Alacra has released the beta version of a tool to keep track of bank regulation and compliance in a clear and understandable format. Presented as a Periodic Table, the beta version includes 76 “elements” representing major regulations and regulators. No doubt some more will be added based on feedback.
The entries date back to 1863, when the Office of the Comptroller of the Currency was formed, and includes summaries of pending regulations resulting from the Dodd-Frank Act and Basel III, for example. Each entry includes a summary, key facts, and links to more information.
We had a hand it putting together the content, so if you spot any errors or omissions or have any suggestions for improvements, please send them to compliance@alacra.com.
Click here to open the Periodic Table of Bank Regulation and Compliance, then click on individual elements for details.
Technorati Tags: banking, banks, compliance, Dodd-Frank Act, regulation
Standard & Poor’s Ratings Services’ base-case outlook for global auto sales in 2012 is for sharper differences between regions than in 2011. The mixed outlook for passenger vehicle sales reflects an economic outlook that varies by region and so the outlook for credit quality also varies. The mixture of regional exposures is a key aspect of credit quality in 2012.
Our forecast for 2012 US sales of 14.2 million units means sales may climb comfortably above estimated replacements of 13 million for the first time since 2008.
And the first three months of 2012 have seen annualized rates of sales in excess of our 2012 forecast. Still, we remain cautious about potential weakness in the economic recovery because of challenges in Europe, the impact of slower growth in China, and the potential for U.S. fiscal showdowns late in 2012.
In Europe our base-case outlook assumes that light-vehicle sales will decline more significantly in 2012 than in 2011 (the fourth consecutive year of European decline). In Japan, new vehicle sales during the first three months of 2012 jumped by 47.5% compared with the same period in 2011; we expect improved supply conditions and the government’s new eco-car subsidy program to boost new vehicles sales. In the important markets of China and Brazil our base case is for slower, but still positive growth.
More from S&P Credit Research
Industry Report Card: Mixed Regional Sales Outlooks Equals Mixed Prospects Among Global Automakers
Technorati Tags: automakers
The Asia-Pacific banking industry faces a turning point in 2012 following three years of stable performance, according to Standard & Poor’s.
We believe that the high loan growth and moderate credit costs the sector has enjoyed could become a thing of the past. Instead, Europe’s debt crisis, lower regional economic growth, and contraction in some property markets could impair loan quality and push credit costs higher.
“In our view, slower economic growth is likely to impede credit growth and fee-based activities for banks, and this, in turn, could weaken profitability,” said Standard & Poor’s credit analyst Naoko Nemoto. “Instability in the global financial markets could also hurt Asia-Pacific banks that rely on wholesale funding, and higher funding costs would squeeze
net interest margins.”
Yet despite these potential hurdles, we expect adequate capitalization, strong systemwide liquidity, and low levels of nonperforming loans (NPLs) to help Asia-Pacific banks navigate a difficult 2012. Currently, a majority of our bank ratings fall into the single ‘A’ category or higher, and 80% of our outlooks on Asia-Pacific bank group ratings are stable, which reflects our view that most rated banks will be able to withstand the pressure.
Under our base-case scenario, we assume that the global economy will slow but
avoid a severe recession. If the Asia-Pacific economy faces a sharp and prolonged downturn due to a global recession, causing a surge in credit costs and capital deterioration, we could consider negative rating actions. A hard landing in China, with weaker economic growth than our base-case scenario of 7.7%-8.0% GDP growth, would have significant knock-on effects on growth in the Asia-Pacific region. However, this downside scenario is unlikely in our current view.
For details, see: Asia-Pacific Banking Outlook: Higher Credit Costs And Lower Earnings Will Test Banks In 2012
Standard&Poor’s also has published industry reports on the banking sectors of 14 countriesin the Asia-Pacific region. They can be found at the Alacra Store by selecting Standard&Poor’s from the Publisher tab and entering “banking outlook” in the search box.
Technorati Tags: Asia-Pacific-region, Australia, banking, china, Hong Kong, India, Indonesia, japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand, Vietnam
Fitch Ratings says that over the next few years it expects M&A to remain high on the agenda of global pharmaceuticals companies as they seek to counteract sales and profit declines due to upcoming patent expirations.
“Fitch believes that the rated pharmaceuticals companies most exposed to operating challenges over the next three years and benefitting from deep pockets - Pfizer Inc, Eli Lilly Co., Merck & Co, Bristol-Myers Squibb Company and AstraZeneca PLC - may be tempted to increase M&A expenditure beyond their normal budgets for bolt-on acquisitions,” says Britta Holt, a Director in Fitch’s Corporates group in London. .
Almost all of the large, rated pharmaceuticals companies favour small and medium-sized targeted acquisitions, with a focus on specific pipeline projects, specific technology, or portfolio or geography gaps rather than mega-mergers.
