September 29, 2023

Off the Charts: Five Years After Chaos, Shares of Many Big Banks Are Still Struggling

Two weeks later, Lehman Brothers failed and a panic began. The crisis demonstrated how interconnected the world financial system had become and how vulnerable even apparently healthy banks were when their competitors began to crumble. In the weeks that followed, most large banks around the world had to be bailed out. Their share prices plummeted.

Since then, however, some big banks have performed much better than others — a difference based to a significant extent on just how well, or badly, each bank had been run in the months and years leading up to the crisis.

The accompanying charts show the performance of 25 large banks around the world. As the crisis began, each of them ranked in the top 20 in the world in at least one of three measurements — market capitalization, book value or total assets.

In the weeks and months that followed, all but one of them lost at least half of their market value, as measured in the local currency of the bank’s primary market. The exception was a Chinese bank, the Industrial and Commercial Bank of China, whose shares lost less than a third of their value.

The charts also show the performance of the Bloomberg World Bank Index, which comprises more than 140 banks and has done better than most of the large bank stocks. This was a crisis where bigger was not necessarily better, and where some of the largest banks proved to be far from adequately capitalized, notwithstanding what their books had indicated before Lehman collapsed.

This spring, the world bank index got back to within 3 percent of its level at the end of August 2008, although it has since slipped back and is now 11 percent lower. Few of the large banks shown have done as well.

But a handful of banks turned out to be profitable long-term investments that August. Shares of both JPMorgan Chase and Wells Fargo in the United States are now more than 40 percent higher than they were. Shares of two of the three Chinese banks shown — Bank of China and China Construction Bank — are higher now than they were five years ago, while the third is approximately unchanged. In Britain, HSBC is up about 13 percent, a much better performance than was shown by other large European banks. It did not hurt that HSBC had a significant presence in many developing countries, most of which rode out the recession reasonably well even though some have stumbled this year.

Floyd Norris comments on finance and the economy at

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As Markets Seesaw, China’s Central Bank Tries to Allay Concern on Tight Credit

HONG KONG — The Chinese central bank reassured investors worried about a lingering credit squeeze and declared that it had already been selectively supporting bank liquidity, as Chinese stock markets swung wildly again Tuesday after several days of volatility.

The central bank, People’s Bank of China, eager to rein in soaring lending growth and financial risk, initially refrained from intervening as bank-to-bank interest rates soared last week, but then apparently released more money for lenders. Uncertainty over the central bank’s position produced wide trading swings Tuesday, with the main Chinese stock indexes dropping to their lowest levels since early 2009 before recovering most of the day’s losses near the end of trading.

The Shanghai composite index, which tumbled 5.3 percent Monday, slumped more than 5 percent again by early afternoon Tuesday. It recovered almost all of those losses to close down 0.2 percent. The index’s total decline since a peak in early February has been nearly 20 percent.

After China’s stock markets closed, the People’s Bank of China issued a statement apparently meant to soothe investors’ nerves and maintain pressure on banks deemed to be carrying too much risk.

“In recent days, the central bank has provided liquidity support to some financial institutions that meet the demands of macro prudence,” the bank said on its Web site. “Some banks with ample liquidity have also begun to play a stabilizing role in circulating capital into markets.”

On Tuesday the bank pledged that it would apply open market operations — buying or selling securities to manage liquidity and rates — and other methods to offset “short-term abnormal volatility, stabilize market expectations and maintain stability in monetary markets.”

The reassurances were accompanied by a warning to commercial banks to contain risk and to report promptly any “sudden major problems.” Chinese banks that follow government policies in lending practices and risk controls can expect support from the central bank if they have brief capital shortfalls, the bank said. But wayward banks can expect tougher treatment, it suggested.

“For institutions that have problems in their liquidity management, corresponding measures will be taken on a case-by-case basis, while maintaining the overall stability of money markets,” it said.

