What’s next for the restructuring of Europe’s banks? | McKinsey & Company

29 August 2013 --

I am, generally speaking, a fan of McKinsey & Co.  Sure, they are expensive and everyone I know can cite a McKinsey piece of advice or project that went dramatically sour.  But they have charming, intelligent, and hard-working boys and girls, and they do seriously interesting research.  It is a company that thrives on the muddy trench warfare of corporate strife, failed strategies, and traction-less execution.  But like the balloonists of early modern warfare, they allow staff who are so inclined to float above the entrenched battle-lines and produce interesting and often stimulating research.

Against this background, my disappointment was exceptional and severe upon reading a recent McKinsey post to do with restructuring in European banks.  The article's centrepiece was a meaningless and impenetrable table purporting to summarise the numbers of businesses up for sale by Euro financial institutions. There followed a litany of platitudes about why banks need to (or are forced to) dispose of various things in the current context. Some poor junior evidently did a trawl of Dealogic and other databases and came up, lo and behold, with rather a lot of potential disposals, down-sizings, right-sizings, and other potty training exercises driven by regulators and the evangelical capital crack-down currently driven by Basel III.  This is summarised in a silly graphic:

... which tells us what, exactly?  That European banks have a lot of dead wood lying about, and that McKinsey would be delighted to assist buyers with identifying the most intriguing pieces of driftwood and seeing if they fit someone's summer collage project.   We can happily whittle these bits of driftwood into square pegs to fit someone's square holes.

Perhaps I am overly cynical, or perhaps my impression is that the banks' current summer clearance sale is driven by a seasonal itch to destroy yet further shareholder value; not sure about this.

In any case, one hopes that the return of bad autumn weather will encourage a refocusing of the minds on more useful bits of financial sector research.

-- Jan Cherim

Here is the link to the article:
What’s next for the restructuring of Europe’s banks? | McKinsey & Company

Nigeria's Central Bank moves aggressively to support MSME financing

28 August 2013 --

People who pay attention to what Financial Access is up to will have noticed that we are heavily engaged in promoting MSME (micro-, small- and medium-sized enterprise) financing in East Africa.  Our office in Nairobi is heavily engaged in programmes to bring banks closer to MSMEs, and in particular to agricultural SMEs and producer organisations.  Over the past couple of years we have worked especially closely with the IFC in this area, as well as Bank of Africa affiliates in the region.  Currently, we are developing a multi-year programme involving many Kenyan financial institutions in this connection, and scaling-up massively the outreach to rural entrepreneurs and producer organisations such as co-operatives, credit unions, and the like.  Making these supply chains financially transparent and sustainably constructed is a major goal.

But West Africa is doing its bit as well, and in particular the Nigerian authorities -- championed by Governor Sanusi in the Central Bank, one of the most dynamic and savvy emerging markets regulators around -- are leading the charge.  The Nigerian CB led the charge on sustainability in banking, and is now again way out front in the area of designing sensible programmes to encourage agric- and MSME lending.  Make no mistake, in the past the authorities have tried this before, with generally dismal results.  The main banks regarded portfolio targets for SME lending as a "tax", and basically dumped loans into any convenient vehicle, provisioning them more or less up front.  Times have changed.  Now serious thinking is going into the design and impact of incentive programmes to stimulate lending to underserved segments, and particularly the MSMEs of Nigeria, who in common with the rest of Africa account for most employment, dynamism, and potential for mobility in the economy.

For more details on the CBN's most recent thinking, read the enlightening summary of a recent seminar as reported in the Daily Independent, in the link below.

-- Jan Cherim

CBN moves to strengthen SME growth, enhance access to financial services | Daily Independent | Nigerian Newspapers

I was alerted to this by an IFC-sponsored LinkedIn group called SME Finance.  Look it up.

Emerging Markets Hogwash

21 August 2013 --

Today's Financial Times opens (front page) with three articles.  I quote the first lines from each:

Heat is on developing world to raise rates: Turkey's central bank unexpectedly raised rates to buttress its wilting currency as policymakers across the developing world scrambled to stem the turnoil rattling emerging markets [...].

German election race overshadowed by [...] Greek bailout:  The politically toxic subject of financial support for Greece burst into Germany's election campaign yesterday as Wolfgang Schauble, finance minister, acknowledged for te first time that Athems would need a third bailout.

Investment banks hire traders and dealmakers:  Investment banks [...] have started hiring dealmakers and traders in Europe in a sign that recruitment is picking up after a two-year cull in which thousands of bankers lost their jobs.  Recruiters say they are at their busiest since 2010 [...]. 

Our Dutch Financieele Dagblad also opened with a big spread on the emerging markets 'meltdown', with worrying articles on the main countries on the inner pages.  What is all this about, and how can the events sketched above make any sense in synchronisation?

