Monday, 16 March 2009

This is Bad News for Latin America: Remittances Seen Falling This Year For First Time, Says IADB

After almost a decade of growth, remittances to Latin America and the Caribbean are likely to decline in 2009 -- the first decline since the Inter-American Development Bank started tracking flows in 2000. Bad news. Remittances have been decreasing since the fourth quarter of 2008 -- the first quarterly decline also in nearly a decade. Migrants are either being hit by the economic recession in the U.S. and most developed economies; remittances are also being affected by swings in exchange rates -- with a stronger dollar, it is harder for migrants to send more; the effect is mixed for recipients. Says the IADB in a report released today: ''The break in the upward trend took place after the first semester of 2008. After a flat third quarter, in the fourth quarter remittances dropped to $17 billion, 2 percent less than in the same period of 2007. For the few countries that have reported data for January, totals were down by as much as 13 percent.´´

What's at stake here? A lot: remittances sent home by migrant workers provides millions of families across Latin America and the Caribbean with a source of income that was the most stable source of dollars for years. Even banks have played large on this, repackaging flows into bonds that they sold along the past three or four years. According to the IADB, Latin American and Caribbean expatriates transferred $69 billion to their homelands, 1 percent more than in 2007. It's a lot of money -- the decline will be dramatic for sure.

Exchange rates swings started to have greater influence than in the past, especially in countries that experienced sharp devaluations or have large expatriate communities in Europe. Migrant workers who sent money from Europe into their homelands were hit by the sudden drop in the value of the euro since mid-2008. Remittance senders and their beneficiaries back home were also hurt by last year’s skyrocketing oil and food prices.

Tumbling Trade, Flagging Shipping Industry Put European Banks at Jeopardy, Says S&P

The flagging shipping sector is putting downward pressure on the ratings of European banks exposed to the industry, Standard and Poor's said in a report today. S&P forecasts that at some point banks will have to provision more for bad trade loans to shipping companies -- provisioning against profits means banks will therefore require more capital. "Many shipping companies are struggling following a sharp downturn in global trade and challenging funding conditions. We expect these difficulties to result in a material increase in banks' loan loss provisions,´´said analyst Harm Semder. Pressure will come from an increasing number of loan defaults, eroding credit quality at shipping firms, and weaker recovery expectations due to falling asset values -- banks' capital ratios may decline as deteriorating creditworthiness increases the relative risk-weighting under Basel II.

We have witnessed a process of deterioration in the quality of shipping and trade and logistics companies in Latin America (especially in Brazil) following a dearth of trade financing, higher borrowing costs and a decline in demand for exports and imports. The Baltic Dry Index reported a drop in shipping fees of 92 percent between May and November last year -- just when the crisis began to unleash. Let's see whether rating agencies start looking for symptoms of the same phenomenon in Latin America. Banks that might suffer with a dramatic tumble in regional commerce and the quality of shipping and trade companies include BNDES, Banco Itaú, Banco Bradesco of Brazil, Proexport in Colombia, Bladex (probably) and the Mexican Ex-Im bank.

Reuters' James Saft Renews Attacks on U.S. Policies to Keep Zombie Banks Alive -- Attacks Are Welcome!

Click here to read James Saft's column for this week. Here is one short excerpt:

''The U.S. policy of keeping zombie financial institutions alive is so clearly failing that it is now attracting attack from inside policymakers’ circle of covered wagons.
The most interesting intervention in the banking debate in the past few weeks was an extraordinary attack by Kansas City Federal Reserve President Thomas Hoenig on what he termed a policy of “piecemeal” nationalization which leaves discredited management in place, repels new capital from the banking system and allows bad assets to fester rather than be cleared.´´

Até Tú, Eike? LLX Brings BNDES in as Shareholder -- Meaning Business Isn't Going Too Well, Right?

X-Man: The days he used to talk happilly about ex-wife Luma
and his almost always money-making business ventures

The following is the text of a press release we just got, from LLX Logistica SA, the logistics arm of Brazilian billionaire Eike Batista's massive yet illiquid empire.

Rio de Janeiro, March 16th 2009. LLX Logística S.A., an EBX Group Company, hereby announces that, BNDES PARTICIPAÇÕES S.A. - BNDESPAR, a wholly-owned subsidiary of the Brazilian Development Bank (BNDES) ("BNDESPAR"), approved in a Board of Executive Officers Meeting the subscription of shares in the LLX´s capital increase. This capital increase will be effective upon the execution of an agreement among the Company´s controlling shareholder, Mr. Eike Batista, his subsidiary Centennial Asset Mining Fund LLC ("Centennial"), Ontario Teachers´ Pension Plan Board ("OTPP") and BNDESPAR.