“The stock markets are continuing to react to the very elevated funding costs,” said Dariusz Kowalczyk, a senior economist and strategist at Crédit Agricole in Hong Kong, referring to the recent surge in interbank lending rates. Those rates determine what banks pay to borrow from each other, often to cover short-term obligations.

Interbank lending rates, which began to decline last Friday, continued to do so Tuesday. The benchmark overnight lending rate, a gauge of liquidity in the financial market, stood at 5.736 percent. That was down from 6.489 percent on Monday and well below the record high of 13.44 percent reached last Thursday.

But with rates still well above where they were in the last 18 months, around 3 percent, anxiety over the effect on the financial system and the economy persisted Tuesday.

The central bank’s stance could help economic conditions in China, many analysts have said, by instilling more lending discipline and reducing the chances of asset price bubbles and loan defaults that have increased with rapid lending growth in the last few months.

In its latest statement Tuesday, the central bank urged commercial banks to “prudently control the excessively rapid expansion of credit and assets that may lead to liquidity risks.”

Still, many analysts contend that the central bank’s tough stance has risks.

“We believe the biggest risk comes from the P.B.O.C. potentially mishandling the situation,” Ting Lu, China economist at Bank of America Merrill Lynch, said Tuesday, referring to the People’s Bank of China. “That being said, we believe the P.B.O.C. and Chinese policy makers will be aware of the potential dangers and take decisive measures to revive the interbank market, to calm investors and to stabilize the economy.”

In the rest of the Asia-Pacific region, the prospect of slower economic growth in China has weighed on markets for months.

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DealBook: Goldman Sachs to Sell $1 Billion Stake in Chinese Bank

The headquarters of Goldman Sachs in New York.Mark Lennihan/Associated PressThe headquarters of Goldman Sachs in New York.

Goldman Sachs is selling a $1 billion stake in Industrial and Commercial Bank of China, the largest Chinese bank.

The share sale, which was begun on Monday, is the second time in less than a year that Goldman has reduced its holdings in the lender after acquiring its stake before the Chinese bank’s initial public offering in 2006.

Goldman has been selling off its shares as part of a broader effort to reduce its exposure to Industrial and Commercial Bank of China, which has benefited from an almost 50 percent rise in its share price over the six months.

Under the terms of the deal, Goldman will sell Hong Kong-listed shares in the Chinese bank at 5.77 Hong Kong dollars (74 cents) each, according to a person with direct knowledge of the deal who spoke on the condition of anonymity because he was not authorized to speak publicly. The exact number of shares has yet to be confirmed, the person added.

The share sale represents around a 3 percent discount to the bank’s closing share price on Monday.

In April, Goldman also sold $2.5 billion of shares in the bank to the Singaporean sovereign wealth fund Temasek Holdings and other institutional shareholders.

Its investment in the world’s largest bank by market value has proved successful for Goldman. After initially investing around $2.6 billion, Goldman Sachs has raised more than $4.5 billion by progressively selling down its stake in the Chinese bank.

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China Reshuffles Leadership at Financial Regulators

With a new generation of leaders set to take control of the country in 2012, the Communist Party was widely expected to replace its top banking and financial regulators as several of them neared retirement age.

Several of those changes, which were announced Saturday, come at a time of strong economic growth in China but continuing worries about soaring inflation, a depressed stock market and concerns that heavy lending by China’s biggest banks following the 2008 financial crisis is likely to lead to a huge number of nonperforming loans over the next three to five years.

To strengthen its controls, the Communist Party on Saturday appointed Shang Fulin, 60, as the new chairman of the powerful China Banking Regulatory Commission, according to the state-run Xinhua news agency.

Mr. Shang had been the head of the China Securities Regulatory Commission.

He replaced Liu Mingkang, 65, who had served as the nation’s top banking regulator since March 2003. He had reached retirement age.

Guo Shuqing, chairman of the China Construction Bank — one of China’s four big state-owned banks — was named to replace Mr. Shang as the nation’s top securities regulator.

