Interim Reports Round-up: YIT, SRV ...

It's always worth to read what the construction company have to say in their interim report.

I would like to highlight that the sharp deterioration occurred sometime in October with all its consequences might not be fully reflected in those reports. So it shows a bad deterioration of the residential and commercial market, no surprise. In fact, this will get only worse in the quarter to come.

You have to understand that the housing market situation in the U.S., U.K., Ireland, Spain etc.. are worse than the one they experienced in 1990, in fact we have to go back in the late 70's to see similar phenomenon.

That is to say, that we will see a slump that will be well worse of the 2002 correction and could go as near as the 1990 slump maybe not as bad, let's say half as bad...but this can change depending on data we will get in the months to come. As some say : "for the best or the worse"

I let you read...


LEMMINKÄINEN CORPORATION

"In Finland the outlook has been weakened by a sharp decline in demand for housing as well as the cancellation of some already agreed commercial property deals due to financial difficulties experienced by the buyers.

In infrastructure construction full-year earnings will be depressed by increased input costs and the poor market situation in the Baltic States."

YIT

"In Finland, residential sales faced a downturn after the summer. In the Baltic countries construction has decreased considerably.

In Russia, tightening loan terms for companies made actors accelerate their residential sales; this stopped the increase in prices that had continued steadily for a long time. In the last few weeks, the residential sales in Russia have weakened considerably

We have taken measures to adjust our operations to the market outlook. We have decreased residential start-ups in Finland.

In Russia we made a decision after the review period to stop the construction of several residential projects whose sales have not yet begun.

Plot acquisitions and other investments have been stopped, and cost structure is resolutely being modified.

In addition to strengthening operational cash flow, the Group's financial position is secured with pension insurance company loans, among other things. The objective is to ensure the Group's operational resources if the weak market situation becomes prolonged"

SRV

"Finland's economy will decelerate, with growth expected to settle at around 2 per cent during the present year. The business cycles of the real estate market and construction have weakened significantly.
The housing market has taken a sharp turn for the worse due to high interest rates and slower economic growth. The number of unsold residences has grown.

The number of residential start-ups has decreased. In 2009, the construction of commercial premises and offices is expected to decline."

"Catastrophic" Consumer Confidence

(click for zooming)

"Consumers' confidence in the economy weakened clearly in October. The consumer confidence indicator stood at -0.2 in October, having been 8.1 in September and 8.7 in August. Confidence in the economy was also clearly weaker when compared with one year ago and with the long-term average."

"In October consumers did not consider the time at all favourable for making major purchases or raising a loan, and their plans for doing so decreased. Correspondingly, saving was considered especially worthwhile. Consumers predicted a roughly similar inflation rate for the next 12 months in October as in September." Statistics Finland


So Clearly we have level not seen since 1993... I suppose it's only the beginning, as we have not seen the worse. People are worrying amid a still begnin economical environment in Finland at a time when unemployment is still low.

From 2009 onward, we will clearly enter in very difficult waters. Unemployement will increase as weak or highly undebted company will go belly up. Financing cost will be higher, putting a break in expansion or making it very risky business.

So 2009 will be recessionary and could see a drop of more than 50% of housing sales.
One proof is one of the component of the consumer confidence, that says "Favourable time to raise a loan", and the answer is -47.1, which is a record low since 1995 and most probably approaching the 1992 real estate crash levels.

The strange thing, is in 1990 we had a finnish banking crisis...today we have a global banking crisis where all banks, the healthy or the sounds one, are affected directly or indirectly (cost of financing, stock market price, business prospect etc.... etc...)

But there is hope that Finland will manage through this crisis, without large damages - at least on the social front. The growth will be sluggish, but there will still be growth although not in all sectors, and for protracted period of time.

Finland has entered this crisis, somehow better prepared, compared to its Easter European peer. Finland doesn't have a deficit, therefore can ramp up public spending and it has already done so.

Finland is in the European Union, therefore shielded of sharp currency fluctuation with its european partner (although lately the Euro started to weaken agains almost all non european currencies -dollar, yen etc...)...the biggest difference is that they don't have to rise the interest rates in order to defend the currency as it was then in 1990 and as it is currently witnessed in Denmark, Hungary or earlier in Iceland....on the contrary, interest rates are going down and will go down next week when the ECB meets.

