Understanding Bank Financial Statements

By Jerome Felix , eHow Contributor

Understanding bank financial statements is easy when you go through each statement slowly. The three main financial statements are the income statement, balance sheet and cash flow. A bank’s financial statement is similar to any other financial statement. These statements give you a snapshot of how the bank is doing financially.

 

Instructions

1  Understand financial statements by reviewing terms related to these statements. There are three       main types of bank financial statements: the income statement, the balance sheet and the cash flow statement. To get a thorough understanding of financial statements, do some research online to familiarize yourself.

1. • 2
     The bank income statement shows total revenues, total expenses and total tax. Notice that this statement starts with revenues, subtracts total expenses and then subtracts taxes. Go through the revenues, expenses and tax; you’ll notice many items within those groups.
   • 3
     The balance sheet lists the bank’s total assets, total liabilities and owner’s equity. The formula for the bank’s balance sheet is “assets” minus “liabilities” is equal to “owner’s equity.” The owner’s equity means the value of the bank owner's ownership of the bank.
   • 4
     The bank’s cash flow statement is a snapshot of its cash operations. This is a summary of operation activity cash, investing activity cash, finance activity cash and net cash change. This summary traces cash in-flow and cash out-flow.
   • 5
     Review the bank’s statement of owner’s equity. This statement records the prior equity, and then adjusts it with investments, withdrawals and income to get the final equity.

Read more: Understanding Bank Financial Statements | eHow.com http://www.ehow.com/how_4557967_understanding-bank-financial-statements.html#ixzz1fY6FKAwv
http://www.ehow.com/how_4557967_understanding-bank-financial-statements.html

How to Analyze a Banks Financial Statement

By an eHow Contributor

Related Searches:A bank's financial statements are composed of three sections: the balance sheet, income statement and cash flow statement. The financial statements of a bank are complex because banks sell diverse financial products and services, and, they undertake their own financing and investment activities. However, once you learn the basics of reading financial statements---whether for a bank or another type of business---you'll understand what all the numbers mean.

Difficulty:

 

Challenging

Instructions

1. • 1
     Start with the balance sheet which shows the value of what the bank owns or money that is owed to the bank (assets), the amount of money that the bank itself owes (liabilities), and the amount of money invested by shareholders into the bank (shareholder's equity) at a specific point in time. An easy way to remember the data on the balance sheet is: assets = liabilities + shareholder's equity.

     The assets for a large commercial bank, for example, can be extensive. The biggest line item is typically its loans and leases which are made to consumers, businesses and institutions. Be sure to read the summary notes that follow the financial statements to find more details about each of the bank's assets.

     Review the liabilities section which includes the bank's deposits made by its customers as well as the bank's short- and long-term debt which are loans, lines of credits and notes that the bank has less than one year (short-term) or more than one year (long-term) to pay back.

     The final section of the balance sheet to review is the shareholder's equity composed of capital stock plus retained earnings. Capital stock is the total amount of money shareholders have invested in the bank's stock. Retained earnings are the earnings that the bank has not paid out yet as dividends to its shareholders.
   • 2
     Refer to the income statement which provides information on the bank's profitability. It covers a specific period of time and details income from the bank's loans, lease financing, securities available for sale and other items. Like consumers and businesses, banks themselves borrow money to cover their own expenses and maximize profits. The last line of the income statement---the net income---shows the bank's total profits after all expenses and taxes have been paid.
   • 3
     Review the cash flows statement which tracks a bank's cash inflows and outflows over a specific period of time. Cash comes in and goes out of a bank from its operating, investing and financing activities. The cash flow statement will show the beginning cash balance and the ending cash balance after reporting all the bank's deposits (cash inflows) and payments (cash outflows).
   • 4
     Calculate key profitability, liquidity, activity and solvency ratios to assess a bank's overall performance. You can download a free template of these ratios from Microsoft Office Online (http://office.microsoft.com/en-us/templates/). Use data from the bank's current and past financial statements to calculate and compare these ratios.

