Rabu, 6 November 2013

The Star Online: Business

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The Star Online: Business

Wall St bonuses to rise 5%-10%


NEW YORK: Wall Street's biggest risk-takers – its bond traders – will probably see their bonuses drop this year, while people in safer roles, such as money managers, will likely get a boost, according to a forecast by compensation consulting firm Johnson Associates.

Overall, it said, individual Wall Street bonuses may rise 5%-10%, on average, compared with last year, as the industry continues its halting recovery from the 2007-2009 financial crisis.

Top executives of Wall Street firms will see bonuses rise by as much as 5%, Johnson Associates said.

But Alan Johnson, who heads the firm, said there is a wide disparity in payouts among business lines. The bonus spectrum reflects new priorities for Wall Street as much as market conditions, he said.

Employees in low-risk, fee-heavy businesses such as asset management and retail brokerages will probably see bonuses rise by 15% or more, while those in the volatile and risk-heavy business of fixed-income trading are expected to see bonuses decline by the same amount, according to the forecasts.

The declining fortunes of bond traders, once dubbed "Masters of the Universe" at investment banks, and the rising fortunes of wealth managers show how Wall Street is changing after the financial crisis, Johnson noted.

Banks are also emphasising businesses that put little money at risk and deliver steady profits, while exiting areas of trading that require a lot of capital and can lead to big swings in the firms' profits and losses, he added.

"From a regulator's perspective, that's what you want," said Johnson. "You want the banks to be in client businesses that use other people's money so that they're not too dependent on trading."

Rising stock markets and weakening fixed-income markets have also been a factor in helping retail brokers and hurting bond traders, Johnson said.

Banks including Goldman Sachs Group Inc, Morgan Stanley, Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co reported weak fixed-income trading results last quarter. Some also said they set aside much less cash for compensation in their Wall Street businesses, indicating that fewer dollars of revenue will be spent on employees this year.

Banks have cut thousands of jobs over the past three years, with a particular focus on high-earners, Johnson said. That has allowed them to boost bonuses to mid-level employees without increasing overall compensation costs dramatically.

"When the number of people who make a lot goes down, it really moves the needle," he said.


Employees in investment banking underwriting roles will likely see bonuses rise by 10%-15%, according to Johnson's forecasts. Those in prime brokerage and private equity will likely see bonuses rise by 5% to 10%, while equities traders and hedge fund employees will likely see bonuses rise by 5% to 15%.

Commercial and retail bankers will get bonuses in a range between flat and 5%.

The only employees apart from fixed-income traders who are likely to face bonus cuts are investment bankers who work on merger deals, Johnson Associates said. Those bankers will probably see bonuses drop by 5% to 10%.

Johnson's forecasts are based on a survey of eight of the largest banks and 10 of the largest asset-management firms in the US.

While 2014 forecasts are preliminary, Johnson expects gradual improvement across many business lines, with strategic hiring in the US and aggressive hiring abroad where companies are expanding or shifting operations – Reuters. 

Toyota bounty shows Abenomics snags


TOKYO: Toyota's sparkling earnings show how Abenomics may be good for Japanese companies now, but perhaps a bust for investing in Japan over the long term.

Toyota, the world's biggest carmaker, reported a 70% jump in profits last quarter, as it got a boost from this year's 12% drop in the yen against the dollar.

A look under the hood, however, shows that Toyota's gains may not translate into the sustained expansion Japan hopes Abenomics will spark. Named after Prime Minister Shinzo Abe, Abenomics is an attempt to use government spending, radical monetary policy and competitive reform to finally rescue Japan from a 20-year-plus slump.

The first step was to hammer the yen lower, making Japanese exporters more globally competitive. A weaker yen has helped Toyota, but not perhaps in the way policymakers want.

Two things have to happen for Abenomics to succeed. First, external demand prompted by a weaker yen needs to drive a self-sustaining consumer expansion. That requires wage gains.

Second, companies need to invest and expand, using a new pricing advantage from the yen to build volume, not simply to make more money on every car sold.