All in all, bank will lend less in the year to come at a higher margin and will require higher deposits for housing purchase. It clearly mean that the number of buyer will shrink if not disappear, especially if the economical situation deteriorate. The point here to make is that housing price will have to readjust to the new reality. By how much? About a year ago, I forecasted a 20-30% by 2010-2012. At that time I though it will be the maximum...now I see it as the minimum. Time have changed, so has the world...

PS: Back in February, I put forward 3 scenarios (Consumer Confidence Analysis Feb 2008)...it seems that the worse case scenario was realized a little bit earlier than I thought... :

3- The consumer confidence is on free fall, going much lower than the 2001 mild recession. Housing doesn't support any more economic growth instead become a drag. U.S. can't avert a recession and the Fed is struggling to stabilize the economy. It will take 3 years to start seeing good or near potential growth, it's a L shape recovery. Asia recouple with the economical issues seen in the US and Europe



To be compared with today figure ...

Housing Permit, 1990 replay?

"In January to August 2008, new building permits were granted for a total of 34 million cubic metres, which is 13 per cent less than in the corresponding period of the year before.

The cubic volume of residential building permits decreased by just under one-fifth and that of commercial and office building permits by one-fourth from January-August of the year before. Cubic volumes went down also in the other building types apart from public service buildings." Said Statistics Finland.

The building permit is dropping as fast as the stock market. One could say what is not falling? from confidence to stock market, all indicators are showing a fast, unseen, untested, undocumented and unpredictable deterioration of local and global economy.

One has to notice that the government has already taken action as if we were already in recession, trying to shift job losses from private construction sectors to the public one, with a 45% growth in public sector building. Indeed the tax money is here to smoothen the construction sector cycle. I would argue that, instead, they should focus on more forward looking investment ...

The gloomy view is reflected in the small and medium size enterprise :

"The Federation of Finnish Enterprises said in a statement Wednesday that its small and medium-sized enterprise (SME) outlook indicator had dropped to -12 points from +6 points returned by its previous poll, carried out in August.

Harri Hietala, an economist at the lobby, said the last time the SME indicator was below nil was during the early 1990s recession."

I think policy makers had a chance to solve the issues back in 2000 -2003, in order to cap the household debt burden, lower the bank leverage, slow down a crazy housing market and put a break in stock market speculation... The contrary happenned and today we see the results...

How To Turn "Gold" into Hashes

The VR (Finnish Railway) executive resigned in mass this week.

"Henri Kuitunen, VR's chief executives, and Antti Lagerroos, chairman of VR's board, resigned Tuesday, citing disagreements on the timing of equipment acquisitions as their reason for leaving."

Disagrement, so I though the "invisible" hand of the gorvernment was in action. For the worse or the worse...

What was the reason?

"The fully state owned Finnish Railways (VR) is to acquire 20 new double-decker sleeping carriages on top of its previous investment plan, the prime minister's office said in a statement Wednesday."

I suppose competent manager left a company run by the uncompetent state civil servant. Not surprising.
So the government is burning "tax money" to bail out some friends, somewhere in Kainu:

"A competition for tenders for the manufacture of the rolling stock is to take place, according to EU rules, but it is generally considered a foregone conclusion that the contract will go to the Kainuu-based Transtech."

Competition? you said; yes, one competing against itself under the government wing. That's the almost "Free Market", the Nordic version...

In the meantime the "canard" Financial Times, you know the famous business news paper, have the following to say:

"Some European governments are struggling to raise money in the bond markets because of the vast financial pledges that they have made to bail out their battered banking sectors.

Spain failed to launch a bond last week, while Belgium and Finland were having difficulty attracting investors for debt offerings after governments set aside billions to recapitalise their banks and guarantee their debt."

But what do Matti think about that?
"Matti Vanhanen (centre), the prime minister, dismissed the story as a canard."

How about KoKoomuus?

"Jyrki Katainen (cons), the finance minister, said Finland had had no trouble finding investors for debt offerings."

I guess the Financial Times (FT) could be right. The politicians are backward looking while the FT has a forward looking view... I understand as well that they are starting to use state pension fund to provide funding to struggling companies...so the ECB is not the last resort, it looks like it's the government... I guess they don't understand that the world has changed and the condition ex- ante will not come back due to the severity of the financial crisis. So no temporary patch should be used, the 1990 lesson are the wrong lessons in todays world. 1990 was a bump in a still growing global economy. Today we have a bump in global economy that is in free fall. The consequence are unknown and most probably will let a mark for generations to come.

