How to swim through the political whirlpool

Deutsche Bank’s Frank Kelly gave conference delegates food for thought on political risk around the world. As Managing Director and Head of Government Affairs for the Americas, Kelly is well-positioned to give an informed view. Business Editor, Lindsey Turnbull reports in this first part of a two-part series. This month Kelly focuses on changing US policy.

Referring to a “sea of political change” and a “whirlpool of financial crisis”, Kelly said both needed careful navigation at this present juncture.

The US government’s mantra under the new Obama Administration is “throw long and deep” and Kelly cited a long list of topics that would be high on the new administration’s agenda, including economic stimulus, infrastructure and auto industry bail out as top of the list.

With the hacking of Obama’s website during the run up to the US election late last year, Kelly predicted infrastructure spending to be a top priority, not just in traditional areas such as roads, airports and parks, but also on building cybersecurity “building up an internet backbone.”

Tax reform will also be a huge issue for the US under Obama as the new administration will be facing “a massive bill for 2009”.

Kelly said Obama’s tax reform bill will most likely include good news for tech and industries; include lower corporate tax rates for firms expanding operations in the US; and will reduce “corporate loopholes” and reallocate multinational tax deductions.

National healthcare reform would also be in the spotlight. “This will be signature legislation from Senator Ted Kennedy, currently suffering from terminal brain cancer and most likely therefore his last hurrah,” Kelly said.

Kelly also said that financial services reform will also be on the agenda, the most important agenda item for financial services practitioners in Cayman. Kelly furthered that “without a doubt, the mortgage industry will be overhauled in 2009, including the way property is appraised, underwritten and securitised.”

He said, “In Europe, every securitisation company has to retain a 5 percent stake in the bond. I predict this will also be a requirement in the US, but perhaps at between one to 2 per cent.”
Bankruptcy reforms will also take place with the current US Bankruptcy Code amended to allow individuals to enter Federal bankruptcy courts and appeal. Mortgages would be able to be rewritten (called the “cramdown rate) whereby monthly repayments can be reset, “causing chaos in the securitisation market”, according to Kelly.

“I predict financial services reform to take place in the first quarter of 2009,” he confirmed.

Energy and climate change will become huge features under Obama. “Everything will be viewed through a green prism,” Kelly said. “Energy companies will need to produce fifteen percent of energy from a renewable source,” he estimated.

Immigration policies will also be scrutinised. Kelly said Obama had already place d Republican former Presidential candidate John McCain as his captain to get his policies here through congress.

“He has created a formidable team, which included Chief of Staff Rahm Emanuel. Expect some sort of forgiveness plan when it comes to immigration, whereby illegal immigrants will have some programme for applying to legally reside and work in the US and eventually apply for citizenship. The tech and biotech industries will be driving the train, desperate for highly trained non US citizens to work within their industries,” Kelly explained.

He went on to say that Microsoft head Bill Gates had tried for years to push for immigration reform and eventually relocated his research centre to Vancouver, with an immediate contribution to the economy of Canada and to the detriment of the US.

Next month Kelly talks about US trade agreements with China and India and discusses simmering political hot spots of Iran, Afghanistan and others.



Frank Kelly (r) with IMAC Chairman Ron Sulisz