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On Tuesday: BofA disputes report on $10 billion raising
We Can't Subsidize the Banks Forever
Government has to show it can handle major insolvencies.
By MATTHEW RICHARDSON and NOURIEL ROUBINI
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Nothing has changed fundamentally in the financial sector. However, it is interesting to see how the opportunistic media only report opinions fitting to the present general sentiment. Now suddenly they listen to Roubini again because the outcome of the stress test sounds more and more frightening. Where have those reports been the last couple of weeks when the banks "looked" bright again. I don't think Roubini felt different one single second the last couple of weeks, media simply did not want to report his opinion. Media are nothing else than bagholders to the actual sentiment. If stocks are moving up, they report positive news, if stocks are going down they report the bad news. Don't trust them.
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The results of the government's stress tests on banks, to be released in a few days, will not mark the beginning of the end of the financial crisis. If we are to believe the leaks, the results will show that there might be a few problems at some of the regional banks and Citigroup and Bank of America may need some more capital if things get worse. But the overall message is that the sector is in pretty good shape.
This would be good news if it were credible. But the International Monetary Fund has just released a study of estimated losses on U.S. loans and securities. It was very bleak -- $2.7 trillion, double the estimated losses of six months ago. Our estimates at RGE Monitor are even higher, at $3.6 trillion, implying that the financial system is currently near insolvency in the aggregate. With the U.S. banks and broker-dealers accounting for more than half these losses there is a huge disconnect between these estimated losses and the regulators' conclusions.
The hope was that the stress tests would be the start of a process that would lead to a cleansing of the financial system. But using a market-based scenario in the stress tests would have given worse results than the adverse scenario chosen by the regulators. For example, the first quarter's unemployment rate of 8.1% is higher than the regulators' "worst case" scenario of 7.9% for this same period. At the rate of job losses in the U.S. today, we will surpass a 10.3% unemployment rate this year -- the stress test's worst possible scenario for 2010.
The stress tests' conclusions are too optimistic about the banks' absolute health, although their relative assessment is more precise, because consistent valuation methods were used. Still, with Thursday's announcement of the results, it shouldn't be a surprise when the usual suspects emerge. We fear that we are back to bailout purgatory, for lack of a better term. Here are some suggestions for how to extricate ourselves.
First, while Treasury Secretary Timothy Geithner's public-private investment program (PPIP) to purchase financial firms' assets is not particularly popular, we hope the government doesn't give up on it. True, the program offers cheap financing and free leverage to institutional investors, which will lead to the investors overpaying for the assets. But it does promote price discovery and remove the assets from the bank's balance sheets -- necessary conditions to move forward.
And to minimize the cost to taxpayers, banks must not be allowed to cherry-pick which legacy assets to sell. All the risky loans and securities banks were never meant to hold should be on the block. With enough investors participating in the PPIP program, the prices of the assets should be competitive, and there should be no issue of fairness raised by the banks.
Second, the government should stop providing capital, loan guarantees and financing with no strings attached. Banks should understand this. When providing loans to troubled companies, they place numerous restrictions, called covenants, on what these firms can do. These covenants generally restrict the use of assets, risk-taking behavior, and future indebtedness. It would be much better if the government focused on this rather than on its headline obsession with bonuses.
For example, consider the fact that the government, while providing aid to banks, did not restrict their dividend payments. A recent academic study by Viral Acharya, Irvind Gujral and Hyun Song Shin (www.voxeu.org) notes that banks only marginally reduced dividends in the first 15 months of the crisis, paying out a staggering $400 billion in 2007 and 2008. While many banks have been reducing their dividends more recently, bank bailout money had been literally going in one door and out the other.
Consider also recent bank risk-taking. The media has recently reported that Citigroup and Bank of America were buying up some of the AAA-tranches of nonprime mortgage-backed securities. Didn't the government provide insurance on portfolios of $300 billion and $118 billion on the very same stuff for Citi and BofA this past year? These securities are at the heart of the financial crisis and the core of the PPIP. If true, this is egregious behavior -- and it's incredible that there are no restrictions against it.
Third, stress tests aside, it is highly likely that some of these large banks will be insolvent, given the various estimates of aggregate losses. The government has got to come up with a plan to deal with these institutions that does not involve a bottomless pit of taxpayer money. This means it will have the unenviable tasks of managing the systemic risk resulting from the failure of these institutions and then managing it in receivership. But it will also mean transferring risk from taxpayers to creditors. This is fair: Metaphorically speaking, these are the guys who served alcohol to the banks just before they took off down the highway.
