Monthly Archives: April 2015

2015
04/24

Category:
Credit Ratings

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Fitch: China’s 100bp RRR Cut Marks a Step-Up In Monetary Easing

(The following statement was released by the rating agency)
HONG KONG/SINGAPORE, April 21 (Fitch) The Peoples Bank of
Chinas (PBOC) 100bp
cut to the reserve requirement ratio (RRR), effective on 20
April, marks a
step-up in monetary easing from earlier policy measures, says
Fitch Ratings.
Fitch estimates that the cut will release CNY1.5trn (USD240bn)
in liquidity,
lowering borrowing costs and alleviating debt-servicing burdens
for corporates,
state-owned enterprises and local governments. For banks, the
cut will have a
moderately positive effect on net interest margins and earnings.
The decision suggests a more aggressive approach to monetary
policy easing by
the PBOC compared with the targeted measures in 2014 which
focused on lowering
borrowing costs only in selected sectors. It also goes beyond
replacing
liquidity lost through recent capital outflows. By contrast, a
previous 50bp RRR
reduction on 5 February only compensated for cross-border
capital outflows
during 2014 (see Fitch: Chinas RRR Cut Less of an Easing Than
it Appears, 5
February 2015).
The move is not surprising, considering the recently released
1Q15 economic data
which showed real GDP growth slowing to 7%. The slowdown is part
of a broader
macroeconomic structural adjustment away from debt-driven
investment growth and
rebalancing towards domestic consumption. Fitch expects economic
growth to slow
further, with real GDP likely expanding by only 6.8% this year.
This is a
significant deceleration from the 10.5% average annual growth
recorded in the
2001-2010 period.
Fitchs base case is that this economic adjustment will have
positive long-term
effects on stability by putting the economy on a more
sustainable growth path.
Furthermore, the agency maintains that the Chinese authorities
have the capacity
to manage this adjustment – through monetary and fiscal policy –
without
resulting in significant financial or economic instability.
However, there are
risks that the rebalancing will not play out smoothly.
Monetary easing through a broad-based RRR cut will allow banks
to reinvest the
liquidity released from the central bank. This should alleviate
some of the
pressures on net interest margins (NIM) in 2015 which have been
squeezed as a
result of earlier rate cuts and an increase in the deposit rate
ceiling.
However, NIMs are still likely to contract this year, and the
overall earnings
impact will not be significant – likely to rise by 1%-2% as a
result of the RRR
cut.
The RRR cut will also help banks continue the trend to shift
credit back on to
the balance sheet. Bank loans represented 78% of total new total
social
financing in 1Q15, up from 60% in 4Q14. Additional bank loans
enabled by the RRR
cut will allow more debt to be rolled over, though it will only
delay and not
resolve a rise in NPLs over the medium term.
But there are still risks should banks utilise this RRR cut (and
any future
cuts) to revert to excessive loan growth, despite the positive
short-term
effects for banks. Fitch maintains that a reversion to
broad-based, rapid
lending growth would be credit negative for banks, in light of
leverage in the
system which is already high.
Contacts:
Grace Wu
Senior Director
Financial Institutions
+852 2263 9919
Fitch (Hong Kong) Limited
2801 Tower Two, Lippo Centre
89 Queensway
Hong Kong
Andrew Colquhoun
Senior Director
Sovereigns
+852 2263 9938
Justin Patrie
Senior Director
+65 6796 7232
Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234,
Email:
leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852
2263 9935, Email:
wailun.wan@fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
LINK:
here. IN ADDITION,
RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE
ON THE AGENCYS
PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS,
CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCHS
CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE CODE OF
CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.
DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH
WEBSITE.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
LINK:
here. IN ADDITION,
RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE
ON THE AGENCYS
PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS,
CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCHS
CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE CODE OF
CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.
DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH
WEBSITE.

2015
04/24

Category:
Revenue

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Shopify Files To Go Public On Q1 Revenue Of $37.3M And A Declining Net Loss

Shopify has filed an F-1 document, indicating that it will sell shares to the public market. The company indicates in the filing that it will raise $100 million in its IPO. However, that figure is often given by companies as a place holder. Shopify has raised $122 million to date.

The company has posted quickly growing revenues, and declining losses in its most recent quarter. Shopify provides subscription ecommerce products to small and medium-sized business, and also offers support to customers who choose it. Its revenue is majority-derived from its subscription incomes.

