World distressed investment prospects

There is no doubt that there is distress in world investment conditions. It is perhaps too much to speak of deep world distressed investment conditions, and we must admit that in spite of present difficulties, the great money men of the world are showing all the signs that they are profiting mightily from the present situation. This is why I believe that it is erroneous to speak of distressed world investment prospects without expressing some qualifications.

The fundamentals of the globalised world economy are excellent, and its roof has gone higher, with the introduction of Chinese and Indian labour into the market. The world economic cycle has to go higher before it bounces off an ever-rising roof. There are indeed dangers facing the world economy. These are so great that they cannot fail to influence the Maltese economy, and it is the duty of our financial opinion leaders to point them out. They have not as yet hurt us massively, as the biggest economic component of our current prosperity is undoubtedly tourism.

It seems that Europeans and Americans are regarding the holiday consumption of their income as inviolable. The biggest contributor to the present distressed state of investment conditions worldwide is the degree of malfeasance, some of it absolutely childish and avoidable, which is plaguing bank management performance.

HSBC has never lied about its losses, but this is an exception. World respected economic consultant like Nouriel Roubini has labelled present bank management as 'baloney' on Bloomberg. The collapse of interbank lending has evidently caused bankers' minds to go off at a tangent. The world credit crunch is now a year old, and the great international banks have not yet learned that the self-confessed misrepresentations of their write-downs are the biggest cause of the present sub-prime crisis.

The world has never had a sub-prime crisis of this entity that is why local bankers are completely wrong in saying that Malta is immune from this phenomenon, which is directly influencing our economy through the rise in the price of oil. 'Baloney' sub-prime banking management has helped to pull down the dollar dramatically. This monetary movement has had its mirror image in the rise in the price of oil.

Merrill Lynch first said it had no further write-downs to carry out, and then suddenly announced it was going to do soon a massive scale. This is primarily abuse of trust.

Most analysts consider a bank speaking of capital adequacy by pointing out to its shareholding in another bank, a serious misrepresentation of facts. Consideration of the present, utterly distraught, world banking situation with constantly tumbling share prices, must be taken into account.

There will be opportunity to make money when seriously weakened banks become a further prey to their catastrophic loss in key lines of business related to mortgage securities and derivatives. What business is going to take their place?

Banks can be expected to start serious merger and takeover activities in two months' time. In the famous case of Santander, this has already started with a bang.

At a reception on Thursday, a retired Maltese banker of the finest entrepreneurial record and impeccable ethical standards asked me when I thought the present world banking crisis would end. I told him the money situation was excellent. Capitalism was proving to be self-correcting. It was evident that it needed no guillotine in Place de la Concorde as in the French Revolution to correct excesses. Malfeasance was being exposed daily. The last case in point was Merill Lynch.

It is become increasingly clear that the present banking malfeasance is an unintended effect of recent changes in bank ratios. This encouraged sharp rises and paradoxically also falls in bank leverage (indebtedness). A return to old style banking would be the true disaster: it would curtail the world money supply disastrously.

Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S&P.

johnazzopardivella@hotmail.com