Speculation, rational expectations and financial crisis in Colombia thanks to interbolsa and monetary policy

Last week this note talked about credit crunch in Colombia, this week this note is about financial speculation in Colombia, the big conclusion is straight, Colombia will start a financial crisis if monetary authorities do not take right decisions about lower interest rate and easier credit to citizens

 Colombian financial sector faced a shock last week, the government took in hands a private financial intermediate called Interbolsa who belongs to the international Group Interbolsa that has business in the United States, Panama and Brazil. The issue was lack of liquidity to pay her short run liabilities. Interbolsa seems to play speculation through huge debts from local banks and citizens savings. Interbolsa handles a nominal value of US$1,136 million in November of 2012 through 16 private and mutual funds (portfolios), it means 0.34% of total GDP in Colombia.  Government, private sector and citizens  are concerned about the real value of Interbolsa’s  funds, if the real value is that one pointed above, there is no problem but if the value of her funds are lower, then Colombia can face a financial crisis. Interbolsa is one of biggest financial intermediates in Colombia and she has many  customers. This note shows the 1.53% of Interbolsa fund is fair rated, this percentage belongs to Fabricato’s shares (textile factory) owned by Interbolsa, therefore government has a hard work to rate the remaining  98.47% of Interbolsa fund. Citizens are waiting for good news.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

It can be download @ click

Colombia faced a financial shock last week. One of main financial intermediaries named Interbolsa (collective investment schemes) was taken into public hands, this financial intermediate belongs to Interbolsa Group that has branches around Latin America and North America. It seems the financial institution does not have liquidity to pay her short run liabilities, although she has many assets as a collateral such as shares and short run financial assets, they seem to face high risk. The government body called Superintendencia Financiera is doing the real valuation of Interbolsa’s assets, meanwhile this note points that Fabricato’s share was not the reason of this crisis, moreover this share shows its real value in local stock exchange (it is fair to point that I do not have any financial assets, my only wealth is a laptop, my low teacher wage and my purpose to reach a better society). As soon government took Interbolsa, the media broadcast that this financial intermediate bought huge volume of shares from a textile factory called Fabricato, therefore it could be room for speculation due to this financial intermediate could try to increase Fabricato’s share price to sell them after and getting high lazy profits. 

Fabricato is a long history factory in Colombia, she started business around 1920 and through time she has improved her business with international capitalization and local debt, there is huge expectation for this factory due to Free Trade Agreement signed with the United States. This textile factory has 9,200,309,888 shares in local stock exchange market, each share shows a price of US$0.05 in November of 2012. Interbolsa (the financial intermediate) bought 3.79% of the total volume of Fabricato’s shares that means US$17.4 million in November of 2012 or 1.53% of Interbolsa’s fund value as table 1 shows. 

Table 1. Interbolsa’s mutual and private funds in November of 2012

(US$ million and GDP %)

Mutual funds	US$million	Private funds	US$million
Interbolsa credit	286.0	Tribeca energy fund	196.2
Interbolsa Renta Ya	138.1	Tribeca fund I	131.1
Comprar para arrendar interbolsa inmobiliaria	69.9	Tribeca home care	74.8
Interbolsa factoring	48.5	Tribeca terminal de carga el dorado	58.3
Interbolsa agro 60	34.3	Interbolsa inversiones de capital	45.6
Interbolsa acciones	14.0	Inmobiliario grupo interbolsa	20.6
Interbolsa renting III	12.2
Interbolsa gestion alternativa	3.3
Brasil renta variable	2.6
Interbosa alpha trading	0.4
Subtotal	609.2		526.5
Interbolsa’s fund total US$million	1,136
Fabricato’s shares in total Interbolsa’s  fund (%)	1.53
Interbolsa’s fund as a share in financial GDP Colombia (%)	1.84
Interbolsa’s fund as a share in total GDP Colombia (%)	0.34

Source: own calculations, Interbolsa webpage and Colombia stock exchange.

Interbolsa has 16 financial funds as table 1 shows, they reached a value of US$1,136 million in November of 2012. This value shows a share of 1.85% in Colombia’s financial GDP or 0.34% of Colombia’s total GDP, therefore Interbolsa dealt with huge volume of monetary resources and the most important is to know who bought shares from these funds (regular citizens, banks, rich people, foreigners,...). We hope that the real value of these funds are that one broadcast by the financial intermediate, in case that they face a lower value, it can be the start of financial crisis in Colombia. 

Start working: real value of Fabricato’s share

Fabricato’s share price shows two peaks in 2005 and 2011, the first one was due to share issue and the second one was due to strong capitalization through local debt and foreign capital as figure 1 shows. Fabricato’s share price shows a Compound Annual Growth Rate (CAGR) of 18.4% between 2001 and 2012. This textile factory faced Gross Profits of  9.6% of her total capital (assets minus liabilities) in 2011 and her Operating Profits was 2.0% of her total capital, these profits have showed a regular movement in last 10 years. 

Figure 1. Colombia stock index* and Fabricado share index 2001-2012

(daily data)

*IGBC: Índice General de la Bolsa de Colombia (Colombia stock index).

Source: own calculations and Colombia stock exchange.

Figure 2 shows Tobin’s q for Fabricato, this indicator gives information about Fabricato’s market value (in stock exchange market) and Fabricato’s books value, if this indicator is around 1, one can say fabricato’s shares are well rated by market, if this indicator is close to zero, the factory faces lack of projects to improve her future production and if the indicator is far from 1, the factory is over rated by the stock exchange market, in the last case it can be speculation. 

Through this information one can reach the conclusion that Fabricato’s share is fair rated and there is no evidence of speculation in its value.

Figure 2. Tobin’s q for Fabricato 2001-2012

(annual data)

Source: own calculations, Superintendencia de Sociedades and Colombia stock exchange.