Mark Micallef
Experts say Malta will weather financial storm
Traders work on the floor of the New York Stock Exchange. Stocks rose at the opening of trade yesterday, clawing back from Wall Street's worst slide in more than 20 years, as investors bet that Washington will work to revive a plan to stabilise the US financial system.
Financial analysts say Malta may have to strap itself in for a bumpy ride on the economic front but the financial system should be able to weather the prevailing international upheaval with relative ease.
The turmoil is expected to usher in a global economic recession, which will hit Europe and inevitably impact Malta negatively. However, financial experts in Malta seem to concur that local banks and the financial system in general are in a position to withstand the current crisis without any major hang ups.
The cautious confidence comes as global stock markets again spun into chaos yesterday following the decision by the US Congress to reject the $700 billion bailout package for Wall Street, the biggest since the Great Depression.
The sentiment was reflected, even if less dramatically, on the Malta Stock Exchange where banks, particularly, lost share value. Corinthia Finance plc saw €0.50 shaved off its share price but the dip only represents 0.5 per cent of the price quoted on Monday.
Bank of Valletta, on the other hand, lost €0.20 on its previously quoted price of €4.20, HSBC lost €0.15, closing at €3.11, while Lombard Bank lost just under €0.5, ending yesterday's trading session at €3.
Still, financial adviser Alfred Mifsud says the Maltese financial system has weathered global recessions in the past and is well positioned to do so this time round.
"Malta is obviously part of the world and we will feel the pinch on the economic and financial front but, while economically it may be too early to say what the damage will be, from the financial point of view the effects will mostly be felt on the investments which the Maltese have in the international financial markets," he said.
From the perspective of the local financial institutions, there is no "major default suggesting that this is something which will not pass," he added.
The biggest problems in this respect will be faced by the big banks, which have large investment portfolios.
However, the word problem, Mr Mifsud was keen to point out, is taken to mean that the banks' profits are going to suffer from the crisis and not that they face any real major threat to their operation.
In the same vein, Finance Minister Tonio Fenech reiterated in Parliament last night (see page 13) that the analysis carried by the regulatory authorities shows that the banks are in a relatively safe position.
Their investments are in stocks and bonds of financial institutions which have good ratings, he said, adding that both banks have a policy of diversification that safeguards them from major losses as a result of single institution crashes such as the recent bankruptcy of banking giant Lehman Brothers.
BoV, in fact, was exposed to the Lehman crash but The Times reported last Thursday that the investment in the financial giant only represented 0.5 per cent of BoV's portfolio. When contacted by The Times, a bank spokesman did not deny the report, implicitly confirming it.
Edward Rizzo, from Rizzo and Farrugia Stockbrokers, says that, while the timing is bad for BoV, which is expected to post this year's results by the end of October, the long-term outlook is that this should be no more than a blip for the bank and the financial system in general.
Most of the losses on the stocks and bonds held by the banks internationally will be paper losses on investments that have taken a dip as a result of international uncertainty.
In the long run, unless the international institutions in question go bankrupt, the banks' investment will be recouped in full, Mr Farrugia said.
Economic analyst John Cassar White concurs with the forecast regarding the financial sector but warns that the economic impact is likely to be very significant. "My worry is that people who are not into the international financial markets may not realise how serious this situation is," he said.
The slump in global confidence is likely to usher in a long recession faster in Europe, which will not spare Malta's open economy.
That is likely to affect the country's exports and tourism but, at the same time, consumption internally is likely to be affected from dwindling confidence and from investors who would have lost money on the international market over the past months, Mr Cassar White added.
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17 Comments
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susan galea
Oct 2nd 2008, 21:38
Mizzi J - Lloyds has not taken over HBOS. Looking quite hopeful that it may;but you are wrong to say it has.
Joe Vella
Oct 2nd 2008, 09:46
@ Mizzi J
In regards to Fact 2 I was refering to HSBC Malta, My understanding it is locally incorporated and regulated. If so it it is deemed to be a legal entity on its' own right, What I suggested was if this is the case HSBC Malta would not have any direct impact as the result of the sub prime crises; unless HSBC Malta purchased these instruments on the international money markets.
Ambrose Muscat
Oct 2nd 2008, 05:50
HSBC Malta is indeed locally incorporated and regulated and further its shares are listed on the local exchange. If anything it is one of the jewels in HSBC Holdings' crown and its results have more than kept up with, and often exceeded, those of the group's other operations. There is simply no comparison with HSBC's experience in North America. As for the recent bond issue hats off to the bank for securing a considerable amount of funds at such a discounted coupon when the ECB short term interbank rates are hovering around the 5% mark. I count myself amongst those who are confident that our banking system will weather the storm pretty much unscathed. In due course, unless there is a severe drop in domestic economic activity we should also see the local banks' share prices recover in line with their results as their holdings of toxic assets are negligable. It is true that credit has encouraged the public to live beyond their means but then again no bank has ever forced credit on anyone at gunpoint. It is merely a question of financial maturity. Wishing doom on the banks is never a good idea...
