In 2008, while the S&P 500 was down 38.49%, utilities dropped 31.55%. Usually utilities hold up well in a bear market as they are considered defensive plays. However in current times utilities are also getting killed since they have high capital expenditures, engage in energy trading activities, etc. So in a way they are defensive as they were in the past. However unlike banks and other sectors utilities are a necessity that people have to depend on for everyday life. We could say that next to consumer staples like food, utilities are the next important item that consumers pay their bills. Hence utility stocks are an integral part of a well-diversified portfolio.

The following table lists all the foreign utilities traded in the US organized exchanges together with the current dividend yield and prices:

Note: All data is as of market close Jan 5,2009.

An investor looking to get some exposure to foreign utility stocks can use the above table as a starting point to do further research. Emerging market companies like CIG, CPL, MGS, etc. may pay high dividends but they are not consistent and the stocks themselves maybe volatile as well. Only a developed markets utility stocks trade in the US. In a future post we shall explore those stocks that are traded in the OTC exchanges.

Today The Guardian of UK reports that British Government led by Gordon Brown plans to create 100,000 jobs.

The article titled “Brown unveils plan to create 100,000 jobs” says “Gordon Brown today unveils ambitious plans for a 1930s American-style programme of public works to ease the pain of recession by creating up to 100,000 jobs.

School repairs, new rail links, hospital projects and plans to usher in a new digital age by investing in superfast broadband will be used to keep unemployment down. The plans will also be used to tackle climate change, by means of investments in eco-friendly projects such as electric cars and wind and wave power that would also create jobs.

Speaking exclusively to the Observer, the prime minister also pledged action within weeks to kickstart bank lending in an attempt to save existing jobs.”

This number is a drop in the bucket - which will not save the economy. To put this number in perspective, in July 2008 the Office for National Statistics reported that the jobless total stood at 1.72 Million and the unemployment rate was 5.5%. Now five months have passed. The current unemployment rate will be higher in the UK after all the layoffs in financial services and other sectors in the past few months.

Yesterday The Times’ article “Chancellor Alistair Darling on brink of second bailout for banks” mentioned that Alistair “will decide within weeks whether to pump billions more into the economy as evidence mounts that the £37 billion part-nationalisation last year has failed to keep credit flowing. Options include cash injections, offering banks cheaper state guarantees to raise money privately or buying up “toxic assets””. This is basically the idea originally proposed by Hank Paulson here in the US. The idea is create a “bad bank” to dump all the toxic assets from the other not-so-bad supposedly “good” banks. These “good” are like Citibank, Chase, Bank of America, etc. Will time will tell if the second bailout plan in the UK will succeed.

Our President-Elect Obama said in November that he will create 2.5 Million jobs. (Source: Chicago Tribune - Obama goal: Create 2.5 million jobs). To put this number in perspective, the total number of unemployed people in the US totalled 4.43 Million in December,2008. The November unemployment rate reported was 6.7%. Also in November alone, the US lost 533,000 jobs. Most of the jobs lost are well-paying jobs int he manufacturing, financial services,retail and other sectors.

Obama says his goal is create 2.5 Million jobs in 2 years. Most the jobs will be in the infrastructure space such as bridges, roads, schools, etc. I am not sure if those jobs will pay enough to pull this economy out recession. Moreover nobody knows how those jobs will be created, whether they will in Private or Public sector, etc.

2009 is going to be interesting year to watch.

Calgary-based TransAlta Corp. is an electric utility with operations in the western part of Canada. The company generates power using coal, hydro, gas, geothermal and wind. About 70% of power generated is sold under government mandated long-term contracts. From their corporate site “TransAlta has been in the power business for almost 100 years - our output from more than 50 power plants is more than 8000 Megawatts - enough to power almost 7 Million homes”

TransAlta(TAC) is the only Canadian utility that is part of the S&P ADR Index.

The current dividend yield is an excellent 5.22% and the company has modest growth over the years since it is a utility. Average annual earnings growth over the last 5 years is 7.50% and the profit margin is about 10%. In 52 weeks, TAC is down 39% - which is high compared to other utilities. The P/E of 18.99 is much higher than the industry average of 13.73.

TAC received an acquistion bid from LS Power Equity Partners, an entity associated with Luminus Management LLC, and Global Infrastructure Partners which valued the company at C$39 per share in cash. On August 6th, TAC’s board rejected the proposal saying that the offer undervalued the company. Currently the stock trades at C$25.25 in the TSX - much lower than the offer received back in July.

