Tag Archives: Banks

U.S. Quietly Drops Bombshell: Wall Street Banks Have $2 Trillion European Exposure, by Pam Martens and Russ Martens

Remember those deadly interlinked financial exposures that almost brought down the global economy in 2008? They’re worse now. From Pam Martens and Russ Martens at wallstreetonparade.com:

Just 17 days from today, Donald Trump will be sworn in as the nation’s 45th President and deliver his inaugural address. Trump is expected to announce priorities in the areas of education, infrastructure, border security, the economy and curtailing the outsourcing of jobs. But Trump’s agenda will be derailed on all fronts if the big Wall Street banks blow up again as they did in 2008, dragging the U.S. economy into the ditch and requiring another massive taxpayer bailout from a nation already deeply in debt from the last banking crisis. According to a report quietly released by the U.S. Treasury’s Office of Financial Research less than two weeks before Christmas, another financial implosion on Wall Street can’t be ruled out.

The Office of Financial Research (OFR), a unit of the U.S. Treasury, was created under the Dodd-Frank financial reform legislation of 2010. It says its role is to: “shine a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose, and provide policymakers with financial analysis, information, and evaluation of policy tools to mitigate them.” Its 2016 Financial Stability Report, released on December 13, indicates that Wall Street banks have been allowed by their “regulators” to take on unfathomable risks and that dark corners remain in the U.S. financial system that are impenetrable to even this Federal agency that has been tasked with peering into them.

At a time when international business headlines are filled with reports of a massive banking bailout in Italy and the potential for systemic risks from Germany’s struggling giant, Deutsche Bank, the OFR report delivers this chilling statement:

“U.S. global systemically important banks (G-SIBs) have more than $2 trillion in total exposures to Europe. Roughly half of those exposures are off-balance-sheet…U.S. G-SIBs have sold more than $800 billion notional in credit derivatives referencing entities domiciled in the EU.”

To continue reading: U.S. Quietly Drops Bombshell: Wall Street Banks Have $2 Trillion European Exposure

 

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Italy Banking Crisis is Also a Huge Crime Scene, by Don Quijones

Another article about the Italian banking crisis, because it is one of our leading contender for the crisis that kicks off the global crisis. From Don Quijones at wolfstreet.com:

Toxic loans as a result of corruption, political kickbacks, fraud, and abuse.

The Bank of Italy’s Target 2 liabilities towards other Eurozone central banks — one of the most important indicators of banking stress — has risen by €129 billion in the last 12 months through November to €358.6 billion. That’s well above the €289 billion peak reached in August 2012 at the height of Europe’s sovereign debt crisis.

Foreign and local investors are dumping Italian government bonds and withdrawing their funding to Italian banks. The bank at the heart of Italy’s financial crisis, Monte dei Paschi di Siena (MPS), has bled €6 billion of “commercial direct deposits” between September 30 and December 13, €2 billion of which since December 4, the date of Italy’s constitutional referendum.

Italy’s new Prime Minister Paolo Gentiloni, who took over from Matteo Renzi after his defeat in the referendum,said his government — a virtual carbon copy of the last one — is prepared to do whatever it takes to stop MPS from collapsing and thereby engulfing other European banks. His options would include directly supporting Italy’s ailing banks, in contravention of the EU’s bail-in rules passed into law at the beginning of this year. Though now, that push comes to shove, the EU seems happy to look the other way.

While attention is focused on the rescue of MPS, news regarding another Italian bank, Banca Erturia, has quietly slipped by the wayside.

On Friday it was announced that the first part of an investigation concerning fraudulent bankruptcy charges, in which 21 board members are implicated, had been closed. This strand of the investigation concerns €180 million of loans offered by the bank which were never paid back, leading to the regional lender’s bankruptcy and eventual bail-in/out last November that left bondholders holding virtually worthless bonds.

To continue reading: Italy Banking Crisis is Also a Huge Crime Scene

If Everything is so Bullish, Why Are Bank Insiders Dumping Their Shares at Record Pace? by Wolf Richter

Nobody ever sells because they think a stock is going up; so the old adage goes. From Wolf Richter at wolfstreet.com:

What are they seeing from their perch that we don’t?

The Big Bullish signal with a capital B – for those who believe in this kind of religion – was that the Dow Jones Transportation Average jumped to a new high on Wednesday for the first time since 2014, and that it rose again on Thursday to another record, even as the Dow also hit new records. The theory goes that transportation stocks predict the broader market in some manner.

There were other bullish signals. Everyone is finding them suddenly everywhere. The hopes are flying high that whatever Trump is going to do – from instigating trade wars to letting Goldman Sachs run the Trump administration – it’s suddenly all good for stocks.

Then why are insiders at banks and industrial companies selling their share as if there were no tomorrow?

Banks had a blistering run. The shares of Wells Fargo, the most hated bank in America these days, soared 28% over the past 30 days, Citigroup 25%, JP Morgan 26%, Goldman Sachs, which is successfully placing its people inside the Trump administration, 37%. It has surged 50% since the end of October, when insiders figured that Trump had a big chance of winning:

In fact, financials have become the S&P 500’s best-performing sector.

