Commentaries

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Barclays’ yo-yo balance sheet

Talk about deleveraging. By far the most striking number in Barclays’ first-half profits concerns its balance sheet:

Our total assets decreased by £508bn to £1,545bn over the first half of 2009.

Given the stated desire by regulators – and investors – for banks to shrink their balance sheets, a 25 per cent reduction in total assets in the space of just six months has to be applauded, right?

Not so fast. While it is true that Barclays’ asset base has shrunk since last December, it’s still higher than it was a year ago, when total assets were £1,366bn. So all that has happened is that its balance sheet, which ballooned in the second half of last year, has shrunk to something approaching its former size.

It’s not entirely clear what is going on. When it reported full-year results in March, Barclays attributed the explosion in its balance sheet largely to the devaluation of sterling, which boosted the value of its giant dollar-denominated derivatives book.

What’s the California exchange rate?

The prospect of California issuing IOUs raises the intriguing prospect of a new, freely tradeable currency in the middle of the world’s principal single currency block. Clearly, the Cali will trade at a discount to the greenback, but how big should it be? Should there be a new Californian Monetary Authority to control the paper the state issues? And will the IOUs carry redemption dates where they can be converted into the real thing? This could be the start of something big…

Global market cross-currents, Fed in focus

With the big event for the week – the outcome of the Federal Reserve’s Federal Open Market Committee – not due until Wednesday, global markets are left to focus on number of cross currents that are weighing on the stocks and oil and bolstering government bonds and the dollar.

The World Bank, which warned that the prospects for global economy continued to be “unusually uncertain,” downwardly revised its 2009 outlooks for Japan,  the Euro Zone, and the United States. The organization expects global output to shrink by 2.9% this year , worse than an initial estimate of 1.7%.

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