The capital increase of R$ 600 million results from the issuance of 333,333,335 new common shares and will be priced at R$ 1.80 per share which represents a premium of 27% over the volume weighted average price of the last 60 trading days. Under this agreement, BNDESPAR shall subscribe the equivalent of 25 percent of the total newly issued shares, representing R$ 150 million, and resulting in an equity stake in LLX of 12.05 percent.

BNDESPAR will become LLX´s shareholder through the assignment of a portion of the preemptive rights of the controlling shareholder, Centennial and OTPP in favor of BNDESPAR. In consideration for the assignment of these preemptive rights, BNDESPAR has granted to the Controlling Shareholder and to OTPP a call option for the purchase of 50 percent of the shares issued by the Company paid-in by BNDESPAR under this transaction. This call option will be exercisable after a 36 months period from the date on which the capital increase is confirmed, at an exercise price of R$ 1.80 per share, adjusted in accordance with the Brazilian Extended Consumer Price Index - IPCA, published by the Brazilian Institute of National Statistics and Geography - IBGE, plus a rate of 15 percent per year ("Exercise Price").
A few questions were left open -- How will this hurt minority shareholders? Will this mean that by bringing the government Mr. Batista will overcome recent problems with his projects including the Porto Brasil? Following the move, will he be able to line up new, cheaper financing for the Açú and other logistics projects?

BNDES may turn a dangerous partner in the long run -- depending on who wins the country's presidency on 2010. The BNDES is taking control of certain aspects of the Brazilian economy amid the ongoing crisis. The bank's tentacles are now on several sectors, including food, paper and pulp, mining, real estate ... As a friend used to say, in the new Brazilian economy you either are with or against the BNDES. If you are, you will be fine -- but if you aren't, run for your life.

New Issuance: Israel Considers Tapping International Bond Markets

The government of Israel mandated Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. as joint lead managers (JLM) on a potential benchmark size, dollar-denominated bond offering off of the country's SEC registered shelf.

No terms, details or timeline for the transaction were disclosed. This year emerging market sovereign issuers have issued about $7 billion of bonds -- thanks to a recovery in risk-taking and demand from specific issues of the most creditworthy nations (Brazil, Colombia, Indonesia, Mexico as opposed to Argentina, Venezuela or Pakistan.)

Venezuela Seizes Trawl-Fishing Vessels, Donate Them to Cuba -- What The Hell is Going On There?

Que tipejo odioso!

The Bolivarian Revolutionary government of Venezuela (which is nothing else than an inflamatoryproto-state trying to spark serious geopolitical imbalances in the region by welcoming Russian fighter jets and vessels) banned trawl-fishing on March 14, citing no reasons. At this point, nationalisations and confiscations need no reason -- Mr. President thinks the country of 29 million is an extension of his family's farm in Barinas state. Venezuela is the first country in Latin America that is actually banning trawling -- saying it harms small fishery. Yesterday the government of President Hugo Chávez decided to take over 30 trawlers and donate them to a fishing and food joint venture with Cuba. According to Bloomberg, 70 percent of the country’s fish are provided by small fishermen, while trawlers mostly catch shrimp for export -- ah! the president was the source of that info (he is an endless source of data that always fits for his distorted view of things.)

We insist that the president will step up his policy of confiscations and nationalisations in the food and, next, the banking industries. Why? Food is scarce and inflation is rampant. He probably sees the food industry as the most likely next sector through which his enemies would try to oust him -- by hoarding food or raising prices. A Castro-fueled paranoia. Chávez's cowardice knows no limits -- he has been impoverishing his own populations by squeezing businesses and forcing the cost of goods higher through his policies. Banking, we see banking as another target, because the crisis will force banks to cut credit. And he can't afford that -- a decline in credit. But we also believe that the policy of paying for nationalisations may have to be reconsidered if the drop in oil windfalls is too dramatic and the deterioration of PDVSA finances deepens.

Bogotá is The City of Chaos These Days: Moreno, Go to Hell! Rojas Birry Faces Corruption Allegations

''Hey Francisco, look: we know you are squeezed with those expensive bills of
one of your mistress and your new car, and your country house. You help us with
one contract, and we will give you a small present. But make sure you get
another mistress so she can be used as testaferra.´´

Click here on this link to read this Cambio magazine story about a corruption scandal in Bogotá. To make a long story short, you have probably read in the media about the pyramids scandal in Colombia. Some people say the tentacles of one of these pyramid scheme companies reached the presidential palace. Well, the mastermind of the largest of such companies, DMG, a crook called David Murcia, bribed thousands of influential people -- or hired them -- in order to either evade justice or get more businesses.