Italians Vote “No,” Renzi to Resign, Banking Crisis Now Looking for Taxpayers, by Wolf Richter

The Italians have rejected Prime Minister Matteo Renzi’s constitutional change and he has indicated he will resign. The implications may be dire for Italy’s banks, depositors, and taxpayers. From Wolf Richter at wolfstreet.com:

Teetering Eurozone banks exposed to flying shrapnel.

A constitutional referendum on tweaking the way a country governs itself, of the type Italy held today, would normally not be a big deal for banks in that country, and particularly not for banks in other countries, and it wouldn’t have much impact on currencies and credit markets. But these are not normal times for Italy, which is in the middle of a vicious banking crisis, and they’re not normal times for the EU either, which has been grappling with a banking crisis of its own, even as it has begun to splinter, after the Brexit vote.

And it still wouldn’t be such a huge deal if Prime Minister Matteo Renzi hadn’t pledged he’d resign in case of a “no” vote.

Now the Italians have voted “no” by a resounding margin, according to preliminary results. Without waiting for final results, Renzi announced in a televised address to his compatriots that he intends to resign.

Renzi admitted that the vote had been a “clear” rejection of the proposed constitutional reform. “The experience of my government ends here,” he said. He’d meet with his cabinet on Monday and then turn in his resignation to President Sergio Mattarella. He took full responsibility for the humiliating defeat.

Now all bets on Italy’s political, economic, and financial stability are, once again, off. And by extension, the stability – what remains of it – of the Eurozone.

Renzi’s resignation could lead to new elections later next year. During these elections, opposition parties that had campaigned on the “no” vote could surge, with the 5-Star Movement gaining additional traction. The 5-Star Movement has long campaigned on an anti-euro platform.

To continue reading: Italians Vote “No,” Renzi to Resign, Banking Crisis Now Looking for Taxpayers

Hit by Global Turmoil, Banks in Spain Get Jittery (Again), by Don Quijones

Which banking system will implode first, Italy’s or Spain’s? Here’s a look at the Spanish banking system, with a particular emphasis on their exposure to emerging markets, from Don Quijones at wolfstreet.com:

Big Trouble in Emerging Markets.

Banking stocks in Europe continue to benefit from the gravitational pull exerted by the so-called Trump effect. But the effects have not been felt universally. Monte dei Paschi di Siena, which is at the center of Italy’s banking crisis, has been reduced to a penny stock. The shares of Italy’s other large banks continue to trend downwards. And the problems in other national banking sectors have not gone away; they’ve just been consigned to the background. Such is the case in Spain, where the risks and challenges in the country’s banking system continue to bloom.

Spain’s Very Own Homegrown Monte dei Paschi.

The multiyear decline of Banco Popular, Spain’s fourth biggest bank, has been no less spectacular than Monte dei Paschi’s, having lost 98% of its stock value in the last nine years. The shares are now worth just €0.85 (compared to over €15 in 2007) and continue to shed value. Over 7% of its shares are being shorted by London and Connecticut-based hedge funds.

The biggest cause of concern is Popular’s plan to spin off €6 billion of impaired property assets into a vehicle optimistically christened “Sunrise,” which might not go far enough given the bank is estimated to have €30 billion of toxic assets festering on its balance sheets. In its latest report, S&P declined to downgrade Popular’s rating, though its choice of words at times, including “moderate solvency” and “ambitious plan” (to describe Sunrise), hardly inspire confidence.

To continue reading: Hit by Global Turmoil, Banks in Spain Get Jittery (Again)

 

Goldman Sachs Just Launched Project Fear in Italy, by Don Quijones

Italy has a referendum on constitutional reform coming up that may be just as momentous as the Brexit vote. From Don Quijones at wolfstreet.com:

Things could get very ugly, very fast, if those bank bonds collapse.

Project Fear began two years ago in the run up to Scotland’s national referendum. It then spread to the rest of the UK in the lead up to this summer´s Brexit referendum. But it keeps on moving. Its latest destination is Italy, where the campaign to instill fear and trepidation in the hearts and souls of Italy’s voters was just inaugurated by the world’s most influential investment bank, Goldman Sachs.

It just released a 14-page report warning about the potentially dire consequences of a “no” vote in Italy’s upcoming referendum on the government’s proposed constitutional reforms. The reforms seek, among other things, to streamline Italy’s government process by dramatically restricting the powers of the senate, a major source of political gridlock, while also handing more power to the executive.

The polls in Italy are currently neck and neck, though the momentum belongs to the reform bill’s opponents.

If the Italian public vote against the bill, the response of the markets could be extremely negative, warns Goldman, putting in jeopardy the latest attempt to rescue Italy’s third largest and most insolvent bank, Monte dei Paschi di Siena. The rescue is being led by JP Morgan Chase and Italian lender Mediobanca, and includes the participation of a select group of global megabanks that are desperate to prevent contagion spreading from Italy’s banking system to other European markets, and beyond. They include Goldman Sachs [Big European Banks Try to Block Contagion from Italian Banking Crisis (Before it Sinks them)].

