South Korea’s justice ministry is considering a “poison pill” law, which would give shareholders the right to quickly buy new shares at a discount when they face an unsolicited takeover bid. The Federation of Korean Industries, a business lobby group, had urged the government to introduce such defensive measures, saying South Korean companies are coming under increasing pressure from corporate raiders.
Forbes suggests that The proposed U.S. financial resolution authority, which would be empowered to deal with large, failing financial firms, must keep a level playing field in the international sphere in order to ensure that U.S. institutions are not treated differently from foreign firms.
Three Canadian academics propose the size of a CEO’s ego is strongly correlated with fraud. The authors suggest that egotistical managers, fueled by media attention and analyst praise, gain a feeling of invincibility that leads them to take more risks in fraudulent activities. The study was limited to Canadian firms but the authors refer to the possible applicability of their analysis to U.S. companies.
The British government announced that it will break up parts of major financial institutions bailed out by taxpayers, highlighting a growing divide across the Atlantic over how to deal with the massive banks that were partially nationalized during the height of the financial crisis. The British government is forcing the Royal Bank of Scotland, Lloyds Banking Group and Northern Rock to sell off parts of their operations. The move to downsize some of Britain's largest banks comes as U.S. politicians are debating whether American banks should also be required to shrink.
India’s central bank took the first steps to unwind its ultra-loose monetary policy adopted to counteract the ravages of the global financial crisis. The Reserve Bank of India tightened emergency liquidity support measures and raised its inflation forecast. The move, which triggered a sell-off on the Bombay Stock Exchange, paves the way for an increase in interest rates early next year as Asia’s third-largest economy shrugs off the economic downturn.
Export-dependent Asian economies are suffering from two problems. First, is the continuing weakness of the U.S. dollar and accompanying depreciation of the Chinese yuan, which affects the price competitiveness of products exported by Korea, Indonesia, Malaysia and Thailand. Second, these Asian countries have been fingered by the international community as the culprits of a global imbalance in international trade, and are being pressured to reform their economic structures to become more focused on domestic consumption.
More than 600 people were interviewed by Constable Belgian financial markets regarding possible insider trading during the decommissioning of Banc Assurance last year. Constable Belgian Financial Markets, CBFA, is investigating possible insider trading that might have occurred during the dismantling, in 2008, of bank assuror Fortis, which was hit hard by the financial crisis. (French language)
Despite the U.S. government’s vow to end obscene executive compensation practices, the 23 largest U.S. banks recently announced that a pool of $140 billion will be spent on bonus payments this year, breaking past records. Will executive compensation reform be ever successful? (French language)
One of China’s leading bankers has urged a tightening of monetary policy, warning that the huge stimulus measures introduced this year would inflate stock and property bubbles.
On October 22, the FSA said banks operating in the U.K. will be required to produce “living wills” to provide a blueprint on how to wind them down in the event of financial difficulty. If the plans show it would be difficult to do so, then banks must take steps to remove the obstacles, including measures such as the separation of retail banking from proprietary trading operations.
Due to years of stimulus spending, Japan’s gross public debt has grown to twice the size of its $5 trillion economy, inciting concerns about possible collapse in the value of the yen. Interest payments alone on its debt consumed a fifth of the country’s budget for 2008. Despite this concern, on October 21, the finance minister announced that Japan would issue more deficit bonds.
A land development company announced its sale of an apartment in Hong Kong for the record price of HK $439 million (US $57 million). This news comes on the tails of an announcement by the Hong Kong government that the country, which strictly regulates land use, intends on releasing more land for development to deflate the property bubble.
Major overseas banks operating in London have agreed to implement rules on bankers’ pay pursuant to the G20 recommendations. While there are no enforced caps on bonuses, the Financial Services Authority rules on banker’s pay which take effect in January, say that bonuses should not be guaranteed for more than a year and that senior employees’ bonuses should be spread out over time.
China’s new bank loans increased again last month, prompting concerns that some of the money is leaking into equity and property markets, potentially fueling future bubbles. However, the Chinese government believes that increasing bank lending will continue to provide momentum to an economy that has rebounded more quickly than other economies.
Moody’s predicts that Spanish bank customers will default on over 100 billion euros worth of loans over the course of the current economic recession. Spanish banks, however, are failing to recognize the true scale of their losses amid a deep slump that could have implications for Europe’s growth for years to come.
