Wage growth across Central Europe has sped up to 5-10%, closing the gap again with Western peers.
Cheap and skilled labor has been one of the reasons CEE banks are so cost efficient and profitable.
Could fast growth in wages endangers superior profitability of CEE banking?
Ferrari earned EUR 63,752 per car sold, five times more than Porsche. On the other hand, Volkswagen created the biggest operating profit in 2017 among car manufacturers.
Toyota was the most valuable automotive Company in the world in 2017 while Tesla remains a different species in the pond.
Instead of tracing what has happened since the first visible incidence of ‘Gulenist movement’ (as named by the AKP) and the two elections that took place last year, we would like to focus on what we believe are the key objectives/positions taken by the main player(s?) of the ruling party. We believe it is clear to the market (hopefully by now) that Turkey is an ‘autocratic democracy’ (an oxymoron): the government is elected through a democratic process with an aim to rule as an autocracy.
Irrespective of the ‘office’ held, Mr. Recep Tayyip Erdogan (currently in the office of a neutral President) wants to rule the country despite holding a ceremonial post. The power in Turkey officially rests in the office of Prime Ministership which is occupied by the leader of the ruling party (currently, Mr. Binali Yildirim).
It is an open secret that President Erdogan is trying to engineer amendments in the constitution to ‘upstream’ power to the presidency and rule the country. His actions so far indicate his desire to control and manage outcomes as he sees fit. This is in line with his interference via commentary on interest rates, prosecutorial activities, and strategy towards PKK and Kurdish elements in Turkey, involvement in Syria, etc.
Contrary to common perception, based on real high frequency data and ‘changes’ that we observe, we believe 1) the economic outlook has changed for the better, 2) the legal infrastructure and reforms re financial sector, especially the NPL is in place, and 3) the banks are in advance stages of planning and implementing reduction of NPLs and restart core banking activities.
Instead of updating on the ‘news of the day/week/month’ and or commenting on how/why and what of the outcome of the Brexit vote, we want to focus on three aspects: 1) how it affects UK and what we believe might happen, 2) what is the likely ‘response’ of EU to this event with respect to EU rather than UK, and, 3) Atmosphere.
For all non-financial companies/businesses that we look at, our primary focus is to get a real sense of a business’s ability to generate sustainably equity free-cash flow (‘E-fcf) given a view of macro-economic and competitive scenario. ‘E-fcf’ yield relative to the cost of ‘funds’ (debt) is one of the primary benchmark to sense the relative attractiveness of the investment under consideration.
To us, sustainability of dividend is of paramount importance, and we use our estimate of ‘e-fcf’ to assess sustainability of dividends: ‘e-fcf’ > dividends is the key. We are okay with the companies retaining some ‘e-fcf’ for ‘rainy-days’ or deleveraging for cyclical cushion. However, companies where we see dividends consistently above ‘E-fcf’ we believe are of poor quality and more akin to ‘equity-release’ rather than ‘equity-return’.
Statistical adjustments caught-up with Greece as the ‘money tap’ started to run dry when the GFC unfolded and the financial institutions started to look at how they can shrink their balance sheets. The Greek government declared that it was running fiscal deficits closer to 10% vs. 3% (as per Maastricht criteria), and approached the EU to ask for a programme and help to put Greek back on sound financial footing. The first EU-IMF-ECB (popularly known as Troika) bailout programme was introduced with an austerity plan requiring expenditure and revenue measures. At the same time, ‘non-Greek’ banks were trying to pull-out from Greece, aggravating the impact of austerity measures (revenue side suffered) as corporate Greece was faced to liquidity squeeze.
Instead of repeating the mantra of why investing in this region has a measurably attractive reward to risk profile, valuations are attractive, the underlying economic outlook has more potential to surprise on the upside etc., we would like to take the opportunity here to demonstrate through an example or ‘investment’ thought process (in a Socratic dialogue format).
For better or for worse, the issue of CHF mortgages is blown out of proportion and has become a tri-party football match between the banks, the borrowers and the regulator.
There are two Diamond News In November 2015.
Deutsche Skatbank, in the eastern state of Thuringia, plans to apply a negative rate of interest to current account deposits with balances over EUR 500,000. The bank presumably hopes to nudge savers into other longer-term, less liquid or higher-return investments and make some money by selling these.
Helgi Analytics 
