Mortgage defaults are climbing

Kenneth Heebner, the manager of the top-performing real-estate mutual fund over the past 10 years, said the economic damage from high-risk mortgage defaults is going to get worse.

"We have a trillion dollars of subprime mortgages and we're going to have huge defaults," Heebner, 66, said in a telephone interview from his office in Boston. "If you're looking at the housing market, it's not the darkest before dawn, it's the darkest before pitch black," Heebner said.

Heebner, cofounder of Capital Growth Management LP, has been selling shares of real-estate investment trusts that buy apartments because they are no longer cheap. At the end of 2006, his CGM Realty Fund had 35 percent of its assets in REITs. He's made a "significant reduction," though he wouldn't be more specific.

Big Surge Expected In Offshore Outsourcing By Banks, Study Says

Offshore tech spending by banks will increase from the present 6% of the banking industry's $44 billion total annual IT budget to 30% by 2010, according to Deloitte.

"Among larger institutions in particular, offshoring is not one available cost-cutting strategy, it's become a basic necessity," says the study, which was released Wednesday. Banks are moving well beyond outsourcing low-level application maintenance work and are increasingly relying on offshore service providers for help with more sophisticated technology projects, the study says.

Offshoring tech work offers big savings as programmers in India, for example, are paid anywhere from 40% to 80% less than their U.S. counterparts.

Deloitte says banks can save 40% on most IT projects by moving them to an offshore service provider.

Business Economists See Riskier Mortgages as Biggest Danger, but ...

According to an article in USA Today, a report to be issued today indicates that, among business economists, "subprime mortgages" are considered the greatest risk to the financial markets. They are, however, in good company, as "hedge funds" and new forms of credit card lending without traditional credit history checking are raising concerns.

Riskier financial strategies have been making the news lately, as "hedge funds," described as "eclectic" in their strategy by an International Monetary Fund article, often located in tax havens and otherwise avoiding tax and regulatory issues, are causing concern. In the U.S., "subprime" mortgages have been enticing less-qualified borrowers with "teaser" rates and more recently an increasing foreclosure rate, and banks such as Bank of America are beginning to offer credit cards to anyone who has a "taxpayer ID number," which is a number issued to anyone who pays taxes in the U.S.

Economist article strikes positive note

A major new article in The Economist magazine, entitled, A Place in the Sun, explores the pros and cons of offshore financial centers, with specific references to the Cayman Islands.

The article, by Joanne Ramos, covers a wide range of themes, as it gives an overview of offshore financial centers, and the reasons for the expansion in their business in recent years.

The article argues that many of the concerns (especially in the present climate of concern over money laundering, and terrorism-financing operations) over offshore financial centers (OFCs) are often exaggerated. It also argues that well-run jurisdictions of all sorts, whether on- or off-shore, are good for the global financial system.

The article has won praise from Ted Bravakis, Director, Public Relations Unit, Portfolio of Finance & Economics, Cayman Islands Government.

Offshore debters welcomed

If offshore banks deal only with the big-time, at least one institution in The Bahamas has taken a really big risk on a really big spender.

Debts due Bahamian offshore banks had bounced erratically between $5 and $20 million from 1995 to 2005.

But last year, the secretive group reported a whopping $525 million in debts due Bahamian offshores. To reiterate, that's at least 2,500 percent larger than any one year over the past decade.

There's no telling which of the more than 240 licensed banks and trust companies made the move, as their balance sheets are not exactly available to the public.

The most reliable information comes through the Central Bank's Quarterly Statistical Digest, which reports the assets of offshore banks in conglomerated numbers.

Banks to Spend More of IT Budgets Offshore

Banks worldwide will be sending more of their information technology budget dollars offshore in the next three years, according to a study by Deloitte & Touche USA LLP. The study estimated that as much as 30% of the banking industry's IT budget dollars would go to offshore services by 2010, up from 6% currently.Banks can save 40% on most IT projects by offshoring them, Deloitte said. Although media reports say offshoring costs are rising, the Deloitte survey of banking IT executives found that costs rose less than 10% this year, according to 55% of the survey respondents. Banks need to get better at developing internal management skills and business processes to make offshoring as efficient as possible, Deloitte said.

Click on "Read More" below for the full article by Information Week.

$7B proposed over Indian trusts suit

The U.S. government has proposed paying $7 billion to settle lawsuits over the management of Indian trust lands -- an offer met with immediate objections from Indian plaintiffs. At issue is a decade-old lawsuit by Indians against the government claiming that the government has mismanaged more than $100 billion in oil, gas, timber and other royalties held in trust from their lands dating back to 1887. The litigation, filed in 1996 by Blackfeet Indian Elouise Cobell, deals with individual Indians' lands. Several tribes have also sued, claiming mismanagement of their lands. Senate Indian Affairs Committee Chairman Byron Dorgan, D-N.D., said he will hold hearings on the proposal and said the settlement offer is the first time the federal government has acknowledged a multibillion dollar liability for mismanagement of the trust funds over the past century.

Negative rates shaky, says Manila cbank

Philippine central bank governor Amando Tetangco said on Friday negative real interest rates were unsustainable even as the monetary authority lowered its forecast for average inflation in 2007. The benchmark Philippine 91-day Treasury bill rate hit 2.935 percent at an auction on Monday, close to record lows, while the annual inflation rate in February fell to a four-year low of 2.6 percent. Removing a 20 percent withholding tax on the T-bill yield and comparing it to inflation leaves real interest rates close to negative territory. A negative interest rate environment is something that cant be sustained for a period of time, Tetangco told a bankers forum. Interest rates in the GS (government securities) market are reacting to a lower inflation rate and reduced budget deficit and (an) expectation that the supply of GS will go down in the future as the government reduces borrowing.

