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Monday, 24 October 2011

An SMS from Ernst (17): Short Messages Service

Today I am back after having a holiday in amazing Russia: I call this country ‘amazing’ because the mix between rich vs poor, extremely cheap vs extremely expensive, well-organized vs chaotic and shabby vs luxurious never ceases to amaze and shock me.

One of these days, I will write a special blog on Russia, this past and would-be future super power through the lens of a ‘Dutchman in St-Petersburg’. Don’t miss it.

But as a warming-up, I want to write one of my SMS’s. Simply, because too many things happened to ignore, while I was on ‘planet’ Russia.

Khadaffi’s Death

It is almost one week ago, since the former Libyan dictator Moammar al-Khadaffi was killed, while being captured by the current leaders of the country.

Though I can’t proof it as I obviously wasn’t there, the whole case looks, smells and feels like a lynching party, with as a grim climax the display of the (still alive or dead) body of the Colonel surrounded by screaming and hysterical people. It was truly a disgusting sight.

And although I really can’t blame the Libyans for taking revenge and the man probably deserved his fate much, much more than many of his countrymen who died by his hand, it was a shame and a shock for me to see that the new powers that be in Libya couldn’t capture Khadaffi alive and bring him to justice. If you fight the fight like your worst enemy did, you will become just as bad as him.

Even more disgusting was the chuckling and even openly displayed happiness of the European leaders after his death; the same leaders that were all too happy to get on the picture with ‘the ole desert fox’ only one or two years ago and that were hosting his tent and entourage with a million dollar smile. ‘The guy might be an a**hole, but there is nothing wrong with $220 bln in investment money’.

Opportunism and lack of character was never displayed in a more disgusting manner than in case of Colonel Khadaffi. You almost have to praise the Chinese and Russian leaders for being a little less hypocritical and more loyal than the European leaders.

The current leaders of Libya might now be ‘thankful’ towards Europe and the US for helping them getting rid of Khadaffi, but they certainly won’t forget the lesson they learned from Khadaffi’s undoing: you can’t trust the Europeans.

This lesson might improve the Chinese and Russian chances for entering into prosperous contracts with the Libyans in the foreseeable future.

ABN AMRO on the war path

News from a total different order came from our ‘former national pride’, the ABN AMRO bank. The now state-owned bank is back on the war path and wants to take over assets of troubled banks all over Europe. The Financial Times writes on this story. Here are the pertinent snips:

ABN Amro, the Dutch bank that has seen two of its three post-crisis owners collapse, is on a mission to re-emerge as a force in the sector and has promised to be a buyer of eurozone financial assets that capital-stretched banks are preparing to sell.
Gerrit Zalm, the former Dutch finance minister who is now chief executive of the nationalised rump of ABN, said he had “spoken to almost all” of its European rivals about the idea.
In an interview with the Financial Times he said: “We are very well capitalised and we’re not in a position to have to shrink our balance sheet. We are certainly interested in taking over portfolios.”
Eurozone policymakers are intent on forcing big banks to boost capital ratios, prompting many lenders to pledge a mass divestment of assets.
The plan for portfolio acquisitions is part of a project by ABN, which had all but disappeared as a brand outside its home market, to rebuild its identity as an international bank.
It has just moved back into the US oil and gas market and is now preparing to open offices in Moscow and Shanghai.
The reborn bank’s expansionist strategy, which many rivals dismiss as destined to fail, risks scaring Dutch taxpayers. But Mr Zalm said ABN’s growth, including its foreign build-up, would be sharply focused in niche areas of strength.
He said: “This time we are extremely focused. We only want to do international activities in areas where we think that we can beat the top banks in the world.”
The bank has a current net asset value of €12.5bn, though at current average valuations for European banks, of 60 per cent of book value, that would imply a market capitalisation of less than €8bn.

There are lots of things to say about this ‘bold’ plan. From my article European Commission puts ABN AMRO effectively on a leash, comes the following snippet:

Final outcome of state aid investigation by the European Commission
On Tuesday 5 April 2011 the European Commission announced the outcome of its state aid investigation procedure on ABN AMRO.
The European Commission states in its press release that it has approved under EU state aid rules the support package and restructuring plan for ABN AMRO Group, subject to certain conditions. These include a ban on acquisitions, and measures to stimulate competition in private banking in the Netherlands.
Acquisitions are still possible if these are below a certain (cumulative) limit or are part of certain activities, such as private equity.

I seriously wonder if the plans of Gerrit Zalm are allowed under the current ruling of the European Commission that forbids acquisitions above a certain (cumulative) limit. As ABN AMRO is a state-owned bank, the state ownership gives the bank a competitive edge as the cumulative firepower of the Dutch taxpayer is behind these acquisitions, especially when these would go awry.

But there is one more serious matter: you could say that some people’s waste is other people’s gold, but unfortunately this is seldomly true in the banking world. Therefore the thought that a state-owned bank is using taxpayer-guaranteed money to buy the assets that other banks need to dump chills me to the (taxpaying) bone.