     Try comparing the bank's ratios to composite ratios for other banks from Standard & Poor's Indices listings (http://www.standardandpoors.com/indices/main/en/us/). When you calculate and compare ratios, you'll get a summary of the bank's financial health and its performance relative to the competition.

Read more: How to Analyze a Banks Financial Statement | eHow.com http://www.ehow.com/how_5973660_analyze-banks-financial-statement.html#ixzz1fY7IWIBu

The 4 Financial Statements

http://www.quickmba.com/accounting/fin/statements/

Balance Sheet
Income Statement
Statement of Owner's Equity
Statement of Cash Flows

QuickMBA
Knowlege to Power Your Business
http://www.quickmba.com/site.shtml

Why don't smart investors, seeing others panic and sell stocks, step in to buy them up at a bargain?

First, it's very hard, in the midst of a crisis, to tell whether markets are acting rationally or irrationally. Buyers refused to enter credit markets this summer on fears about risky mortgage debt. It will take months, maybe years, to add up the full impact of losses on subprime loans.

It's also tough to think rationally yourself. "It's hard to keep your emotions in check when your money is on the line," Shefrin says.

And, even if you're confident the panicked market is giving you a buying opportunity, you're likely to want to wait until it hits bottom. If a market is in free fall, buying stocks on the way down is likely to give you instant losses.

Not only will buyers hold back. A falling market will bring many more sellers out of the woodwork. Leverage is one reason: Many investors buy stocks on borrowed money, so they can't afford to lose as much without facing bankruptcy.

This is one explanation for the temporary, sharp drops in many financial markets in the summer of 2007. Losses on leveraged mortgage debt prompted many hedge funds to dump all sorts of assets to raise cash.


Comment:  Only a few transactions occur at the lowest price.  It is not realistic to buy at the lowest price but one should start buying when the price is already low by your valuation.


Also read:  

Strategy during crisis investment: Revisiting the recent 2008 bear market

Lessons from the '87 Crash

SPECIAL REPORT October 11, 2007

Lessons from the '87 Crash

Enjoying the Dow's record run? Don't get too comfy. The market's Black Monday breakdown is a reminder of how quickly investor sentiment can turn

by Ben Steverman

As major stock indexes hit all-time highs, it's worth looking back 20 years to a far gloomier time, when investors were cruelly and suddenly reminded that the value of their investments can depend on something as unpredictable as a mood swing.

Every once in a while, fear, snowballing into panic, sweeps financial markets—the stock market crash of October, 1987, now celebrating its 20th birthday, is a prime example.

In the five trading sessions from Oct. 13 to Oct. 19, 1987, the Dow Jones industrial average lost a third of its value and about $1 trillion of U.S. stock market value was wiped out. The losses culminated in a panic-stricken 22.6% decline in the Dow on Black Monday, Oct. 19. The traumatic drop raised recession fears and had some preparing for another Great Depression.

Stock market crashes were nothing new in 1987, but previous financial crises—in 1929, for example—often reflected fundamental problems in the U.S. economy.

MYSTERIOUS MELTDOWN
The market's nervous breakdown in 1987 is much harder to explain. Especially in light of what came next: After a couple months of gyrations, the markets started bouncing back. The broad Standard & Poor's 500-stock index ended 1987 with a modest 2.59% gain. And in less than two years, stocks had returned to their pre-crash, summer of 1987 heights.

More importantly for most Americans, the U.S. economy kept humming along. Corporate profits barely flinched.

To this day, no one really knows for sure why the markets chose Oct. 19 to crash. Finance Professor Paolo Pasquariello of the University of Michigan's Ross School of Business says the mystery behind 1987 prompted scholars to come up with new ways of studying financial crises. Instead of just focusing on economic fundamentals, they put more attention on the "market microstructure," the ways people trade and the process by which the market forms asset prices.

True, in hindsight there are plenty of adequate reasons for the '87 crash. Stocks had soared through much of 1987, hitting perhaps unsustainable levels: In historical terms, stock prices were way ahead of corporate profits. New trading technology and unproven investing strategies put strain on the market. There were worries about the economic impact of tensions in the Persian Gulf and bills being considered in Congress.

