The Great Debate UK

from Breakingviews:

Jamie Dimon needs an even better post-crisis

Jamie Dimon needs an even better post-crisis. The JPMorgan boss runs one of the only major U.S. banks not to post a quarterly loss during the crash. And he has maneuvered his firm into a strong position to grow as the economy rebounds. But investors don't yet seem persuaded.

The shares have been stuck trading around book value, or assets less liabilities, since last summer. Put in perspective, that's not all bad. They had tumbled to less than half that in the depths of the crisis. But to price the bank now at only a fraction more than break-up value seems overly cautious. Another crisis outperformer, Wells Fargo, by comparison, trades at 1.4 times book.

The two lenders are more equal using another measure. Investors value Wells at 14.8 times this year's expected earnings, and JPMorgan at a multiple of 13.9. This still means, however, that Dimon's bank is getting no credit for a faster growth rate. Analysts reckon its net income should jump by a third this year compared with just 8 percent at Wells. Moreover, by 2011 JPMorgan could be earning twice what it did in 2009, and Wells 65 percent more.

At first glance, JPMorgan looks unfairly penalized. After all, both banks are heavily exposed to U.S. consumer loans. JPMorgan expects its credit card unit will lose as much as $2 billion in the first half of this year and that quarterly losses on its mortgage loans may be still higher than last year. Both banks also will lose income from legislation limiting credit card and overdraft charges -- perhaps as much as $1.25 billion for JPMorgan. And Dimon still sees a chance of a double-dip recession.

Whither UK economic policy?

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David Kuo-David Kuo is director at the Motley Fool. The opinions expressed are his own.-

The day of reckoning is looming ever closer.

Political leaders are jockeying for position with ad-hoc appearances here and a flesh-pressing engagements there to curry favour with voters ahead of the general election. How long will it be before we get our first baby-kissing photo opportunity?

But as yet, none of the main parties has told the electorate exactly how bad things are with the UK economy. Instead, they pussyfoot around difficult economic issues in the hope that if they don’t say anything, then maybe we won’t ask.

An alternative view of the crisis in Greece

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Mark Bolsom1-150x150.jpg-Mark Bolsom is the Head of the UK Trading Desk at Travelex, the world’s largest non-bank FX payments specialist. The opinions expressed are his own.-

Greece has been dominating the headlines lately with many commentators heavily criticising its burgeoning deficits and perceived threat to eurozone stability. But is such heavy criticism really justified, or are the Greeks simply being made scapegoats for systematic failings? After all, Greece did not cause the current financial crisis, but is instead one of the major victims.

Bankers’ bonuses: the fish stinks from the head

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copelandl- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

The awful thing about lynch mobs is they so often hang an innocent man, leaving the guilty totally untouched.  In the case of the banks, the danger is acute.  As I have already argued, hedge funds and private equity are being unfairly targeted, especially in Europe. But there is another, even less popular class which is likely to end up in the firing line, for no good reason and with consequences which could be damaging for all of us.

from The Great Debate:

Did Asperger’s help cause the crisis?

Did the financial system blow up because it was built and largely operated by people with many of the characteristics of a mild form of autism called Asperger's syndrome?

As explanations for the crisis go, it's on the extreme side but forms an interesting counterpoint to the "blame the looting bankers" story line.

from Breakingviews:

Four factors to determine bank returns

larsen.jpgWhat is an acceptable return on equity (ROE) for a bank? That question is likely to dominate the debate among executives, investors and regulators in the coming year. After the spectacular losses of the crash, there is no doubt that banks' future returns should be lower than the super-charged profits earned during the credit boom. But if ROEs fall too far, the consequences could be severe.

Returns are already on the way down: just look at Goldman Sachs. Between November 2007 and September 2009, the Wall Street bank's tangible common equity swelled by 74 percent. In 2007, its best-ever year, Goldman earned a 38 percent return on that equity. This year the bank is expected to report the second-highest profit figure in its history. But its ROE is likely to be just half its level of two years ago.

Residue of the Great Recession

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Drummond- Don Drummond is Chief Economist at TD Bank Financial Group. The opinions expressed are his own. -

The Great Recession is over in North America.  But repair will be a slow work in progress and great risks remain.  Many of these risks are centred on policy matters.  The recession shook our understanding of some policy matters to the core, leaving more questions than answers.

A year of austerity looms in 2010

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david-kuo_motley-foolthumbnail-David Kuo is director at the Motley Fool. The opinions expressed are his own.-

If you thought 2009 was as bad as things will get, then think again: 2010 could be worse. It is likely to be a year of enforced austerity with both the government and households making obligatory cuts to their budgets.

High on the government’s agenda will be reducing the Budget deficit, if the UK is to avoid the embarrassment of having its sovereign debt rating cut by rating agencies. This will have a knock-on effect on households, which could see their disposable incomes slashed by hikes in both direct and indirect taxes.

Time to discuss the future of banking

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New Peter Vicary Smith- Peter Vicary-Smith is the chief executive of Which? The opinions expressed are his own. -

Since the financial crisis in October 2008, a number of reports have looked at the causes and consequences of the crisis and suggested possible solutions, but they’ve all been written from the perspective of bankers.

2010: the year of fiscal clean up

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JaneFoley.JPG

- Jane Foley is research director at Forex.com. The opinions expressed are her own. -

At the height of the financial crisis few argued against the need for a huge fiscal and monetary policy response.  As a result the global economy has moved away from the precipice.  For many governments 2010 will bring a different kind of precipice, this will be the year in which many electorates will be made to start paying for their governments’ huge fiscal binges.

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