Compared to some US and European utilities, TransAlta is an average performer over the long-term. However if an investor is looking to invest in a Canadian utility this is one option.

On Dec 6th, I wrote a post titled The Best Banks of the World 2008 in my TFS site which discussed the top banks in the world. The Banker Magazine presented awards to the best banks in each individual country. In this post let me mention a few banks that won the awards in countries they operate in other than their own home country. Many of the multi-national banks today have huge presence in other countries and in some places they are better than the local domestic banks. The Banker magazine selected these banks based on many factors like growth,technology, strategy and a questionnaire that banks were asked to submit.

1. Argentina - The Best Bank in Argentina is Banco Santander Rio. This bank is a subsidiary of one of the largest banks in Spain - Banco Santander (STD). Banco Santander Rio used to be called “Banco Río”.STD has huge presence in other Latin American countries like Brazil, Mexico, Chile, etc. as well but they were beaten by other banks in those countries.

2. Belize - The Best Bank in Belize is ScotiaBank Belize. This bank is a unit of The Bank of Novo Scotia (BNS) of Canada. BNS is the only Canadian bank to that has a significant interest in Latin American banking. In addition to winning the award, ScotiaBank won the top bank award in the following countries as well:

• Costa Rica - ScotiaBank
• Guyana - ScotiaBank
• Turks & Caicos - ScotiaBank
• Canada - ScotiaBank

So Scotia Bank of Canada won the award in 4 countries other than Canada.

3. South Africa - The Best Bank is Standard Bank Group. Recently Business Week had an article which talked about how South African companies excel in growing in other African countries. Specifically they mentioned the Standard Bank. It won the award for the best bank in the following countries also:

• Malawi
• Namibia
• Swaziland
• Botswana
• Democratic Republic of Congo
• Tanzania
• Zimbabwe

4. Colombia - The Best Bank is BBV Colombia. This bank is a subsidiary of Banco Bilbao Vizcaya Argentaria(BBV) of Spain. BBVA also won the award for Paraguay and Venezuela as well. However in its home country Spain, the best bank award went to Banco Santander.

Over 350 American Depository Receipt (ADR) stocks are listed in the ADR.com website. Out of this, just ten stocks ended the year 2008 with a positive return.

Best ADRs in 2008:

Sociedad Quimica y Minera de Chile (SQM) is a producer of fertilizers and nitrates in Chile. As the Ag stocks took off last year and reached peaks early this year, SQM reached a high of over $50. Demand for fertilizer have since fallen off the cliff and hence SQM is trading half its peak price. This stock is a good long-term value play but I believe one can enter at lower levels. Surprising to see five Japanese companies made it to this list.

None of the Bank ADRs ended the year even with a slight increase. This shows the severity of the current credit crisis and its impact on most of the countries of the world. The craze for emerging market equities have died down as well.This is especially true with the BRIC countries as the commodity prices have plunged.

Not one ADR from Europe made it to the list. At the beginning of the yea, Europeans were gloating that they were different from the US financial system and that they will not be affected by the subprime mess. Alas we know what happened with the European markets. They fell harder than the US markets. German bankers who boasted that they were very conservative in their lending and followed “traditional” banking practices. While that may be true, German banks invested in many of the derivative products for their high returns and got burned just like their US counterparts. The banking systems of UK, The Netherlands, Belgium, France, Spain, etc. all were proven to be as shaky and greedy as the US ones. The regulatory authorities of European financial system were sleep at the wheel as well.

Overall global diversification did not help US investors in 2008. Hopefully ADRs will perform better in 2009.

A few years ago The Republic of Ireland had one of the fastest growing economies in Europe. Then growth slowed and in the past two years or so the Irish economy stagnated and growth came to a standstill.

Irish stocks have been hit pretty hard as well in 2008 - especially the banks. As of market close today, the Bank of Ireland (IRE) is down an incredible 92.11%, Allied Irish Banks (AIB) is down 89.79% and Anglo Irish Bank (AGIBY) is trading at a $0.20 (yes thats right its just 20 cents) a share from much higher levels in the beginning of the year.

On Dec 22, the Government of Ireland announced capital infusions into the three banks amounting to 5.5 Billon Euros. As per the plan, the government will invest:

2.0 Bil. Euros each in IRE and AIB

and

take a 75% stake in Anglo Irish Bank - effectively nationalizing it.

