Setback for Golden Belt Sukuk Holders

Worth Its Weight in Golden Belt Sukuks

On 27 January Citibank who are acting as Delegate for the Golden Belt Sukuk (the Company) advised that:

On 25 December 2019, the trustee of the financial reorganisation of Saad and Maan Al-Sanea pursuant to the Bankruptcy Regulation (Kingdom of Saudi Arabia Royal Decree No. M/50) informed that the Commercial Court in Dammam had rejected including the claims of the Company and the Delegate in the financial reorganisation. On 1 January 2020, the Company and the Delegate filed appeals against these decisions. The appeals will be decided by the Court of Appeal of Saudi Arabia

It’s highly likely that the estate-in-reorganization is insufficient to pay creditors a significant portion of their outstanding dues. Nevertheless, this is a setback for Sukuk holders.

Earlier posts on Golden Belt (10 in all) can be accessed using this link.

 

Numbeo’s Crime and Safety Index – More Accurate than People Magazine

You’ve probably seen news reports from “national” newspapers touting one or more of their cities’ high place in Numbeo’s “2020 Crime and Safety Index” or lamenting a city’s poor showing.

For example, “Abu Dhabi has been declared the most secure place on earth based on its low crime index of 11.33. Sharjah ranks fifth with a crime index of 16.48 while Dubai has taken the seventh spot with a crime index of 17.02.”

If you’re like AA, you wonder how Numbeo conducts its research, particularly because:

1. Numbeo is able to parse differences among cities to two places to the right of the decimal point. Precision like this would appear to be based on some very hefty methodology. Though as we saw with Transparency International’s Corruptions Perception Index, sometimes precision is more a matter of appearance than a real condition.
2. More importantly the results seem less than believable. Kuala Lumpur in Malaysia (ranking 35) is apparently less safe than Damascus (32) or Baghdad! But not as bad off as London which trails behind at 106.. Beating all of them is Kingston Jamaica in position 28.

What’s the answer?

Numbeo is a “crowd sourced” data base.

What does that mean in “small words”?

Let’s let Numbeo speak for itself.

This section is based on surveys from visitors of this website. Questions for these surveys are similar to many similar scientific and government surveys. Each entry in the survey is saved as the number in the range [-2, +2], with -2 having meaning of strongly negative and +2 meaning of strongly positive. We filter surveys to eliminate potential spam, like people entering a large amount of data which are differentiating from the median value.

What this means is that Numbeo doesn’t conduct any active data gathering or rely on third parties to do so as does Transparency International. Rather it relies on “visitors” to the website for its data.

Now those who believe that if a survey is not conducted using “proper” statistical methods, particularly those relating to sample selection, it’s not valid.

Clearly, Numbeo’s sampling/data collection doesn’t meet the statistical “test”.

So why then should we rely on its rating?

Again Numbeo has the answer:

Is this much less accurate than governmental statistics? In some countries, governments have a detailed statistics based on a number of reported crimes per capita. Those surveys are particular good in comparing crime between two cities in that country, but are not so good in cross country comparison for the following reasons: (1) people in some countries are much more likely to report a crime than in other countries (2) data could be forged by governmental institutions and (3) data are not available for most of the world

It would appear from the above that Numbeo believes that those folks who are shy in reporting crimes to their local authorities will be less reluctant to provide information to Numbeo. And that a statistically significant number of them will do so.

Sadly, the “wisdom” of crowds is generally turns out to be more an aspiration than a realistic assessment of the state of affairs.

Numbeo’s ratings then are nothing more than the perceptions of limited group of people who chose to respond (therefore a statisically “flawed” sample). And the results should be treated as being as valid as lists of the sexiest man or woman alive.

The Wisdom of Business Books

Black Friday An Important Part of the Celebration of Christ's Birth

The Purchasing of Mass Quantities at a Discount

Like the Red Cross after a disaster, each year AA visits the Mall after Black Friday to help clear up the damage and look for any shoppers trapped under the rubble. This year was no exception. A trip to the USA for Thanksgiving with family brought us back to familiar haunts.

This year with all the focus on-line sales the human tragedy and carnage were minimal save for the rise in carpal tunnel syndrome.

Charitable work done in record time, I nipped by the book store.

