DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking: In between the lines 23.09.2010
(firmenpresse) - Silvia Quandt&Cie. AG, Merchant&Investment Banking / Key word(s): Miscellaneous
23.09.2010 15:18
---------------------------------------------------------------------------
Silvia Quandt Research GmbH
Bernhard Eschweiler
eschweiler(at)silviaquandt.de
+49 69 95 92 90 93 51
www.silviaquandt.de
In between the lines
- Euro sovereign stress reemerges as Ireland faces new fiscal problems
- Basel III is not a bad blue print but implementation is main challenge
- German wage negotiations return
Judging by the performance of the Euro exchange rate, one could think the
European sovereign crisis is over. Bond markets, however, are showing a
different picture. Auctions this week went better than feared, but spreads
over German Bunds are back to crisis levels. In price terms, ten-year
Greek bonds now trade 30% below face value. Irish and Portuguese bonds are
about 10% below face value. Only Spanish bonds still trade above par.
Most concerning is the deterioration in Irish bond market conditions.
The Irish economy has fared relatively well and the government is also in
reach of its underlying fiscal target, but the headline deficit is boosted
by large additional cost of supporting the banks. Estimates for the
headline deficit in 2010 range between 20% and 30% of GDP. This would
boost government debt to about 100% of GDP, from just 25% of GDP in 2007.
Higher-than-expected debt levels, however, mean that more fiscal austerity
is needed to achieve the fiscal targets in the years ahead. In fact, the
risk that Ireland falls into a debt trap similar to Greece has increased
significantly.
The situation in Portugal is not quite as dramatic, but the government
struggles to meet its fiscal targets, while the outlook for growth in the
second half has turned negative. The Euro area is well equipped to deal
with any acute market volatility, thanks to the European Financial
Stabilization Mechanism and Facility as well as the ECB's unlimited tenders
and bond purchases. The question where all this will end, however,
increases as market pressure pushes some sovereigns into life support from
other Euro-area governments and the ECB.
A recent EU summit has produced no agreement on new fiscal rules, while
Germany already warned that the special stabilization vehicles should not
be extended beyond 2013. What the end game will look like is not clear,
but some form of debt restructuring should not
be ruled out for countries caught in the debt trap. The market is already
pricing such scenario for Greece and is about to push Ireland in a similar
direction.
What cannot be done in Basel
Following a fixed publication schedule, like In-between the lines, can have
its drawbacks. Writing about news that is a few days or even a week old
seems stale. Occasionally, however, letting some time pass can be a plus.
This is the case with the release of the Basel III report. Markets and
commentators reacted quickly to the release of the new guidelines, but the
dimensions of the task ahead are only slowly sinking in.
Markets were relieved that the new rules would not require more
recapitalization of banks than already expected. Cynics saw this as proof
that Basel III is not tough enough. Yet, most experts agreed that the new
capital requirements were sound and adequate. Their main quarrel was that
the implementation phase (until 2019) is too long. Critics also said that
the issue of systemic institution and their resolution was not sufficiently
addressed. Silvia Quandt agrees with the expert views, but sees the real
problem in the implementation.
As in sports and others, good rules are useless if there is not a tough and
fair watchdog. Indeed, poor supervision was probably a bigger problem in
the crisis than just inadequate rules. Basel can help improving
supervision, but the primary task falls to national governments. Most
countries have started to do something about supervision, but that is
mostly limited to institutional arrangements such as creating new agencies,
merging agencies or shifting responsibilities between agencies. All this
may make sense, but is not enough to guarantee that supervisors will do
their job.
Besides individual and institutional competence, key is the legal framework
that gives supervisors bite. Supervisors may do a good job in uncovering a
rule violation, but they may not have the power to do something about it.
According to Basel III, for example, banks that fall below the new common
equity capital requirement of 7% are to be restricted in their ability to
pay bonuses and dividends. The question is on what legal basis?
Currently, this is only possible when a bank already depends on government
capital support (i.e. the government is a share holder). Thus, new
legislation is needed and that is where the process becomes political.
A good example is Germany, where the State of Hesse, which with all other
federal states has to vote on any new legislation, demanded that those
banks under the public umbrella or cooperative structures should have lower
capital requirements. Obviously, private-sector banks will see this as a
competitive disadvantage and require the same treatment.
