have risen 29%. Total European bank claims on Asia are distorted by the presence of HSBC and Standard Chartered, who, although based in the United Kingdom, tend to fund the bulk of their Asian lending through local deposits. European banks were big players in Singapore and Hong Kong, where exports are a large percentage of GDP. As of June 2011, loans originated by European banks amounted to 79% of GDP for Singapore and 72% for Hong Kong. In both cases, UK banks provide a significant source of funding, particularly for Hong Kong. Given the openness of both the Hong Kong and Singapore economies via a high level of exports relative to GDP, it would appear that trade finance is potentially vulnerable to a contraction in European credit facilities to Asia. European Banks Selling Their Asian Syndicated Loans There is increasing evidence that European banks are selling their components of Asian syndicated loans, as evidenced by increased traffic in detailed loan documents known as axe sheets. These sheets specify loans that a bank has made to a corporate borrower, covering the name of the borrower, type of facility, term of facility and pricing details. They are usually produced when a bank wishes to sell a loan to another bank or for trading in the secondary market. By selling their components of syndicated loans, European banks have inadvertently been driving lending rates upwards. Furthermore, the Asian loan sell-off by European banks has made it more difficult for Asian borrowers to open new lines of credit. European banks’ share of syndicated loans in Asia-ex Japan fell to 16% in 2011 H1. This compares with 30% in 2008. The reports we hear from Asia is that local banks and Australian banks are filling the void left by the Europeans. The key issue is whether they are originating loans on the same terms as European banks. The Importance of the International Syndicated Loan Market The syndicated loan market is an important source of finance for international firms. Syndicated loans are credits granted by a group of banks to a borrower. They are hybrid instruments combining features of relationship lending and publicly-traded debt. They allow for the sharing of credit risk between various financial institutions without the disclosure burdens that bond issuers face. Syndicated loan facilities account for no less than one-third of all international financing, including bonds, commercial paper and equity issues. Large US and European banks have tended to originate loans for emerging market borrowers and allocate risk to local banks. With the exception of Asia, syndicates that have been put together for emerging market borrowers tend to be dominated by foreign lenders. The bulk of international syndicated lending is done in US dollars. Syndicated credits are traded on secondary markets, particularly in the US. The size of the secondary market in both Europe and the Asia Pacific region is much smaller than in the US. Effects on Asian Borrowers Given the small size of the secondary market for syndicated loans, outlined earlier, the prospective aggressive selling of loans into the secondary market by European banks will put downward pressure on the price of secondary loans. This could invoke a feedback mechanism into the primary, where the terms of lending on new syndicated loans become tougher. The prospect of Asia enduring a credit crunch should not be dismissed lightly. European banks have left a void that needs to be filled. Asia’s banks are, for the most part, in decent financial shape. China’s banks have a conservative loan-to-deposit ratio of 70%. They have the potential to ramp up cross-border lending. The recent decision by the People’s Bank of China to reduce reserve requirements will serve to boost cross-border lending capacity. Although the withdrawal of eurozone banks could inflict economic pain on Asia, the ability of local banks, particularly in China, to bridge financing gaps is higher now than in 2008.