Collection of Interesting, Worth Reading NEWS, ANALYSIS & ARTICLES

Two forces that until recently turbo-charged US consumer spending—growing household debt and a falling savings rate—have gone into reverse. In late 2008, as households started reducing their indebtedness and saving more, consumption tumbled.

New research from the McKinsey Global Institute shows that the economic impact of further US consumer deleveraging will depend on income growth. Without it, each percentage point increase in the savings rate would reduce spending by more than $100 billion—a serious drag on any recovery. Relatively healthy income growth, on the other hand, would help households reduce their debt burden without trimming consumption as much.

The significance of any fall in consumption could be profound. US consumers have accounted for more than three-quarters of US GDP growth since 2000 and for more than one-third of global growth in private consumption since 1990. These trends were fueled by a surge in household debt, particularly after 2000 (Exhibit 1), and a decline in the personal savings rate—to a low of –0.7 percent, in 2005. From 2000 to 2007, US household debt grew as much, relative to income, as it had during the previous 25 years.


Read the full article HERE. You may need to register at the McKinsey website. Its Free.

Regulators struggling to fix the world’s troubled financial institutions may take heart from the experience of China’s large state-owned banks. In the late 1990s, Chinese state lenders were all but insolvent, with nonperforming loan ratios at many banks exceeding 50 percent. A decade later, China’s state banks have found their footing—and have managed to keep it amid a global financial crisis that has their European and US counterparts reeling. The bad-loan ratio has been reduced, and this year China’s state banks expect solid profits and continued rapid growth—despite the global downturn. What’s more, top bank executives express confidence in their capacity to heed government instructions to boost lending while effectively controlling credit risk.

Industrial and Commercial Bank of China (ICBC) is generally regarded as the strongest of China’s state-owned bank giants. It is also the largest bank by market capitalization and total profits—both in China and the world—with total assets of more than $1.4 trillion. ICBC chairman Jiang Jianqing met recently with McKinsey’s Dominic Barton, Yi Wang, and Mei Ye to share his thoughts on corporate governance, risk management, and the origins of the financial crisis.


Read the full article HERE. You may need to register at the McKinsey website. Its Free.

For the foreseeable future, the global financial-services sector will be wrestling with the grim realities of credit losses, deleveraging, and challenges to traditional business models. With dramatic industry restructuring already underway and a clear need for players to concentrate on the here and now, it would be easy to lose sight of a nascent but significant long-term opportunity: facilitating carbon trading.

By placing a value on greenhouse gas emissions, regulators have created a new asset class—carbon allowances. The European Union, for instance, issues allowances to companies in the industrial and energy sectors, stipulating that companies can emit capped levels of carbon emissions during the year. Enterprises that overshoot their allowances can buy supplementary ones from companies that have a surplus. China is discussing plans for a similar scheme, and the United States may introduce one soon as well.

Many banks, including Barclays, Merrill Lynch, and Deutsche Bank, already profit from trade in this new asset class, which had a market value of about €65 billion in 2007. By participating in those transactions, banks earned around €500 million in revenues last year. Trading volume could grow to €2 trillion by 2020—more than double the size of the global commodities derivatives market...

Read the full article HERE. You may need to register at the McKinsey website. Its Free.

Climate change has businesses, governments, and nonprofits examining how to stabilize atmospheric greenhouse gases while still maintaining economic growth. In plotting the course to a low-carbon economy, they will weigh a number of methods for addressing the various risks and opportunities. Carbon capture and storage (CCS)—or more accurately, the sequestration of carbon dioxide—is an important topic in the emerging field of climate change. It represents one possible approach for stabilizing atmospheric greenhouse gases—although there are many economic, technical, and legal barriers to its implementation. As background for informed discussion, McKinsey offer an interactive depiction of the technologies involved in CCS.

Read the full article HERE. You may need to register at the McKinsey website. Its Free.

McKinsey mapped the decline and recovery of many sectors in past 4 recessions. According to the analysis, McKinsey says

Particularly in hard times, it’s crucial to make the right assumptions in strategic planning. Despite claims that the current recession is “unprecedented,” it seems to be following many of the same patterns the four previous ones did—patterns that may offer insights into the performance of sectors in the coming months and years. All four recessions, like the current one, began with falling sales and EBITA in the consumer discretionary sector and three with similar declines in IT. Consumer staples didn’t suffer significantly in the last three or health care in the last two. The energy sector was among the latest to be hit in three of the recessions, though it was among the latest to recover in all four of them. The exhibit shows the sequence of decline and recovery in these and other sectors.