Paul Schulte [Nomura] - Under the Hood

Multi-Strategy | ASIA
We offer our pair trade of Asian banks against Western banks. One has US$89bn to give and the other needs US$522bn, according to our calculations.

Under the Hood

We offer the ten banks most in need of capital and the ten most able to give it. Voila. Our pair trade for 2009.

The top ten banks globally with the most leverage (42.2x) need to raise US$522bn in capital (or shed US$10.5tn in assets) to arrive at a lower leverage of 20x. Seven out of these ten are in Europe.

The top ten banks globally with the least leverage (13.5x), have US$88bn of capital to offer. ALL OF THESE ARE IN ASIA. This has important implications for currencies, credit markets and assets values and explains the Great Shift we believe we will see over the coming years.

Imagine a world of barter! One year ago, one share of Citi bought 183 pounds of sugar. Now, it buys a mere 29 pounds. What if we only have a barter system? Citi shares, oil, HK property and palm oil are cheap. Gold, wheat and sugar are now expensive.

Deflation watch. Deflation/disinflation is on the march globally. US deflation expectations have lessened but remain at -2%.

Paul Schulte +852 2252 1409 paul.schulte@nomura.com
Mixo Das +852 2252 1424 mixo.das@nomura.com

Please go to http://www.nomura.com/research/GetPub.aspx?pid=309782 to view the full report