This next part may hurt a bit.
America's new plan for bailing out its banks is a critical, yet inevitably painful, restorative for the global financial system, experts say. While it may set the stage for a recovery by the world's largest economy, they warn that its immediate effect on capital markets is likely to be anything but pleasant.
The US Treasury secretary, Timothy Geithner, was set to unveil yesterday details of how the administration of President Barack Obama would use the US$350 billion (Dh1.28 trillion) left over from last year's $700bn troubled assets relief programme (TARP) to revive US banks and get them lending again.
The plan, details of which were leaked to reporters after White House briefings on Monday to members of the US Congress, relies in part on convincing private investors to help share the cost - and risk - of buying up the dud securities suffocating the banks. It imposes new restrictions on banks that get government funds, and aims to help Americans avoid losing their homes to foreclosure.
"The focus is going to be on increasing the flow of credit and doing it with transparency, with accountability for those who receive support, and with a kind of consistency that, frankly, we haven't seen so far," Lawrence Summers, the director of the US National Economic Council, said in an interview on Sunday on ABC, the US television network. "So, yes, there will be support for banks so that they remain stable, are in a position to lend."
Economists agree that resuscitating the banks is a prerequisite to unleashing the administration's fiscal stimulus plan of about $800bn, which Mr Obama is trying to push through Congress this week. Without healthy banks, they say, government spending will gain little traction. Yet concerns remain that, in the process of extricating banks from their toxic assets, the US may trigger an avalanche of write-offs. "There is a concern that once you set a price for these assets the banks have to revalue them at the price that has been paid," said Charles Seville, the associate director of sovereign and international public finance at Fitch Ratings in London.
Further capital injections could also touch off a new wave of government bailouts akin to last year's, economists say, when Britain's move to shore up banks compelled governments across Europe and the US to do the same. Perhaps the most profound side effect of the new phase in the US bank bailout, though, could be a more protracted drought in international capital markets, worsening the credit crunch across Asia and the Gulf.
"These things will come with strings attached. The basic rationale behind them is to get domestic credit flowing. It's not to free up international credit," said Farouk Soussa, the director of sovereign ratings at Standard & Poor's in Dubai. "Countries that have been dependent on importing international capital will feel the credit constraints continuing." The Institute of International Finance in Washington recently estimated global net inflows of private capital would drop to $165bn this year from a peak of $929bn in 2007, led by a retreat in overseas bank lending from developing economies.
Mr Geithner's plan is targeted principally at helping banks clear the hundreds of billions of dollars worth of subprime mortgage-related securities they created during the credit bubble. When the US housing market collapsed last year, the market for these mortgage-backed securities, collateralised debt obligations and other asset-backed credit derivatives collapsed, pulling the global interbank market down with it.
The subsequent freeze in global credit helped throw the world into the worst economic downturn since the Great Depression. Shrinking economies has in turn fed the rot in credit markets, with the infection spreading from subprime mortgages to mortgages of otherwise healthy borrowers, commercial real estate, corporate loans, car financing and credit cards.
The damage has spread to virtually every corner of the globe, into economies once thought inured to the malaise. In the Gulf, for example, the combination of dwindling global consumer demand and fleeing global investment have triggered a collapse in oil prices, threatening regional exports and government finances. Evaporating global credit has sparked a regionwide credit crunch, ending the region's property boom and sparking a wave of layoffs in the construction and real-estate sector. Mr Geithner was scheduled to announce the new plan at 11am yesterday in Washington.
He was reportedly prepared to announce the new bailout plan on Monday, but administration officials decided to push it back in order to focus public attention on Mr Obama's appeal to Congress to pass the stimulus package. Nonetheless, Mr Geithner and White House officials were said to have spent days convincing sceptical Congress members of the plan's efficacy.
In many respects, the new plan appears to mark a return to the original objectives of the TARP enacted by the Bush administration while Mr Geithner was still president of the Federal Reserve Bank of New York.
TARP initially aimed to buy up distressed assets from banks, but after a delay in its passage by Congress rattled financial markets and Britain moved to recapitalise its own banks, Mr Geithner's predecessor, Henry Paulson, said TARP would be used to inject capital directly into the nation's banks.
The so-called toxic assets remained on the recapitalised banks' books, continuing to eat into their balance sheets as other good assets followed the economy downward. The new package reportedly reflects the belief among Obama officials that TARP was not only misdirected, but that it was too small.
Mr Obama said as much in a news conference on Monday, his first as US president. "We don't know yet whether we're going to need additional money or how much additional money we'll need until we see how successful we are at restoring a level of confidence in the marketplace," Mr Obama said. "This is not your ordinary, run-of-the-mill recession, we are going through the worst economic crisis since the Great Depression."
The plan also seeks to redress criticism that TARP gave bankers carte blanche to use taxpayer funds, a perception reinforced when it emerged that Wall Street had paid top executives nearly $20bn in bonuses for last year despite the crisis, payments that Mr Obama decried as "shameful". Mr Geithner reportedly fended off White House officials, however, who wanted to fire bankers at institutions that receive money, or impose further limits on executive pay. Some had also sought to dictate how banks should use any rescue funds.