Government leaders will pay lip service to Basel III when they meet in
Seoul in November, but the political realities in each G20 country will
look different and the result will be a watering down of the rules. In
addition, Basel III may share the same fate as Basel II: by the time it is
to be fully implemented some countries may have dropped out and new
developments may have rendered parts of the rules obsolete.
German wage round: pay more but selectively
Germany has emerged stronger from the crisis than most other countries.
Best proof is the unemployment rate, which rose only seven tenth of a
percentage point during the recession and was in August already back at the
pre-crisis level. Part of the success recipe is the cooperative
relationship between employers and workers and their respective
organizations. But now that recovery is
underway and many companies are experiencing strong profit increases,
unions are also demanding a share of the pie for their members. IG Metall,
the powerful metal workers union which often sets the trend for other wage
negotiations, is demanding 6% wage increases. The employers association is
rejecting the demand as inadequate given circumstances, but has so far not
made a counter offer. Walkouts are likely to follow, but a compromise will
probably also be reached before it comes to a full blown conflict.
Both sides have strong arguments. Employers are right to say that the
recovery is still young, many companies are not yet out of the woods and
unemployment remains high. But unions also have a point when they say that
overall profits have increased sharply (back to pre-crisis levels) and that
sharing parts of the gains with workers would help support consumption.
A compromise should be feasible that recognizes that Germany is much more
competitive than its OECD peers and can afford to redistribute some income
to workers to support the recovery. At the same time, high
across-the-board wage increases should be avoided, given different
circumstances between companies as well as sectors. Preferable is a
moderate increase in base wages combined with more success- and
performance-dependent special payments. Pay differentiation also helps
reducing basic unemployment as wellas accommodating the shortage of
skilled workers.
Disclaimer
This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,
and was first published 23. September 2010, Silvia Quandt Research GmbH,
Grüneburgweg 18, 60322 Frankfurt is responsible for its preparation. German
Regulatory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin), Graurheindorfer Str. 108, 53117 Bonn and Lurgiallee 12, 60439
Frankfurt.
Company disclosures
Article 34b of the German Securities Trading Act (Wertpapierhandelsgesetz)
in combination with the German regulation concerning the analysis of
financial instruments (Finanzanalyseverordnung) requires an enterprise
preparing a securities analysis to point out possible conflicts of interest
with respect to the company or companies that are the subject of the
analysis. A conflict of interest is presumed to exist, in particular, if an
enterprise preparing a security analysis:
(a) holds more than 5 % of the share capital of the company or companies
analysed;
(b) has lead managed or co-lead managed a public offering of the
securities of the company or companies in the previous 12 months;
(c) has provided investment banking services for the company or companies
analysed during the last 12 months for which a compensation has been or
will be paid;
(d) is serving as a liquidity provider for the company's securities by
issuing buy and sell orders;
(e) is party to an agreement with the company or companies that is the
subject of the analysis relating to the production of the recommendation;
(f) or the analyst covering the issue has other significant financial
interests with respect to the company or companies that are the subject of
this analysis, for example holding a seat on the company's boards.
In this respective analysis the following of the above-mentioned conflicts
of interests exist: none
Silvia Quandt Research GmbH, Silvia Quandt&Cie. AG, and its affiliated
companies regularly hold shares of the analysed company or companies in
their trading portfolios. The views expressed in this analysis reflect the
personal views of the analyst about the subject securities or issuers. No
part of the analyst's compensation was, is or will be directly or
indirectly tied to the specific recommendations or views expressed in this
analysis. It has not been determined in advance whether and at what
intervals this report will be updated.
Equity Recommendation Definitions Silvia Quandt Research GmbH analysts rate
the shares of the companies they cover on an absolute basis using a 6 -
12-month target price. 'Buys' assume an upside of more than 20 % from the
current price during the following 6 - 12-months. These securities are
expected to out-perform their respective sector indices. Securities with an
expected under-performance to their respective sector index are rated
'avoids'. Securities where the current share price is within a 5 % range of
the sector performance are rated 'neutral'. Securities prices used in this
report are closing prices of the day before publication unless a different
date is stated. With regard to unlisted securities median market prices are
used based on various important broker sources (OTC-Market).