Mr. Guo, 55, has led China Construction Bank since 2005, when the bank was listed in Hong Kong in one of the biggest initial public offerings in history.

Xiang Junbo, 54, resigned on Saturday as head of one of China’s other big state-owned banks, the Agricultural Bank of China. He was named Saturday as the chairman of the China Insurance Regulatory Commission, replacing Wu Dingfu.

The three men named Saturday are longtime government bureaucrats. They were appointed by the Communist Party Central Committee’s Organization Department.

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U.S. and Chinese Officials Named to I.M.F. Posts

David A. Lipton, a White House economic adviser, will become the fund’s senior deputy managing director in September, after the previously announced retirement of John Lipsky. The United States, which owns a controlling share of the fund, maintained its historic insistence that an American should fill the position, just as a European has always headed the fund.

But Ms. Lagarde also bowed to the future by naming a Chinese economist, Zhu Min, to a newly created position as the fourth deputy managing director. Mr. Zhu’s elevation follows a campaign promise by Ms. Lagarde to increase the role of China and other emerging economies in managing the fund. The other two deputy directors, who will remain in place, come from Egypt and Japan.

“These appointments are part of a grand bargain that allowed Europe to retain its hold on the top job,” said Eswar S. Prasad, a professor of trade policy at Cornell University who worked at the fund for 17 years. “This may be one of the few instances where the three largest economic powers — China, Europe and the U.S. — found their short-term interests closely aligned.”

Mr. Zhu is a member of an elite group of Chinese economists who blossomed intellectually in the 1980s, exchanging market-oriented ideas at frequent social meetings in Beijing and Shanghai, and then scattered to rise through the ranks of various Chinese bureaucracies. An early graduate of Fudan University after Chinese universities reopened after the Cultural Revolution, Mr. Zhu came to the United States to earn a doctorate in economics at Johns Hopkins University.

He worked in Washington as an economist at the World Bank from 1990 to 1996, then returned home to become an executive at the Bank of China. He played a central role in reorganizing the company’s operations so it could be listed on the Hong Kong stock market in 2002. He moved to the People’s Bank of China as a deputy governor in October 2009.

The fund’s previous managing director, Dominique Strauss-Kahn, named Mr. Zhu to the newly created position of special adviser to the managing director in February 2010.

In announcing the appointment, which still requires the formality of approval by the fund’s executive board, Ms. Lagarde said Mr. Zhu would aid “in strengthening the fund’s understanding of Asia and emerging markets more generally.”

Mr. Lipton is the senior director for international economic affairs for the National Economic Council and the National Security Council.

After completing a doctorate in economics at Harvard in 1982, Mr. Lipton worked as an economist at the fund for eight years. He joined the Clinton administration in 1993, rising to the position of under secretary for international affairs.

In between Democratic administrations, Mr. Lipton worked at Citigroup and at the hedge fund Moore Capital Management.

Mr. Lipton’s selection was dictated by the Obama administration. The United States created the fund after World War II to provide a lender of last resort for troubled governments, and America still controls 16.77 percent of the voting shares, an effective veto because 85 percent of the votes are needed for big decisions.

Those decisions now are mostly focused on Europe, where the fund has pledged billions of dollars to prop up Greece. The fund also is a main stage on which the United States and China compete for international support for their economic policies.

“David’s greatest strengths are his creativity and drive to solve things definitively,” the Treasury secretary, Timothy F. Geithner, said in a statement.

Mr. Lipsky, a former chief economist at JPMorgan Chase, will complete his five-year term in August. He briefly took charge of the fund after the sudden resignation of Mr. Strauss-Kahn, who faces charges of sexually assaulting a New York hotel maid.

Keith Bradsher contributed reporting from Baton Rouge, La.

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Chinese Imports Slow but Exports Rise

BEIJING — Chinese imports grew at the slowest pace in 20 months in June, government data showed Sunday, providing further evidence of the broad effect of monetary tightening on the economy.