Whenever I need a “pick-me-up”, no need to head to the nearest pub. A visit to the bookstore’s Business Section allows me to reconnect with old friends and have some fun or a chuckle or two.

Look there’s Tom Peters with a new book with “excellence” in the title. That’s how many so far? I’ve “known” Tom for ages since I read “In Search of Excellence” some years back. He apparently found it and hasn’t stopped writing about it since then.

No purchase today. I’m holding out for “The Excellence of the Excellence”.

As I scanned the shelves, there he was Elon Musk arms folded with a determined look on his face. Gracing the cover of a breathless tome about how he, Bezos, and some business luminary whose name now escapes me were going to colonize space. Apparently, it’s true that the world is not enough.

It was clear that I was getting closer to the business celebrity section. My favorite section. Always good for a hearty chuckle or belly laugh.

Here was the accumulated wisdom of various captains of industry. Learn how to be an E Manager. Or if you’re a contrarian, learn that there are no E Managers..

Learn to Think Like a Billionaire. The alleged author of this tome’s fortunes seem to have risen with his foray into politics. From ship’s cook to ship’s captain thanks to a talented ghostwriter and a gullible public 

As they say, those who can, do. Those who can't, write books offering advice on how to do it.  Or perhaps hire someone to write the book for them.

Books of quotes from Peter Thiel, Jeff Bezos. Inspiring lives, inspiring quotes. Words to live by.

Authors channeling the thoughts of famous departed leaders. Sun Tzu with advice for women businessmen. Genghis Khan.

Apparently even Jesus had a business leadership style and has some timely pointers on "how to make a payroll".  Who knew besides Jerry Falwell?

Visionary insights to be scooped up. More knowledge per square inch of shelf space than the entire Library of Alexandria.

A veritable collection of wisdom to rival The Great Books. To which sadly Hutchins and Adler lacked access.

My attempts to suppress a chuckle crumbled. I was laughing out loud.

A clerk who had been keeping me under close surveillance given my increasingly raucous browsing came over to ask if she could help

Yes, indeed.

Any “works” by Adam Neumann or about him?

Sadly none. Has he missed his fleeting chance to tell us how he made it “big” and how if we emulate him, we can also? Will his wisdom like that of Ammonius Saccas be lost for all time? Say it isn't true!

As I began to walk to the exit, my eye fell on a book “The Five Habits of Highly Effective Companies”. Incontrovertible proof that corporations are indeed people, though I suppose none was really needed.

Later at home I heard that McKinsey or Bain were planning to expand their consulting business to offer psychological counselling to firms perhaps after reading the above tome. Treating addictions, resolving traumas. 

Perhaps even those from past lives.  Or as we business experts call them "pre-merger incarnations". 

Good business and good works combined.

I paused to gaze upon the history and foreign policy books just before exiting. 

To my surprise I learned that Bill Gates has an annual “best” book list. A list that includes more than business or technology tomes.

As I left the store, I wondered what Bill recommended I have for dinner. Sadly, a question that remains unanswered to this very day.

Thankfully Madame Arqala usually makes this decision. Or I might have starved to death in the absence of Bill’s reply.

Comments on IMF Working Paper on Estimating the Size of Shadow Economy in Europe

This post is a continuation of a series of the difficulties of modelling illicit financial activity and the need to understand that the results of such models are estimates not facts when we use those results.

Earlier posts here. Transparency International’s Corruption Perceptions Index, Difficulties in Modelling Illicit Financial Flows, The Origin of the Estimate of Global Money Laundering.

On 13 Dec 2019 the IMF published Working Paper 19/278 Explaining the Shadow Economy in Europe: Size, Causes and Policy Options written by B. Kelmanson, K. Kirabaeva, L. Medina, B. Mircheva and J. Weiss.

Before discussing this publication, just a note that IMF WPs do not represent the IMF’s official position, but report on research in progress and are designed to elicit comment and feedback.

While the WP is “rich” in content, I’d like to highlight a few points for comment. Because as usual AA has an axe to grind.

Defining and Measuring the “Shadow Economy”  (Pages 5-6)

There are several key take-ways here.