Disclaimer This publication has been prepared and published by Silvia
Quandt Research GmbH, a subsidiary of Silvia Quandt&Cie. AG. This
publication is intended solely for distribution to professional and
business customers of Silvia Quandt&Cie. AG. It is not intended to be
distributed to private investors or private customers. Any information in
this report is based on data obtained from publicly available information
and sources considered to be reliable, but no representations or guarantees
are made by Silvia Quandt Research GmbH with regard to the accuracy or
completeness of the data or information contained in this report. The
opinions and estimates contained herein constitute our best judgement at
this date and time, and are subject to change without notice. Prior to this
publication, the analysis has not
been communicated to the analysed companies and changed subsequently. This
report is for information purposes only; it is not intended to be and
should not be construed as a recommendation, offer or solicitation to
acquire, or dispose of, any of the securities mentioned in this report. In
compliance with statutory and regulatory provisions, Silvia Quandt&Cie.
AG and Silvia Quandt Research GmbH have set up effective organisational and
administrative arrangements to prevent and avoid possible conflicts of
interests in preparing and transmitting analyses. These include, in
particular, inhouse information barriers (Chinese walls). These information
barriers apply to any information which is not publicly available and to
which any of Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH or its
affiliates may have access from a business relationship with the issuer.
For statutory or contractual reasons, this information may not be used in
an analysis of the securities and is therefore not included in this report.
Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH, its affiliates
and/or clients may conduct or may have conducted transactions for their own
account or for the account of other parties with respect to the securities
mentioned in this report or related investments before the recipient has
received this report. Silvia Quandt&Cie. AG and Silvia Quandt Research
GmbH or its affiliates, its executives, managers and employees may hold
shares or positions, possibly even short sale positions, in securities
mentioned in this report or in related investments. Silvia Quandt&Cie. AG
in particular may provide banking or other advisory services to interested
parties. Neither Silvia Quandt Research GmbH, Silvia Quandt&Cie. AG or
its affiliates nor any of its officers, shareholders or employees accept
any liability for any direct or consequential loss arising from any use of
this publication or its contents. Copyright and database rights protection
exists in this publication and it may not be reproduced, distributed or
published by any person for any purpose without the prior express consent
of Silvia Quandt Research GmbH. All rights reserved. Any investments
referred to herein may involve significant risk, are not necessarily
available in all jurisdictions, may be illiquid and may not be suitable for
all investors. The value of, or income from, any investments referred to
herein may fluctuate and/or be affected by changes in exchange rates. Past
performance is not indicative of future results. Investors should make
their own investment decisions without relying on this publication. Only
investors with sufficient knowledge and experience in financial matters to
evaluate the merits and risks should consider an investment in any issuer
or market discussed herein and other persons should not take any action on
the basis of this publication.
Specific notices of possible conflicts of interest with respect to issuers
or securities forming the subject of this report according to US or English
law: None
This publication is issued in the United Kingdom only to persons described
in Articles 19, 47 and 49 of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2001 and is not intended to be distributed,
directly or indirectly, to any other class of persons (including private
investors). Neither this publication nor any copy of it may be taken or
transmitted into the United States of America or distributed, directly or
indirectly, in the United States of America.
Frankfurt am Main, 23.09.2010
Silvia Quandt Research GmbH
Grüneburgweg 1860322 Frankfurt
Tel: + 49 69 95 92 90 93 -0
Fax: + 49 69 95 92 90 93 - 11
23.09.2010 15:18 Dissemination of a Corporate News, transmitted by DGAP -
a company of EquityStory AG.
The issuer is solely responsible for the content of this announcement.
DGAP's Distribution Services include Regulatory Announcements,
Financial/Corporate News and Press Releases.
Media archive at www.dgap-medientreff.de and www.dgap.de
---------------------------------------------------------------------------
Datum: 23.09.2010 - 15:18 Uhr
Sprache: Deutsch
News-ID 32246
Anzahl Zeichen: 0
contact information:
Kategorie:
Business News
Diese Pressemitteilung wurde bisher 276 mal aufgerufen.
Die Pressemitteilung mit dem Titel:
"DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking: In between the lines 23.09.2010"
steht unter der journalistisch-redaktionellen Verantwortung von
Silvia Quandt&Cie. AG, Merchant&Investment Banking (Nachricht senden)
Beachten Sie bitte die weiteren Informationen zum Haftungsauschluß (gemäß TMG - TeleMedianGesetz) und dem Datenschutz (gemäß der DSGVO).
