Lai See

Deutsche Bank's property analysts seek a helping hand

PUBLISHED : Thursday, 10 January, 2013, 12:00am
UPDATED : Thursday, 10 January, 2013, 4:50am

Investment banks tend to be rather ambivalent about ranking awards organised by financial magazines such as Institutional Investor, Asiamoney and FinanceAsia. When journalists speak to the banks about the awards they are frequently told they don't mean very much. However, if they win one this apparent indifference changes to undisguised glee and the award is displayed in the reception area or the boardroom, and it appears in the bank's advertising.

All this is by way of noting that voting is under way for one of Institutional Investor 's polls. We know this because we have received an e-mail from Deutsche Bank's property research team written in simplified Chinese characters. There is some dispute over how the e-mail's subject line reads, with some translating it as "show your sympathy", and others as "lend a helping hand". It goes on to say that if you value our services please vote for us. Since this is written in simplified characters it is presumably aimed at mainland buy-side asset managers who are evidently considered a growing force in the market or at least in Institutional Investor's polls.

Chips in the diamond trade

The crackdown on corruption on the mainland has hurt the luxury business, including the diamond industry. The website Asia Cracked has an interview with a mainland diamond trader who says diamond prices and demand have fallen 8-10 per cent from a year ago. This is not solely due to the crackdown on corruption. Consumer confidence is low in China and India, the two main drivers of diamond demand over the past four years. Prices of rough diamonds have remained high as De Beers and other suppliers have cut supply, but the price of polished stones is falling. Retail inventory is quite high, which doesn't augur well for the likes of Chow Tai Fook.

The piece notes that as with the shadow-banking centres of Wenzhou and Erdos, there has been a rash of CEOs going bankrupt and skipping town. "There has been at least one instance a month of a big diamond or jewellery company going bankrupt and the CEO running away with the goods," the site quotes the trader as saying. This has mainly been occurring in Shenzhen and Hong Kong.

Interestingly, the trader says his sales track the four trillion yuan (HK$4.54 trillion) fiscal stimulus. So in 2010 half-carats were popular, but when the stimulus hit, he sold a lot of one-carat stones and even up to eight carats, along with fancy coloured stones. One-carat stones were still popular at the beginning of 2012 but this tailed off and by the end of the year he was selling a lot of low-value stones and the sales of fancy coloured stones had slumped.

Still doing God's work

Proprietary trading by investment banks is supposed to have been banned under the Volcker Rule. The rule within the Dodd-Frank Act was designed to prevent banks from taking on excessive risk by limiting short-term investments made with the firm's own capital.

However, an intriguing story by Bloomberg reports that although Goldman Sachs chairman Lloyd Blankfein told a banker's lunch in July that the firm had stopped proprietary trading, it hasn't ended. A secretive unit known as Multi-Strategy Investing does indeed invest the firm's capital without clients, but it does so in the form of long-term investments, which are not banned by the Volcker Rule. For all the fuss that is made about the Volcker Rule, it classifies short term as 60 days.

While the trading may not be illegal, it once again exposes the hypocrisy of the firm. Blankfein was asked at the lunch in July if the firm still made most of its money from prop trading. He replied, according to Bloomberg, that Goldman no longer bet the firm's money without client interaction. "Our job is to grow the pie and make everybody wealthier," he said. "Not for the venality of trying to get richer and more wealthy, but wealth in the sense of making the world stronger and healthier, and for lack of a better word, better."

Can't keep a good bank down, eh?

Taking an axe to Citi bull

We see that the Financial Times' Lucy Kellaway has singled out Citibank in a piece on corporate BS for special mention for its efforts in masking the fact that it was axing 11,000 people. In a press release the bank talked of "optimising the customer footprint across geographies".


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