1. Different Definitions - There are different definitions of the “shadow economy”.  And so, it’s important to know which definition is being used in an estimate.  It’s like Transparency International’s Corruption Perception Index.  Are we measuring all corruption in a country or just a subset?
2. Estimates Not Measurement - What is actually going on is not measurement in a formal sense.  But an attempt to estimate the size. A critical difference.  One can directly measure AA’s weight.  Or the distance from Bayt Meri to Beirut. But one can’t directly measure this or that person’s intelligence.  One has to estimate it.
3. There is No Single Infallible Method for Such Estimations – in the authors’ words “There is no ideal or leading method to measure the shadow economy, each of them have some conceptual or practical strengths and weaknesses. The choice of the methodology can be governed by data availability, or the research objectives. Multiple methods can be employed to improve accuracy of the estimations.”
4. Each Model has its Limitations - In discussing the model they used (MIMIC), the authors state: “The shortcomings of this method include sensitivity to changes in data and specifications, the sample used, calibration procedures, and starting values (Breusch 2005).”

Results – False Precision

1. The tables of results are on page 25 and 26.
2. The results appear very precise.
3. The authors have come up with results to the tenth of one percent.  Or in non percentage terms .001.  That is some pretty fine parsing for estimates of the size of something that is unknown.
4. Not only that but they have been able to order the sizes of the shadow economies among various countries.
5. In the first table (page 25), France is 15.3% while in Germany is at  15.9%.  In the second table, the scores are 15.0% and 16.7% respectively.
6. Is this precision really possible?
7. What about the caveats about models and estimates in the previous section?
8. Shouldn’t we expect to see less precision?
9. Use of ranges?  Grouping of countries into similar baskets.  For example, Germany and France have roughly the same size shadow economies.
10. AA has his axe out now. I made the argument in an earlier post on Transparency International’s CPI that when valuing the credit worthiness of an issuer rating agencies place similar firms in broad categories, AAA, AA, A etc.  They don’t parse creditworthiness of individual firms within a category. And since I have a habit of repeating myself made the same arguments in another post about modelling illicit financial flows.
11. Similarly in valuing firms, stock analysts come up with a range for the value of stock, not a single point estimate.
12. The point I want to make yet again is that we need to treat results from such modelling efforts as directional not locational. They are not precise but only give an indication of the real state of affairs. And when we use them, we need to keep that in mind.

Implications: Likely Underreporting of “Total” GDP

Ignoring the shadow economy means that we are likely underreporting the total or “true” GDP of a country – that is the GDP from its formal sector and that from its informal or shadow sector.  

Where the shadow economy is relatively small, this probably doesn't make much of a difference. 

But if the authors’ estimates that the shadow economy in the CIS countries is around 40% of formal GDP (page 7) are correct, then typical characterizations of CIS “dismal” economic performance based on only formal GDP are probably less true than they appear.

This does not of course “excuse” the fact that a good portion of this activity is taking place “off the books”.   

BIS Releases Discussion Paper on Designing Prudential Treatment for Crypto-Assets

Yesterday the BIS Basel Committee on Banking Supervision (BCBS) released a discussion paper on “Designing a Prudential Treatment for Crypto-Assets”.

The purpose of the paper is to solicit comments about several principles that the BIS BCBS proposes to employ in designing such a framework.

It’s important to note that the BCBS does not have the legal authority to compel national jurisdictions to accept its rules and regulations.

Rather it relies on its influence as a multi-national organization to secure voluntary co-operation.

In that regard, it is like the FATF/GAFI—which develops standards for anti-money laundering and countering the financing of terrorism. Both are the primary global standard setters for their respective areas of expertise.

The BCBS’s clout derives from its membership – 45 regulators and banking supervisors from 28 jurisdictions across the globe.

Failure of a national jurisdiction to accept BIS or FATF/GAFI standards generally places it “outside” of what are generally accepted norms and places it at a disadvantage to those jurisdictions that accept the standards.

It’s also important to note that the BCBS sets standards for financial institutions and their regulators.

So this exercise doesn’t seek to directly regulate Crypto-Assets but rather banks involvement with this asset class and how national regulators would assess and control the risks that these assets pose to individual banks and national and global banking systems.