At the time of its last capital raise, Shopify was valued at $1 billion, something that TechCrunch noted is nearly unheard of for a Canada-based technology startup. At that time, we reported that Shopify was diversifying into offline commerce.

During the first three months of 2015, Shopify posted revenue of $37.34 million, from which the company earned a negative $4.53 million — calculated using normal accounting methods. Those figures are both heading in the right direction: During the first quarter of 2014, Shopify lost $6.36 million on revenue of $18.81 million.

2015
04/23

Category:
Credit Cards

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Online crooks prefer famed ‘Black Card’

Elite credit cards, like the famous Black Card by American Express, are twice as likely to be used in a fraudulent e-commerce transactions than regular credit cards, new data shows.

Elite cards like the American Express Centurion, dubbed the the Black Card for its color, are used in fraudulent online transactions 1.7% of the time, according to new data from Forter, which helps retailers protect against fraud. By contrast, gold and platinum cards come with a 1% fraud rate, while corporate cards are used for fraud 0.7% of the time, according to Forters data, which is slated to be released on Monday.

Crooks like elite cards because of their higher credit limits, explained Noam Inbar, Forters vice president of business development. Plus, they are less likely to be declined by the retailer, she said.

Forters research also shows that online crooks prefer Microsoft Outlook for sending email. Indeed, Microsofts email service is used 15 times more by fraudsters than the other email services, Forters data shows. Hotmail is the second preferred email service and AOL is the least favored.

Inbar said cyber crooks want ease when opening up a new account. They typically shy away from two-step verification, for example, she said.

Forter is a Tel Aviv, Israel-based fraud prevention company backed by venture capital firm Sequoia Capital. The company is so confident in its fraud finding model that it guarantees it will cover the cost of any transaction it okays that turns out to be bogus.

Perhaps not surprising, online cyber crooks are drawn to popular name-brand items with high market value that are easy to sell, including Go Pro cameras, Rolex and Prada, Forter found. But they will also buy cigars, alcohol, and the occasional pizza, the company said.

Online fraud picks up between 2 am and 6 am when it is 10 times as high as the rate of fraud between 2 pm and 6 pm, Forter said. Forter also found that fraud rates drop on Black Friday and Cyber Monday when everyone else is shopping, but perk up on Christmas Eve and Christmas Day — by over 200% compared to the average — when most legitimate shoppers are staying away from online shopping.

2015
04/23

Category:
Revenue

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App Store Increases Revenue Lead Over Google Play in Q1 2015

Apples App Store increased its revenue lead by 10 percentage points over Googles Play Store in the first quarter of 2015, according to the latest numbers from App Annie obtained by The Wall Street Journal. The App Stores revenue was also almost 70% higher than the Play Store, despite Google Play receiving 70% more app downloads during the three-month period ending March.

Apples increased App Store revenue helped it reverse a trend that saw Google Play slowly catch up in revenue over recent quarters, although the Play Store continued to widen its lead in overall downloads. Apple previously held about a 60% advantage in App Store revenues over Google Play during the third quarter of 2014, but that figure rose to about 70% in Q1 2015 on the strength of the United States and China.

China was a bright spot for Apple – mirroring the strong market share gains that the iPhone made in the country. Apple’s larger-screen iPhone 6 and 6 Plus proved immensely popular in the Chinese market where consumers prefer bigger display smartphones.

In the first quarter of 2015, China passed the US as the top country for iOS app downloads, App Annie said. China still trails the US and Japan for App Store revenue. The Google Play store does not operate officially in mainland China.

The disparity between the App Store and Google Play in terms of overall revenue and downloads is a longstanding trend between the iOS and Android storefronts. A number of popular developers turn to the iPhone, iPad and iPod touch because Apples ecosystem provides a more lucrative opportunity for earnings, while Google Play receives more downloads because there are significantly more Android users worldwide.

2015
04/23

Category:
Establishing Credit

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Ruidoso Wells Fargo to host Teen Financial Education Day

Wells Fargo has announced it will host a Teen Financial Education Day at all of its banking locations in New Mexico on Saturday, April 25.

Locally the event will be held at both the Ruidoso Wells Fargo, 401 Sudderth Drive and at their Ruidoso Downs location 26182 US Highway 70 inside Walmart.

The event is designed to help educate students and their parents about the importance of money management, establishing credit and preparing to pay for college.