During a recent meeting in Istanbul, consisting of the World Bank and the International Monetary Fund, a consensus emerged: The Group of 7 industrialized nations has potentially outlived its usefulness as a group for making major policy decisions in a world that no longer consists of merely seven major emerging economies.
Faced with an abundance of non-performing loans last month, China once again decided to roll over the bonds used to finance these loans for another decade, holding on to hopes that future economic growth will reduce the size of the problem.
A recent report by the Commission Nacional del Mercado de Valores (CNMV) declared that due to the current financial crisis, “special attention” should be given to the compensation of directors and senior executives of companies listed on securities exchanges, such as the IBEX. Admitting that this will “occupy a central role in the debate on corporate governance practices,” the report also acknowledged that the average compensation of directors and execs has increased since 2004.
Just weeks after a coalition led by the Japanese Democratic Party assumed the reins of government, Japan’s new banking and postal-services minister has proposed a moratorium on debt repayments, which would relieve banks from having to classify certain outstanding loans as nonperforming.
The five major UK banks have pledged to limit their executives’ bonuses and an independent commission will supervise the issuance of bonuses. From now on, the UK regulator will look very closely at the remuneration of bankers. Executives may even be forced to repay bonuses if the long term results of their decisions are incorrect. (Spanish language)
Korean economists believe that the new financial business model in the post-crisis era is a combination of commercial and investment banks into a subsidiary company called Commercial Investment Banking (CIB). However, this model encourages the risky prospect of combining deposit, loans and investment within the same CIB.
Following the agreement reached between the Spanish Government and unions on public wages, the Bank of Spain will lower government salaries in the hope that the private sector will lower wages as well. The central bank said that lowering salaries in the public (and hopefully private) sector would lead to the “fiscal consolidation” necessary to help pull Spain out of its slump. (Spanish language)
The IMF is set to meet this week to discuss the world economic outlook, poverty reduction and economic development. The agenda will also include reforms to the governance of the IMF and the World Bank. Specifically, the IMF is considering allocating more shares to China and other emerging countries as these developing economies demand a greater voice in management of the IMF and World Bank.
The framework for sustainable economic growth to be debated in the G20 meeting will lack any meaningful enforcement mechanism. Instead, G20 officials hope to pursue coordinated economic growth strategies through a process of annual peer review and monitoring by the IMF. Good luck with that.
The European Shadow Financial Regulatory Committee, a panel of academics and former regulators, will lobby world leaders at the G20 meeting this week to force banks to build up their reserves before the political momentum for deep-seated reform wanes.
The European Commission unveiled legislation creating a new European Systemic Risk Board to monitor threats to financial stability in the region. The legislation will need approval by member states and by the European Parliament before coming into force.
About 20,000 Spanish citizens lost their savings when Lehman Brothers filed for bankruptcy in the U.S. Many were not even aware that they were invested in products issued by the failed Wall Street giant, believing that their funds were in guaranteed deposits in Spanish banks. (Spanish language).
On Sep. 18, Japan’s newly-installed ruling party, the Democratic Party of Japan (DPJ), decided to suspend key elements of the Y15,000,000,000 ($164 billion) economic stimulus package approved by the ousted Liberal Democratic Party. Hirohisa Fujii, Japan’s current Minister of Finance, suggested that the money should instead be set aside to use in the next fiscal year to help finance new programs promised by the DPJ during its recent political campaign.
On September 15 Korea’s Ministry of Strategy and Finance, Financial Supervisory Service, Financial Services Commission, the Korea Deposit Insurance Corporation and the Bank of Korea agreed to share all financial information to strengthen cooperation on policies and improve risk management.
On September 17 European Union leaders agreed to press for binding global rules on bankers’ pay at the G20 meeting scheduled for September 24 in Pittsburgh. The leaders will call for bonuses to be deferred over time, ensuring that the compensation packages "could be canceled in case of a negative development in the bank's performance."
The oversight body of the Basel Committee on Banking Supervision met on September 6 to review a comprehensive set of measures addressing issues such as capital base, leverage ratio, liquidity and procyclicality. The Basel Committee will issue concrete proposals on these measures by the end of this year.
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