On the evidence thus far, neither of the two needed things is happening or is likely to happen.

Consider Toyota. While profits are up 70%, most of the focus is on increasing margins, with capital expenditure forecast to rise just 2%, and R&D forecast to stay the same.

That's hardly the massive expansion Japan needs.

And while Toyota, and others, have indicated a willingness to boost wages in the future if profits continue to roll in, thus far they've been far more likely to hand out bonuses rather than make permanent increases in their fixed costs.

It looks very much, in other words, as if Toyota, likely many other companies, is happy to increase profit margins but not take on the risks of paying more and expanding rapidly. Given the history of the auto industry and Japan itself, it is hard to blame them.

Japanese workers, having lived through the past 20 years, are understandably wary about increasing spending permanently based on a one-off bonus.

And while Abe said in October that higher wages were "vital" and has used various forums to pressure companies, even corporate tax cuts haven't had much of an effect. A recent Reuters corporate survey found that only 5% of respondents would use additional savings to raise wages.


This leaves Japanese workers in a difficult bind. Prices are rising at last, at least a bit, but wages not so much.

Core consumer prices, which include oil products but not fresh food, rose 0.7% in the year to September. Even so-called "core-core" prices, which excludes both food and energy, were flat – the first time since 2008 that they have not fallen.

While that might seem like cause for rejoicing, wages have been stagnant. Salaries are in their longest slide since 2010, with regular wages excluding overtime and bonuses down 0.3% in September. Total cash earnings rose 0.1%.

Minutes of the Bank of Japan's October meeting, recently released, showed some disquiet over the pace of wage gains, with one member noting that sustained gains might not appear before the annual wage negotiation round next April. Except then a consumption tax will increase by 3 percentage points, almost certainly more than swamping any wage increases.

The fear, of course, is that consumers won't consume, and when next April's consumption tax comes along, Japan will drift back into deflation and recession. And remember, Japan, as a country with very large debts and a demographic downward path, needs inflation.

Only inflation, and genuine growth, will allow it to manage its debts over the longer term.

Here again we have a great example of how extraordinary monetary policy creates risks for everyone while handing out what may be short-term benefits disproportionately to the wealthy.

The Nikkei 225 stock index is up by a third this year, and by 50% over the past year. Profits among exporters are, by and large, growing quite well.

Even those gains may prove to be short-lived, and taking a five-year view, investors would be wise to be very cautious about the future of Abenomics and Japanese assets – Reuters. 

Daibochi climbs on strong earnings, CIMB Research upgrade


KUALA LUMPUR: Shares of Daibochi Plastic & Packaging rose to a high of RM3.77 in late Thursday morning trade, spurred by its strong earnings and upgrade by CIMB Equities Research.

At 11.02am, it was up 12 sen to RM3.77 in thin trade with 23,100 shares done.

The FBM KLCI fell 2.22 points to 1,800.83. Turnover was 686.38 million shares valued at RM500mil. There were 252 gainers, 288 losers and 279 counters unchanged.

The flexible packaging solutions provider posted a net profit of RM7.4mil for the third quarter ended Sept 30, up 7% from RM6.9mil a year ago. Revenue for the quarter increased 33% to RM87mil from RM65.7mil.

CIMB Research has raised the target price for of Daibochi Plastic & Packaging from RM3.68 to RM4.19.

It maintained its FY14-16 EPS forecasts but raised its target price as it rolled forward to end-2015, applying 13 times CY15 P/E, which is its sector P/E target.

"We upgrade Daibochi from a Neutral to Outperform in view of likely lower raw material price risks after the recent sharp fall in crude oil prices. Securing major export orders and further declines in oil prices could catalyse the stock. Daibochi is our top pick in the packaging sector," said the research house.

CIMB Research said at an annualised 98% of its FY13 forecast, Daibochi's 9MFY13 EPS was in line with market and its expectations as it expects a stronger 4Q.
Kredit: www.thestar.com.my

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