Coming back to the Baltics, next year, the number of default will shoot up dramatically in the Baltics. This next wave of default could trigger a financial tsunami in the Nordic Banks. They will have to raise cash and fast. And that's the reason this week they passed a 50 billion Euro Guaranty package...

"The upper limit for state guarantees for bank financing is to be set at 50 billion euros, Finland's finance ministry said in a statement Monday. Due to the credit crunch, the state is prepared to give guarantees for three month to five year loans.

Peter Nyberg, director general of the ministry's financial markets department, said a maximum of four billion euros are to be reserved for capital injections. Finnish banks have so far not said they need capital injections."

So like a domino, one is falling after the other. Yesterday it was Iceland, today it's Hungary and tomorrow Estonia...who knows when will this stop?

Housing Price On Free Fall

"Prices for old dwellings have decreased markedly in Finland, the Central Federation of Finnish Real Estate Agencies (KVKL) said in a statement Wednesday.

At the end of September prices for two-room apartments had dropped 8.4 per cent from April, when they peaked after a long continuous rise.

The number of sales has also clearly decreased. In July-September 2008 there were 20 per cent fewer sales compared to the year-ago period.

The average price per square metre for old dwellings was 1,871 euros at the end of September, down from 2,043 euros in April.

The decrease has been even more marked in Helsinki and for larger apartments."

Lately, it seems almost fashion to bail out anything that fall or that is too big to fail, how about the housing market?

Bubble were the main characteristics of the past 20 years of economical Euphoria. From Stock market to housing bubble, it is now ending up with the bursting of the credit bubble. As some highlighted, we are simply running out of bubble...

Why housing price has to go higher and higher thus prone to speculation? after all, if one want to speculate, there are better places such as casinos or better the Stock Market... Obviously the collateral damage are mainly the young first time buyers, pushed by Euphoria and helped by smiling bankers, were willing to take heavy debt and for a very long period, for some until retirement...

"Finnish household debts have increased rapidly, Statistics Finland said in a statement on Wednesday. Last year total outstanding household debt was 80 per cent greater than in 2002.

The proportion of indebted households was highest in the 25-44 age group at 80 per cent. Slightly over one-half of them had housing loans.

They also had the largest loans: their total debt per indebted household was EUR 79,000 and their housing loan per household EUR 94,000.

The share of households with a housing loan does not diminish significantly until in the age group of over 55, and even two out of five of them still have housing loans"

Luckily, the credit crisis came on time to put an end to those silly development. A clear example was observed in Spain, where banks started to issue 50 years loan...a total non sense.

...in the meantime, you can clearly see uncompetence in daylight. Sometime you wonder if some minister didn't have to go to some kind of special training...

"Minister of Transport and Communications Anu Vehviläinen says that the government needs to consider tougher measures to pressure Russia into opening the Vaalimaa border crossing to car transport lorries..."

I can assure you that Russian lorries will have to be classified as an endanger species as they will totally vanish in the month if not days to come as the credit crisis is hitting hard the consumer. You see, In Russia, banks are not any more figthing for providing loans but are simply trying to survive...

How about "David and Goliath II", that's not the latest Hollywood or Bollywood movie but the latest headline on YLE:

"Finland and France are on collision course as the European Union summit begins in Brussels. Finland is willing to reject a French proposal on further processing of the EU's energy and climate package."

So if I summarize, Finland is rejecting a French proposal and is flexing its muscle against Russia...I guess they really deserve not to have any banking crisis, at least to reward their acute sense of humor...

Baltic Herrings

Here is what IMF Managing Director Dominique Strauss-Kahn told the World Bank and IMF development committee:

"Strauss-Kahn flagged dangers in Eastern Europe, where domestic banks have built up large negative net foreign positions through foreign parent banks, which are vulnerable to market sentiment because a large part of their funding is from wholesale markets.

Also, banks have become increasingly exposed to struggling real estate markets. They have not experienced a significant increase in loan losses so far, but have increased provisions for bad loans and may be forced to reduce credit growth if asset quality deteriorates sharply, he said.

The risk of such a scenario has risen, for instance, in the Baltics, where house prices and credit growth have fallen.