In the event of a “no” vote, MPS’ planned €5 billion capital increase would have to be put on ice, while investors wait for the political uncertainty to clear before pledging further funds. This being Italy, the wait could be interminable and the delay fatal for Monte dei Paschi and other Italian banks, Goldman warns. It also points out that Italy is the only European country where a substantial portion of its bank bonds are held in household portfolios (about 40% according to data from Moody’s, four times more than Germany and eight times more than France and Spain).

In other words, things could get very ugly, very fast, if those bank bonds collapse! As for Italian government bonds and Europe’s broader debt markets, they would be insulated from any fallout by former Goldmanite Mario Draghi’s bond binge buying.

Goldman’s report has one main purpose: intimidating Italy’s electorate into following the government — and EU — line. Failure to do so would be tantamount to economic suicide, since it would trigger the collapse of the banking system and the mass destruction of billions of euros of Italian household wealth.

That may well be what happens in the end, but it won’t be due to the voting preferences of Italy’s electorate, whatever Goldman may claim. After all, it’s not like investors are not already perfectly aware of the chronic weaknesses of Italian banks. Italian banking shares have crashed. Just as ominous, the Bank of Italy’s liabilities towards other Eurozone central banks rose to a record high of 326.95 billion euros in August, above levels not seen since the height of the euro sovereign debt crisis four years ago.

In other words, investors and depositors — both foreign and domestic — appear to be voting with their feet.

To continue reading: Goldman Sachs Just Launched Project Fear in Italy

Nightmare on Wall Street: Republicans & Democrats Agree on Reinstating Glass-Steagall Act, by Wolf Richter

SLL says get the government entirely out of banking—no deposit insurance, no central bank as lender of last resort, no too big to fail, no discretionary monetary policy, market-determined interest rates—and you won’t need to reinstate Glass-Steagall’s separation of commercial and investment banking. However, since the above is not going to happen, by all means reinstate Glass-Steagall. Presumably taxpayers would only then be on the hook for deposit insurance liabilities. Don’t hold your breath, though, waiting for a new Glass-Steagall. From Wolf Richter at wolfstreet.com:

I can already hear the sloshing sounds of money.

An amazing thing happened at the Republican Convention when some unexpected language showed up in the official 66-page Republican Platform 2016, a document that a delegate from Texas enthusiastically called, “the most conservative platform in modern history.”

And therein is this sentence:

We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment.

It’s followed by this bit of wisdom: “Sensible regulations can be compatible with a vibrant economy….” By extension, reinstating the Glass-Steagall Act would be that “sensible regulation.”

Upon hearing about this, Wall Street executives and just about everyone else at JPMorgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and a slew of others, plus central bankers in the US and abroad, especially those that cut their teeth at Goldman Sachs, plus Treasury officials and revolving-door beneficiaries, they all ran to their respective johns and vomited.

Reinstating the Glass-Steagall Act would mean separating federally insured deposit-taking banks from everything else and limiting their activities to classic banking. Once implemented, it would bring about a form of financial sanity and decades of financial stability among banks. Hedge funds like Goldman Sachs would presumably be allowed to collapse under their risks and go bankrupt without bailout, handing juicy losses to stockholders, bondholders, counterparties, and others, including possibly even executive pension plans.

This was a lesson learned during the Great Depression. Separating those risks from banks, and keeping banks smallish, worked for decades until a Republican Congress and President Clinton conspired to abolish the act. It took banks only eight years of gorging on risks and merging with hedge funds and cheating and running wild and thinking they were gods, before the financial system began to crack in 2007.

Nothing was learned from the Financial Crisis. Risks are now much bigger than ever before, and more concentrated, and banks are now officially too big to fail and too big to jail, and everyone knows it.

But if Republicans are for reinstating the Glass Steagall Act, why hasn’t it happened yet? They’ve run Congress for years, and not even as much as a distant rumble has come forth about reinstating Glass-Steagall.

Besides, they’re not the only ones.

Turns out, on June 25, similar language showed up in the draft of the Democratic Platform, under the evil heading “Wall Street Reform,” and it reappeared in the July 1 version of the draft in slightly watered-down form (emphasis added):

Democrats will not hesitate to use and expand existing authorities as well as empower regulators to downsize or break apart financial institutions when necessary to protect the public and safeguard financial stability, including new authorities to go after risky shadow-banking activities. Banks should not be able to gamble with taxpayers’ deposits or pose an undue risk to Main Street. Democrats support a variety of ways to stop this from happening, including an updated and modernized version of Glass-Steagall and breaking up too-big-to-fail financial institutions that pose a systemic risk to the stability of our economy.

To continue reading: Nightmare on Wall Street: Republicans & Democrats Agree on Reinstating Glass-Steagall Act