OUT OF SORTS
But for whatever reason, the mood on Wall Street shifted suddenly, and everyone tried to sell stocks at once. "Something just clicked," says Chris Lamoureux, finance professor at the University of Arizona. "It would be like a whole crowded theater trying to get out of one exit door."

It's a fairly common phenomenon on financial markets. Every stock transaction needs a buyer or a seller. When news or a mood shift causes a shortage of either buyers or sellers in the market, stock prices can surge or plunge quickly. Most of the time, balance is quickly restored. Lower prices draw in new buyers looking for a bargain, for example.

Sometimes, as in 1987 and many other true crises, things get out of hand. What happens at these moments is a mystery that may be best explained by dynamics deep within human nature.

Usually, explains behavioral finance expert Hersh Shefrin, a professor at Santa Clara University, investors believe they understand the world. In a crisis, "something dramatically different happens and we lose our confidence," Shefrin says. "Panic is basically a loss of self-control. Fear takes over."

BUYERS AND SELLERS
Why don't smart investors, seeing others panic and sell stocks, step in to buy them up at a bargain?

First, it's very hard, in the midst of a crisis, to tell whether markets are acting rationally or irrationally. Buyers refused to enter credit markets this summer on fears about risky mortgage debt. It will take months, maybe years, to add up the full impact of losses on subprime loans.

It's also tough to think rationally yourself. "It's hard to keep your emotions in check when your money is on the line," Shefrin says.

And, even if you're confident the panicked market is giving you a buying opportunity, you're likely to want to wait until it hits bottom. If a market is in free fall, buying stocks on the way down is likely to give you instant losses.

Not only will buyers hold back. A falling market will bring many more sellers out of the woodwork. Leverage is one reason: Many investors buy stocks on borrowed money, so they can't afford to lose as much without facing bankruptcy.

This is one explanation for the temporary, sharp drops in many financial markets in the summer of 2007. Losses on leveraged mortgage debt prompted many hedge funds to dump all sorts of assets to raise cash.

THERAPY FOR A PANICKED MARKET
The solution to a panicked market, many say, is slowing down the herd of frightened investors all running in the same direction. New stock market rules instituted since 1987 pause trading after big losses. For example, U.S. securities markets institute trading halts when stock losses reach 10% in any trading session. "If you give people enough time, maybe they will figure out nothing fundamental is going on," University of Michigan's Pasquariello says.

There's another form of therapy for overly emotional markets: information. In 1929 and during other early financial crises, there were no computer systems, economic data were scarce, and corporate financial reporting was suspect. "The only thing people knew in the 1920s was there was a panic and everybody was selling," says Reena Aggarwal, finance professor at Georgetown University. "There was far less information available." In 1987, and even more today, investors had places to get more solid data on the market and the economy, giving them more courage not to follow the herd. That's one reason markets found it so easy to shrug off the effects of 1987, Aggarwal adds.

You can slow markets down, reform trading rules, and tap into extra information, but financial panics may never go away. It seems to be part of our collective human nature to occasionally reassess a situation, panic, and then all act at once.

Many see the markets as a precarious balance between fear and greed. Or, alternatively, irrational exuberance and unwarranted pessimism. "All you need is a shift in mass that's just big enough to push you toward the tipping point," Shefrin says.

IN FOR THE LONG HAUL
What should an individual investor do in the event of a financial crisis? If you're really sure that something fundamental has changed and the economy is heading toward recession or even another depression, it's probably in your interest to sell. But most experts advise waiting and doing nothing. "In volatile times, it is very likely that you [will be] the goat that other people are taking advantage of," University of Arizona's Lamoureux says. "It's often a very dangerous time to be trading."

Shefrin adds: "The chances of you doing the right thing are low." Don't think short-term, he says, and remind yourself of the long-term averages. For example, in any given year, stock markets have a two in three chance of moving higher. Other than that, it's nearly impossible to predict the future.