He said the combination of tightening credit markets, rising domestic interest rates and the global growth slowdown could increase the force of the credit squeeze and rising defaults to a larger number of emerging markets and some developing countries"

I have many time highlighted in this blog that if danger there is, it's coming from the baltics, where Banks and Nordic company overinvested or overextended. I wrote almost a year ago, in November 2007 that the trigger could be the Baltics : "Housing Slump, What Could Trigger It?..The Baltics"

The situation started to deteriorate well before the credit crisis as states were running big deficit and experiencing a very high inflation. Today, it's all bad luck for those country as they didn't enter in this crisis prepared or fit to fight what is a scary market, an unpredictable global financial crisis.

... in the meantime:

"Prime Minister Matti Vanhanen says that Finland does not need guarantees to the banking sector agreed upon by Eurozone leaders in Paris Sunday evening. Banks in Finland, he pointed out, are in good shape."

...and at the sametime:

"The Finnish Financial Supervision Authority (FSA) has approved raising the deposit guarantee limit for Icelandic bank Kaupþing in Finland, the FSA said in a statement Monday.

According to the FSA increasing the deposit guarantee would promote equal treatment of bank customers as it would raise Kaupþing's coverage from 25,000 to 50,000 euros, the same level as other banks."

... to be continued...

Can They Prevent An Economical "Disaster"?

I'm talking about the most powerful(?) country trying to revive the financial market that went into complete freeze last week. It's terrifying when the "patient" doesn't respond to any drug administered...

They have to act fast, any days if not minutes are crucial. Any wrong decision will have a lasting impact.

Finland can only watch and hope that they will do the right thing. "Thing" is the appropriate word as nobody knows, what it is. How to cure a patient that should have been treated a decade ago, but was let unchecked due to "stimulus" that pushed its system to the extreme.

2009 will be a terrible year no doubt. To be franc, I knew for long that 2009 would be a difficult year, but not to this degree... I was thinking that we would get something in between the 1990 and 2001 recession. Noticeably not as bad as the 90's but far worse than 2001. Today it seems that we are in an uncharted territory. Nobody knows how bad it will be and how long it will last...

"Mr Katainen added that he did not see the Finnish domestic market stalling provided consumers carried on spending."

They were excesses, no country has not had excesses. During those excesses you start to get erratic behaviours - ecological deterioration , destruction of vital resources, corruption rising, violence getting extreme. "We got it"... Somehow the economic woes, we are experiencing are somehow part of readjusting unsustainable growth amid increased greed and a massive wealth gap difference.

"The banks are largely responsible for the mess we're in, they have to be responsible for getting us out of it", Bini Smaghi, European Central Bank executive board member, told a group of businessmen in Washington today.

On top of that, you have banks, ran by ex-crooks, that need to deleverage. They need money. Nobody want to lend to them. So the only alternative for those banks to get the money is from the most liquid place: the Stock Market...

"The Finnish branch of Icelandic bank Kaupþing has asked the Finnish government to borrow it some cash to help pay back depositors, Mari Kiviniemi (centre), the Finnish minister in charge of financial supervision, said Friday."

Housing Sales ... Nose Dive

"Finnish builders' weekly Rakennuslehti on Thursday quoted a survey as indicating that the sales of new houses and flats, excluding the capital region, had plummeted by about 30 per cent since May.

According to the study carried out by STH group, the number of unsold new houses and flats has risen by about a quarter since the spring."

Kaupthing Finland

"Kaupthing Banki hf's Finnish operations are continuing as usual, a spokeswoman said, after Iceland's financial watchdog said on Thursday it was taking control of the banking group."

'Our operations in Finland are continuing as usual,' said a spokeswoman for Kaupthing in Finland. Iceland's financial watchdog said on Thursday it was taking control of the country's biggest bank Kaupthing, the third such takeover in a week, in order to safeguard the domestic banking system. "We believe that the clients in Finland will not face any losses due to this," the spokeswoman said.

Trading by Kaupthing was suspended on Helsinki bourse on Thursday before markets opened

About 10,500 Finnish customers have a total of about 88 million euros in Kaupþing accounts."

And another Icelandic bank nationalization... see Glitnir.

Update 1:
"Mari Kiviniemi, the minister responsible for financial authority in Finland, said it's still uncertain whether or not all Finnish customers will be able to get all of their money out of the Icelandic bank. She said that FIN-FSA is currently working on the matter.