Takaful Nasional aims for US$75m premiums from offshore products

KUALA LUMPUR: Takaful Nasional Sdn Bhd is aiming for US$75mil in premiums from offshore products by end-July, with the launch of its international currency business unit (ICBU), on Friday.
Chief executive officer Mohd Tarmidzi Ahmad Nordin speaking to reporters at the launch said, "The US75mil target is for our first tranch of offshore products."
Although foreign-currency products was "new territory" for the company, the target was achievable as a recent launch of a similar onshore product by Maybank Life achieved RM700mil sales within a week, Tarmidzi said.
Takaful Nasional is part of Maybank's insurance arm, having merged with Mayban Fortis in December 2005.
Mayban Fortis Holdings Bhd head of offshore business Eduard C. Holtz said "We will be working on these products (the first tranch) from now to the end of July," but added that the group also planned to launch a new product in the second quarter.
"Tentatively, we are looking at launching one or two new products per quarter," he said.
The company is targeting high net worth middle-eastern customers in Dubai and Bahrain as well as those banking in Switzerland and Singapore.
While Takaful Nasional also provides general takaful products, the focus of the offshore business would be on single premium, investment-linked family products, Holtz said.

Five sue Ernst and Young over failed tax dodge

Five prominent Silicon Valley businessmen are suing Ernst & Young, accusing the Big Four accounting firm of roping them into an illegitimate tax shelter which resulted in millions of dollars in IRS penalties, interest and professional fees.
Thomas Fallon, Carl Redfield, Richard Timmins, Robert Puette and Alexandre Balkanski filed suit in Santa Clara County Superior Court on Jan. 30.
According to the lawsuit, the men are five of 125 people in the U.S. who bought an Ernst & Young tax shelter product called a "contingent deferred swap" or "CDS" between 1999 and 2002. The five men all purchased the tax shelter product as a way to reduce exposure to taxes on a collective $51 million.
The Internal Revenue Service said in 2002 it wouldn't recognize the swap as a legitimate tax strategy.

Cayman Retains Leadership In Financial Services

Not only has the Cayman Islands continued to maintain its leadership position in international financial services and national economic performance, but it is also moving ahead of competitors, the government has claimed, pointing to a new credit rating report.
Moody's, the international credit rating agency, has raised Cayman's ceiling for foreign currency bonds and notes from Aa3 or high grade, to Aaa or exceptional - which means that it is now alongside the UK, US, Canada and Bermuda. This resulted from a change in the rating methodology last year which included raising the foreign currency country ceilings of approximately 70 countries. Of these countries, the Cayman Islands is among only three countries which had their ceilings upgraded to Aaa, according to reports.
The country ceiling is the highest rating obtainable for an issuer of long-term foreign currency-dominated bonds.

Taxes are not trusts' only problem

CALGARY, Alberta (Reuters) - With their tax advantages ripped away, investing in Canada's energy trusts looked set to become a mug's game. Units prices are down, costs are an issue and commodity prices have been volatile.
The sector has been a headache for investors since the surprise Halloween announcement from Ottawa that the tax advantages enjoyed by trusts would end in 2011. They had been able to avoid most corporate taxes if they distributed their cash to investors, an edge that gave them a premium value.
Since the October 31 tax decision, the sector has badly lagged. Despite oil prices that are now sticking around $60 a barrel and robust natural gas prices, the Toronto Stock Exchange's energy trust index has dropped nearly 18 percent.
"There's still a lot of anger in the market and an awful lot of uncertainty," said Leslie Lundquist, a portfolio manager at Bissett Investment Management.

Swanson says 2 firms preyed on seniors

Minnesota Attorney General Lori Swanson filed a lawsuit Wednesday against two California companies, accusing them of preying on the state's senior citizens through the sale of living trusts.
According to the suit, filed in Hennepin County district court, American Family Legal Plan and its affiliate Heritage Marketing and Insurance Services Inc. conned Minnesota seniors into buying "boilerplate" living trusts regardless of whether the product suited their needs.
Other states have filed similar suits against the two companies over the past year.
Living trusts are estate-planning products. Though they can be beneficial to some, they often are not necessary, particularly when the plans aren't tailored to each person's needs, Swanson said. Still, she said, many seniors purchased the plans because American Family agents convinced them that without a living trust, their heirs would lose their estate.

Bayshore bank acquires CIBC bank and Trust financial services

This comes with financial services of CIBC Trust operations in Barbados now being acquired by a private banking and investment firm. This island's branch of CIBC Bank and Trust (Cayman) Limited services will be taken over by Bayshore Bank and Trust which already has operations in the island. The latter has entered into a binding agreement to acquire the financial services business of CIBC Bank and Trust. The transaction is expected to close immediately. This acquisition follows recent news of Bayshore acquiring Turks and Caicos Islands-based Private Counsel Trust Ltd. The announcement came from John Perry Bujouves, Chairman of Bayshore Bank & Trust.
CIBC (Cayman)'s Barbados branch provides fiduciary, company management and other financial Services to a portfolio of Canadian-based clients.