So, another financial panic may be inevitable. But relax: There's probably nothing you can do about it anyway. Anything you do might make your situation worse. So the best advice may be to send flowers to your stressed-out stockbroker, stick with your long-term investment strategy, and sit back and watch the market's roller-coaster ride.

Steverman is a reporter for BusinessWeek's Investing channel .

http://www.businessweek.com/investing/content/oct2007/pi20071011_494930.htm

Spain's banks hold billions of euros in properties that will be tough to sell

The Real Threat Facing Spanish Lenders

Spain's banks hold billions of euros in properties that will be tough to sell

One analyst estimates it could take 40 years for banks to unload their holdings Denis Doyle/Bloomberg

While Europe’s sovereign debt crisis grabs all the headlines, distressed real estate may pose a bigger threat to the Spanish banking system. The country’s lenders hold about £30 billion ($41 billion) of unfinished homes and land that’s “unsellable,” according to Pablo Cantos, managing partner of MaC Group in Madrid. MaC Group is a risk adviser to several leading Spanish banks. “I’m really worried about the small and medium-size banks whose business is 100 percent in Spain and based on real estate growth,” says Cantos. He adds that only bigger, more diversified lenders such asBanco Santander (STD), Banco Bilbao Vizcaya Argentaria (BBVA), La Caixa, and Bankia are strong enough to survive their real estate losses: “I foresee Spain will be left with just four large banks.”

Spain’s central bank tightened rules last year to force lenders to set aside more reserves against property seized in exchange for unpaid debts and is pressing them to sell assets rather than wait for the market to recover from its four-year decline. Yet unloading the real estate may be difficult or impossible. Bank-owned land “in the middle of nowhere” and unfinished residential units will take as long as 40 years to sell, Cantos predicts. Fernando Rodríguez de Acuña Martínez, a consultant at Madrid-based adviser RR de Acuña & Asociados, has a more dire view. About 43 percent of unsold new homes are in exurbs far from city centers, he says, and “if you take into account population growth for these areas, there’s no demand for them. Not now or in 10 years.”

Dozens of Spanish banks have failed or been absorbed since the economic crisis ended a debt-fueled property boom in 2008. The cost to taxpayers of cleaning up the industry’s books has come to £17.7 billion so far. Banks may face increased pressure following Nov. 20 national elections that propelled the conservative People’s Party to power. Its leader, Mariano Rajoy, has said the “cleanup and restructuring” of the banking system is his top priority.

“Stricter provisioning rules for land need to be implemented,” says Luis de Guindos, director of PricewaterhouseCoopers and IE Business School Center for Finance. De Guindos has been named by newspapers as a contender for finance minister in a Rajoy government. “Many banks will be able to deal with it, but others won’t.”

Idealista, Spain’s largest real estate website, currently advertises 45,912 bank-owned homes there, up from 29,334 in November 2010. In 2008 it didn’t list any.

Spanish home prices have fallen 28 percent, on average, from their peak in April 2007, according to a Nov. 2 joint report by Fotocasa.es, a real estate website, and the IESE Business School. Land values fell 33 percent nationwide. Fernando Acuña Ruiz, managing partner of Taurus Iberica Asset Management, a Spanish mortgage servicer, expects the slide in home prices to continue. “Spain has 1 million new homes that won’t be completely absorbed by the market until the middle of 2017,” he says. “Prices will fall a further 15 percent to 20 percent in the next two to three years.”

Banks are reluctant to acknowledge the size of the declines. There is an “enormous” gap between prices offered by lenders and what investors are willing to pay, preventing sales of large property portfolios, MaC Group’s Cantos says. He estimates that prime assets can be sold at a 30 percent discount, while portfolios comprising land, residential, and commercial real estate may sell only after 70 percent discounts. “Therein lies the problem,” he says. “Banks have already provisioned for a 30 percent loss, but if you are selling at 70 percent discount, you have to take another 40 percent loss. Which small and medium-size banks can take such a hit?”

The bottom line: With home prices down 28 percent from the peak, real estate losses may swamp smaller lenders, leaving Spain with four big banks.