At Wells Fargo, were committed to the financial success of our customers and the communities we serve, said Yolanda Garcia, Area President at Wells Fargo. Were excited to have an opportunity to invest in the financial future of students by hosting this event at our New Mexico banking stores.

Teens and parents visiting the stores will find:

Special seminars on budgeting, saving, and managing money using Wells Fargos Hands on Banking® curriculum.

Overviews of the Get College ReadySM website and 2014 CollegeSTEPS® (PDF) magazine.

Planning for College and Your Financial Aid Journey in 5 Steps resource guides, along with other college preparation materials.

Southwest District Manager Courage Idemudia said that specialty bankers will be ready to meet local customers that attend the event.

We are excited and honored that we are able to go into the community and go into the high schools and elementary schools and speak to students about financial literacy, Idemudia said. We encourage parents and teens to attend to learn about money management.

2015
04/22

Category:
Credit Ratings

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Implied Materiality and Material Disclosures of Credit Ratings

Author Abstract

This first of three papers in our series on materiality in credit ratings will examine the materiality of credit ratings from an implied materiality and governance disclosure perspective. In the second paper, we will explore the materiality of environmental, social, and governance
(ESG) factors in credit ratings methodologies and introduce the concept of layered materiality. In the third paper, we will evaluate current and potential credit rating agency (CRA) business models based on our analysis in the previous papers, and introduce the concept of institutionalized materiality. Starting with this paper, and in the rest of the series, we will also recommend how the credit rating model can be enhanced in the coming years to help build more sustainable credit markets. This first paper is focused on the G (governance) component of ESG reporting. The governance matters we identify in this paper must be addressed before turning our attention to the broader set of ESG considerations in credit ratings. Failure to put these important governance matters at the top of the credit ratings reform agenda would, in our opinion, undermine the efforts we will recommend in our second and third papers.

2015
04/22

Category:
Revenue

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Kinder Morgan Earnings: Earnings and Revenue Crash While Dividend Soars

Kinder Morgans (NYSE: KMI) latest earnings results came with a juicy 14% dividend hike and reassurances that the pipeline blue chip is on track to meet its targeted $2 per share dividend for 2015 — a 15% increased over 2014. However, they also revealed that — when it comes to sales and earnings growth — even mighty Kinder Morgan isnt impervious to the most severe oil crash since the financial crisis. 

The numbers
For the first quarter, Kinder reported earnings declined by 21% to $0.22 per share — $0.24 when adjusted for asset impairments — on revenue of $3.6 billion. That not only missed Wall Streets consensus estimate of $0.23 per share for earnings but fell 21% short in terms of sales expectations and represents a 11% decline in revenue compared with the first quarter of 2014. 

Management credited the decline in earnings to higher interest, taxes, and depreciation, and amortization expenses and explained the decline in revenue as due to — in the words of CEO and Chairman Richard Kinder — headwinds due primarily to a rough commodity pricing environment. 

Of course longtime Motley Fool readers know not to focus too much on quarterly or annual revenue or earnings growth, because for capital-intensive, high-yield income stocks like Kinder Morgan, there are far more important things to focus on. 

What really matters
With Kinder Morgan the thing to remember is that, first and foremost, this is a dividend growth story. Thus, the three things we care about most are distributable cash flow, or DCF; the dividend coverage ratio; and the project backlog. Thats because DCF is what dividends are paid out of, a dividend coverage ratio of greater than 1 means the dividend is sustainable, and a large and growing project backlog means managements long-term dividend guidance of 10% growth through 2020 is realistic and achievable. 

In terms of distributable cash flow, Kinders results are far better than the negative sales and earnings growth would indicate. DCF was up 5.4% to $0.58 per share — courtesy of the cost savings from the merger between Kinder and its three MLPs —  and even with the 14% dividend hike to $0.48 per share, the dividend coverage ratio of 1.21 means the payout is solid and sustainable. In fact, Kinder generated an excess of $206 million in DCF this quarter, well ahead of managements forecast of $164 million in excess DCF per quarter. 

Meanwhile the backlog grew a healthy $600 million to $18.3 billion. After shrinking $300 million during the fourth quarter because of the removal of $785 million in oil projects, the fact that Kinders backlog is growing again is reassuring news indeed. 

