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Friday, 11 February 2011

SMS: Short Messages Service (2)

Nokia combines forces with Microsoft in smartphones (source: Financieel Dagblad (Dutch Financial Newspaper)) 
Nokia is battling together with Microsoft to stand up to the murderous competition of Apple’s iPhone and the smartphones of HTC and Samsung with their Android operating system.
From now on he smartphones of the Finnish company are provided with Windows Phone, the operating system of Microsoft. Nokia’s CEO Stephen Elop – originating from Microsoft – announced a “large strategic agreement” during a strategic and financial update for the company. Both companies will combined develop mobile communication products.

Is it me or is this a question of the blind leading the blind? Although Nokia is still the world’s number one in mobile phones, their attempts in the smartphone business are somewhat lackluster in quality and success. Over the last five years the smartphone branch of the company is surpassed by respectively HP, Research in Motion (RIM), Apple and HTC and there is no clear sign that this might change in the coming years.

Microsofts attempts to supply firmware and operating systems for the mobile phone industry have been – how do I say this politely – not very succesful yet and I can imagine that nobody is attracted by the thought of getting a blue screen on his phone (“a fatal error occurred at memory position 1B3FC”), just when he needs it most!

That is just kidding, but you can ask yourself honestly whether the smartphone market is waiting for yet another company with yet another operating system, that tries to compete in a market that is slowly growing into a replacement market.

Future IASB chairman Hans Hoogervorst attacks the Basel committee for the Banking Industry (source: Financieel Dagblad (Dutch)) 
Hans Hoogervorst, acting in his role as future chairman of the IASB (International Accounting Standards Board: the organisation responsible for the international accounting rules), attacked the banking supervisors, united in the Basel Committee. In a speech in Brussels he stated that “making the financial industry safer is not a task of the IASB, but of the Basel Committee” 
Hoogervorst – currently chairman of the Dutch Authority Financial Markets – reacted to an ongoing discussion between banking supervisors and the authors of Accounting Rules.
Banking supervisors remarked more than once that the international Accounting Rules (IFRS), put together by the IASB, worked incorrecty during the crisis. In good times the figures were too optimistic, but during the crisis the banks were forced to show extreme write-offs.
 In his speech Hoogervorst called transparency and openness the most important factors: 
“Transparency is not something that a sector, as vulnerable as the banking industry, comes up with spontaneously. Supervisors in the past could use secrecy to solve problems within banks, but I doubt whether this will work in the 21st century”
 According to Hoogervorst, transparency is the foundation for the banking industry and supervisors should finish the job with sturdy capital requirements and serious stresstests. “We should respect eachothers responsibilities” 

He criticized the stresstests the supervisors executed during the summer: Almost all banks passed the tests, partly due to the assumption in these tests that investments in European sovereign bonds are always redeemed for the full 100%.“How discerning can an auditor be, when he sees that supervisors consider sovereign bonds riskless, when these bonds are already under heavy pressure in the capital market”.
The banking supervisors have for quite a while asked the IASB for an accounting rule that allows banks to build up a reserve for defaults and non-payments in economic good times and that prevents the credit supply to swing up-and-down with the market. Recently an agreement was reached in this matter, but Hoogervorst warned that this model is only credible when banks write-off credit losses in time.

Although I was not a big fan of Hoogervorst during his days as a Minister of Healthcare in The Netherlands, he has some points here, but not always for the right reasons:
-         Transparency is indeed not something that is on the retina of the banking   world, but secrecy won’t save the day anymore.
-         The European stress test were indeed a laugh, but that had almost nothing to do with the valuation of the sovereign bonds.  Every bank passed these stress tests,  because the ECB didn’t want any bank to fail these tests.
o        Every failed bank would have had an immediate bank run to cope with.
-         The accounting rule for the build-up of reserves will indeed only work when banks write-off credit losses immediately, but this will only happen when hell freezes over.
o        Don’t ask, don’t tell is currently the rule for credit losses.

And in one thing Hans Hoogervorst is dead wrong:
Neither the IASB, nor the Basel committee is ultimately responsible for making the financial industry safer. The BANKS are responsible for that: as long as they act like 3 year-olds with a cookie jar, there are neither accounting rules nor supervisory committees that can change this behavior.

However, this doesn’t change the fact that supervisory of banks has not been in good hands the last decade.

Portugal will prematurely pay-off 9.5 Billion EUR in sovereign bonds (4.5 billion EUR maturing April, 2011 and 5 billion EUR maturing June, 2011 (source in Dutch )
Some pertinent snips:
Whether Portugal indeed will pay-off prematurely, depends on the market conditions next week, according to the Portuguese debt agency[…]
The possible premature pay-off causes mixed feelings on the financial Markets. Filipe Silva, bond manager of Banco Carregosa is satisfied:“ It seems that Portugal wants to manage its debt efficiently and will use the fact that many investors wants to sell their bonds […]”
Analyst Chris Scicluna of Daiwa Capital Markets is more sceptical against Bloomberg: “Portugal hopes that the premature pay-off clears the way for the large bulk of refinances that awaits the country later on this year”

I happen to agree with Chris Scicluna: when a lot of refinancing actions are awaiting you in the future, it is better to show your friendly and cash-rich face to the investors. But I doubt whether all investors believe this power play.The interest rates on Portuguese sovereign bonds will tell you the answer.  All-in-all it shows that the Euro crisis is far from over yet.

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