Lai See

PUBLISHED : Tuesday, 19 July, 2011, 12:00am
UPDATED : Tuesday, 19 July, 2011, 12:00am


Fitch presents financial picture but actions contradict report

Fitch is the latest ratings agency to get in on the China corporate governance issue, which has blown up in the faces of market regulators, accountants, analysts and, of course, the ratings agencies in the wake of the trail of accounting scandals in overseas listed mainland-based private companies.

Moody's Investors Service had its moment last week, appearing on the scene - belatedly - with a novel departure from its usual approach, awarding red flags to companies it felt were at risk.

The challenge for the ratings agencies is to appear relevant and to add value to a situation at which they have again arrived late and thus some way behind the curve.

In its latest report on the governance crisis, Fitch gives itself a pat on the back for downgrading its rating for Sino-Forest Holdings by two notches to 'BB-minus' on June 20. By then the stock had crashed 85 per cent and its bond yields had soared. Fitch belatedly withdrew the rating on July 14, noting that, while the company works to address the issues raised by short-seller Muddy Waters, 'the company is unlikely to have capital market access'.

Fitch's press release on its report on Chinese corporate governance notes that the agency, 'lists financial measures which can highlight or mask control and accounting issues such as high levels of revenue and capital expenditure growth, independent valuations, of reserves and materials, working capital traits, low cash-tax-paid, high levels of cash relative to debt and significant profit margins'.

Yet despite the ease with which Fitch highlights the difficulties of arriving at a picture of the financial operations of a mainland-based company, none of this appears to have deterred it and the other agencies from awarding somewhat optimistic ratings. No doubt all of this and more will be explained at their press conference tomorrow. The conference will showcase some heavy hitters from Fitch: Richard Hunter, head of corporate ratings for Europe and Asia; John Hatton, group credit officer for corporates and the author of the governance report; among others.

Fitch gives all the signs of being somewhat nervous about this event and is asking journalists to submit questions 30 minutes in advance of the start of the conference - an extremely unusual practice. You would have thought these guys would be experienced enough and sufficiently sure of themselves to engage in a bit of real-time communication with the press. After all, they are the experts aren't they?

Citi lauds 'great comeback'

Citi has excelled recently in the cut and thrust of the awards arena by being named best bank in Asia for 2011 by Euromoney magazine in its annual awards for excellence. It also picked up the award for the best bank in Japan, Singapore and Taiwan, and the best equity house for India. At the end of last week, Citi said it made global profits of US$3.3billion for the second quarter, of which Asia contributed about US$1 billion. People at Citi are chortling that this makes it six quarters of global profits. (That's what we thought they were supposed to do.) But a Citi spokesman could not help himself. 'Its not just in sport that you see great comebacks,' he declared.

Doubts over data analysis

Flicking through Macau Business magazine, we came across an analysis of Macau's first quarter economic data. The labour force figures 'tarnished the brilliance of Macau's economic growth', according to the writer. He said that apart from cultural, recreational and gambling workers, the rest of the workforce, accounting for some 40 per cent of the total, were poorly paid. This includes those working in the wholesale and retail sector, hotels and restaurants, real estate and business activities. But his analysis becomes less convincing when he writes, 'Almost half of the territory's workers are earning less than the median monthly income of 9,600 patacas.' It would be difficult to be earning otherwise.

Show us the money

The much-vaunted proprietary trading desks of the big US investment banks are not, it appears, the 'big thing' they were cracked up to be. The six largest US banks had a net loss of US$22 million from 2006 to the end of last year on proprietary trading, according to the Government Acountability Office, Bloomberg reports. The lenders included Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. In the GAO study, the banks produced positive net revenue in 13 of the 18 quarters of US$15.6 billion, and generated loses of US$15.8 billion in the other five. It makes you wonder - all those traders, colossal bonuses and no profits. What is the point?