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Credit Risk - Venture Capitalists’ Confidence Declines for Third Consecutive Quarter
The Silicon Valley Venture Capitalist Confidence Index® for the fourth quarter of 2011, based on a December 2011 survey of 30 San Francisco Bay Area venture capitalists, registered 3.27 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence). This quarter’s index fell from the previous quarter’s reading of 3.41 and marks the third consecutive quarterly decline in the eight-year running research report.
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Headline News, Saturday, February 4, 2012
February 3: Industry Risk - US Energy Executives Bullish on Their Outlook For 2012
Executives at U.S. middle market energy companies are bullish on their outlook for 2012. This optimism among executives is fueling growth, as 85% expect to seek financing this year, according to Mike Lorusso, Group Head of CIT Energy (cit.com/energy). These are some of the findings detailed in CIT’s latest research study, “2012 U.S. Energy Sector Outlook” (cit.com/energyoutlook). With many companies looking to expand or refinance in 2012, the outlook for new job growth in the energy sector is positive, says Lorusso. “Such spending should create significantly more jobs in 2012 throughout the U.S., especially in the Northeast and Great Plains regions, which are seeing high levels of industry investment.”
February 3: Industry Risk - Revenue from Net Zero Energy Buildings to Reach $1.3 Trillion by 2035
As green building practices become more commonplace in the global construction industry, the goal of designing zero energy buildings, or buildings that consume as much energy as they produce through on-site and renewable energy systems, has emerged as the next major frontier. A number of countries and regions have already established long-term targets and regulations requiring zero energy building construction that will come into effect over the coming years, some as soon as 2016.
February 3: Job at Risk - Two out of Three Consumers Switched Companies in 2011 Even Though They Gave Higher Marks for Service
Two out of three (66 percent) consumers switched companies – including wireless phone, cable and utilities – as a result of poor customer service in 2011 even as their satisfaction with the services provided by those companies rose, according to new research released by Accenture (NYSE: ACN). The research findings pose new challenges for marketers as they focus on building customer loyalty and improving market share in a very competitive business environment.
February 3: Industry Risk - Micro-hybrids to Grow to 39 Million Vehicles in 2017, Creating a $6.9 Billion Battery Market
Micro-hybrids will grow nearly eight-fold to 39 million vehicles in 2017 and create a $6.9 billion market for energy storage devices as the fuel-saving alternative technology finds ready adoption, driven by stricter emission standards, according to a Lux Research report titled, “Every Last Drop: Micro- And Mild Hybrids Drive a Huge Market for Fuel-Efficient Vehicles.” Micro-hybrids, which use a small battery to provide varying degrees of efficiency-boosting features, will dominate the automotive market, gaining 42% of the overall light-duty vehicle market. Simultaneously, the mild hybrids — superior to micro-hybrids but not as efficient as pure hybrids — will rise from near-zero to 1.5 million vehicles in 2017, accounting for 1.6% of the auto market.
February 2: Market Risk - Seismic Shift in Japanese Fixed Income Market
SMBC Nikko Securities is quickly emerging as a powerhouse in Japanese fixed-income trading, according to the results of Greenwich Associates 2011 Japanese Fixed-Income Investors Study. From 2010 to 2011 SMBC Nikko Securities increased its market share in Japanese government bond trading to 7.8% from just 3.0% and its share in secondary yen investment-grade credit bond trading to 16.6% from 10.1%.
February 2: Credit Risk - Kamakura Reports Seventh Deterioration in Corporate Credit Quality in the Last Nine Months
Kamakura Corporation reported Wednesday that the Kamakura index of troubled public companies declined, rising 0.77% to 7.27% in January. The index has deteriorated in seven of the last nine months. The index hit an intra-month high of 8.74% on January 9 having risen from an intra-month low of 6.98% on January 2. Seasonal factors drive part of the deterioration in the index during the month.
February 2: Commentary - Honey, I Shrunk the Market
The OTC derivatives market knows that 2012 will be a transformational year for the industry. By year-end, the industry has to meet the challenging objective, laid out by the G-20, of trading all “standardized” derivatives transactions on electronic platforms, where appropriate, and clearing them through central counterparties (CCPs). Increasingly, this task is looking extremely ambitious. ISDA made its views known in a letter to the European rule-making bodies. Market participants and regulators need time to think through the issues and prepare solutions to the challenges posed. Rushing through them can only lead to increased risks and unintended consequences.