According to details released prior to Mr Geithner's announcements, the government would create a separate entity that would in turn buy troubled assets alongside private investors. The government would reduce the risk to those investors by guaranteeing to cap any losses they suffer on securities bought. Banks would then be able to apply for capital injections but only after passing a stress test to gauge their survivability. They would also have to disclose how they use federal funds, something banks have not had to do under TARP so far.
The plan will also expand the Fed's role in lending working capital to corporations, and to institutions that provide loans to consumers and small businesses. The plan was also said to offer direct assistance to homeowners, though it was still unclear how.
warnold@thenational.ae
In numbers
- Number of children under five will fall from 681 million in 2017 to 401m in 2100
- Over-80s will rise from 141m in 2017 to 866m in 2100
- Nigeria will become the world’s second most populous country with 791m by 2100, behind India
- China will fall dramatically from a peak of 2.4 billion in 2024 to 732 million by 2100
- an average of 2.1 children per woman is required to sustain population growth
England World Cup squad
Eoin Morgan (capt), Moeen Ali, Jofra Archer, Jonny Bairstow, Jos Buttler (wkt), Tom Curran, Liam Dawson, Liam Plunkett, Adil Rashid, Joe Root, Jason Roy, Ben Stokes, James Vince, Chris Woakes, Mark Wood
North Pole stats
Distance covered: 160km
Temperature: -40°C
Weight of equipment: 45kg
Altitude (metres above sea level): 0
Terrain: Ice rock
South Pole stats
Distance covered: 130km
Temperature: -50°C
Weight of equipment: 50kg
Altitude (metres above sea level): 3,300
Terrain: Flat ice
Details
Through Her Lens: The stories behind the photography of Eva Sereny
Forewords by Jacqueline Bisset and Charlotte Rampling, ACC Art Books
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
In numbers
1,000 tonnes of waste collected daily:
- 800 tonnes converted into alternative fuel
- 150 tonnes to landfill
- 50 tonnes sold as scrap metal
800 tonnes of RDF replaces 500 tonnes of coal
Two conveyor lines treat more than 350,000 tonnes of waste per year
25 staff on site
Our legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Emirates Cricket Board Women’s T10
ECB Hawks v ECB Falcons
Monday, April 6, 7.30pm, Sharjah Cricket Stadium
The match will be broadcast live on the My Sports Eye Facebook page
Hawks
Coach: Chaitrali Kalgutkar
Squad: Chaya Mughal (captain), Archara Supriya, Chamani Senevirathne, Chathurika Anand, Geethika Jyothis, Indhuja Nandakumar, Kashish Loungani, Khushi Sharma, Khushi Tanwar, Rinitha Rajith, Siddhi Pagarani, Siya Gokhale, Subha Srinivasan, Suraksha Kotte, Theertha Satish
Falcons
Coach: Najeeb Amar
Squad: Kavisha Kumari (captain), Almaseera Jahangir, Annika Shivpuri, Archisha Mukherjee, Judit Cleetus, Ishani Senavirathne, Lavanya Keny, Mahika Gaur, Malavika Unnithan, Rishitha Rajith, Rithika Rajith, Samaira Dharnidharka, Shashini Kaluarachchi, Udeni Kuruppuarachchi, Vaishnave Mahesh
Company%20Profile
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A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
What can you do?
Document everything immediately; including dates, times, locations and witnesses
Seek professional advice from a legal expert
You can report an incident to HR or an immediate supervisor
You can use the Ministry of Human Resources and Emiratisation’s dedicated hotline
In criminal cases, you can contact the police for additional support
Pathaan
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The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
ALRAWABI%20SCHOOL%20FOR%20GIRLS
%3Cp%3ECreator%3A%20Tima%20Shomali%3C%2Fp%3E%0A%3Cp%3EStarring%3A%C2%A0Tara%20Abboud%2C%C2%A0Kira%20Yaghnam%2C%20Tara%20Atalla%3C%2Fp%3E%0A%3Cp%3ERating%3A%204%2F5%3C%2Fp%3E%0A
Set-jetting on the Emerald Isle
Other shows filmed in Ireland include: Vikings (County Wicklow), The Fall (Belfast), Line of Duty (Belfast), Penny Dreadful (Dublin), Ripper Street (Dublin), Krypton (Belfast)
Episode list:
Ep1: A recovery like no other- the unevenness of the economic recovery
Ep2: PCR and jobs - the future of work - new trends and challenges
Ep3: The recovery and global trade disruptions - globalisation post-pandemic
Ep4: Inflation- services and goods - debt risks
Ep5: Travel and tourism
Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
'Moonshot'
Director: Chris Winterbauer
Stars: Lana Condor and Cole Sprouse
Rating: 3/5
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
COMPANY%20PROFILE%20
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No_One Ever Really Dies
N*E*R*D
(I Am Other/Columbia)
Indika
%3Cp%3E%3Cstrong%3EDeveloper%3A%3C%2Fstrong%3E%2011%20Bit%20Studios%3Cbr%3E%3Cstrong%3EPublisher%3A%3C%2Fstrong%3E%20Odd%20Meter%3Cbr%3E%3Cstrong%3EConsole%3A%3C%2Fstrong%3E%20PlayStation%205%2C%20PC%20and%20Xbox%20series%20X%2FS%3Cbr%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%204%2F5%3C%2Fp%3E%0A
