As per the press release issued by BlackRock, Inc., it confirmed that negotiations are ongoing with U.K.’s third-largest bank, Barclays Bank plc, about the potential purchase of Barclays Global Investors (BGI), including the iShares business. The negotiations are ongoing and there is no certainty that any transaction will be agreed upon or, if agreed upon, completed.
About BlackRock
BlackRock is one of the world’s largest publicly traded investment management firms. At March 31, 2009, BlackRock’s AUM was $1.283 trillion. The firm manages assets on behalf of institutions and individuals worldwide through a variety of equity, fixed income, cash management and alternative investment products. In addition, a growing number of institutional investors use BlackRock Solutions investment system, risk management and financial advisory services. Headquartered in New York City and has employees in 21 countries and a major presence in key global markets, including the U.S., Europe, Asia, Australia and the Middle East.
Olivier Blanchard, the IMF’s chief economist in an excellent article in Economist News paper dated 29th January 2009 says that if the policymakers act decisively, private demand will recover sooner rather than later and, within a year or less, we can be on the path to recovery.
“First and foremost, reduce uncertainty. Do so by removing tail risks, and the perception of tail risks. On the portfolio side, establish a price, or at least a floor on the price, of the troubled assets. Ring-fence them or take them off bank balance-sheets. On the consumption side, commit to do whatever it will take to avoid a Depression, from fiscal stimulus to quantitative easing. Commit to do more in the future if necessary. Above all, adopt clear policies and act decisively. Do too much rather than too little. Delays in financial packages have cost a lot already. Further rounds of debate will stoke uncertainty and make things worse” says Olivier Blanchard in that article.
The last quarter of this historic year 2008 comes to an end and we have seen several hedge funds going bust since the sub-prime crisis first unfolded in August 2007.
The Hedge Fund Implode-O-Meter (HFI) at http://hf-implode.com which provides a list of global hedge funds that have bust and a list of those that are ailing states that since the sub-prime crisis, more than 108 hedge funds have collapsed, and another 40 are on the “ailing” list.
The redemption wave in the last quarter is serious. Recently billionaire US investor George Soros predicted the global financial meltdown could wipe out as much as three-quarters of the money they managed.
News Corporation chairman and chief executive Rupert Murdoch recently said it was possible that all hedge funds could be extinct by the end of next year – quotes The Australian News.com. This is really a serious comment from a top notch media mogul. He has a reason to say that as the 2 trillion asset base hedge fund industry as recently as June 2008 is now faced with a 45% erosion of the assets due to redemptions and losses in a short period of less than six months.
But as good times do not last for ever, even bad times do not last for ever. Even this will pass. The only question then remains is how long will it take to get over this financial crisis and when will the world economy bounce back to normalcy. It took several years to get over the aftermath of the Great Depression of 1929. Several thousand banks went bust during 1929 to 1933.
Today, Investment Bank as a class is wiped out totally. We are witnessing unprecedented bail outs of unimaginable magnitude in billions of US dollars. We may be able to assess the situation after the financial results of the last quarter is announced by the institutions in the financial sector and the manufacturing and services sector. We will know by then the real magnitude of further round of write offs of the corporate sector.
The International Accounting Standards Board is to consider adjusting its rules to make it easier for banks to reclassify some of their holdings and at cost rather than at current market value.
Most bank assets are reported at fair or current market value. Plunging markets and the credit freeze have led to banks and insurers writing down billions in the value of their holdings, crushing profits and undermining capital reserves.
Several European banks have privately lobbied for the IASB to remove some reclassification differences between its International Financial Reporting Standards and US GAAP. They believe they are at a disadvantage to US banks, which can shift their holdings to a cost basis more easily and escape the savaging of asset values in today’s markets.
The fair value of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties other than in liquidation. Generally a quoted market price is taken as fair price if available or else an estimate has to be made using all the information available.
US GAAP allow banks in “rare circumstances” to reclassify financial instruments reported at current market price, to the “held to maturity” category.
