US Banks Stress Test - SCAP (Supervisory Capital Assessment Program)

On 24 Apr, Fed released the method it used to conduct stress tests of 19 biggest US banks.
press release
PDF file

Have browsed through it, trying to figure out what it means..

Some highlights:
It is called SCAP (Supervisory Capital Assessment Program).

1. SCAP Template
The SCAP template is in Appendix A (of the PDF file).
(Read the PDF file for further breakdown of items)

Few parts:

a. Loan and Security Categories to be included in the Loss Estimates

• Loans (many different types of loans)
• Commitments and Contingent Obligation
• Securities
• Trading Account

b. Resources to absorb losses

• Pre-provision Net Revenue
• Allowance for Loan Losses

c. Post Scenario Tier 1 Capital

2. Scenarios

Year to assess: 2009, 2010
2 scenarios: baseline scenario, more adverse scenario

On page 6, there is a Table 1 to show how they formulate the 2 scenarios.

• Average baseline scenario for Real GDP and Civilian Unemployment Rate is calculated by using the average of Consensus Forecasts, Blue Chip and Survey of Professional Forecaster.
  Average baseline for House Prices is by using Case-Shiller 10-city Composite Index.
  
• "More Adverse" Scenario is mentioned in Page 5 Footnote. (refer to the PDF file)
  It was mentioned in the text, "More Adverse" scenario is not "Worst Case" scenario. It is "conditions that are severe but plausible"

3. Securities in Available-for-Sales (AFS) and Held-to-Maturity (HTM) Portfolios

All those ABS, CMBS, RMBS etc.. are here.
Important ! These are the so called "toxic assets".

How is the new FASB guidance on fair value measurement and impairments (see my previous post) being used ?

• Baseline scenario: use FASB new guidance (read: not mark-to-market)
• More adverse scenario: not using FASB new guidance (read: mark-to-market)
  

Some questions to ponder:

• Is the "More Adverse" scenario adverse enough compared to reality ? Is the modelling reasonable ? How to ensure accuracy of inputs ?
• How will the stress test be used ? What happens next if passed ? What happens next if failed ?

Business Quiz from Tutor2U

tutor2u is the "leading publisher of e-learning resources for Economics, Business, Politics, Enterprise, Law, Sociology, History, Religious Studies and related subjects".

Many free and useful resources are available from the website.
Some of the more relevant subjects for this blog will be: Economics, Business Studies etc..

One of the tools (relevant to this blog) that comes with lots of fun is:
Business Quiz

Try it out :-)

CFA: Shareowner Rights across the Markets: A Manual for Investors

PDF file of Shareowner Rights across the Markets: A Manual for Investors

On 16 April 09, CFA Institute Centre for Financial Market Integrity has launched a manual "Shareowner Rights across the Markets: A Manual for Investors" to help global investors to understand their rights in 22 of the largest markets, namely:

Australia
Brazil
Canada
China
France
Germany
Hong Kong
India
Indonesia
Italy
Japan
Malaysia
Mexico
Poland
Russia
South Africa
South Korea
Switzerland
Taiwan
Turkey
United Kingdom
United States

This Manual for Investor is indeed useful, especially now that investors can invest globally but face with lack of information and means to seek help when potential frauds/mismanagement happen in companies invested.

For each country, it comes with these sections:
1. Summary of Current Shareowner Rights
2. Current Engagement Practices and Shareowner Rights Developments
3. Legal and Regulatory Framework
4. Key organizations with information relevant to shareowner rights in the country.
Indeed a very good resource for shareholder activism.

Surprised though, couldn’t find Singapore in the lists of 22 largest markets.

In the Introduction, there is also an insightful section which states GovernanceMetrics International (GMI) criteria to determine whether a board member is to be classified as independent board member. We can use this criteria to determine and "clean up" the pseudo-independent board members as a start.

If you find this post useful, you may check out my other posts on shareholder activism.

Recession Survival Guide - Ireland

Ireland’s Financial Regulator has come out with a useful Recession Survival Guide.

Some highlights:
Managing on Less Money
Step 1: Financial Health Check
Step 2: Budget Planner
Step 3: Cost Comparisons

Dealing with Redundancy (meaning being laid off) :
Redundancy information
Mortgage Repayment Protection

Dealing with Debt:
Credit Card Comparison
Debt Consolidation

This is really cool ! I like the Cost Comparisons, Redundancy Information and Credit Card Comparison especially. They go to such extent to provide information to help its peoples in recession.

You may wish to explore around. It’s really an insightful website on cost cutting.
However, there are peoples who argue that this may set off a deflationary cycle and make things worse. True also..

I think the key theme is "spend necessarily, spend smart and look for value deals".
The website cuts information cost for such value deals.