February 2: Industry Risk - Industrials Dominate US Corporate Bond Market
The U.S. corporate bond market's rating drift turned more negative in the last quarter of 2011, following a similar but less severe trend in the third quarter, according to a new Fitch Ratings report. Downgrades affected 5% of outstanding bonds, the highest tally for a single quarter since 2009. In the first six months of 2011, downgrades moved 1.1% of market volume and lagged upgrades of 3.9%. The second half of the year proved more turbulent as downgrades affected 7% of issues and upgrades 1.9%.
February 2: Industry Risk - Q4 Earnings Reflect Lingering Challenges for US Banks
Results for the fourth quarter of 2011 (4Q'11) at the largest U.S. banks fell (on average), reflecting several large one-time items taken during the quarter, according to Fitch Ratings. Spread income and margins were fairly flat given continued improvement in funding costs, while non-interest income was hampered due to the implementation of the Durbin Amendment, limiting debit interchange income.
February 2: Energy Risk - Nuclear Waste Still Troubles Industry, Blue Ribbon Panel Gives Suggestions
If Americans think Congress is at at impasse now, just wait until lawmakers return to tackling the disposal of nuclear waste. That’s pretty much what a commission appointed by President Obama has said. After two years, the Blue Ribbon Commission on America’s Nuclear Future just came out with its final report to the U.S. Energy Department as to what to do with nuclear waste. That radioactive material is a hot potato and one that needs needs to find a permanent home or a way in which it can reprocessed and re-used.
February 1: Operational Risk - 75% of CEOs Admit There Is Room for Improvement in the Measurement of Non-Financial Value
In the wake of the financial crisis, three-quarters of the world’s CEOs say more emphasis should be placed on measuring the value of non-financial assets such as intellectual capital and customer relationships to drive long-term performance, according to research from the American Institute of CPAs and Chartered Institute of Management Accountants. But just 51 percent of nearly 300 CEOs surveyed in 21 countries say their organizations currently measure the value of non-financial assets well or very well. And only 12 percent now turn to their finance teams for help with the task.
February 1: BIS - Weathering Financial Crises, Bond Markets in Asia and the Pacific
The Bank for International Settlements (BIS) and the Bank of Japan (BOJ) jointly organised a high-level seminar on "The development of regional capital markets" in Yokohama, Japan, on 21-22 November 2011. The seminar brought together senior officials of 12 central banks in Asia and the Pacific, the European Central Bank, the Bank of Mexico, the Bank of England and the Federal Reserve Bank of New York, as well as an academic and a private sector participant.
February 1: Country Risk - US Consumer Confidence Unexpectedly Declined in January 2012, Existing Home Prices Continued to Fall in November 2011
The Conference Board’s measure of US consumer confidence fell to 61.1 in January 2012 from the upwardly revised 64.8 reading seen in December 2011 (initially reported as 64.5) that had represented the measure’s highest level since April. The deterioration in consumer sentiment in January comes as a surprise as market expectations were for an increase to 68.0.
February 1: BIS - Global Property Price Statistics
The property price statistics bring together data from different countries. The BIS, with the assistance of its member central banks, 1 has obtained approval of various national data providers to disseminate the statistics as long as the national sources are clearly indicated. The sources and any relevant disclaimers are listed separately (sources of data). Copyright in these data must be honoured.
February 1: Country Risk - Canadian November 2011 GDP Unexpectedly Declines
November 2011 GDP was disappointingly weak dropping 0.1% in the month following unchanged activity in October. During the third quarter of 2011, monthly activity rose 0.3% on average. Expectations were for a monthly gain of 0.2%. The weakness in November was concentrated on the goods-producing side of the economy, which fell 0.6%. A large component of this decline reflected further maintenance shutdowns in the petroleum sector although natural gas extraction was down as well in the month. Output among service-producing industries rose a minimal 0.1% in the month.
February 1: Energy Risk - Obama's Offshore Policies Rock the Boat
President Obama is saying that his administration will open up more than three-quarters of the potential offshore oil and gas resources to development, prompting friends and foes alike to accuse him of having political motives. And while the White House has long said it would configure a comprehensive offshore energy policy, the timing could not be more conspicuous given his recent rejection of the Keystone XL pipeline. The president, though, says that he is committed to increased oil and gas production but only if it can proven safe.