FIN-FSA has also shutdown Kaupthing's online banking. Furthermore customers cannot currently withdraw their money from the bank. The agency has also dispatched one of its representatives to the Finnish branch of the bank."

Update 2:
"LAROX'S MARKET MAKING PARTNER

Kaupthing Bank Oyj has informed Larox Corporation that they have asked Helsinki Stock Exchange to interrupt the trading of Kaupthing Bank shares and due to that Kaupthing Bank has stopped their market making services for the time being.

Larox Corporation and Kaupthing Bank Oyj have a valid market making
agreement, which fulfils the requirements of Helsinki Stock Exchange's LP operation. The market making agreement aims at facilitating e.g. private investors´ trading, increasing the share's liquidity and decreasing the share price volatility."

Update 3:
"Norvestia har totalt 1,6 miljoner euro i bankdepositioner hos Kaupthing Bank. Utöver depositionerna har Norvestia inga övriga fordringar från Kaupthing Bank koncernen."

Translation Welcomed ;->, although readable. I understand that in 2003, Kaupthing Bunadarbanki hf acquired majority stake in Norvestia Oyj from Nordic Business ( Kaupthing Bunadarbanki buys 54.44% of votes and 30.35% of shares in Norvestia).

World Soundest Banks

"Canada has the world's soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets.

But Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after a 50 billion pound ($86.5 billion) pledge this week by the government to bolster bank balance sheets.

The United States, where some of Wall Street's biggest financial names have collapsed in recent weeks, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.

The World Economic Forum's Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets)."

RANKINGS

1. Canada
2. Sweden
3. Luxembourg
4. Australia
5. Denmark
6. Netherlands
7. Belgium
8. New Zealand
9. Ireland
10. Malta

11. Hong Kong
12. Finland
13. Singapore
14. Norway
15. South Africa
16. Switzerland
17. Namibia
18. Chile
19. France
20. Spain
...
39 Germany
40 U.S.
...
9999999999999999999 Iceland

Co-ordinated Interest Rates Cut

"The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented, emergency coordinated bid to ease the economic effects of the financial crisis.

The Fed cut its benchmark rate by a half point to 1.5 percent, the central bank in a statement. The ECB and central banks of the U.K., Canada, Sweden and Switzerland are also reducing rates, the Fed said in a statement.

``The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,'' according to a joint statement by the central banks. ``Some easing of global monetary conditions is therefore warranted.''


As I told last Friday, see article "ECB to Cut Rate...Pretty Soon. ":

In reality, I wouldn't be surprise to see both the US, UK and the ECB cutting rate all at the same time, maybe even as early as next week...in order to shock the market. A bit like a patient that has had an heart attack...the credit market needs an electrical shock to bring it back to life.

Well it happenned...it just highlight the gravity of the situation.

"The Governing Council of the ECB, by means of teleconferencing, has taken the following monetary policy decisions:

The minimum bid rate on the main refinancing operations of the Eurosystem will be reduced by 50 basis points to 3.75 %, with effect from the main refinancing operation to be settled on 15 October 2008.

The interest rate on the marginal lending facility will be reduced by 50 basis points to 4.75 %, with immediate effect.

The interest rate on the deposit facility will be reduced by 50 basis points to 2.75 %, with immediate effect.

In the euro area, upside inflationary risks have recently decreased further. It remains imperative to avoid broad-based second-round effects in price and wage-setting. Keeping inflation expectations firmly anchored in line with our objective and securing price stability in the medium term will support sustainable growth and employment and contribute to financial stability.

Information on the actions taken by the other central banks is available at the following websites:

Bank of Canada: www.bank-banque-canada.ca
Bank of England: www.bankofengland.co.uk
Federal Reserve Board: www.federalreserve.org
Sveriges Riksbank: www.riksbank.com
Swiss National Bank: www.snb.ch
Bank of Japan: www.boj.or.jp"

I suppose this is only the beginning, the rate cut will continue well in 2009 to reach a low in 2010. Stock markets will rebound to only resume their downward trend until reaching bottom in 2010 . House price will fall until 2011 to stabilize after a loss of 10% to 30%. Let's not call that a bubble but just a normalization.

Glitnir Finland

"Iceland's bank Glitnir intends to sell its holdings in Glitnir Finland, the Finnish subsidiary said in a statement on Wednesday."

