{"id":170463,"date":"2017-04-16T19:00:00","date_gmt":"2017-04-16T17:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=170463"},"modified":"2017-04-13T16:04:20","modified_gmt":"2017-04-13T14:04:20","slug":"10-years-after-the-financial-crisis-the-worlds-biggest-banks-are-still-taking-the-same-stupid-risks","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/170463\/10-years-after-the-financial-crisis-the-worlds-biggest-banks-are-still-taking-the-same-stupid-risks\/","title":{"rendered":"10 years after the financial crisis &#8211; the world&#8217;s biggest banks are still taking the same stupid risks"},"content":{"rendered":"<p>Ten years after the start of the subprime mortgage crisis analysts and investors still largely ignore long-term financial risks, warns a report launched today by the think tank 2\u00b0 Investing Initiative and The Generation Foundation.<\/p>\n<p>It found that equity research analysts and credit rating agencies focus three to five years ahead and overlook risks to the long-term viability of companies, even though the value of institutional investors\u2019 portfolios is mostly based on cash flows beyond five years. Lack of demand from the investment community for long-term research is partly to blame<em>.<\/em><\/p>\n<p>\u201cThe financial sector fails to properly assess the impact of the low-carbon energy transition, artificial intelligence and other long-term trends, said \u00a0Mona Naqvi\u00a0co-author of the report.<\/p>\n<p>&#8220;If assets are not priced accurately investors may suffer unexpected losses and stock market bubbles may form, imposing tremendous costs on society when they burst. Short-term analysis may also miss business opportunities and lead to underinvestment in sectors that can benefit society.\u201d<\/p>\n<p>The report says it was not an unpredictable \u201cblack swan\u201d event but a \u201cwhite swan in the dark\u201d which could have been spotted if analysts had looked further ahead and not relied on the assumption that homes would always sell for more than their purchase price.<\/p>\n<p>\u201cFinancial policymakers responded to the crisis by increasing capital charges to strengthen the \u2018financial cushion\u2019 of financial institutions, but the core problem remained unaddressed: financial analysts and investors still do not assess long-term risks that are non-cyclical and non-linear, like the oversupply of homes they suddenly discovered in February 2007|&#8221;, said\u00a0Stan Dupr\u00e9, founder and CEO of the 2\u00b0 Investing Initiative.<\/p>\n<h3 class=\"my-4\"><strong>What they&#8217;re still doing wrong<\/strong><\/h3>\n<p>According to the report, these financial institutions are still guilty of the following &#8220;white swans&#8221;:<\/p>\n<ul>\n<li>\n<div>The value of stock and bonds portfolios is usually based on companies\u2019 \u2018expected\u2019 long-term cash flows (to pay dividends, repay debt and fuel stock price growth) which are exposed to long-term risks.<\/div>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<div>A majority of asset owners have long-term liabilities and invest to optimize returns over 10 to 50 years. Households and pension funds alone own 48% of the US domestic equity market.<\/div>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<div>In most sectors of the S&amp;P500 more than 70% of the net present value of a company is based on cash flows beyond five years. For most S&amp;P500 corporate bonds, the value derives from cash flows of 10 years or more.<\/div>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<div>However, equity analysts almost exclusively focus risk analysis on the next one to five years and extrapolate future cash flow trends: 74% of forecasts fall within three years and 94% within five years according to analysis of entries on the Bloomberg terminal. Credit ratings agencies largely focus on the next three to five years and risks beyond that period rarely influence ratings action.<\/div>\n<\/li>\n<\/ul>\n<hr \/>\n<p><strong>Read:\u00a0<a href=\"https:\/\/businesstech.co.za\/news\/finance\/170417\/gigaba-to-meet-with-moodys-to-stop-them-from-downgrading-sa\/\" target=\"_blank\">Gigaba to meet with Moody\u2019s to stop them from downgrading SA<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Ten years after the start of the subprime mortgage crisis analysts and investors still largely ignore long-term financial risks, warns a report launched today by the think tank 2\u00b0 Investing Initiative and The Generation Foundation.<\/p>\n","protected":false},"author":10,"featured_media":170469,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[26],"class_list":["post-170463","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/170463","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=170463"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/170463\/revisions"}],"predecessor-version":[{"id":170471,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/170463\/revisions\/170471"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/170469"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=170463"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=170463"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=170463"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}