IS REGIONAL banking the wave of the future? Regional banks serve a mainly domestic market. Which means they eschew international operations, even though that is where the big bucks are usually to be found.
On the other hand, proprietary trading on global forex and derivative markets is hardly a sustainable business model, as the shareholders in the six majors fined $4.3 billion (£2.7bn) this week for exchange rate rigging have discovered (yet again).
Regional banking is undergoing a profitable revival in a number of jurisdictions. In Japan, Suruga Bank is leading a pack of around 100 regional lenders, outflanking the hidebound mega-banking houses in Tokyo. Nimble Suruga has cherry-picked consumer lending rather than corporate clients, and focused on customers normally disdained by bigger, more risk-averse banks – particularly young Japanese women. Result: Suruga’s share valuation relative to net assets is greater than any other Japanese bank.
In America, regional banking is seeing a revival. The Achilles’ heel of domestic banks is their limited capital base for lending. No surprise, then, that US regional players are merging at a rate of knots to gain clout. This year nearly 300 small and medium-sized US lenders have been involved in mergers and acquisitions. Their loans were up by 13 per cent in the second quarter. As in Japan, investors are warming to banks that pay dividends rather than fines. Shares in America’s regional banks are trading on average at double tangible book value.
Deflationary pressures fuelled by strong dollar
THE Bank of England seemed very pleased to announce growth in earnings has overtaken the inflation rate. But this has more to do with deflation than higher wages. And deflation, by increasing the real debt burden of your mortgage or credit card bill – is actually eroding spending power.
Germany may have escaped recession in the third quarter, but deflation is spreading relentlessly. One transmission belt is the collapse in commodity prices, including gold. Seized on after 2008 as a hedge against the death of the dollar and hyper-inflation caused by quantitative easing, now smart money is dumping precious metals to buy, er, dollars.
What does a stronger dollar do to US domestic prices? Answer: lowers them through cheaper imports, especially from China. Besides, Chinese manufacturers are slashing production costs to cope with renewed competition from Japan. Where is John Maynard Keynes when we need him?
Mother of Japanese whisky is American?
BIG thanks to Hajime Kitaoka, the Japanese consul-general in Edinburgh, and his gracious wife, for their recent hospitality.
Mr Kitaoka was excited to inform me that the smash soap opera on Japanese television is a drama series – of 150, 15-minute episodes – about Rita Cowan from Kirkintilloch. She married Masatake Taketsuru, founder of Japan’s indigenous whisky industry, when the latter came to Glasgow in 1918 to study chemistry.
With any luck a Scottish broadcaster will pick up the series and perhaps discover a new morning market – the show airs at 8am every day in Japan. But which Scottish distiller will hire the actress who plays Rita – Charlotte Kate Fox – to be its promotional “face”? Charlotte is now the most famous western actress in Japan. A pity she comes from New Mexico and not Dunbartonshire.
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