"Glitnir banki h.f. is carefully examining options to divest Glitnir Finland and sees it is in all parties' interests if by ownership change Glitnir FInland could confirm its status as a separate legal entity in Finland"

Who is going to buy Glitnir? Pohjola? Nordea?

"Carnage" On The Stock Market

As I have highlighted in previous article, the deleveraging process has started. Banks, Companies and others have to sell their holding to pay off their debt. They cannot take more debt to pay off debt. The illusion time has come to an end.

What is painful, it's the synchronization of the fall with the global slowdown.

How far can the stock market fall? could it go as low as in 2003 or even lower? we can't rule it out. Remember in 2003, the financial system was still in good shape and household were still heavily borrowing for purchasing house, cars, gadgets... Bankers were still smiling.

Today it's different.

The financial system has had an heart attack. House prices have soared to level incompatible with future earning and employment growth.

Interest rates will come down, but banks will not lend as before as they have been hardly hit by the crisis through lower stock market and higher margins. The impact will be that the amount of loan for house purchase will be below average and interest margin will be higher. This will prolong the downturn on the housing market until the financial system, worldwide become healthy and sound. It will take time, a decade? one cannot rule that...Bankers are not smiling any more.

Unfortunately, Finland has come in this downturn with highly indebted consumers albeit with budget surplus. As highlighted by the Bank Of Finland and the ministry of Finance, should the consumer start saving then matter will get worse. I think consumers will start saving, especially if unemployment rise, house price and stock market fall...

But will come a time - 2-5 years? -, when birds will resume singing and bankers will get back their trademark smile, then nobody will remember about the financial crisis...it will then be "business as usual".

Update 1:
Let's learn some vocabulary: London Stocks Fall 7%, Germany Sinks 8%, Paris Tumbles 8%, Helsinki nosedive 6% by Mid day -08.10.2008

Will Finland Guarantee All Saving accounts?

"The German government says it will guarantee all private savings accounts.

Finance Ministry spokesman Torsten Albig says the decision to guarantee the savings deposits represents a new direction in actions to help stabilize the economy.

Chancellor Angela Merkel, said: “We want to tell people that their savings are safe”. The previous scheme had guaranteed 90% of all bank deposits but only up to EUR 20,000 per account instead. Now, They will provide a guarantee on all EUR 568 Bn sitting in private accounts in Germany"

Ireland, Greece and now Germany....who's next? who will start providing all guarantee to their citizen deposits? France, Sweden, Finland?...

The worrying part in Finland, I would say, is about the share of Foreign Banks, namely Nordea (Sweden) and Sampo (Denmark) and their involvement in the Baltics. Please, note that I have no access to their Balance sheet and I have no clue whatsoever about the health of this two banks. But you see when I see Germany going into those difficulties, a country with very high saving (the highest in Europe), and with a housing market that has not moved since 1990, it's a bit worrying...

I guess they will step in when a bank will show "great" difficulties, so let's allow them to cross fingers and touch wood in the meantime...Hoping that the crisis is not spreading to the Nordic countries. Maybe the crisis doesn't like cold?

The guaranty is about 25.000 euro, why don't they increase it, at least to reflect the inflation we have had to endure in the past few years? For more information about the guarantee, see this article where I highlighted the issue in November 2007 -indeed, that's the first thing I checked the when the crisis started to get more serious from its first appearance in August 2007.

How about the Finance Minister? Why Katainen is waiting to make reassuring announcement? After all there are lots of savers worrying...

"Presumable fearing a flood of funds across it’s borders into Germany, the Danish government swiftly moved to guarantee all the deposits in its system while Austria intimated that it was considering a similar move. Meanwhile the UK and French governments rushed to find out the details of the deal. By this morning pressure was coming on to the UK government to introduce a similar scheme"

What would happen if suddenly, funds were to move to Sweden or Danmark. I'm wondering if then Nordea and Sampo are then providing, as of today, higher protection than Finnish banks. So should they act to at least increase the protection to level similar to the Sweds or Dans, otherwise they could be a run on Finish banks i.e Aktia, OP etc.. But as shown in Update 2 (see below), Bank Of Finland is not hinting that such move is imminent. It could be, after all, that highly indebted consumers/savers don't have more than 25.000 euro...and the one who have more, have already made a move a long time ago, no?

humm Katainen looks busy preparing the municipal election by trumping the "tax cut" elements. Although, He has changed his view on how the economy will unfold in the next years or so... a U-turn compared to very near past comments. He was overly optimistic while the global financial system was breaking apart -they clearly didn't understand what was at stake-

"Finance Minister Jyrki Katainen has warned that budget cuts may be necessary if the economy slumps further than expected.