Smyth is a reporter for Bloomberg News.

Investment outlook: For a brighter investment forecast, look long term

Despite the recent market volatility, opportunities to grow your nest egg are out there

4:22PM GMT 25 Nov 2011

Doom and gloom might be the order of the day – as politicians struggle to control the EuroZone debt crisis, plus a worsening UK economic outlook – but the medium- to longer-term forecasts remain much brighter. In particular, leading fund managers agree that future market conditions appear more favourable for investors, providing your money is in the right place.

2011 will certainly be remembered as a year of global market volatility, kicking off with unrest in the Middle East and North Africa, followed by devastating earthquakes in Japan and New Zealand. More recently, the EuroZone has taken centre stage.

All of these events have contributed to a climate of uncertainty, where even the smallest piece of economic news can send markets into a spin.

Yet the fundamentals of stocks and shares equities themselves offer greater encouragement. That’s because the present stock market issues are mainly due to a lack of confidence over the inaction of European politicians in tackling the EuroZone difficulties. The balance sheets of the corporate companies themselves – particularly large blue chip companies – look strong.

While share prices are currently low, the FTSE 100TM has already grown by 10pc since the lows of early October. Many industry experts agree that the medium- to longer-term prospects look encouraging, here’s why:

Dividends to reach a three-year high

Dividend yield payments – a share of the profits companies pay to investors on a regular basis – are on the increase, and 2011 looks set to see the fastest growth in dividends since 2008. This is particularly the case for the UK dividend market, with Capita Registrars reporting that some companies were increasing payments to investors by as much as 100pc mid-way through 2011.

Even allowing for the subsequent market volatility, dividend payments still rose by 16pc between July and September, compared to dividend payments over the same period a year earlier.

Dividends have always been an important part of equity returns. While equities can rise and fall in value, dividends are generally more stable. This means they can prove a valuable way of providing an income or supporting growth in the value of your investments.

It’s ‘time in’ the markets, not ‘timing’

Investing your money should always be viewed as a medium- to longer-term commitment. Sadly, many investors make the mistake of encashing their investments after only a short-term, especially when the markets suffer a downturn. Having originally agreed a longer-term investment horizon, this about-turn in strategy often results in losses.

While past performance should not be considered a guide to future returns, historically markets have recovered strongly, over time, from significant crashes. According to Hindsight statistics, in 1987, ‘Black Monday’ saw the FTSE 100TM (total return including dividends) fall 31pc – but five years later it had grown by 120pc. After the devastating 9/11 attacks in 2001, the FTSE 100TM dropped 11pc; by September 2006 it had risen by 57pc.

Time – not timing – is the key to a successful investment strategy. Generally the longer you are able or prepared to retain your investments, the greater the potential return.

A balanced approach

Not that investing has to be solely about stocks and shares assets. Essentially there are four other types of assets that can feature in your overall portfolio: cash (deposit-based savings), fixed interest (loans to the Government or companies), property and commodities (e.g. gold).

Each asset class has its own positives and negatives. By placing your money into an investment fund that contains a range of asset classes, you can reduce the overall risk to your capital. That’s because when one type of investment is performing less well – such as property recently – others may produce higher returns.

Receive no-obligation financial advice

The medium- to longer-term outlook for growing your money might appear encouraging, but is your nest egg suitably positioned to take advantage of potential market opportunities?

http://www.telegraph.co.uk/financialservices/investing/Telegraph-Investment-service/8916213/Investment-outlook-For-a-brighter-investment-forecast-look-long-term.html

Can the euro be saved?

If Chancellor Angela Merkel, above, agrees to a massive bail-out, that should buy enough time for agreement on the second, long-term step to euro salvation 

By Damian Reece

8:27PM GMT 01 Dec 2011

The clock is ticking for the euro. After 11 years circulating in shops and bars from Athens to Zeebrugge, there are, it is said, just 10 days left to save it – or perhaps eight, since it was on Wednesday that Olli Rehn, Europe’s Economic and Monetary Affairs Commissioner, made his startling prediction of the euro’s imminent demise.