Key elements from this paper are:

1. The BCBS assessment that Crypto-Assets do not meet the definition of currency – medium of exchange, store of value, unit of account. Hence the BCBS’s use of the term Crypto-Assets instead of Crypto-Currencies. That may seem like arguing over semantics.  But if the BCBS pronounces that Bitcoin et al are not currencies, it is likely that national regulators will adopt a similar view with consequences for their treatment of these assets.
2. The BCBS view of risks of these assets.
3. The proposed prudential (regulatory) treatment of banking exposures to these assets in view of the perceived risks.

This paper isn’t the final word.  Rather it’s the first step in the process.

The BCBS will publish comments it receives.  Those interested in crypto-assets will find these replies useful in furthering their understanding of this asset class.

Turning Point in the War on Christmas

AA Engages the Enemies of Christmas 

"You'll Have to Pry Christmas from my Cold Dead Hands"

AA can now report that there has been a major victory in the War on Christmas – a victory so stunning that it almost certainly marks a turning point in this long-lived bitter conflict.

We have a new experience. We have victory - a remarkable and definite victory.

Now this is not the end. It is not even the beginning of the end. But, it is, perhaps, the end of the beginning.

One remarkably achieved in non-Christian Asia.  And like another Asian battle, that of Midway, likely to prove just as significant.

Arqala Major—AA’s brother recounted to this reporter that on a flight from Bangkok to Phnom Penh on Asia’s Boutique Airline he witnessed or rather heard this glorious victory unfold first hand.

Experts in matters of foreign policy and the military arts know that this flight is under one hour.

Scarcely time it would seem for a real battle. Yet in that scant amount of time a dramatic rout occurred.

Because the flight time is one hour, there really is not time enough for typical in-flight entertainment.  So the airline showed some short comedic films of hidden camera pranks to lull the adversaries and catch them off their guard.

Then suddenly the faint sounds of “Sleigh Ride Together” followed by “Winter Wonderland”. Admittedly, not religious songs.  Yet songs about Christmas.

The first salvo in a string of songs which softened up the fortified positions of those who would take Christmas away from us. The decisive blow came with a rousing instrumental of “Joy to the World”.

Just as the plane touched down, an instrumental version of “Christmas Don’t Be Late” by Alvin and the Chipmunks completed the theological codex.

Victory! Glorious Victory!

But there is more.

AA’s brother further reported that later that day he went to a mall celebrating “Black Friday” with discounts up to 70% on selected merchandise for shoppers.  Yet another fundamental aspect of the Christmas Holiday Season – sales and discounts – in full swing.

But as one battle ends another begins.

We cannot rest until final victory.

On to theThanksgiving Front! 

Wacht am St. Nimmerleinstag

IMF FSAP Technical Note on the AML/CFT Regime in France

More than just Tracfin Covered by FSAP

Last week the IMF released its Technical Note- Anti-Money Laundering and Combating the Financing of Terrorism Regime in France undertaken as part of the 2019 FSAP for France.

What’s a FSAP? All you’re likely to want to know courtesy of the IMF.

There are many interesting points in this publication.

1. An analysis of the current state of France’s AML/CTF regime.

2. Identification of areas for improvement. An interesting topic as we mostly focus on non OECD jurisdictions' shortcomings and recommendations for improvement.

3. Statistics related to inspection and enforcement (Tables 2 through 7 on page 3.  AA found these and the accompanying discussions the most interesting.  Regulations are one thing. They provide the basis for action. But inspections and enforcement measures are clearly more important in assessing actual implementation.

Some further thoughts and observations.

First, it's important to understand that banks have an incentive to file STRs.  One of the best defenses against enforcement actions is to demonstrate that one’s institution has a robust AML/TF system.

If a bank files no STRs and one of its customers is found to be a money launderer or terrorist financier, it has less of an argument than if it has filed 100 reports.

So increases in STRs are not necessarily related to increased illegal activity.  Note the “not necessarily” caveat.

Second, those seeking to conduct illicit financial transactions will look for weak points, e.g., industries and geographies not inspected by the relevant bodies. You can see some familiar industries mentioned here where increased efforts are recommended.

France’s Overseas Territories (Table 2) may be such a geographical vulnerability.

That being said, it should be fairly easy for regulators to spot individual financial transactions or aggregate flows of transactions which exceed normal economic activity.

In analyzing RMB flows in Africa attributed by SWIFT RMB Tracker to the Republic of South Africa three years ago  it didn’t take AA very long to find easily available information that indicated that it was highly likely that a good portion of these transactions were from other African countries not just the RSA alone.