January 31: Fiserv Case-Shiller Home Price Insights- Home Prices Reach New Low, but Stabilization and Recovery Are in Sight
Fiserv, Inc. yesterday released an analysis of home price trends in more than 380 U.S. markets based on the Fiserv Case-Shiller Indexes®. The indexes are owned and generated by Fiserv, a leading global provider of financial services technology solutions, and data from the Federal Housing Finance Agency (FHFA). The double-dip in home prices that began two years ago continued to take home prices lower through the third quarter of 2011, during which the average price of a U.S. single-family home fell to a new post-bubble low, declining 3.9 percent compared to the year-ago period.
January 31: Country Risk - US December 2011 PCE Unchanged in the Month
December 2011 personal consumer expenditure (PCE) was marginally weaker than expected in showing no change in the month relative to expectations of a 0.1% gain. This result followed unrevised increases in both November and October of 0.1%. Unchanged consumer spending in December reflected a 0.2% gain in the services component being fully offset by 0.4% declines in both the durables and non-durables components.
January 31: Job at Risk - Is That Your Final Answer? US Polygraph Law Put to the Test in Eleventh Circuit Case
In most workplaces, the notion of the employer asking an employee to take a lie detector test would probably elicit a degree of shock and horror. But there are circumstances under which an employer may legally request that a staff member undergo a polygraph examination. These circumstances were put to the test in Cummings v. Washington Mutual, a case heard by the U.S. Court of Appeals for the Eleventh Circuit.
January 31: Operational Risk - Deepwater Horizon Disaster Pushes Increase in US Tort Costs in 2010
The April 2010 Deepwater Horizon drilling rig explosion and resulting oil spill in the Gulf of Mexico were the key drivers in the 5.1% increase in U.S. tort costs in 2010, according to the 2011 Update on U.S. Tort Cost Trends from global professional services company Towers Watson. Absent the costs from that event, tort costs would have shown an overall decrease of 2.4% for the year, the findings indicated.
January 31: Industry Risk - Global Pension Fund Assets Hit Record High in 2011
Global institutional pension fund assets in the 13 major markets grew by 4% during 2011 to reach a new high of US$28 trillion, up from US$26 trillion in 2010 according to Towers Watson’s Global Pension Assets Study released today. The growth is the continuation of a trend which started in 2009 when assets grew 17%, and in sharp contrast to a 21% fall during 2008 which took assets back to 2006 levels. Global pension fund assets have now grown at over 6% on average annually (in USD) since 2001, when they were valued at US$15 trillion.
January 31: Industry Risk - Solar Trade Barriers Threaten Over 60,000 American Jobs
An economic analysis prepared by The Brattle Group and released yesterday finds that a 100% tariff on imported solar PV cells and modules from China would result in as many as 50,000 net lost jobs in the U.S. over the next three years. Furthermore, retaliatory tariffs placed on U.S. exports of polysilicon to China would put nearly 11,000 more American jobs at risk in the first year following tariff imposition. According to The Brattle Group¡¯s analysis, the imposition of tariffs will ¡°slow the growth in domestic demand for photovoltaic systems by homeowners, commercial establishments and power producers, resulting in substantial job losses.¡±
January 31: Energy Risk - Renewing Colorado, How Green Energy is Working There
Innovation in the electricity market does not occur as it would in other markets. For starters, most areas of the country are served by monopoly providers. This means there is very little incentive to seek new ways to create electricity. Secondly, most providers are heavily regulated, often compounding risk-reluctant utilities with risk-averse regulators. In fact, according to a recent report from the American Energy Innovation Council, electric utilities spend a paltry 0.1 percent of their revenue on research and development, far below the U.S. industrial average.
January 30: Operational Risk - Business Beyond Borders, Global Skills for Today’s Boards to Secure Tomorrow’s Success
As the world becomes more dependent on technology, and as trade borders become seamless, how can boards acquire the tools and skills necessary to be effective and relevant in the global market? In a time of great change, shouldn’t the boardroom transform its internal composition and address the changes that are occurring globally? One of the board’s responsibilities is to assess, validate and oversee the company’s strategy. It has the fiduciary duty to provide the oversight, governance and platform for the company to build a successful global presence that will stand the test of change and still be on target, on budget and on time. Without the expertise in international business, how can boards today anticipate change in global decision making and execution?