The fact that Rehn, an official at the heart of the euro project, came out with such a stark assessment has brought what many thought was unthinkable into the realm of the thinkable. So thinkable, in fact, that governments (including our own), central banks, lawyers, financial institutions and investors are making contingency plans for what is assumed will be an economic event of cataclysmic proportions.

But can the euro be saved? And if it does break up, what are the implications for the UK, a country that has stubbornly stayed out of the euro, but which can’t escape the consequences of events in the next week, culminating in another crunch meeting in Brussels next Friday? Sadly, a financial Flash Gordon doesn’t exist. There is no comic book hero to appear at the last minute to save the euro. To do that, the eurozone’s leaders must overcome entrenched political differences over how a rescue is mounted.

Scepticism that Germany, France and Italy can bury their differences, agree the measures necessary and bring the other 14 squabbling euro members to the table has left markets deeply unconvinced. After all, we have been here before.

There are two steps to saving the single currency. The first is a short-term bail-out of continental proportions, probably costing up to 1 trillion euros (£856 billion), for countries such as Greece and Italy which are about to run out of cash to pay their bills. By the eurozone governments agreeing to provide unlimited support for near-broke colleagues, the cost of borrowing for these stricken countries would fall, enabling them to borrow again and pay their IOUs to the region’s increasingly shaky banks.

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It was the parlous state of these mainly European lenders that prompted Wednesday’s intervention by central banks, led by the US Federal Reserve. However, their action – to let loose an ocean of cheap dollars – was first and foremost about saving banks that are wobbling because of the euro, not to save the euro itself.

Anyway, assuming the inflation-phobic Angela Merkel and her German colleagues can agree to a massive bail-out, that should buy enough time for agreement on the second, long-term step to euro salvation. That is, an agreement for EU treaty changes, or possibly a series of bilateral agreements, that will bind the 17 member countries in closer financial union. The upshot would be a dilution of national sovereignty, submitting each parliament’s tax and spend policies to Brussels for approval under the watchful eye of the Frankfurt-based European Central Bank (ECB). But it would, in theory, stabilise the political system the euro relies on.

The arguments raging between Berlin, Paris, Rome and Brussels are over how all this is to be achieved in ways that are politically acceptable to everyone. The ECB’s president, Mario Draghi, has already refused to be the eurozone’s lender of last resort; anyway, the EU treaty bans it from lending to governments. Mrs Merkel again repeated her opposition to bail-outs yesterday.

On Wednesday, European finance ministers all but admitted they had failed to agree on ways to bolster the increasingly discredited European Financial Stability Facility (EFSF) and are turning to the International Monetary Fund (IMF) to step in and help overcome Europe’s political and legal barriers to delivering the short-term “big bazooka”. But if that is delivered then politicians such as Mrs Merkel will want to make sure Europe never goes through this again. She will want a clear understanding by the end of next week that fiscal union – in effect, much closer political union – is the quid pro quo for a bail-out. German voters are sick of seeing their prudence support the profligacy of southern Europe, be it Greece, Spain, Portugal or Italy.

This really is a defining moment. And not just for the eurozone countries. Preserving the euro, and convincing markets that there is a meaningful plan for the future, is central to the UK’s interests, too. Europe is our biggest trading partner and our wish for a more balanced, less City-dependent and more export-led economy relies on stability and growth on the Continent.

But politics moves at a snail’s pace, while markets are lightning quick to sense any weakness in a financial system. If there is no concrete and convincing action by the end of next week, it seems inevitable that the previously unthinkable will happen. The euro will start to unravel and any break-up in the short term would inevitably be disorderly.

Markets know that the combination of recession and austerity plans is leaving governments such as Italy and Greece short of cash to pay their debts. Between now and the middle of 2014, Italy must find 651 billion euros to roll over its liabilities, which stand at 2.4 trillion euros and growing. Without the massive cash support of a bail-out, Italy risks being unable to pay its bills and default would follow.

