Sunday, February 17, 2008

Chinese Bank Research

Chinese banks are growing so rapidly that they have attracted the attention of various organizations and institutions worldwide. Aside from their growth rate, Chinese banks are famous for their comparatively high asset values and for the backstory of a rising nation that is beginning to exert significant influence on the global economy.

Recently, some social investing network and member groups such as BankTrak and Friends of the Earth have initiated campaigns focusing on the social aspects of these banks.

We believe that very little research addressing the relationship between the financial performance and social responsibility or corporate citizenship of these banks has been conducted to date.

We recently completed five summary reports covering the financial and social performance of the top five banks in China. We note that:

* Bank of China has launched an equity fund which specializes in socially responsible investment.

* Bank of Communication has made loans to small enterprises and to national projects of strategic importance (such as the Three Gorges Dam project, freeway constructions, etc.)

* The other three banks, China Construction Bank, Industrial and Commercial Bank of China, and China Merchants Bank, have been active in making contributions to the local community as well. Socially responsible investments made by these banks include loans for poverty alleviation, environmental protection, and other sustainable development projects.

* One bank has been called "the most socially responsible corporation in China" by the Red Cross of China.

Comments and questions are welcome.

Saturday, February 16, 2008

SEC launches new investment analysis tool

According to the SEC,

"The Securities and Exchange Commission announced the launch of the “Financial Explorer” on the SEC Web site to help investors quickly and easily analyze the financial results of public companies.
Financial Explorer is open source, meaning that its source code is free to the public, and technology and financial experts can update and enhance the software."

"In addition to Financial Explorer, the SEC currently offers investors two other online viewers – the Executive Compensation viewer and the Interactive Financial Report viewer, also available at www.sec.gov/xbrl. The Executive Compensation viewer enables investors to instantly compare what 500 of the largest U.S. companies are paying their top executives. The Interactive Financial Report viewer also helps investors gather, analyze, and compare key financial disclosures filed voluntarily by public companies using XBRL."

Thursday, February 14, 2008

Treasury Secretary to Subprime Mortgage Victims: "I did not create this problem."

We attended today's Senate Banking Committee hearing on the State of the U.S. Economy and were surprised to hear the Secretary of the Treasury of the United States say, in response to a question from Senator Robert P. Casey (D-PA),

"I did not create this problem..."

Not only is this poor customer service (imagine a General telling you "I did not start this war," or your doctor telling you "I did not create the health issue you are having..." or a Chef telling you "I did not grow this corn...") but some will tell you that the statement itself may, in fact, be false. Several market analysts feel that Mr. Paulson may have, at some level, helped create the problem. They point out that the firm he once ran, Goldman Sachs, made millions by facilitating the creation and distribution of subprime-backed investments. We would point out that Goldman has not been implicated in the most egregious subprime mortgage market practices.

Still, the statement is especially troubling coming from the Administration's top economic policy official. Some will believe this statement reflective of the prevailing attitude within the Administration: those who are in trouble are, somehow, at fault for falling prey to sophisticated, well designed, well executed, misleading and fraudulent financial market practices.

As we noted on November 9th, 2007, most of the people losing their homes are low to moderate income people of color. Those with new ideas and solutions to the problem were carefully excluded from providing suggestions to help with the problem, due to the same bigotry that gave rise to it.

What some will see as even more troubling is the fundamental lack of understanding of the seriousness of the problem. We did not hear, from any of the witnesses (Federal Reserve Board Chairman Bernanke, Treasury Secretary Paulson and Securities and Exchange Commission Chairman Cox), any statement that would lead anyone to believe they know:
  1. How many subprime mortgage loans there are currently;
  2. The terms of the average subprime mortgage loan (interest rate, maturity, points paid to originator, who originated the loan, who owns the loan...and how it got to its current owner..), and;
  3. How many subprime mortgage loans might default over the next month, year, five years, etc.
  4. Who got paid? What were the total fees paid by subprime borrowers? Who got these fees?
  5. Who, and I mean who EXACTLY, owns these subprime mortgages now?
  6. How did they come to own them? By what mechanism?
..in other words, a complete and stunning lack of relevant information that policymakers need to effectively address the problem.

Now we are worried....

Monday, February 11, 2008

The First Bank Failure of 2008

From US News and World Report:

Bad commercial real estate loans sink a small financial institution in Kansas City
By Luke Mullins
Posted January 28, 2008

A tiny bank in Kansas City, Mo., has become the first bank in the country to fail this year—but it's unlikely to be the last.

Federal regulators on Friday shuttered Douglass National Bank, an African-American-owned bank with $59 million in assets that was named in honor of the 19th-century abolitionist Frederick Douglass. The bank, which has roots stretching back to the 1940s, had struggled of late, losing $1.3 million in 2007 and $4.3 million in 2006.

Although its recent losses were tied to bad commercial real estate loans, not residential mortgages, the bank's problems are nonetheless linked to the global mortgage crisis that has ripped through the financial services industry, says William Michael Cunningham of Creative Investment Research. "It's this secondary and tertiary impact of the crisis in the subprime market that's beginning to impact smaller institutions mainly through [the slowdown in] consumer spending," Cunningham says.

Douglass is the first bank to fail in 2008 and the fourth since February of last year. Before that, federal regulators hadn't shuttered a bank since June 2004.

But Cunningham expects other small banks—especially those with weak profits and deteriorating capital bases—to follow suit in the coming months, as the slowing economy limits borrowers' ability to repay loans.

Larger banks, such as, say, Bank of America or Citigroup, are far less likely to experience a similar rise in failures. Such banks have more capital to protect against losses and greater access to additional funds should they need them.

But with limited resources, smaller banks simply have fewer options, making them more vulnerable to downturns in the industry and the economy as a whole.