European banks urgently need big injections of capital to help to cope with as much as €300 billion (Dh1.5 trillion) of credit risk that threatens to strangle their ability to lend and in turn push already troubled economies closer to default, the IMF warned last night.
The dire warning signals even greater trouble ahead for crumbling euro-zone economies which, the IMF said, could come under even more pressure to default on their debt without the support of a robust banking sector.
"A number of banks must raise capital to help ensure the confidence of their creditors and depositors," the IMF wrote in its Global Financial Stability Report. "Without additional capital buffers, problems in accessing funding are likely to create deleveraging pressures at banks, which will force them to cut credit to the real economy."
But the IMF's words seemed to fall on deaf ears in Greece where workers in the private sector called for countrywide strikes to start next month.
Politicians in Athens, meanwhile, continued to squabble over a solution to the country's economic strife.
They began debating plans for US$6bn (Dh22bn) in fresh budget cuts yesterday as emergency talks got under way with creditors.
The cuts are likely to lead to thousands of job losses across the country that will be needed if it is to receive its next bailout payment.
Setting the tone for the make-or-break debate in parliament, Evangelos Venizelos, the Greek finance minister, told legislators more reforms were needed to save the economy from meltdown.
"We have not fully understood the danger [we face] that the national economy could cease operating," he said.
If it doesn't meet budget targets, Greece has been told it may not receive its latest $8bn slice of financing next month from the so-called troika - the EU, the European Central Bank and the IMF. Without the funds, Greece will be unable to pay its bills by the middle of next month.
The government on Tuesday said negotiations with the troika were progressing, without indicating a deal for the next bailout was close.
Politicians fear that already hard-pressed Greeks may be unwilling to consider another round of tough austerity measures. Strikes and mass protests signalled public unhappiness with previous budget cuts.
Investor concern about a lack of resolution to Greece's troubles curbed any enthusiasm before a two-day meeting of the US Federal Reserve that began on Tuesday. European markets were trading lower during afternoon trading, with the Stoxx Europe 600 down 0.77 per cent at 227.33. In Frankfurt, the Dax was 1.42 per cent down at 5,492.45, the FTSE 100 in London was 0.60 per cent lower at 5,331.35, and Paris's CAC 40 was 0.43 per cent down at 2,971.21.
Earlier, the MSCI Asia Pacific Index rose 0.1 per cent to 117.99 after a gauge of economic indicators suggested China's economy was proving resilient to the euro-zone debt crisis and slowing US growth. In New York, Standard & Poor's 500 Index futures fell 0.3 per cent.
In currency markets, the dollar fell to a one-month-low against the yen.
"Markets are quite reluctant to come back after the big sell-off last month," said Mike Lenhoff, the chief strategist at Brewin Dolphin in London. "The potential of stimulus from the Fed has been in the market for a while and investors don't seem convinced it will do anything."
Global stocks have been in the doldrums over the past two months as anxieties persist about the European sovereign debt crisis spreading and slowing growth in the US.
Analysts expected the Fed to announce proposals to reshuffle its portfolio towards longer-dated bonds in an effort to send long-term interest rates even lower. The central bank has already pledged to keep interest rates at near record lows for the next two years.
The US economy has been cooling since the end of a $600bn bond-buying programme in June.
tarnold@thenational.ae
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.”
WHAT IS A BLACK HOLE?
1. Black holes are objects whose gravity is so strong not even light can escape their pull
2. They can be created when massive stars collapse under their own weight
3. Large black holes can also be formed when smaller ones collide and merge
4. The biggest black holes lurk at the centre of many galaxies, including our own
5. Astronomers believe that when the universe was very young, black holes affected how galaxies formed
First Person
Richard Flanagan
Chatto & Windus