The above data clearly shows that the supposedly safe Ireland banks were not immune to the global slowdown. A while ago Irish banks and banks from other European countries boasted that they had no or little exposure to the sub-prime crisis in the USA. That did prevent them from falling since their domestic markets cratered. Residential, Commercial Property loans went bad just like in the US.

The closed-end fund “The New Ireland Fund” (IRL) is also down over 75% this year.

So investors interesting in gaining some exposure may want to wait for a while before investing in Irish stocks. In addition to the world economy getting back on its feet, one has to monitor the domestic economy especially he housing sector.

One of the many indices published by STOXX is the “Dow Jones STOXX Global Dividend 100 Index”. This index “offers investors the ideal tool to track high-dividend-yielding companies in the Dow Jones STOXX Global 1800 Index, a broad yet liquid benchmark index that covers the Americas, Europe and Asia/Pacific”.

The 100 stocks in this index is comprised of 40 stocks from the Americas and 30 stocks each for Europe and the Asia-Pacific. In this post, lets take a look at two components representing Singapore.

1.DBS Group Holdings Ltd. (DBSDY) is the largest bank in Singapore as measured by assets. DBS trades on the OTC markets in the USA. The current yield is 8.06%. On Dec 22, the company announced that it will raise $2.8B in a rights offering. The press release said”Proactive capital raising, initiated from position of strength, will make DBS one of the best capitalised banks in Asia”.

With very little or no exposure to the subprime mess in the US, DBS has a Tier 1 Ratio of 9.7% as of September 30, 2008. After the right issue, the Tier 1 Ratio will increase to 11.8%. These ratios are well above the minimum required by regulatory authorities.

2.United Overseas Bank Ltd (UOVEY) has “500 offices in 18 countries and territories in Asia Pacific, Western Europe and North America”. UOVEY trades on the OTC as well.It pays a dividend of 3.21%. Annual EPS growth in the last 5 years is 16.27%.

Link to: Corporate Site Investor Relations.

For the latest quarterly financial report, click group_financial_results_3q2008.pdf

Mexico offers some good investment opportunities. Three ADRs from Mexico trade in the NASDAQ market. This post provides a brief overview of them:

1. Grupo Aeroportuario del Centro Nort SAB (OMAB) runs 13 airports in Mexico serving the metropolitan area of Monterrey, three tourist destinations (Acapulco, Mazatlán and Zihuatanejo), regional centers (Chihuahua, Culiacán, Durango, San Luis Potosí, Tampico, Torreón and Zacatecas) and border cities (Ciudad Juárez and Reynosa). OMAB’s dividend yield is 7.65% and the annual revenue has increased at about 12% in the last 5 years. On December 8, the company announced that December passenger traffic was down 13.3%.

2.Telefonos de Mexico (TFONY) is a fixed-line telecom and data services provider in Mexico. The current yield is 2.9%. TFONY is one of TheStreet.com’s Top Five All-Round Value stocks.

3.America Movil, S.A.B. de C.V. (AMOV) is a wireless communication services provider in Latin America. At the end of last year, AMOV had 153.4 million subscribers in 17 countries. AMOV is the largest holding in the iShares MSCI Mexico Investable Market Index Fund (EWW). AMOV pays a dividend of 1.63%.

Well thats the $64,000 question many investors are worried about. We will never know until the FDIC announces the closings. This year (2008) so far 25 banks have failed. This number is lower than the hundreds predicted by some folks. With 3 business days remaining this year, we can only hope that the FDIC does not announce any more closings for 2008. Usually they announce them on Friday after market close.

