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Archive for the ‘Bank Failure’ Category

Will ‘Too Big to Fail’ Banks Charge for Deposits?

Posted by Larry Doyle on November 25th, 2013 9:38 AM |

$82 billion.

What does that figure represent? The subsidy (aka competitive advantage) that accrues to our major banking institutions from favorable borrowing rates given their status as ‘too big to fail.’

Those tens of billions of dollars truly represent a nice, big head start for a handful of banks, and a withering assault on the precepts of free market capitalism for the rest of us.

As if $82 billion were not enough of a subsidy, let’s not forget that these banks pay you, as a depositor, virtually zero interest for the ‘privilege’ of holding your money there. Well, that may be changing. How so? How would you like to actually pay interest to the banks in order to keep your money in their institutions? Really? No way?

Yes way.  (more…)

5 Years Later: Banks Still Too Leveraged

Posted by Larry Doyle on September 12th, 2013 9:09 AM |

Do you think there is a reason why bank balance sheets are so convoluted and opaque? Of course there is.

The lack of meaningful transparency allows the banks to continue to employ excessive degrees of leverage across a widely disparate array of businesses and with a paucity of competition all in the hope of generating outsized returns. But who do you think bears the ultimate risk?

They pursue these paths with the support of the Federal Reserve’s zero interest rate policy and a regulatory system that belies meaningful oversight despite those who might want us to believe that Dodd-Frank brought reform to the system.

Former FDIC chair Sheila Bair does not leave much to interpretation on these topics.  (more…)

Holder Refutes Obama with “Indictment” of TBTF

Posted by Larry Doyle on March 12th, 2013 8:25 AM |

In December 2011, President Obama was interviewed on 60 Minutes and had the following exchange with CBS’ Steve Kroft in regard to behaviors on Wall Street:

KROFT: One of the things that surprised me the most about this poll is that 42%, when asked who your policies favor the most, 42% said Wall Street. Only 35% said average Americans.

My suspicion is some of that may have to do with the fact that there’s not been any prosecutions, criminal prosecutions, of people on Wall Street.

And that the civil charges that have been brought have often resulted in what many people think have been slap on the wrists, fines. “Cost of doing business,” I think you called it in the Kansas speech. Are you disappointed by that? (more…)

Why Should The Banks Be Broken Up?

Posted by Larry Doyle on January 14th, 2013 9:54 AM |

As much as I detest the involvement of the government in what are supposed to be free markets, I can appreciate the need for Uncle Sam’s stepping in to save our banking system in late 2008.

Now going on five years hence, it is time that we move to save capitalism. How do we do this? We need to break up the banks. Why so? Here’s a handful of reasons why:  (more…)

Sleepless in Seattle . . . FHLB-Seattle, That Is

Posted by Larry Doyle on November 10th, 2009 4:28 PM |

Having broached expectant difficulties in the Federal Home Loan Bank system last spring, I try to keep a close eye out for news of note on this largely unknown – but critically important – system of banks. To a large extent, the FHLBs have been flying under the radar despite some serious problems within their investment portfolios and loan books.

High five to KD for pointing out that the folks at FHLB-Seattle probably are not getting much sleep these days. Why is that? Insufficient capital will do it to you every time. As the American Banker offers, FHLB Seattle Still “Undercapitalized,” Regulator Says:

The Federal Housing Finance Agency said late Friday that the Federal Home Loan Bank of Seattle remains “undercapitalized” and will not be allowed to redeem or repurchase stock or pay dividends.

At the end of 2004, as the bank struggled with the size of its mortgage purchase program, it said members who wish to redeem their stock must wait five years before receiving their money.

But with that time period almost up, the Finance Agency said it would not allow the bank to begin redeeming stock, fearing it could lower its capital base. (more…)

Sheila Bair Trumps Tim Geithner

Posted by Larry Doyle on October 29th, 2009 9:52 AM |

FDIC Head Sheila Bair

“Too big to fail.”

Do you think the American public is sufficiently sickened by that phrase? No doubt.

How will our ‘wizards in Washington’ handle this monstrous issue going forward? Is there any doubt that the industry itself should be held accountable to provide the necessary capital to unwind firms deemed ‘too big to fail?’ Of course not. However, the execution of that policy is where the rubber meets the road and where we learn who in Washington is truly working for the American public and who is working for the financial industry. How so? Let’s navigate. (more…)

Financial Chicanery and Accounting Charades

Posted by Larry Doyle on October 1st, 2009 11:38 AM |

Financial chicanery and accounting charades come in all shapes and sizes. From mismarking trading positions on Wall Street to running massive Ponzi schemes and with many other stops along the way, the games people play to accrue false profits and cover real losses are endless. That said, all this artifice ultimately does end as the true value, or lack thereof, of the underlying assets is flushed out. For this very reason, I remain extremely concerned about the economy and overly conservative in my approach to the markets.

While we could debate at length about the necessity and efficacy of the FASB’s relaxation of the mark-to-market accounting for bank assets, ultimately the accounting will not truly matter. Why? The value of the assets on the banks’ balance sheets will find their true level. In the process, the banks will be sufficiently capitalized, or not. My bet is that many more of these banks will not be sufficiently well capitalized. Additionally, do not expect bank examiners and regulators to share this information.