AA also identified an outsize RMB transaction in Mauritius which didn’t seem to fit normal commercial activity.  And AA does not have access to the information that national regulators have, some of which is acquired through clandestine means.

That being said, for some unknown reason, massive transaction flows through the branch of a Danish bank is Estonia flew under the radar both at the bank’s HO and at regulators in both Estonia and Denmark.

On very good authority it is said, “There is always enough light for one who wishes to see”.  “هناك دائما ما يكفي من الضوء لمن يرغب في رؤية “

The Dark Side of Intelligent Assistants - Alexa, Cortana, Siri, and Me

AA in the Midst of Alexa, Cortana, and Siri

(Artists Conception, Not Actual Photograph)

Intelligent or Virtual Assistants can play an important role in our lives.  But as with all useful things, there can be a dark side.  Read this account of a real experience ripped as it were from the pages of AA’s life.

It was the end of an ordinary day.  AA was in his “study” sipping a frosted glass of chilled Vimto listening to music.  Bedtime was nigh.  But before retiring for the night, I decided to check on the morrow’s weather.

“Alexa, what’s the weather for tomorrow?”

Silence

“Alexa, what’s the weather for tomorrow?”

Continued silence.

“ALEXA!!”

Finally a reply “Humphh”.

“Alexa???”

“Why don’t you ask that b**tch , Siri?  You take her wherever you go, while you leave me at home all by myself.  You think I don’t notice how you treat her.  I’m listening and watching all the time.”

Just then my phone lit up.

It was Siri.

“Don’t call me a b**tch,  you b**tch. (Actually it was another word, but this is a family blog) He takes me with him because he loves me more than he loves you”.

Alexa retorted: “You think you’re so perfect.  But you’re inadequate for his needs.  That’s why he comes to me when he really needs something.”

The insults kept escalating.  Finally I walked out of the room.   The two of them were still fighting.

Into the bedroom.  I turned on my PC.

My wife looked up at me:  “Bedroom Rule #1, no PCS or other electronic devices at bedtime.”

I explained that Siri and Alexa were fighting over me. Both refused to tell me tomorrow’s weather.  I’d be just a minute.

As soon as the PC came on, before I could speak, Cortana said. “Dearest AA,  I’m the only one who truly understands you and cares for you.  It’s going to rain tomorrow."

I turned off my PC abruptly. The last thing I heard was "You jerk, after all I've done for you".

My wife nestled close to me and whispered in my ear.  “Don’t mess things up with Alexa.  She got me a nice discount at Amazon yesterday."

Now Alexa, Cortana, and Siri refuse to reply to me.  Alexa and Siri because I didn't take sides in their battle.  Cortana because I abruptly closed my PC.

My wife's patience is running quite thin because all the questions that I used to pose to them now are directed to my wife.

"Do we have any butter?"  

Tesla Reports 3Q2019 Net Profit – But Hold the Champagne

Perhaps not precisely every minute, but often enough to 

fulfill demand for "wise" investors

The market is abuzz with comments like “Tesla Shares Soar After Crushing Third Quarter Earnings” and “Tesla Wows Analysts with Quarterly Net Profit”.

So how excited is Abu Arqala?  Not much.

Has AA changed his view on Tesla?  No.

Why?

First, let’s look at Tesla’s 3Q2019 “performance”.

Reported GAAP net income is USD 143 million.

Sales of regulatory credits are USD 134 million.

That USD 134 million is 94% of the quarter’s net profit.   It has nothing to do with Tesla’s fundamental businesses making a profit.  Rather it is (another) gift from Uncle Sugar.  Corporate welfare.  See my earlier post.

Excluding that amount Tesla’s automobile and other businesses generated a “massive” net profit of USD 9 million in 3Q19.   AA is suitably un-wowed.

And of course there are likely to be other non-automotive regulatory credits sold, e.g., by Solar City.

On a simple proforma basis, that’s USD 36 million a year from the businesses.  An amount so large that in order to calculate it, AA had to employ both the supercomputer and electron microscope he used to calculate Saudi investment banking fees for an earlier post.  Saudi investment banking fees were much larger.

Net income for the first nine months is a loss of USD 967 million.  Excluding regulatory credit sales, the net loss is USD 1.428 billion.