2008 Failed US Banks:

Bank Name Closing Date Updated Date
Sanderson State Bank, Sanderson, TX
En Español December 12, 2008 December 12, 2008
Haven Trust Bank, Duluth, GA December 12, 2008 December 12, 2008
First Georgia Community Bank, Jackson, GA December 5, 2008 December 5, 2008
PFF Bank and Trust, Pomona, CA November 21, 2008 November 21, 2008
Downey Savings and Loan, Newport Beach, CA November 21, 2008 November 21, 2008
The Community Bank, Loganville, GA November 21, 2008 November 21, 2008
Security Pacific Bank, Los Angeles, CA November 7, 2008 November 7, 2008
Franklin Bank, SSB, Houston, TX November 7, 2008 November 7, 2008
Freedom Bank, Bradenton, FL October 31, 2008 October 31, 2008
Alpha Bank & Trust, Alpharetta, GA October 24, 2008 October 24, 2008
Meridian Bank, Eldred, IL October 10, 2008 October 10, 2008
Main Street Bank, Northville, MI October 10, 2008 October 10, 2008
Washington Mutual Bank, Henderson, NV and Washington Mutual Bank FSB, Park City, UT September 25, 2008 October 20, 2008
Ameribank, Northfork, WV September 19, 2008 October 20, 2008
Silver State Bank, Henderson, NV
En Español September 5, 2008 October 20, 2008
Integrity Bank, Alpharetta, GA August 29, 2008 December 23, 2008
The Columbian Bank and Trust, Topeka, KS August 22, 2008 October 20, 2008
First Priority Bank, Bradenton, FL August 1, 2008 October 27, 2008
First Heritage Bank, NA, Newport Beach, CA July 25, 2008 October 20, 2008
First National Bank of Nevada, Reno, NV July 25, 2008 December 9, 2008
IndyMac Bank, Pasadena, CA July 11, 2008 October 27, 2008
First Integrity Bank, NA, Staples, MN May 30, 2008 October 20, 2008
ANB Financial, NA, Bentonville, AR May 9, 2008 October 27, 2008
Hume Bank, Hume, MO March 7, 2008 October 27, 2008
Douglass National Bank, Kansas City, MO January 25, 2008 October 20, 2008

Past Failures:

The number of bank failures increased in the US in the 1980s.

Average bank failures per year from 1955 to 1981 = 5.3

Average bank failures per year from 1982 to 1990 = 131.4

This number is 25 times the failures from 1955 to 1981.

Average bank failures per year from 1987 to 1990 = 187.3 (due to many S&L collapses)

This year we have had 25 failures. Last year there were only 3 failures.

In Oct, LA times reported that the FDIC is seeking new office space in California to house 600 people and manage bank closings in 2009. The Times stated:

“The Federal Deposit Insurance Corp. plans soon to sign a major lease of office space in Orange County, probably in Irvine, where as many as 600 people would liquidate the assets of troubled banks and thrifts based in California and other Western states.

The agency needs 200,000 square feet of space and has looked at locations across Southern California, FDIC spokesman David Barr said.

“It’s a temporary office – three to five years is what we’re looking at,” Barr said Tuesday. “We hope to find the space within the next few weeks.””

Last Month the FDIC said:

“The list of banks it considers to be in trouble shot up nearly 50 percent to 171 during the third quarter _ yet another sign of escalating problems among the institutions controlling Americans’ deposits.

The 171 banks on the FDIC’s “problem list” encompass only about 2 percent of the nearly 8,500 FDIC-insured institutions. Still, the increase from 117 in the second quarter is sharp, and the current tally is the highest since late 1995.

“We’ve had profound problems in our financial markets that are taking a rising toll on the real economy,” said FDIC Chairman Sheila Bair in a statement, adding that Tuesday’s report “reflects these challenges.”‘

With the new office in Cali and the long troubled banks list, we can be sure that there will more closings next year.

Here is a news item I came across on the net. The Indian Express newspaper of India reports:

“Buy our unsold flats at current rates: squeezed realtors to ask Govt

New Delhi: In the first of its kind bailout demand, real-estate companies are planning to ask the Government to buy out their unsold flats at current market prices and sell these at a later date. The proposal floated by one of the big Delhi-headquartered and listed real-estate companies is one of the many ideas to be hard sold at the Planning Commission tomorrow.

A real estate company’s chairman and managing director who did not wish to be quoted told The Indian Express, “We will discuss this tomorrow with Planning Commission Deputy Chairman Montek Singh Ahluwalia.” He, however, did not disclose the inventory position of the large firms in India. ”

How stupid is this idea?. How will this work?. Apparently the housing bubble in India is starting to burst and the developers are in panic mode. As the IT companies there layoff folks the realty sector will be hit even more. Seems like the real estate companies in India are totally clueless on things like recession, credit crunch, supply and demand, bubble, etc.

India is not alone in this type of bailout ideas. In October, the Sarkozy government of France announced plans to buy up to 34,000 new French homes left unsold due to the impact of the credit crunch. The French government did not release details about how much they would pay per house and what they intend to do with them.

If only the developers here in the US could “sell” all the unsold homes to the Uncle Sam at market prices……