The slowing rate of imports in June, which dropped to a 19.3 percent annual pace from 28.4 percent in May, is expected to heighten investors’ concerns about how swiftly the Chinese economy, the world’s second-largest after that of the United States, is slowing.

But coming a day after data showed that inflation in June had reached a three-year peak of 6.4 percent, analysts took the data showing a jump in the trade surplus as a sign that the Chinese central bank might have to raise interest rates further, to rein in prices and to discourage capital inflows.

Last week, the central bank raised interest rates for the third time this year, underlining the government’s confidence in the economy’s ability to cope with tighter monetary policy.

The data Sunday showed that June exports had risen 17.9 percent from the same period a year ago, slowing from a 19.4 percent rise in May and pointing to the weakness in overseas demand that has seen exports and new orders soften across most of Asia.

Exports reached a record of $162 billion in June, while imports for the month were $139.7 billion. That left the country with a trade surplus of $22.3 billion in June, compared with $13.1 billion in May.

The median forecast of economists polled by Reuters was for exports to rise 18.7 percent and imports to grow 25 percent, for a trade surplus of $16.3 billion.

“The big trade surplus means P.B.O.C. will continue to experience large capital inflows,” said Liu Li-gang, an economist with Australia New Zealand Banking, referring to the People’s Bank of China. “The P.B.O.C. will have to address this inflow problem.”

Beijing has repeatedly said it will restructure its economy, cutting its reliance on exports and investment, and promoting domestic consumption in their place. As a result, import growth has become a bellwether for the strength of Chinese demand.

A slowdown in Chinese export growth had been anticipated in response to the slowing U.S. economy and as factory growth in Asia and Europe slid in June.

A series of indicators in the past few weeks have pointed to a moderation in the heady pace of the Chinese economy, including data on Taiwan’s exports to the mainland and purchasing manager surveys of new orders.

The People’s Bank of China has made clear that inflation remains a priority. Most analysts say that the resultant economic growth from that policy mix will be slower than the near double-digit pace of the past few years but that there is little risk of a hard landing.

“Imports were below expectations,” said David Cohen of Action Economics in Singapore. “We are perhaps seeing some reflection of loss of momentum in China’s growth. After all, there has been tightening in policy. The numbers are consistent with decelerating growth, with the soft landing that many people are looking for.”

On a calendar-adjusted basis, exports expanded 16.4 percent in June from a year earlier, while imports jumped 19.2 percent, the Chinese Customs Department said.

Exports rose 3.1 percent in June from May, while imports fell 3 percent month-to-month. On a calendar-adjusted basis, June exports rose 4.2 percent from May, while imports fell 2.6 percent from May.

The trade surplus in June was the highest in seven months. Chinese trade surpluses have led to criticism from trade partners like the United States who accuse Beijing of giving its exporters an unfair advantage with an inexpensive currency.

Despite the latest data, the Chinese trade surplus is on track to narrow from the $183 billion of last year as the government tries to rebalance the economy.

“For the second half of the year, we expect exports to continue to fall due to the impact from the European debt crisis, Japan’s earthquake and other factors,” said Tang Jianwei, an economist at Bank of Communications in Shanghai.

“The trade surplus will be maintained in the second half of the year, but domestic demand is still relatively strong,” he said. “So we are expecting a full-year surplus of $100 billion.”

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DealBook: Bank of America to Spin Off Buyout Arm

Bank of America Merrill Lynch has decided to spin off its $5 billion private equity arm, a representative for the bank confirmed on Wednesday.

The decision to make the unit independent is a fresh sign of a wider movement by banks to comply with the Volcker rule, which restricts how banks can invest their capital, and has led to a flurry of spinoffs and departures on Wall Street.

The private equity arm, BAML Capital Partners, was originally named Merrill Lynch Global Private Equity. Its past and current investments include Hertz; HCA; the energy company Targa Resources; Aeolus Re, a reinsurer based in Bermuda; and Bank of China.

The unit’s focus has been on the health care, consumer products and energy sectors, among others.

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