Welcome to the Epsom College Economics and Enterprise Society blog. This site contains the musings of the army of students and staff interested in all matters relating to our subjects.

Disclaimer: the views expressed on this site are those of the contributors and not of Epsom College.

Friday 29 November 2013

COO of Citi, Asia-Pacific Mr Michael Borch gives his view on 'Macroeconomics trends in Asia'

On Monday 25th November, the Epsom College Economics and Enterprise Society welcomed Mr Michael Borch, COO of Citi, Asia-Pacific who gave pupils an insight into the economic development model of the Asian region; in particular China. The talk encompassed the role of trade in stimulating economic growth which subsequently has forced urbanisation in China to progress at colossal rates. Most importantly, he destroyed the perception that China's economic structure has little resemblance to that of the West. In reality, China is an active participant in globalisation that has originally been orchestrated by the forces of western capitalism. Following the Communist Party Plenum three weeks ago, China has emphasised its desire to pursue market-orientated reforms which only strengthens Mr Borch's view on China. Personally, I feel that the Chinese version of capitalism will dominate the near future. The financial crash of 2008 has shown us that market fundamentalism cannot be trusted to govern our economic senses. The post crisis era has seen an increased government intervention in all aspects of the economy, ranging from QE to bailouts. With the move towards more principle based regulation (MPBR) in the financial industry, we are bound to see ever increasing government supervision. Arguably, the Chinese version of capitalism is all the factors mentioned above; However, I feel the western economies will follow suit but without the strong ideological base present in China. So what will the future hold? My answer is: A version of capitalism that one has never witnessed before.

Monday 18 November 2013

JPMorgan Agrees $4.5bn Mortgage Payout Deal

JPMorgan, one of the biggest investment banks in the world, has agreed to pay $4.5bn back to 21 major institutional investors who lost money on mortgage-related securities during the financial crisis. The deal is separate from the preliminary $13 billion settlement which resolved a raft of actions over mortgage-backed securities. The securities in question were supposed to be sophisticated ‘risk-free home loans’, however JP Morgan is alleged to have sold the mortgage-backed assets knowing full well of the risks involved. Recent legal costs have meant that JPMorgan have made a rare loss in this years third quarter, however the estimated share price of $60 has remained intact due to the large amount of cash they have set aside to cover these settlements ($23bn). Despite this massive reserve, the bank is still under investigation and if continued legal action is to be taken, JPMorgan could see its earnings further plummet, as well as its share price. As a result of its recent multibillion-dollar trading losses, JPMorgan’s $6bn share repurchasing program (which initially sent share prices to close at their lowest level since last year) was suspended after just 2 months. However, shareholders need not worry as dividend payouts of 30 cents a quarter are set to remain unchanged, unless losses rise to $5bn (instead of the current $2bn). JPMorgan seem to have escaped a potential disaster, however future legal investigations could increase losses further, and as a result send share prices plummeting. In my opinion, the stock buyback scheme should continue as it will enable the bank to improve shareholder value, which would offset potential future depletion of their share price due to further possible legal action.

Thursday 14 November 2013

Twitter's IPO: the Wider Picture

Last week, Twitter underwent its IPO procedures and began trading on the New York Stock Exchange. Initially valued at $26 a share, the price skyrocketed to reach $50 and later stabilising at about $45+-. Why is that Twitter, reporting a loss for the last three quarters, has been able to have such a successful listing? Recently, we have been experiencing a growth trend in the public listing of technological giants whose products are somewhat intangible. Facebook's IPO last year, Google's share passing the benchmark of $1000 per share and Twitter's listing, in my opinion, are signs of a new 'Tech bubble' that could pose potential hazards. On the other hand, we are living in societies that see technological advancement as the only way forward in future economic prosperity. Technology has seen a growth in private investment but more so from the government. The governments of the emerging economies have made technological progress a pillar of their economic development. Recently, Russia has adopted a strategy entitled 'Russia 2020' in which, the government has pledged to increase its funding in the technology and establish 20 Silicon Valley-type developments around the country to foster new ideas. Arguably, the value we place on technology is reflected in the ever growing share prices of tech companies but we need to ensure that we don't overvalue companies which provide futile services such as social networking which have little effect on the development of our economies.