My hard-earned  and reluctantly paid taxpayer money will be used to speculate on the international money, bond and asset markets, because former Finance Minister and rookie banking CEO Gerrit Zalm can’t accept that the ABN turned into a large local bank, instead of a globally operating bank.

And although Zalm calls the ABN AMRO well-capitalized and although he states that ABN AMRO doesn’t have to shrink its balance sheet, I seriously doubt that too. First, there is the fact that banks don’t trust eachother at the moment. If these don’t, why should I.

Second, there is the fact that Dutch banks have substantial exposure to the peripheral countries besides Greece:

I marked the net exposure of Dutch banks to the PIIGS-countries (except Portugal, due to the relative small amount of the exposure), Belgium and France:
  • There is indeed ‘little’ exposure to Greece, but probably 50-60% of this amount should be written off.
  •  There is substantial exposure to Belgium and Italy (€20 bln combined).
  • Especially Italy is still targeted by the financial markets. 
  • There is massive exposure to Ireland, Spain and France (€97 bln combined).
  • Especially Spain and Ireland are still in financial trouble. This puts €50bln under jeopardy;
  • France could soon follow if the country’s attempts to save its banks (SocGen, BNP Paribas and CredAgri ) go awry. This puts another €46 bln under jeopardy.

As the data in the linked article was anonymous, coming from DNB (Dutch national bank), it is impossible to filter out the exposure of the ABN AMRO to the other peripheral countries. But one thing is certain: they are involved.

Therefore I truly hope that this was just a loose interview by Zalm, meant to influence the European Commission towards a more friendly stance towards the bank and that this doesn’t turn into the company’s new strategy.

Greece and the Euro-zone

After all the decisive meetings we already had in the past months and that yielded mainly hot air, there is yet another decisive meeting of the European government leaders this Wednesday, October 26. And this one will truly solve all the problems and save the Euro as we know it. Right? Wrong!

In former articles I used for the European leaders the proverb of ‘frogs in a wheel barrow’, but I want to ‘upgrade’ this to ‘fleas in a flea circus’.

The UK and France are now involved in a battle on who has the biggest mouth, as Sarkozy was deeply annoyed by the fact that renowned Euro-hater PM David Cameron, is now calling the shots for the EU and the Euro-zone.

PM Mark Rutte of The Netherlands is openly lobbying for his Euro Commissioner on Budget affairs, like there aren’t more important issues to be solved and, besides that, he has taken the message from home to not waste even more money on the Greeks.

Angela Merkel and Nicolas Sarkozy (nicknamed Merkozy) are convulsively showing unity of policy, but are deeply divided on almost anything and especially on using the ECB as a lender of last resort.

The small EU countries are trying to put in a word, while their grassroots are screaming for stopping aid to Greece and other (richer) countries in need.

Greece itself turned into a war zone with violent protests around the clock. Other peripheral countries (and France (!)) are probably soon to follow.

The much needed political and economic union seems farther away than ever, as all countries are fighting to maintain their sovereignty.

It is a mess and it will still be a mess after Wednesday.

Saab and the Chinese rescue attempt

Today, in a new episode of the continuing ‘Soab around Saab’, the news was published that the €245 mln rescue attempt by Chinese car companies Youngman and Pang Da is off.

The Dutch newspaper Het Financieele Dagblad ( prints this story:

Car manufacturer Saab states that the wages for the workers of the car factories that are due for payment on October 25, will probably be paid later, after the untimely end of the financing deal with Youngman and Pang Da. 
‘It is still not clear if we are able to pay the wages in time tomorrow (Tuesday)’, according to Gunilla Gustavs, spokeswoman of Saab Automobile on Monday. Swedish Automobile(SA), the holding company of Saab, entered this summer into a long-term financing agreement with Youngman and Pang Da, where these companies combined would receive a 54% stake against a payment of €245. Since then, the companies are waiting for permission from both the Chinese and Swedish authorities.
In September, SA, signed also a €70 mln agreement with Youngman to finish the restructuring of the Swedish company.
In an explanation on Sunday, Swedish Automobile stated ‘to end the agreement with both parties, as Youngman and Pang Da did not want to ‘reconfirm’  their participation. Besides that, both companies came with bids that were simply not acceptable for SA.

As I stated before in my SMS from Ernst (13): 
I’m sorry, but I don’t believe in the timely arrival of the bridging loan, I don’t believe that the Chinese and Swedish authorities will approve of the takeover of the 50% share of Saab and I don’t believe in any promised rescue operation by any sugar daddy from The Netherlands, Russia or China.
To be honest: Saab is a company that is playing in the extra time of its lifecycle and the referee is about to whistle for the end of the match. Game over.

I guess I was right when I wrote these lines. Although Saab seems like a cat with 9 lives, these lives will now soon come to an end. I simply cannot believe the company will also survive this setback. And that is sad, but now it is time to move on.

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