Paul Xuereb
Oct 2nd 2008, 05:38
Well, i think Malta will be effected with the Global crisis. Were a country that so dependent on foreign investment that it is going to hit us for sure. I don't believe it is going to be that bad in Malta because banks are more regulated than the US.
Paul Smith
Oct 1st 2008, 22:29
some good points JMizzi
but i chose precious metals as a store of wealth, at least it is tangible.
Secondly, without collapse there cannot be a new beginning, this crisis was inevitable, unless we gain a basic grasp of the fact that GDP growth is linked essentially to total energy used to create that growth, then we dont even begin to address the wider issues.
I remain convinced that the global financial market of debt based money issued by Private banks is finished.
www.kitco.com
Mizzi J
Oct 1st 2008, 22:00
@Joe Vella
Fact 1 - HSBC has not taken over any banks. I am not sure if you are jumbling up HSBC with HBOS in Britain which has been taken over by Lloyds TSB.
Fact 2 - HSBC was not imune to the sub-prime crisis.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2785345/Sub-prime-sours-HSBC%27s-Eastern-promise.html
At the least, there was a market contraction of the mortgage sector. Testimony to the fact is the shedding of 1,100 jobs worldwide (mostly in London) that the HSBC group has in program.
@Paul Smith
Auguring a collapse of the banking system is the not most sensible of ideas. I think it is short term and to say the least a bit creepy. If banks do really go under and the system breaks, you and me are bound to suffer. I would not entertain the thought of people loosing their hard earned life savings. It would not make you the most popular guy in town. It would more suitable to ask the fat cats with the big bonuses to step up to their responsibility, issuing sensible regulation and more transperancy in the system.
Paul Smith
Oct 1st 2008, 19:22
The only thing keeping HSBC above water is there large far east deposit base, they actually have a high reserve ratio to loans, but what will happen now is ability to pay those loans mainly in the UK as unemployment sky rockets - then HSBC's prime mortgage book as well as it's credit card and loan books begin to deteriorate as those loans become defaults.
The banking system is broken and i hope it fails, the system has been created to perpetually enslave people in debt, banks have been given a license to steal peoples money, to practice usury and to ruin life's
we need global monetary reform.
Joe Vella
Oct 1st 2008, 18:28
@ l.HSBC
YES HSBC Malta is part of HSBC Global Group. But as far as I understand HSBC Malta is locally incorporated and regulated. HSBC Malta should not be effected if the HSBC get hit. Also, so far, HSBC Group have not been effected and if I am not mistaked they have taken over one of the troubled banks. Signs that indicates that HSBC was not caught up in the sub prime crises.
Paul Smith
Oct 1st 2008, 18:26
Joe vella
all money is created as debt in the form of loans and mortgages and then destroyed when it has been re-paid. Banks rely on deposits to operate there fractional reserve debt based banking system. The whole system is not sustainable because in order for the system to work we must keep on consuming and using up the planets resources at a faster and faster rate so we can earn and pay back the debt created money.
Simply madness, the whole system is doomed to failure.
l Galea
Oct 1st 2008, 16:52
@Joe Vella
What about HSBC?
It said that its bonds issue was to be used in Malta?
Short of cash?
Joe Vella
Oct 1st 2008, 14:07
If all you have commented below knows what is really behind the present financial crises you should know that the practise of sub prime mortgages, also known as non conforming mortgages, is not a practise here in Malta.
The only way that Maltese banks could be effected by the sub prime issue if they had bought thiese repackaged instruments on hte International money markets. BOV in the last week have issued a statement where it confirmed that it is indeed holding a very insignificant amount of sub prime instruments in its' portfolio. I believe the percentage that BOV said was holding amounted to 0.05% of it's portfolio.
Jason Dimech
Oct 1st 2008, 13:15
The only comment that makes sense is that voiced by Mr John Cassar White....quote ' how serious the situation IS..unquote..not WAS...We are in the middle of a big mess, which will continue to haunt us for quite sometime. Tell those people who had money put in direct investments in those financial institutions which are no more.....and now have been left licking their wounds.
l Galea
Oct 1st 2008, 12:15
@Paul Smith
I cannot agree more with your comment.
The worst decision that was ever taken was when it was decided to remove the link between the currencies and the gold standard.
And this decision was taken by EGGSPERTS!
P.S. Stockbrokers and banks are not playing with THEIR money, but with YOUR'S
I Cassar
Oct 1st 2008, 12:03
Experts should declare their interest before commenting. If the sentiment is negative they would be out of business before the storm hits us. Rather then giving us a a false sense of comfort they better tell us, how we can weather the storm if worst comes to the worst.
God Help us all!
Paul Smith
Oct 1st 2008, 11:03
experts said that the global financial system was sound, experts said that all the broke investment banks where sound.
Experts in Britain said we where best suited to weather the crisis, experts said house prices only every go up.
Bottom line: There are no experts and the global financial system is broken. Private banks should not be allowed to issue money - the debt based financial system has eaten itself.
what we need now is a real reserve currency backed by gold and silver or a basket of commodities.
l Galea
Oct 1st 2008, 11:00
I hope they are really experts and not eggsperts.
Karl Abela
Oct 1st 2008, 08:58
Malta....so small and yet so strong!!!