Fitch calculates that of the 82 $1bn-plus acquisitions in the pharmaceuticals industry over the past 10 years, almost 50% (40) have been announced since 2009 – with the patent cliff imminent. The value of these acquisitions was half ($358bn) of the total value of acquisitions over the past 10 years ($710bn). Since the emergence of the patent cliff Pfizer, Merck, Novartis AG, Roche Holding Ltd, Sanofi SA and Johnson & Johnson Inc., chose to pursue large acquisitions (above $15bn), while other pharmaceuticals, such as BMS and Amgen pursued smaller, more targeted acquisitions, despite operating challenges ahead, and accepted that they faced a period of declining sales.
In terms of the ability to cope with (partly) debt-financed acquisitions, the track record of Fitch-rated pharmaceuticals companies suggests that the companies are able to absorb even large acquisitions without prompting downgrades of more than two notches.
Despite the M&A potential, Fitch expects global pharmaceuticals to remain one of its highest-rated industries. The reasons include superior cash flow generation, large cash balances and strong liquidity – driven by high unsatisfied medical needs, favourable demographics, technological advances and the persistence of chronic diseases.
In the event that companies decide to significantly change their financial policies, Fitch believes that the ‘A’ rating category, ensuring access to the tier-one commercial paper market, will generally be the lowest category that the agency assigns to large pharmaceuticals companies.
For details, see the full Fitch report M&A Pressure to Persist for Global Pharmaceuticals Companies.
Technorati Tags: Amgen, AstraZeneca plc, big pharma, Bristol-Myers Squibb Company, Johnson&Johnson, Merck, Novartis AG, Pfizer Inc., Pharmaceuticals, Roche, Sanofi-Aventis S.A.
Fitch Ratings warns that persistently low returns on pension assets are a far greater threat to European companies than changes to International Accounting Standards.
Low returns increase the cash companies are forced to put into the schemes to keep them funded, with a direct effect on credit quality. The IAS changes will themselves cause many companies to report higher deficits and weaken their income statements – but not change the underlying economics of the pension schemes.
December 2007-December 2011 data from the UK’s Pension Protection Fund shows an average annual increase of pension plan assets of around 3.6% – much of which will have been accounted for by company contributions above payments rather than asset returns. This compares with an assumed return of 6.4% in 2007 for BT Group, which runs the country’s largest private-sector defined-benefit pension scheme, for example.
The difference between the two growth rates over the period represents £113bn additional funding the UK corporate sector will have to find (using December 2011 actual assets of £1,019bn).
In addition, amendments to IAS 19 “Employee Benefits” will have an adverse effect on some companies’ results. The removal of the corridor approach – an option under the current standard that allows companies to smooth movements in their reported deficits – will increase reported deficits in the vast majority of cases where this option is used.
The other major change, which will apply to all companies with pensions, is that the rate at which expected returns on assets can be booked will be required to equal the ‘AA’ bond yields used to discount liabilities. In most cases this will be lower than current assumed returns. This will result in lower financial income recognised in the income statement.
The effect could be material. For example, BT Group had a blended expected return on assets in the year to March 2011 of 6.35%. This compares with the rate used to discount liabilities of 5.5%. Reducing BT’s asset returns for a year by 0.85% gives a fall in profit of GBP303m – 15% of pre-tax profit.
For details see Fitch: Returns not Accounting Real Threat from European Pensions
Technorati Tags: accounting, BT Group, pensions
Noting the stronger than expected earnings performance of US industrial companies, S&P’s Global Markets Intelligence group sees potential upside in companies such as Southwest Airlines.
We think there are a number of intriguing trading possibilities among industrials CDS. For example, Southwest Airlines Co.’s CDS tightened 37% to 118 bps over the past month, though it is 4 bps wider than a year ago.
As the fourth-quarter earnings season winds down, the percentage of industrials companies beating the S&P Capital IQ consensus estimate was the largest (67.44%) of any of the 10 sectors through Feb. 6. Highlights included results from Caterpillar Inc., which reported $2.25 per share against the estimate of $1.77, and Textron Inc., whose $0.49 per share topped the forecast of $0.35.
A majority of companies within the sector expressed optimism about 2012, with Caterpillar saying, “The 2011 increase in sales and revenues was the largest percentage increase in any year since 1947, and much of it was driven by demand for Caterpillar products and services outside of the United States…We’re expecting 2012 to be another year of good growth.” On a forward 12-month basis, the consensus expects the industrials sector to report the most significant earnings growth of all 10 sectors, at 11.1%.
The GMI research team wanted to see if five-year credit default swap (CDS) spreads for U.S. industrials reflected this bullish outlook. We found that the average spread for corporates in this sector tightened by 11% over the past month, according to CMA DataVision. However, it wasn’t enough to lift the average spread out of speculative-grade territory.
But the average spread for the industrials group does not tell the whole story. Transportation spreads tightened by 30% over the past month and are averaging 70 bps. Capital goods spreads narrowed 31% to 196 bps, and commercial and professional services spreads tightened only 1% to 569 bps.