Tax havens

Following the G20 meeting and communiqué, OECD has provided a list (PDF file, dated 2 Apr 09) of countries which are classified into:

• "White list" - Jurisdictions that have substantially implemented the internationally agreed tax standard
• "Grey list" - Jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented
• "Black list" - Jurisdictions that have not committed to the internationally agreed tax standard

The Jurisdiction inside "Black list" then were Costa Rica, Malaysia (Labuan), Phillipines, Uruguay.

Read from the PDF file: Wow, there are so many Tax Havens (in "Grey list").

Tax haven criteria are divided into 4 factors:
1. Jurisdiction imposes no or only nominal taxes
2. Whether there is a lack of transparency
3. Whether there are laws or administrative practices that prevent the effective exchange of information for tax purposes with other governments on taxpayers benefiting from the no or nominal taxation.
4. Whether there is an absence of a requirement that the activity be substantial

Announcement
On 7 Apr 09, it was announced that Costa Rica, Malaysia, Philippines and Uruguay (countries in the "black list") have committed to the tax standard on exchange of information and are moved to "Grey list" (meaning: no more in "Black list") !

There are lots of resources on tax evasion, exchange of information, harmful tax practices.

Question:

How big are the effects of regulation on tax havens ? How big will be the outflows, if any ?

China stimulus package for electronics, logistics, steel and auto industries

From China government’s website, we can find detailed stimulus package for electronics, logistics, steel and auto industries.

This provides a good read about the industries on status quo/current environment, principles/goals for the stimulus package, actions and policies etc..

English version of China government’s website is also available.
However, I can’t find similar English version of industry stimulus package.

Boao Forum for Asia (BFA) (博鳌亚洲论坛) : World Economic Forum (WEF) for Asian

The Boao Forum for Asia Annual Conference 2009 will be held on April 17-19, 2009 in Boao. The theme of this year's event is Asia: Managing Beyond Crisis.

We can get news (even videos) on BFA 2009 from this website (in Chinese).

Boao Forum for Asia (BFA) is modelled after World Economic Forum (WEF) but is for Asian countries. We can get some insights on Asian views (government, business and academia) from this Forum.

Texts from "Profile" on the website:
As a non-government, non-profit international organization, Boao Forum For Asia (BFA) is the most prestigious and premier forum for leaders in government, business and academia in Asia and other continents to share visions on the most pressing issues in this dynamic region and the world at large. The Forum is committed to promoting regional economic integration and bringing Asian countries even closer to their development goals.

Initiated in 1998 by Fidel V. Ramos, former President of the Philippines, Bob Hawke, former Prime Minister of Australia, and Morihiro Hosokawa, former Prime Minister of Japan, Boao Forum for Asia was formally inaugurated in February 2001.

My new blog: Innovation For the Future

I have this new blog Innovation For the Future which will focus more on technology, science, innovation, entrepreneurship etc..

Feel free to visit "Innovation For the Future" if you like science, technology, innovation, entrepreneurship.... too.

I create a bloglist "My other blog" here. You can see whether there are new posts on Innovation For the Future.

Industry Analysis - Research and Markets

Industry analysis is one of the 3 pillars of investment analysis, the other two are company analysis and economic analysis.

Is there any website that we can get a glimpse of these industry reports ?

Recommend:
Research and Market, claimed to be "World’s largest market research resources – 384,777 reports".

The industry reports in this website are not free.
However, tremendous insights can be gained by just looking at the structure of the report.

It usually comes with Description, Table of Contents, Summary, Companies Mentioned.
If you are doing your own industry research, you can learn from the website at least what topics, data and companies you have to look into. It at least sets a benchmark on what your industry report needs to cover.

Another information useful is how much these industry reports cost.

Note: If you like this post, you may like my other posts on industry analysis and
investment resources.

2009 World’s Most Ethical Companies - by Ethisphere

2009 World’s Most Ethical Companies by Ethisphere
website

99 companies made it into the "World's Most Ethical Companies" list (available in the website).

Some highlights of selected winners are available. It will be good if the questionaires used to evaluate the ethical quotient are available.

Its methodology:
Corporate citizenship and responsibility: 20%
Corporate governance: 10%
Innovation that contributes to public well being: 15%
Industry leadership: 5%
Executive leadership and tone from the top: 15%
Legal, regulatory and reputation track record: 20%
Internal systems and ethics/compliance program: 15%

Does it pay to be ethical ?
According to the graph (in the webstie) that compare "WME vs S&P" growth% over past 5 years, it is a strong YES.

There are other interesting lists and ratings in Ethisphere, for e.g:
100 Most Influential Peoples in Business Ethics;
50 Codes Rated;
Global Anti-corruption Quotient 2009.

I place its blog into my "Investment bloglist". This blog will help in showing fraud prevention insights and ethical practices that will help in preserving investment value.

Translation of English Financial/Investment Terms to/from Chinese

Found these lists of Chinese-English, English-Chinese translation of financial/investment terms in HK Stock Exchange website.
PDF files are available.

These files are useful if you are bilingual but are not sure of its equivalence in either Chinese or English financail/investment terms.