That doesn’t necessarily mean it would leave the euro, but countries that have suffered the catastrophic event of welching on their debts, such as Argentina, have devalued to restore competitiveness and, ultimately, credibility to their economies. The only way for an Italy or Greece to do that is to leave the euro. Markets may soon force their hand anyway, by instigating a run on their banks and repatriating euros into safer havens such as Germany, leaving these countries unable, and politically unwilling, to function within the eurozone.

Once out, according to economists, it would take a matter of days, rather than weeks, for a country to replace euros with another denomination bank note. Ideally, it would have a stock already prepared. In the interim, it could issue small denomination IOUs that would become a new form of cash, exchangeable for goods and services.

Leaving the euro would almost certainly see a country imposing capital controls. If Greece left, then a Briton with a holiday home on Kos, and presumably a bank account there, wouldn’t be able to liquidate assets and get cash out. That trapped cash would also be forcibly converted into new drachmas and would lose a chunk of its value as the new currency devalued. The same would happen to any financial or business contract struck in euros with a Greek counterparty. The break-up of the euro would keep lawyers busy for years.

Stinging investors also risks a country acquiring pariah status in capital markets, which might become reluctant to lend any more. But the advantage of adopting a much devalued drachma would be to make exports cheaper and the economy far more competitive, which could mean its fortunes start to look up. With a smile back on its face, Greece might become an advert for leaving the single currency, making it even harder to keep the euro together. Once one goes, others will follow.

In the short term, this would be bad for Britain, too. A disorderly break-up involving a large sovereign default would hit our banks. Credit would become more expensive, if available at all, and trade would shrink. David Cameron summed it up yesterday: “If the euro fell apart, what you would see is a very steep decline in the GDP, the economic growth, of all countries in Europe, including Britain.”

But then again, a country, or countries, free to set their own interest rates, and enjoying a cheaper currency, would make for potentially stronger export markets for us.

An alternative would be for Germany to exit the euro, perhaps with other relatively strong nations, including France, Finland and the Netherlands. This would leave the more stable economies with the problem of adopting a new currency and the weaker, peripheral members with the old euro. It would be worth less than a new “northern euro” but some of the worst disruption would be avoided.

Probably the best we can hope for is that next week ends with real action on a eurozone bail-out that buys sufficient time for its 17 members to agree, and plan, an orderly restructuring over the next two to three years. That way will allow some countries to leave – and the euro diehards to continue their perilous monetary adventure alone.

http://www.telegraph.co.uk/news/worldnews/europe/eu/8929042/Can-the-euro-be-saved.html

Profit Distribution Policy and Dividend Policy: IF ONLY more companies can emulate this example.

It is refreshing to note that TDM states its profit distribution policy and dividend policy so very clearly in the front pages of its annual report.  It would be a great example to emulate by other listed companies too.

From Page 5 of TDM 2010 Annual Report:

Profit Distribution Policy

TDM Group’s annual consolidated distributable profits shall be appropriated as follows:
(i) one third for dividends to shareholders;
(ii) one third for capital expenditure of the Group; and
(iii) one third for the reserves of the Group.

This policy was approved by the Board of Directors of TDM Berhad on 13 August 2009

Dividend Policy

TDM Berhad will endeavour to payout dividends of at least 30% of its consolidated annual net profi t after taxation and minority interest, subject to availability of distributable reserves.

Dividends will only be paid if approved by the Board of Directors and the shareholders of the Company.

The actual amount and timing of dividend payments will be dependent upon TDM Berhad’s cash flow position, returns from operations, business prospects, current and expected obligations, funding needs for future growth, maintenance of an efficient capital structure and such other factors which the Board of Directors of TDM Berhad may deem relevant.

The Company will take every effort to grow its businesses and it should be reflected in growth in the dividend rate.

The objective of this dividend policy is to provide sustainable dividends to shareholders consistent with the Company’s earnings growth.