Excerpted from Credit Market Commentary: Market Derived Signal: CDS Spreads Reflect Earnings Momentum In The Industrials Sector
Technorati Tags: Caterpillar, CDS, Earnings, industrials, Southwest Airlines, Textron
Moody’s expects January’s strong US vehicle sales growth to continue through 2102, supporting the credit outlook for US manufacturers.
US light-vehicle sales reached a seasonally adjusted annual rate (SAAR) of 14.2 million units in January 2012. This is consistent with Moody’s base-case estimate of 14 million units for all of 2012, up 9.3% from 2011.
Monthly SAAR has increased at a steady pace from 11.5 million units in June 2011. We believe this momentum will continue through 2012.
The health of the US economy continues to face considerable uncertainty and there is consequently some downside risk inherent in Moody’s 14 million unit estimate. Nevertheless, Moody’s base-case view of vehicle sales, combined with the operating characteristics and financial profiles of the Detroit-3 auto manufacturers, supports the rating and positive outlook of each company: Ford Motor Company (Ba1 positive); General Motors Company (Ba1 positive); and Chrysler Group LLC (B2 positive).
Excerpted from US Automotive Manufacturers Strong January Vehicle Sales Support Our Full-Year Forecast
Technorati Tags: automakers, Chrysler, Ford Motor, General-Motors
The financial performance of U.S. finance companies should continue improving at a slow but steady pace this year, as it did in 2011–if they sidestep some key risks, says Standard & Poor’s.
U.S. finance companies face several key risks in 2012, including the impact of new consumer protection regulations and the potential that a eurozone crisis or double-dip recession in the U.S. could hurt funding and lending conditions.
S&P forecasts strong growth for money transfer companies such as MoneyGram International and The Western Union Co., while payday lenders and check cashing firms could be slowed by increased regulation.
As the scope and power of regulators in the financial industry continue to expand, more and more financial companies are gearing up for eventual or further regulation. Therefore, with the risk of a eurozone crisis and potential double-dip U.S. recession looming, the waters could be choppy for U.S. financial companies this year.” Nonetheless, we think most will be able to navigate these challenges and continue on their generally positive trajectory.”
For details see the full report For U.S. Finance Companies, Regulatory And Economic Uncertainties Muddy The Growth Forecast.
Technorati Tags: finance companies, Moneygram International, The Western Union Company
Consolidation in the U.S. regulated utility sector will continue at a moderate pace over the next several years, according to a new Fitch Ratings report. The industry’s fragmented structure and the potential to realize meaningful economies of scale will drive further M&A activity, continuing the trends seen in 2010-11.
Capital market conditions are favorable for utilities, with low interest rate and attractive equity valuations providing a favorable backdrop for merger activity.
Fitch believes financial buyers may be more interested in smaller utilities operating primarily in a single state, while strategic buyers pursue larger utility holding companies.
MidAmerican Energy Holdings (MEHC), Xcel Energy (XEL), and NextEra, among others are potential industry consolidators. MEHC, a wholly owned subsidiary of Berkshire Hathaway, operates in multiple jurisdictions with a proven track record in M&A.
Companies with market capitalization of $5 billion and under and book multiples less than 1.3x represent better financing opportunities are more likely acquisition targets. In its report, Fitch has identified 11 regulated utilities that meet these requirements.
For details, see the full report U.S. Regulated Utilities M&A
Technorati Tags: M&A, mergers and acquisitions, MidAmerican Energy, NextEra, utilities, Xcel Energy
Fitch Ratings expects 2012 to be a year of significant retrenchment for the largest European airlines, as a poor demand environment and persistent cost pressures threaten to drive operating losses higher.
This month’s roll out of a major cost and capacity restructuring plan by Air France-KLM may signal broader industry rationalization later in the year, particularly for carriers facing bloated cost structures and heavy exposure to quickly softening short-haul air travel demand across Europe.
Despite slowing global economic growth, energy cost pressure is not abating, with Brent crude prices remaining near $110 per barrel and jet fuel costs for European carriers still substantially higher than a year ago. Persistent fuel cost pressure in 2012 will continue to erode the profitability of short-haul flights where unit fuel costs are significantly higher. As a group, European airlines will likely pay nearly 30% of total operating expenses for jet fuel in 2012.
Unlike the U.S., where industry consolidation and a multiyear restructuring wave has kept a lid on fleet and capacity expansion, the European industry still faces a difficult adjustment period as fleet capex is curtailed, unprofitable routes are abandoned, and employment levels are reduced in response to the more difficult operating environment.
The AEA’s December forecast of €1 billion to €2 billion in industry operating losses for 2012 may ultimately be tested as traffic and yields come under increasing pressure.
Against a back drop of macroeconomic weakness and unrelenting fuel cost pressure, Fitch expects European network carriers to remain focused on free cash flow improvement and liquidity preservation this year, with growth clearly taking a back seat.
Excerpted from European Airline Cuts Reflect Tough Demand, Cost Outlook
Technorati Tags: Air France-KLM, Airlines
