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2014-09-24 22:12:00
Total Debt in the United States
2014-09-24 00:00:00
China and India: a small comparison
Many time we like to compare China and India as these 2 countries, due to the size of their population (more than a billion each) are expected to be the major economies in a reasonably near future.

Below tables displays few numbers that shows where the 2 countries stand today versus each other.
In short, India is currently about at the level that China was 10 years ago.

From this and from the growth achieved by China over the period 2003 - 2013 we can expect India to expand at a very steady pace over the coming decade.
As a matter of fact, after a lower growth in 2013 Indian economy has started to accelerate from the end of 2013.

2014-09-17 00:00:00
Family Income in the US: 40 years of growing disparitiesFrançais
Here are some figures on the evolution of the average American household income by quintiles of income.

While all categories saw their income grow from the mid- 60s to mid-70s (the series starts in 1966) it did show a steady increase in inequality for almost 40 years, which the 2008 crisis has amplified.

Since 1976, the two lowest quintiles, which accounts for 40% of households, have seen their incomes stagnate (-0.2 % per annum for the lower quintile, and + 0.2 % per annum for the second quintile). The 3rd and 4th quintiles have known some growth but at a very moderate pace - below 1 % - (+ 0.4 % per annum and + 0.7 % per annum respectively). Only the top quintile has seen significant growth (+1.3 % per annum), driven by the top 5% (+ 1.8 % per annum).

This disparity between revenue growths concentrated in the highest income (top quintile and even more top 5%) poses a serious threat to the ongoing recovery with an imbalance between strengthened saving and investment capacities and an overall compressed household demand.

The record levels reached by the American financial markets in a context of moderate recovery, which still stumbles over a sluggish demand, also reflect this contradiction.

The numbers presented in below tables and graphs come from the US census bureau.

United States Family Mean Income
2014-09-05 00:00:00
Why to invest in private Indian banks?
Indian banks, especially private ones, are expanding fast their network on their domestic markets. The results is not only retail networks that place Indian bank among the largest in the world, but also an impressive growth of their revenue and profits.

Over the past 10 years Indian banks (based on 23 banks including in our analysis) have increased their revenue as well as their profits at an annual rate of +14% in US dollar term (+18% per annum in Indian rupees).

The growth registered by private banks which have been liberalized in 1993 is even more impressive. Private banks have increased their revenue over last 10 years, in US dollar term, at an annual rate of +19% and their profit by +24% (+24% and +29% respectively in Indian rupees).

Where do they stand today?

Before we start analyzing the development of Indian banks let's see where these firms stand relatively to some of their peer in the world.
The largest Indian bank in term of number of branches is the state owned State Bank of India (SBI). SBI is the second largest retail bank in the world in term of number of branches with 15,869 branches as of March 2014, after the Chinese bank ICBC (17,574 branches in December 2013). It is the also one of the 3 largest Indian banks in term of Market Cap (USD 31 billion as of September 3rd, 2014) and the largest in term of net profit (USD 2.2 billion during the year 2013/14).

The largest Indian private banks in term of number of branches are ICICI (3,753 branches) and HDFC (3,403 branches). HDFC was also the largest bank in term of Market Cap on September 3rd, 2014 (USD 34 billion) and ICICI the 3rd one (USD 30 billion). ICICI was second for profit, after SBI, in 2013/14 (USD 1.7 billion) and ahead of HDFC (USD 1.4 billion).

As a comparison, the Chinese bank ICBC realized a profit of USD 42.4 billion in 2013, HSBC (United Kingdom) 25.4 or Wells Farco (United States) 20.9. The Brazilian bank Ita Unibanco realized a profit of USD 7.6 billion.

A bit more than 40 banks are listed on Indian stock markets (BSE and NSE). Their combined market capitalization is slightly below USD 200 billions a level reached by Wells Fargo alone (USD 268 billion), HSBC (USD 206 billion) or ICBC (USD 198 billion).
Indeed, the leading Indian banks have a market cap of around USD 30 billion a level that ranks them slightly beyond the 50th rank globally.

The reason behind this lies in 2 factors:
Indian banking system is still underdeveloped with an average income per capita among the lowest in the world.
International expansion of Indian banks has been so far marginal.
As a first conclusion, Indian banks have developed significant retail networks among the largest in the world which is yet to be fully reflected in term of profit and market capitalization.



Growth story

In term of growth the rapid expansion of their retail networks in getting reflected in their growth level. However we need to make the difference between:
State owned banks with large networks but lower level of growth and profitability
Private banks are expanding fast since mid 1990s - post liberation of the sector in 1993.