Calendar for investment - US

Briefing.com has a section that is useful to track calendar related to investment:
website

It has calendars for :

• Upgrades/Downgrades
• Economic
• Splits
• IPO
• Earnings (& its guidance)

We can proactively check when will those "bellwether companies" announce their earnings result. These results may move market though sometimes it’s not at level that is rational at all. A lot depends on perceptions of investors as a whole.

Events leading to loosening of Mark-to-Market Accounting

Loosening of Mark-to-Market Accounting maybe a watershed event on this financial crisis.

Its main events:

A) FAS 157 Fair Value Measurement
detailed document

FAS 157 took effect after November 15, 2007.
The fair value is "price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price)".
This is "mark-to-market" accounting.

B) Emergency Economic Stabilization Act of 2008 (EESA)
(we can find detailed EESA from my previous post.)

EESA opens FAS 157 for review through Section 132 and 133.

"Section 132: Authority to suspend mark-to-market accounting"
restates SEC authority to suspend FAS 157

Section 133: Study on Mark-to-Market Accounting
SEC to consult with Fed and Treasury to conduct a study of effects of FAS 157.

C) Study and decision on Section 132, 133
Date: 30 Dec 2008

Outcome: decided to improve, not to suspend mark-to-market accounting
press release

SEC study on mark-to-market accounting
(Note: This long study is a very good read on this subject matter.)

D) A Bloomberg article on FASB Chairman was under pressure by US Chamber of Commerce, American Bankers Association and companies to loosen Mark-to-Market ruling on impaired investment: Bloomberg article

E) FASB Issues Proposals to Improve Guidance on Fair Value Measurements and Impairments
(gave in to the pressure)
Date: 17 Mar 2009
proposals

F) US’s Financial Accounting Standards Board (FASB) decision on "mark-to-market" accounting rules
Date: 2 Apr 2009
Decision

FSP FAS 157-e, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed
Outcome: easing of mark-to-market accounting
Some highlights:

• applied prospectively and that retrospective application would not be permitted
• When: would be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.

It left to be seen:
1. In the coming reporting season, how much will it "beautify" financial institutions' balance sheets ?

2. What will be the reactions of investors on "improvement" of the financial institutions’ results ? How to judge the actual financial health of the financial institutions ? Or just take the "improved result" as the "actual result" ?

US Economic Indicators

We can get US Economic Indicators from this website.
Its data sources are US Census Bureau and Bureau of Economic Analysis (BEA).

We can find out what are the economic indicators, source, frequency and date of release.

I try out its email updates. When there are updates, an email will be sent to my Inbox directly.

In case we want to check for data when it’s released, refer to "US Economic Indicators – calendar for 2009". This PDF file shows date and time release of particular economic indicator.

We can also go directly to US Census Bureau and Bureau of Economic Analysis (BEA) to access the data.

What are the significances of these economic indicators ?
I find this book " The Atlas of Economic Indicator – a visual guide to market forces and the Federal Reserve" useful and simple to refer to.

However, do bear in mind that there is a lag between the date data is released and period it is used to measure. This in a way limits its usefulness.

Obama's remarks on American Automotive Industry

US President Barack Obama has issued "Remarks by the President on the American Automotive Industry" on 30 Mar 09. Some PDF files on Warrantee Commitment Program; GM and Chrysler’s Viability Assessment are included in the website too.

The Auto Plan

For any investor, a lot can be learnt from GM and Chrysler’s Viability Assessment. It is like a mix of industry analysis + company analysis.

Some highlights of the Auto Plan that I find interesting: (refer to the website for actual text and details)
1. Has shed over 400,000 auto-related jobs over the past years.

2. It’s not the fault of workers. It’s a failure of leadership – from Washington to Detroit.

3. Plans required hard choices by companies and stakeholders.

4. General Motors (GM) - Rick Wagoner is stepping aside as Chairman and CEO;
adequate working capital over the next 60 days; to produce a better business plan;
United States government has no interest in running GM.

5. Chrysler – potential partner Fiat to transfer its cutting-edge technology; building new fuel-efficient cars and engines; agreement that will ensure that Chrysler repays taxpayers for any new investments that are made before Fiat is allowed to take a majority ownership stake in Chrysler; give Chrysler and Fiat 30 days to reach final agreement, consider lending up to $6 billion

6. Bankruptcy code as a mechanism to help GM & Chrysler restructure quickly.

7. Warrantee of car from Chrysler, GM will be safe: the Warrantee Commitment Program

8. To support demand:

• Recovery Act funds to purchase government cars + other federal fleet purchases.
• Treasury Department's Consumer and Business Lending Initiative + auto finance companies: to increase flow of credits.
• New tax benefit for auto purchases.
• Fleet modernization programs: credit to consumers, turn in less fuel-efficient/old cars and purchase clean cars.

9. New Director of Recovery for Auto Communities and Workers to assist the workers, communities, and regions.

Will the Auto Plan be able to revitalise the US automotive industry ?