Why Im not worried about the dividend
Kinders previous budget forecast called for $654 million in excess DCF for 2015, assuming an average 2015 oil price of $70 per barrel and $3.80 per thousand cubic feet of natural gas. As of April 15, oil and natural gas are trading for $56 per barrel and $2.60 per thousand cubic feet, far below managements assumptions at the start of the year.

2015
04/21

Category:
Revenue

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Raise Our Taxes. Please.

Most Americans hate today. After all, it’s Tax Day–and no one likes seeing the federal government take a large chunk of their income. (Well almost no one.)

As the 2016 campaign gets underway, candidates, especially those on the right, will compete to see who can propose the largest tax cut. Senator Marco Rubio currently is in the lead with his recently released tax plan that would reduce government revenues by $4 trillion over the next decade. Senator Rand Paul has promised the largest tax cut in American history. Senator Ted Cruz will surely try to top them both. On the left, Hillary Clinton will almost surely never endorse a tax hike. She may even follow in President Barack Obama’s footsteps and promise never to raise taxes on the middle class.

Don’t believe any of them. In the coming years, the federal government is going to need more revenue. Nothing any politician says can refute the basic math that Americans are growing older and that’s going to cost a lot more money. But that doesnt mean tax rates have to rise. In fact, Congress could increase the federal governments revenue by hundreds of billions of dollars a year, while making the tax code more progressive–without raising current tax rates.

While the near-term deficit is no longer a problem, spending is still projected to rise considerably over the next few decades. The Congressional Budget Office’s most recent long-term budget outlook, released last July, forecasts debt rising from 74 percent of GDP in 2014 to 106 percent of GDP by 2039.

2015
04/21

Category:
Revenue

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Capacity Expansions Will Continue To Drive Delta’s Results Despite Weak Unit …

Delta Air Lines, the third largest network carrier in the US, will release its operating results for the first quarter before the market opens on Wednesday, April 15. According to its traffic results for March, the airline reported a capacity increase of 5% for the quarter, in line with its guidance, while its passenger unit revenue (revenue per passenger flown per mile) declined by 1.5% due to foreign currency fluctuations. Despite a drag from the strong US dollar, Delta expects to earn 44 cents per share (excluding special items) during the quarter on weak oil prices and capacity additions.

We currently have a price estimate of $46 per share for Delta, approximately 7% ahead of its current market price.

See our complete analysis for Delta Air Lines here

Capacity Additions To Boost Revenue Growth

The Atlanta-based airline expects to report consolidated revenue of $9.41 billion in the first quarter due to an upsurge in passenger traffic. Delta’s passenger traffic for the quarter ended March rose by over 3.5% due to capacity expansions in the domestic and Latin American markets. Apart from launching new flights, Delta is swapping its smaller planes for larger ones to improve its utilization rates. We expect the airline to achieve top-line growth of more than 5% year-on-year, in line with its first quarter guidance.

Delta’s strategy to expand its capacity in Seattle – where the airline is building its international gateway – will continue to reap benefits in the form of increased passenger traffic. Further, the airline has entered into partnerships with a number of airlines over the last month in an attempt to expand its customer base. For instance, Delta entered into an alliance worth $1.5 billion with Aeromexico to offer a wide range of flights between the US and Mexico. The airline also signed a deal with Virgin Atlantic Airways to offer trans-Atlantic flights between the US and the United Kingdom. We expect these capacity additions to drive Delta’s revenue growth in 2015 and beyond.

Margins May Suffer Due To Weak Unit Revenue

Based on the preliminary results announced on April 2, the carrier expects its adjusted average fuel price for the quarter at $2.90-2.95 per gallon. Delta’s unit costs are expected to be down 1% compared to the previous year due to domestic re-fleeting and cost reduction initiatives undertaken by the airline during the quarter. However, the airline reported a dip of 1.5% in its passenger unit revenue versus a 1% fall guided by the company, primarily due to the strengthening of the US dollar. Weakness in unit revenue is expected to take a toll on the airline’s margin. Delta forecasts its adjusted operating margin to be in the range of 8-9% for the quarter compared to its previous guidance of 11-13%.

2015
04/21

Category:
Revenue

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Louisiana legislators to start vetting revenue raising bills next week

Senator Neil Riser

Measures that would raise more revenue to help plug the states $1.6 billion projected budget deficit will get their first hearing in the Louisiana Legislature on Monday before the Senate tax-writing panel, its chairman said Wednesday.