Interviewed on YLE television on Saturday morning, Katainen noted that there are many budgetary stimulus measures that could be taken, including further tax cuts. If stimulus moves are insufficient, he said, the government will take on more debt and/or cut expenditures."

Update 1:
"The Swedish government said Monday it will raise the limit for deposit insurance to 500,000 kronor (US$71,000) in a move to retain confidence in the country's banks.

Sweden previously had a deposit insurance for savings of up to 250,000 (US$35,500) kronor.

The widened deposit insurance will cover easy-access savings as well as those locked for a longer time."

So Sweden is now following the move I was highlighting with regard to deposit level. It is going to put pressure on Finland and should/must follow suite...unless they are sleeping and do not understand what is currently happening...the more they wait the more dramatic the consequence will be.

They (Finance Minister) have denied the extend of the slowdown and now are behind the curve in term of policies or stimulus. Older framework that were valid in old good time, are not any more. Time has changed so should policy. As Usual we will see reactivity instead of Pro activity, something that will cost in the medium to longer term.

Update 2 :
"Finnish banks have weathered the financial sector crisis well so far, the Bank of Finland said on Monday, adding that the situation remained difficult in the money and wholesale money markets. "The profitability and liquidity of the Finnish banking system are at a good level," the Bank of Finland said in a statement"

So BOF seem still very positive. Since 60% of Banks in Finland are owned by foreigners i.e Sampo and Nordea, I'm not sure if BOF is talking about the 40% remaining?

Update 3:
Finally, Mr Katainen agreed to raise the limit.
"7.10.2008 at 16:01

Jyrki Katainen , the Finnish finance minister, said at an EU finance ministers' meeting in Luxembourg on Tuesday that Finland would raise its deposit guarantee limit to the new minimum of 50,000 euros agreed on by the ministers.

Mr Katainen added the doubling of the limit, to be put into effect on Wednesday, was a temporary measure."

ECB to Cut Rate...Pretty Soon.

"European Central Bank President Jean- Claude Trichet indicated the bank is poised to cut interest rates for the first time in more than five years as the credit crunch hurts the economy and damps inflation.

Investors are betting the ECB will lower borrowing costs as soon as next month after Trichet told a press conference in Frankfurt that policy makers discussed a rate reduction today. While leaving the benchmark at a seven-year high of 4.25 percent, Trichet said financial-market turmoil is damping economic growth and inflation risks 'have diminished.' "

It should come as surprise to readers that the global economy is sharply slowing with many economies in recession or about to enter a recession.

In reality, I wouldn't be surprise to see both the US, UK and the ECB cutting rate all at the same time, maybe even as early as next week...in order to shock the market. A bit like a patient that has had an heart attack...the credit market needs an electrical shock to bring it back to life.

The credit market is not functioning at about the end of the economical cycle, making the slump even worse than the mild recession of 2001. The U.S. they are trying to avert a depression without being able to avoid a deep recession.

The impact is global with the emerging market being hit the most.

China will have to fight with their social stability while the US and Europe will be batling with rescuing their financial stability.

Russia is batting its worst financial and economical slump. The country financial system is too young and not mature enough to respond fast and adequately amid massive foreign reserves.

To conclude, in memory this is the worse I have seen since 30 years ago, back in the late 70's...

Would I want to buy in this environment?
Yes, if you don't trust the ECB and the Euro and believe that we are going into an inflationnary spirale.
No, You think that deflation has started and price in all asset class will fall in the next few years to come. So why buying now when you can buy more tommorow?

Will The Irish Bring the Euro Down?

"Irish lawmakers passed a controversial emergency law guaranteeing bank deposits Thursday, despite protests that the move gives its financial sector a competitive advantage over neighbouring countries.

The guarantee, estimated to be worth over 400 billion euros (563 billion dollars), safeguards retail and commercial deposits, as well as bonds, for two years. It is designed to protect Irish banks amid the global economic turmoil."


What the French are saying:

"Ms Lagarde - French Finance Minister - said "a measure decided in one [European Union] member state has to be shared in advance with other member states".