This policy was approved by the Board of Directors of TDM Berhad on 12 April 2009


2010 Annual Report of TDM
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/3d7153ea4b2a666f4825787f002ca198/$FILE/TDM-AnnualReport2010%20(2MB).pdf

Mervyn King: “The crisis in the euro area is one of solvency and not liquidity.”

'Systemic' crisis looms for Europe's banks

 December 2, 2011 - 7:59AM

Bank of England Governor Mervyn King urged banks to enhance efforts to bolster their defences against the euro area’s debt turmoil, which now looks like a “systemic crisis”.

“An erosion of confidence, lower asset prices and tighter credit conditions are further damaging the prospects for economic activity and will affect the ability of companies, households and governments to repay their debts,” threatening banks’ balance sheets, King told reporters in London.

“This spiral is characteristic of a systemic crisis.”

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The US Federal Reserve cut the cost of dollar funding for European financial institutions yesterday in a coordinated move with other central banks. That measure came two days after King said there are “early signs” of a credit crunch in the euro region, where leaders face increasing pressure to resolve intensifying turmoil.

“Sovereign and banking risks emanating from the euro area have intensified and remain the most significant and immediate threat to UK financial stability,” the central bank said in its Financial Stability Report. It said that if banks’ earnings aren’t enough to build capital, they should limit payments of bonuses and dividends and “give serious consideration” to raising external capital.

Credit squeeze

The central bank’s Monetary Policy Committee restarted bond purchases in October to aid the recovery and cut its growth forecasts this month. Officials warned today that the strains in interbank markets could threaten economic growth.

“Against a backdrop of slowing global growth prospects, concerns about the sustainability of government debt positions of smaller economies have broadened to larger euro-area economies,” the central bank said. “The current funding pressures facing banks could lead to a renewed tightening in credit conditions for real economy borrowers.”

The central bank also published the recommendations of its Financial Policy Committee, which met on November 23. The panel said the Financial Services Authority should encourage banks to disclose leverage ratios to investors by the start of 2013, two years earlier than Basel rules originally required.

The Bank of England said in the FSR that UK banks have 140 billion pounds ($215 billion) of term funding due to mature in 2012, concentrated in the first half of the year. It said short-term money market funding conditions have “been fragile over the past few months, with banks finding it harder to roll over all of their maturing funding and tenors shortening.”

Contingency plans

UK authorities are working on “a wide range of contingency plans” to deal with a further intensification of the crisis, including a possible breakup of the euro, King said. The central bank is working with the Financial Services Authority and the government on plans, he said.

After a series of stop-gap accords failed to protect Italy and Spain from surging bond yields, Europe is under growing pressure from US leaders and international financial markets. European leaders will meet next week to discuss the next steps in resolving the debt crisis.

The cost for European banks to borrow in dollars fell for a second day after the coordinated central bank action. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 118 basis points below the euro interbank offered rate in London. The gap had widened to 162.5 below Euribor yesterday, the most in three years, before the Fed move.

Underlying problems

King said the central bank measure was “designed to deal with clear evidence that there were problems in banks around the world finding difficulty in accessing dollar funding in particular.” Still, he added it can only provide “temporary relief” and is not a “solution to the underlying problems.”

He also said that said resolving the wider problems of global financial imbalances are beyond the UK authorities to deal with on their own and “only the governments directly involved can find a way out of this crisis,” referring to the euro-area debt turmoil.

“The crisis in the euro area is one of solvency and not liquidity,” he said. “Here in the UK we must try and find a way to bolster the resilience” of the financial system.

While Britain’s banks have 15 billion pounds of exposure to sovereign debt in the most vulnerable euro-area economies, they have “significant” exposures to the private sectors of Ireland, Spain and Italy, the Bank of England said. This amounts to about 160 billion pounds, or 80 per cent of their core Tier 1 capital.

“UK banks have made significant progress in improving their capital and funding resilience,” the bank said. “But progress has been set back recently and they have been affected by strains in bank funding markets.”

Bloomberg

Read more: http://www.smh.com.au/business/world-business/systemic-crisis-looms-for-europes-banks-20111202-1o9s3.html#ixzz1fKaV6Jr2