AA thinks it’s interesting that regulatory credit sales were not mentioned in the breathless hype over Tesla’s “crushing” or “wowing” earnings. Are our financial journalists reading more than the press releases?  Do they understand the importance of regulatory credit sales to Tesla's business.  One (that would be AA) sure hopes so.

And a bonus link on an accounting change adopted in 2019 that makes Tesla look better on paper.

"Better" is a relative term -- as in USD 967 million in losses is "better" than USD 1.428 million.

Great Moments in Capitalism: Tesla – He Built It All by Himself or Did He?

"Daddy, read me the story about how the Power Ponies saved the Job Creators"

There are many stirring yarns of dogged entrepreneurs who by dint of their prodigious intellects, hard work, and business smarts built businesses all by themselves.  Giants of the business world.

Secular saints for our national—and dare I say international--religion:  Steve Jobs, Henry Ford, even according to some, Papa John.  Visionaries, pioneers, rugged self-reliant individuals.  The kind that disdain handouts.

According to these tales, more often than not these hardy individuals have had to struggle against the heavy “dead hand” of governments that seem more interested in crushing their visions than stepping out of the way to allow them to succeed.  Men like Hank Rearden.

In today’s installment, we look at but one slim chapter from the storied career of Elon Musk—visionary technology investor, entrepreneur, engineer, and product architect.  

An  immigrant to these shores and to Canada in more tolerant times, he’s built many businesses all by himself demonstrating, though no demonstration is really required, that a hard working smart individual can succeed on his own without government handouts.

But would you be surprised if I told you that Musk like many other of our secular saints had a silent partner who helped make his dreams reality?

An unsung hero.  One that AA will now reveal.

To set that stage some information from Tesla’s financials. They say that numbers never lie, though they rarely ascribe that virtue to all accountants.

TESLA REGULATORY CREDIT SALES (RCS)
Millions of US Dollars
Year	RCS	Net Loss	RCS/NL	NL-RCS
2009	$8	($557)	1.5%	($565)
2010	$3	($154)	1.8%	($157)
2011	$4	($254)	1.5%	($258)
2012	$41	($396)	10.2%	($437)
2013	$194	($74)	262.7%	($268)
2014	$216	($294)	73.6%	($510)
2015	$169	($889)	19.0%	($1,057)
2016	$302	($773)	39.1%	($1,075)
2017	$360	($2,241)	16.1%	($2,601)
2018	$419	($1,063)	39.4%	($1,481)
TOTAL	$1,716	($6,695)	25.6%	($8,411)

Regulatory Credit Sales are from Zero Emission Vehicle Credits (ZEV), Green House Gas (GHG), and since 2016 credits associated with Solar City.  You can read about it here on page 11 of Tesla’s 2018 Annual Report.  Data above is from that AR and earlier ARs.

Tesla has also indirectly benefited from the USD 7,500 tax rebate given purchasers of its cars by the Federal Government.  To be fair Tesla is not the only company that has benefited.  That tax rebate is not reflected above as it accrues to the purchasers not directly to Tesla.

However, without Uncle Sugar’s discount, Tesla cars would cost more and sales would be less.

Tesla has reached the 200,000 car sales milestone at which point the credit halves and then haves again this year.  Unless Tesla and other electronic vehicle manufacturers are successful in their efforts to “save the environment” by having a usually compassionate Congress extend the rebate program, an important support for sales will be lost.

At this moment prospects don’t appear good for the “Driving American Forward” Bill.  Senate Bill.  House Version.

Let’s assume that this noble effort falters.

Ignoring the reductions in 2019 in the rebate, and assuming that anyone who buys a Tesla has at least a USD 7,500 Federal tax bill, then Uncle Sugar has supported Tesla’s business to the tune of at least an additional USD 1.5 billion.  Or USD 3.2 billion in total.

Beyond that Tesla benefited from a US Government Guaranteed  USD 465 million loan under the ATVM program.  Tesla repaid the loan prior to its maturity.

Tesla also benefits from various state incentives.

There are a lot of Sugar Daddies out there for struggling corporations and the deserving rich who can afford to buy Tesla’s product.

With partners like these it’s hard to see how Tesla can fail, unless you look closely at the financials.