"Because when something happens in one member state it affects everybody else around, so there needs to be that level of cross-sharing of information," she added."

So Ireland is passing a bill that is about two times GDP! Why did they do that? because suddenly the credit default swaps (CDS) went to the roof in the past few days. CDS are financial contracts conceived to protect bondholders against default.
In a nutshell, the risk of debt defaulting of Ireland suddenly became greater than the one of Mc Donald... We are currently witnessing something very dangerous.

Some are pointing out the finger on the over leveraged financial institution, highlighting the fact that the trigger was the abolition by the American congress of the Glass Steagal act

"The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, some of which were designed to control speculation.

Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act, which passed in Congress with a 343-86 vote in the House of Representatives"

So we will have to come back to a period where leverage will slowly disappear. It will as well mean that the recovery will not be as phenomenal as in the past. So do not expect stock market return of over 20 % per year or house price going to the roof as they did in the past decade and a half.

Deleveraging might have to be painful but cannot be avoided.

The policy makers cannot avoid what will be a deeper recession that the one in 2001. All they could do is to avert a depression, how they are going to do that? we will know it in the next few months to come and how they respond to market stress...

The reason why the Bill didn't pass the first Round

"The U.S. Senate approved tax cuts valued at more than $100 billion, including a host of alternative energy credits and dozens of breaks for businesses and individuals, as part of its $700 billion bank rescue bill."

No Comment.

Volatility

It's not only stock market or currency exchange that are volatile...here is the proof... Mr Katainen in action :

01.10.2008 : "It may be that unemployment will rise in Finland. However, I do not believe in mass unemployment..." as reported by HS

23.09.2008 : "The finance ministry had said in its latest outlook it expected the country´s unemployment rate to fall." as reported by YLE

Please see the "Alice in wonderland" syndrome... for more information.

Drawdown of Housing Loans... On Free Fall

"In August 2008, households drew new housing loans to a total value of EUR 1.6 billion, compared to EUR 1.7 billion in July. Drawdowns of housing loans have not been below this amount since 2004."

According to Bank Of Finland, the number of drawdown of housing loan is the lowest since 2004.
This clearly show a turn in the cyclical housing market. This usually indicate a future fall in prices.

I could not stress even more, and even warn people, to be very carefull before taking a bridge loan i.e sell your house first then buy a new one. That what the Finnish call "the two house trap".
If you are in this situation, don't count on bank to renegotiate your bridge loan, as Bank are afraid that since house price will fall futher, it will only increase their losses...

What is a bridge loan?

A bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing.

Bridge loans on a property are typically paid back when the property is sold.

The trap?

Is the fact that You cannot sell your property, because of a downturn in the housing market, then you are unable to pay back this temporary loan. The bank has no choice but to take over your assets and sell them in order to get back its money. Bank are here to be profitable, they are not charity...people should remember that!

Russia's Credit Crunch

"Moscow's decade-long building boom is falling victim to the global credit crunch as record high interest rates squeeze developers in the world's third-most expensive property market

Investors should ``steer clear'' of Russian real-estate stocks including PIK Group and Sistema-Hals because the industry will be the country's ``hardest hit'' in the event of a global recession, JPMorgan Chase & Co. said in a note to investors Sept. 29.

Higher borrowing costs already are crimping demand for apartments, said Oleg Repchenko, head of Real Estate Market Indicators. Prices may fall in the fourth quarter and in 2009 post the first decline in 11 years, according to the Moscow-based research group. The decline may reach as much as 30 percent for some types of apartments by the end of 2009, Repchenko said.

PIK, the Russian developer with the biggest market value, has lost 79 percent of its market value since an initial public offering in June 2007. OAO Open Investment, the country's second- largest publicly traded property company, has declined by 52 percent this year. LSR Group, the Russian developer and building- materials maker controlled by billionaire Andrei Molchanov, has fallen 64 percent."

Housing is cyclical. The cause that makes the cycle to reverse is always different.

Who would have thought that the U.S. would be the weakest link at the end of this decade? I guess nobody, that's the reason why credit risks were misplaced. So banks are falling like dominos while many are getting nationalized. This will continue for the time being...

Here is a view of the Russian Central Bank:

"Global financial crisis will last another 15 months and external debt financing in that period will be difficult, "if not impossible," the first deputy head of the Russian central bank said on Wednesday."