January 30: Working Paper - Kamakura Releases Robert Jarrow Research Paper "Problems With Using Credit Default Swaps to Infer Default Probabilities"
Kamakura Corporation reported last week that it is releasing an important new research paper by Managing Director for Research Prof. Robert A. Jarrow entitled "Problems with Using CDS to Infer Default Probabilities." The popular financial press frequently quotes default probabilities for a specific firm on the basis of a credit default swap spread that may be based solely on dealer indications, not traded prices. Leaving the issue of illiquidity aside and using an analogy to life insurance, Professor Jarrow shows that frequently used formulas for converting credit default swap spreads to implied default probabilities are riddled with errors and therefore highly inaccurate.
January 30: Country Risk - US GDP Rose in the Fourth Quarter of 2011 on Inventory Gain
The advance estimate of US fourth-quarter 2011 GDP growth was 2.8%, which was up from 1.8% and 1.3% increases in the third and second quarters, respectively, although slightly below market expectations for a 3.0% increase. The main contributor to the acceleration in growth in the fourth quarter of 2011 was a sizeable 1.9 percentage point addition from inventories that more than reversed a 1.4 percentage point drag in the third quarter of 2011.
January 30: Job at Risk - High Performing Sales Managers Spend More Time on Sales, Less Time on Administrative Activities
Corporate America’s highest-performing sales managers spend more time on selling activities compared with their lower-performing colleagues. However, a new survey by global professional services company Towers Watson suggests the difference between successful and unsuccessful sales manager is more a function of how they allocate their selling time among various activities and audiences. Additionally, high-performing sales managers tend to devote less time to administrative activities and avoid non-sales activities.
January 30: Regulatory Risk - FSA Consults on Changes to the Listing Rules
The Financial Services Authority (FSA) last week proposed a number of changes to the Listing Rules that set out the requirements for companies listed in the UK. The changes are updates to the rules to take account of market developments. The Listing Rules are the responsibility of the United Kingdom Listing Authority (UKLA), operating under the FSA. The Consultation Paper (CP) also sets out some wider issues in relation to the premium listing standard on which comment is sought.
January 30: Energy Risk - Robust Oil Prices are Keeping US Oil and Gas Largely Stable
Standard & Poor's Ratings Services said in a report that credit quality for the U.S. oil and gas sector should remain relatively stable in 2012. The industry economic and ratings outlook is titled "Robust Oil Prices Keep U.S. Oil And Gas Sector Largely Stable." "U.S. oil and gas companies should stay relatively stable this year, despite a tepid economic recovery and our expectation for very weak natural gas prices," said Standard & Poor's credit analyst Thomas Watters. "Supporting our credit outlook is our view that oil prices will remain healthy."
January 30: Industry Risk - Customer Service Levels Improve but Banks Have a Long Way to Go to Rebuild Relationships
Customer satisfaction with service levels in retail banking has improved over the past year but customers are less likely to recommend their provider, according to a new Accenture survey of nearly 4,000 current account customers in the UK and Ireland. In Great Britain in particular, the survey showed that the number of current account customers that are satisfied with their bank has risen from 56 percent to 60 percent in the last year. At the same time, the number of customers complaining about their bank was down from 17 percent to 13 percent, and more customers were satisfied with the complaint handling process (up from 34 percent to 39 percent).
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Market Risk - Global Currency and Treasury Guide Risk Manager’s Toolkit - Sure-Fire Spreadsheet Tips and Tricks for the Practicing Risk Manager Enterprise Risk - Fighting Risk Measurement Myopia, Creating a Risk Inventory and Gap Analysis, and Dealing with Obstacles to Enterprise-Wide Risk Management Risk Reporting - Creating Incentives for Proper Data and Risk Reporting and Disclosure 
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Energy Risk - US Wind Industry Continues Growth, Despite Slow Economy and Unpredictable Policies Hands-on Finance Tutorial #7 – Balance Sheet Analysis Hands-on Finance Tutorial #6– Yield Curve Building 
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