I believe the answer is at once simple and difficult to believe.  Driven by the fears of the US Fed winding-down its multi-year stimulus programmes, global markets appear to expect a rise in US rates and the dollar. Emerging markets, especially in Asia, enjoyed a great run through the spring of this year, but have been overtaken by OECD markets more recently. Glimmers of Euro-recovery are visible, southern-European markets (the "PIGS" not so long ago!) have bounced. Hence the opportunism of investment banks gearing-up for what they hope will be a revival in business in European markets.  But with the Germans distracted by politics and another round of Greek moaning and hand-wringing coming-up, who is really so optimistic?

Is there a massive rotation in asset allocation underway from emerging markets to the US and Europe? Has everyone lost faith in the growth prospects of the likes of Indonesia, Thailand, Turkey, Kenya or Nigeria (let alone the BRICS)?  Since US interest rates are not going up -- the Fed has said this over and over again, and the most recent evidence about the impact of QE is that it is far less inflationary than the pessimists think -- and EM rates are, what are the arguments to beat a path to the NYSE or FTSE?  And if US rates do, after all, start to edge up, how could this possibly be good for OECD equities or corporates generally?

Personally, I believe there is a disconnect between short-term trading views, medium-term likelihoods, and common sense at work presently.  And its still August.  There has never been a period when the medium-term prospects for the interesting emerging markets was better than today.  So perhaps those of us interested in emerging markets should stop reading the papers for a bit and just relax.
 
-- Jan Cherim

  

After controversial elections, direct aid to Zimbabwe in limbo

14 August 2013 --

We have been relatively bullish on Zimbabwe of late, bidding on a couple of deals there and developing local partnerships for the future.  Our associated from SEAF have also looked hard at Zim investment potential for the SME sector recently.  But all the recent optimism has been premised on continuing evolution towards a normalised and inclusive democratic process.  Last week's disastrous elections make have brought all this to a screeching halt.  One local contact of ours reported that 'this has set us back 4 years or more.'

Given the parlous state of government finances and the shaky recovery in the economy, continued foreign assistance, as well as FDI, is of critical importance.  Whilst Western aid was on an upswing, this too is now very much in danger, as Western donors re-evaluate their positions post-election fiasco.  Devex produced a useful summary of the current position - click on the link below.

-- Jan Cherim

After controversial elections, direct aid to Zimbabwe in limbo - Business Insight: Zimbabwe | Devex

Nigeria’s small banks pack a punch - The Banker

17 July 2013

By African standards, and for a country of its size, the Nigerian banking system has been tidied-up with only 20 banks left standing today after rounds of crisis, consolidation, (re-)privatisation and acquisition.  This piece from The Banker illustrates some of the strategies being explored by the smaller banks to generate growth, and to tap into a market of astonishing potential.  With 80% of Nigerians still unbanked, while 80% do have mobile phones, an glimpse of the retail potential is visible.  Also some insights from the outgoing Central Bank Governor on the potential for agri-lending and SME business, as opposed to the "me-too" strategies of many banks at the corporate end.

-- Jan Cherim

Nigeria’s small banks pack a punch - The Banker

Cropping up: Opportunities abound in African agriculture - World - The Banker

17 June 2013 --

Recent article from The Banker magazine makes the well-worn points that opportunities abound in African agricultural investment, now increasingly driven by domestic and regional demand, as opposed to European or Asian offtake.  Rabo's Marttin is quoted on the importance of focusing finance on supply chains, and the article argues that better financing is helping the sector.  But there is still a long way to go.  Our NEAFSEEP programme in Kenya seeks to address precisely this gap in the market.

--Jan Cherim

Cropping up: Opportunities abound in African agriculture - World - The Banker

Indonesian banking regulators flex their muscles

The New York Times's Deal Book blog posted an article yesterday detailing the difficulties Singapore's DBS Bank -- southeast Asia's largest bank -- has been having getting approval to acquire control of Indonesia's Bank Danamon.  What seemed a simple process of reshuffling holdings of Temasek, one of Singapore government investment vehicles and DBS (itself for nearly 30% state-owned) so as to concentrate the focus on Danamon logically with DBS has suddenly become politically mired.  Indonesia wants equal access to the island state's markets for its state banking flagships Mandiri, BNI and BRI.  Not so simple.

This will be an interesting case of just how rapidly ASEAN integration will be allowed to proceed.  The region's Balkanised banking systems and long history of regulatory protection and local favouritism will be increasingly tested as ASEAN's open markets initiatives unfold.  This story will run and run.

-- Jan Cherim

To see the full article:

http://dealbook.nytimes.com/2013/05/22/indonesia-links-ownership-of-banks-to-more-access-elsewhere/?smid=pl-share