One of those people Murcia's organisation bribed -- or hired -- is Bogotá's Personero Distrital. Personero Distrital, uhhmm, one of those useless positions in the bureaucracies of Latin America, has no translation -- but the guy is the person who evaluates and go-aheads city contracts with public and private entities. So, summarising, this crook has influence and power. The Personero: Francisco Rojas Birry, a former senator and a representative to the indigenous communities. Don't call me a racist -- I don't freaking care if this guy is white or not. Rojas Birry
(photo, centre) allegedly received $90,000 from DMG to pay old debts, Cambio reported. He used his wife, a lady with a weird name, as front woman for a car he got from ... uhhmm, we still don't know eh? ... Cambio details some of his contract dealings as well as extravagant lifestyle antics in a very good story. Funny, annoying but funny.

Am I wasting your time here? Probably yes. But I love lashing out at those idiots from the Polo Democrático
faction supporting that other crook called Samuel Moreno Rojas, who happens to unfortunately be the mayor of Bogotá, a city of about 9 million people managed by Moreno like a freaking village. The city lost its appeal and a chance to attract billions of dollars in new investments (and become a hub for investment in the region) the day that idiot took office. We hope that Bogotanos continue their efforts to impeach such idiot. And for Rojas Birry, the personero, his situation is untenable -- he will probably face a political trial at the city assembly. His sorrowful wife is probably counting his days on her fingers.

A WeeLate, Right? G-20 Finance Chiefs Vow to Spend More of Our Tax Money Cleaning Up Banks' Balance Sheets

Click here for Bloomberg News' story on the G-20 statement over toxic assets. Superb reporter Simon Kennedy writes.

Well, here is the nut graph of Simon's story and a very good comment from Mohamed El-Erian, the CEO of bond powerhouse Pimco. The thing is, all the efforts to write off and wipe out toxic assets have cost us between $1 trillion and $3 trillion. What else is deemed as necessary to clean up balance sheets once and for all? No one seems to know -- the truth is, there must be more rubbish to throw away.

The commitment, made three weeks before G-20 leaders gather in London, comes as investors demand faster action in the face of turmoil that’s showing few signs of abating. The Standard & Poor’s 500 Financials Index has dropped 35 percent this year and a lack of lending is pushing the global economy deeper into its worst recession in six decades.
''Markets are looking to policy makers around the world to move from the recognition and design stages to implementation, and to do so in a coordinated, or at least correlated, fashion,´´ Mohamed El-Erian, the co-chief executive officer of Pacific Investment Management Co. in Newport, California, said in an interview. ''Tackling toxic assets is a necessary condition for sustainable progress.´´

Brazilian Corporate Profits Plunged About 50 Percent in Fourth Quarter as Financial Expenses, Value of Dollar Soared

Economática, a São Paulo-based economic research company, said net income at 85 listed Brazilian companies tumbled 50 percent in the fourth quarter, pressured by a surge of 363 percent in the cost of borrowing and the rise of 22 percent in the price of spot dollar.

Financial expenses rose to 9.1 billion reais in the quarter from about 2 billion reais a year earlier. The stock of debt for all those companies surged 50 percent (without taking into account inflation for the year) to 188 billion reais ... this should make us think that the derivatives situation is probably worse than we are imagining.

Bernanke Speaks in a 'Rare TV Interview:´ Warns Wall Street Bankers Their Days of Lavishness Are Over

Ay! I screwed up!

Ha! Ben Bernanke, the U.S. Federal Reserve Governor and, as the WSJ puts it, ''the self-professed 'Main Street´ guy who once worked construction and waited tables in a poncho´´ sent a dart to some on Wall Street, saying "the era of this high living, this is over now.´´ Click here for the link to the WSJ story. Well, Great Ben: every time there is a Wall Street-triggered crisis, politicians love blaming bankers for national disgrace. The Gecko character in that old Michael Douglas film was created so he would symbolise the hateful side of Wall Street. But everyone wants to be like those bankers (and earn what they earn.) So there must be something wrong in the American way of life, and the way citizens see their bankers -- people love their lifestyle. They all wanna be as rich as a Wall Street banker. The funniest thing is, once the crisis was a problem in the savings and loans sector, the other was excess leverage, the other time was the dotcoms, now the problem was that another market innovation led to excesses. The only way to stop these bankers from making money and derailing equilibrium in the system is paring innovation in credit markets. Is it affordable Ben? No. Neither is a problem of more regulation and scrutiny over bankers' pay nor it would be solved through strict self-regulation. The problem is quite complex, more complex than we ever imagined -- the system is going through a serious problem of confidence -- but confidence can't be restored by making bankers the occasional scapegoat. The government is badly responsible for all this mess too.