March 29, 2024

Off the Charts: Some Big Banks Thrive Despite Chaos of 2008

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 nytimes.com/economix.

Article source: http://www.nytimes.com/2013/08/31/business/economy/some-big-banks-thrive-despite-chaos-of-2008.html?partner=rss&emc=rss

DealBook: China’s Wealth Fund Buys Stake in British Utility

Workers for Thames Water Utilities repaired a leak on London's Oxford Street on Friday.Simon Dawson/Bloomberg NewsWorkers for Thames Water Utilities repaired a leak on London’s Oxford Street on Friday.

6:38 p.m. | Updated

LONDON — The China Investment Corporation, the country’s sovereign wealth fund, announced Friday that it had acquired an 8.68 percent stake in Thames Water, Britain’s largest water and sewerage company.

This is the first investment in Britain by the China Investment Corporation, which was created in 2007 and has $410 billion of assets under management as of 2010, the latest figures available. The sovereign wealth fund was established to invest the proceeds from China’s foreign currency reserves, which total more than $3 trillion.

The value of the deal was not disclosed, but it was welcomed by George Osborne, Britain’s chancellor of the Exchequer.

“It is a vote of confidence in Britain as a place to invest and do business,” Mr. Osborne said in a statement. “This investment is good news for both the British and Chinese economies.”

The announcement follows a recent trip by Mr. Osborne to China in an effort to increase trade between the two countries. British officials announced Friday the creation of a working group with the Industrial and Commercial Bank of China, the world’s largest bank by market capitalization, to promote Chinese investment in British infrastructure projects.

George Osborne, second from left, Britain's chancellor of the Exchequer, met with officials in Beijing this week.David Gray/ReutersGeorge Osborne, second from left, Britain’s chancellor of the Exchequer, met with officials in Beijing this week.

This week, Mr. Osborne said he wanted to turn London into a major foreign exchange trading center for the Chinese renminbi to benefit from faster growth in Asia, while strengthening the city’s position as a financial center after the banking crisis.

Last year, the China Investment Corporation chairman, Lou Jiwei, said the sovereign wealth fund was looking to invest in the infrastructure of developed countries, including Britain.

Thames Water, which oversees the water network in southern England, has attracted attention from sovereign wealth funds before. In December, the Abu Dhabi Investment Authority said it had acquired a 9.9 percent share of Thames Water.

The British water utility company is owned by a consortium of firms led by the Australian bank Macquarie. The group bought Thames Water, which has about 14 million customers, from the German company RWE in 2006 for £8 billion ($12.4 billion).

Article source: http://feeds.nytimes.com/click.phdo?i=e65cd82ac0c0fc6fb3655a0e2d261809