I see clear evidence of this exact scenario in reading Bloomberg’s esteemed columnist Jonathan Weil’s commentary, Banks Have Us Flying Blind on Depth of Losses:

There was a stunning omission from the government’s latest list of “problem” banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.

It failed last week.

Georgian’s clean-up will be unusually costly. The book value of Georgian’s assets was $2 billion as of July 24, about the same as the bank’s deposit liabilities, according to a Federal Deposit Insurance Corp. press release. The FDIC estimates the collapse will cost its insurance fund $892 million, or 45 percent of the bank’s assets. That percentage was almost double the average for this year’s 95 U.S. bank failures, and it was the highest among the 10 largest ones.

Do you think Georgian Bank was a special situation that somehow slipped past the accountants, examiners, and regulators? If you believe that, I have some AAA sub-prime CDOs for you that really look like good value.

What do we learn with the failure of Georgian? As Weil attests:

The cost of Georgian’s failure confirms that the bank’s asset values were too optimistic. It also helps explain why the FDIC, led by Chairman Sheila Bair, is resorting to extraordinary measures to replenish its battered insurance fund.

How many other ‘Georgians’ are out there? Plenty. The material difference amidst the banking system is the composition of the loan and investment portfolios of different institutions. Despite the fact that the FASB, pressured by Congress and Wall Street, has allowed banks to utilize chicanery and charades to cloud our view, fortunately we have journalists like Jonathan Weil to provide some clarity.

Might we be able to get Mr. Weil to shed some light on “Analyst Exposes Wells Fargo Balance Sheet Charade”?


Why Is the Market Selling Off Today?

Posted by Larry Doyle on April 20th, 2009 2:30 PM |

The broad equity market indices are down 3+% on the day. Why would that happen when the bulk of company news today was generally positive?  At least on the surface the news was positive:

1. Bank of America posted .44 earnings per share vs. expectations of .04
2. Eli Lilly earnings were up 23% outpacing expectations.
3. Halliburton disappointed with earnings down 35% but that is due to the massive correction in the price of oil from a year ago.
Merger Activity:
4. Oracle is purchasing Sun Microsystems in a $7.4 billion deal.
5. Pepsi is buying two bottling companies for $6 billion.
6. Glaxo is purchasing Stiefel for $2.9 billion.

Leading economic indicators declined by .3 but that decline is offset by an improved reading from the prior month.

Then, why is the market down so much? Two reasons are promoted, but only one of them is getting proper coverage.

Market analysts supposedly are focused today on the ongoing increases in chargeoffs and writedowns on the loan portfolios in the banking industry. These loans consist of credit card loans, residential mortgages, commercial mortgages, and corporate loans.

I don’t buy this line of reasoning for today’s selloff. Increased chargeoffs and writedowns have been widely expected for a while. The level of reserves taken by the banks has been widely panned as being insufficient. Then why is the market down so much? (more…)

“Beholden to Failed Banksters”

Posted by Larry Doyle on April 9th, 2009 3:56 PM |

Any investor or manager with a degree of experience knows that the “first loss is the best loss.” What do I mean by that? Once the market detects a loss or a weakened position, the price for that asset will remain capped unless and until the asset is sold or liquidated. This price action occurs in every sector of every market.

Welcome to the world of global finance 2009. As banks, insurance companies, hedge funds, and other financial entities deal with losses, we see a lack of aggressive posture being taken on dealing with these losses. Why? Once moral hazard is violated with a single entity, every other entity will look to violate it as well.

Immediate losses are forestalled in hopes that they will be covered or disguised. However, every loss ultimately must be recognized. By whom  and how is the question.

At this juncture, more of the losses in our financial system are being directed toward the taxpayers. How? Via the wide array of government programs. What is the cost? A likely underperforming economy due to a lack of credit, and higher taxes to offset lower revenues.  (more…)

Bank Stress Tests: Major Sham??

Posted by Larry Doyle on April 8th, 2009 11:35 AM |

failing-grade1Why is it urban school dropout rates are 50%? Well, I am sure there would be as many reasons for that horrendous statistic as there are dropouts. The fact of the matter is, though, the state of urban education has promoted a phenomena known as “social promotion.” If students aren’t qualified to do the work, testing has been gamed, standards have been lowered, and corners have been cut. As a result, urban education at this stage is an unmitigated disaster. What does this have to do with the current state of our economy and the world of finance? I am glad you asked.

If banks, much like students, are not required to pass rigorous testing, then “social promotion” in finance will produce results not unlike those in education–underperformance and ultimately an inability to compete on the global stage.

Against that backdrop, I personally looked forward to the results of the Bank Stress Tests. Let’s finally get an honest assessment of the “students.” Let’s see how they have performed and let’s project to see how they will perform!!

As with any test, the results are only meaningful if the process and proctor have unquestioned integrity. The proctors for the Bank Stress Test are none other than Treasury Secretary Tim Geithner and Fed chair Ben Bernanke. Why is a testing authority of the magnitude of FDIC, led by Sheila Bair, not more involved in the process? Ms. Bair is the one individual in our country with the greatest level of interaction with and understanding of the student body, that being the banking industry as a whole and individual banks specifically. (more…)

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