The graphs below reflects the average profit after Tax (PAT) by branches over the last 5 years. This shows that private banks displays a much higher level for a part explained by the difference of location and therefore clientele.


In this ranking, the 6 highest performers are all private banks. They are also the one currently expanding their retail network at the fastest pace. We will now focus on private banks banks.

The 2 graphs below show the evolution of retail network and profit after tax (PAT) per branches over previous 10 years.



On average India private banks generated about 300,000 USD profit per branch, a level that has increased by +6% per annum over the last 10 years (+10% per annum in rupees).

If these private banks manage to continue expanding their retail networks, which is likely owing to the size of their domestic market, they will also see a growth in revenue and profit at a much stronger pace than most of their peers in the world.

Companies included in this report:
Axis Bank
Bank of Baroda
Bank Of India
Canara Bank
City Union Bank
DCB Bank
Dena Bank
Federal Bank
IndusInd Bank
ING Vysya Bank
Jammu and Kashmir Bank
Karnataka Bank
Karur Vysya Bank
Kotak Mahindra Bank
Punjab National Bank (PNB)
South Indian Bank
State Bank of India (SBI)
Union Bank of India
Yes Bank
2014-07-24 00:00:00
US: A Decrease in Labor Force Participation.Français
What lies behing the drop in Labor Force Participation Rate.

Labor Force Participation Rate measures the % of active people (employed or looking for a job) out of the potentially active population.

The decline of this indicator is often put forward to challenge the reality of the drop in the unemployment rate in the United States: if an increasing % of potentially active people actually stopped working or looking for a job it is simply that they were discouraged to do so by a durably depressed labor market. Indeed, the sharp drop in U.S. unemployment rate since October 2009, is due for a big third by this effect - but the remaining 2/3 being explained by job creation (5.4 million between October 2009 and June 2014 ).

But is the rational - discouragement from employment, witnessing a still depressed economy - really the good one?


A more detailed analysis, delivers a completely different view of the movement at work.

Is the Labor Force Participation Rate related to the dynamics of the labor market?
The long-term trend since 1948 shows four periods:
A stability until the mid-60s
A long upswing from the mid-60s (58.7%) up to the early 90s (66.7% in 1990)
A slight increase in the 90s (67.1% in June 2000)
A decline since the early 2000s (62.8% in June 2014)
In conclusion, the downward trend in the rate of participation began in the early 2000s, well before the 2008 crisis, at a time when the labor market was very dynamic (unemployment rate of 4% - close to its post war lows).

Correlation between the change in the Labor Force Participation Rate and the dynamics of the labor market.
The correlation between job creations and the participation rate since 1948 (monthly data) is only 0.04 - showing a virtually absence of correlation, which also invalidates the idea of an effect of potential discouragement behind the decreasing rate of participation.


So where does this drop from?

To understand this we must return to a change in the structure of the workforce that runs through almost the entire twentieth century: the steady increase in the participation rate of women. This rate doubled between the post Second World War (slightly above 30% in 1948) and the second half of the 90s (60% in 1997).
This increase more than offset the steady decline in the participation rate of men until the late 80s (higher total participation rate) and compensated in the 90s when it reached a peak (stabilization of total participation rate).
Since 2000, the beginning of a stabilization in the participation rate of women, followed by a diminution, while the participation rate for men continues to decline at the same pace that observed since 1948, resulted in a decrease of the total participation rate.
And for now 5 years (since 2009), the participation rate decreases at the same rate for men and women, which explains the rapid decline oberved during the past 5 years with a gap in activity between men and women rate stabilizing between 12 and 13 points.





NB: the corraltion between labor participation rate and net jobs creation is also very limited both for men (-0.05) and women (+0.05).


From this it appears that the diminution of the Labor Force Participation Rate is a long-term trend, that the growing rate for women had for a long time offset. The rate is likely to eventually stabilize (at which level?) but there is no reason to forecast a sustainable reversal that would put it back up.
The second conclusion is that to continue to grow at the pace enjoyed previously, the U.S. economy must now rely on either an acceleration of productivity gains (and, for an advanced economy, this is constrained by the pace of technological advances and innovation) or by an increase in immigration.

The rapid fall in the unemployment rate, which is moving very quickly towards almost full employment (4%), in a context of moderate recovery, reflects this demographic reality.

For it is not the decline in the growth rate (stable at just over 3% in the 70s, 80s and 90s - about 2% since the early 2000s) that caused the diminution of labor participation but the reverse: the pace of growth has come down because for now 15 years, structurally, the participation rate has been diminishing.

Source for data: Federal Reserve Bank of St. Louis.

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