And we shouldn't hear one more time from a government official, "if only we had the authority to act . . ."
We were sympathetic to this argument on March 16, 2008 when Bear Stearns ran aground; much less sympathetic on Sept. 15 and 16, 2008 when Lehman and A.I.G. collapsed; and now downright irritated seven months later. Is there anything more important in solving the financial crisis than creating a law (an "insolvency regime law") that empowers the government to handle complex financial institutions in receivership? Congress should pass such legislation -- as requested by the administration -- on a fast-track basis.
The mere threat of this law could be a powerful catalyst in aligning incentives. As the potential costs of receivership are quite high, it would obviously be optimal if the bank's liabilities could be restructured outside of bankruptcy. Until recently, this would have been considered near impossible. However, in 2008 there was a surge in distressed exchanges of debt for equity or preferred equity.
Still, the recent negotiations with Chrysler's creditors suggest large obstacles. The size and complexity of large banks' capital structures make debt-for-equity exchanges an even taller task, particularly because creditors will want to hold out for a full bailout along the lines they have been receiving.
The government should be able to dangle an insolvency law as an incentive to cooperate. This will result in a $1 trillion game of chicken. But given the size of the stakes, and the alternative of the taxpayers continuing to foot the bill, it's the best way forward.
Messrs. Richardson and Roubini are professors at New York University's Stern School of Business.
today looked like "inverted capitulation"
Absolutely insane, how can one celebrate a "drop" of jobless claims from 645000 to 631000 in such a huge economy. This is merely a statistical fluctuation on a disastrous, high level.
Truth and the matter is that unemployment continues to increase at a virtually constant level. This is no bottom, it is essentially an ongoing constant increase of unemployment.
Same case with horrible GDP rate announced yesterday. And buyers do not feel even bad but buy and buy and buy. Don't get it but this is the perfect ingredient for the next catastrophy. The great depression also fully developed through phases of big relief sentiment. Yesterday cnbc cited analysts expecting a Dow of 10000 this year, unbelievable. Nothing has changed.
depends on time frame
Today is amazing so far
but it is still only a matter of time until this ends imo.
Let's see.
Europe’s banks facing second wave of debt stress
April 24, 2009...1:21 pm
By Calvin Palmer
Swiss financial analysts are forecasting a “second wave” of debt stress to hit the United Kingdom and Europe this year.
Risk advisers Independent Credit View said a detailed “stress test” of 17 lenders worldwide found that European banks have much lower reserve cushions than U.S. banks, leaving them acutely vulnerable to the coming phase of rising defaults in bank loans.
“The biggest risk is in Europe,” said Peter Jeggli, Credit View’s founder.
Deutsche Bank has reserves to cover a default rate of 0.7 percent, against non-performing assets (NPAs) of 1.67 percent; Britain’s Royal Bank of Scotland has 1.23 percent against NPAs of 2.43 percent, and France’s Crédit Agricole has 2.63 percent against NPAs 3.64 percent. None have put aside enough money.
By contrast in the U.S., Citigroup has reserves of 4 percent against NPAs of 3.22 percent; and JP Morgan has 3.11 percent against NPAs of 1.95 percent.
Jeggli said: “The Americans are ahead of the curve. European banks are exposed to US commercial real estate and to problems in Eastern Europe and Spain, where the situation is turning dramatic. We think the Spanish savings banks are basically bust and will need a government bail-out.”
The IMF said European banks have so far written down $154 billion (£105 billion) of bad debts, or just 17 percent of likely losses of $900 billion (£613 billion) by 2010. U.S. banks have written down $510 billion, 48 percent of the expected damage.
Analysts say America’s quicker response has given the impression that U.S. banks are in worse shape, but this is a matter of timing and “transparency illusion”. Europe risks repeating Japan’s errors of the 1990s, when its banks concealed losses and delayed a recovery.
Europe’s banks are exposed to heavy losses from U.S. property, face collapsing credit booms in their own backyard and fallout from high levels of corporate debt in the eurozone.
Mr Jeggli said the financial crisis was “front-loaded” in the Anglo-Saxon countries and Switzerland because their banks invested heavily in credit securities, which suffered a cliff-edge fall when trouble began, forcing harsh write-downs under mark-to-market rules.
With Europe’s traditional bank loans it takes longer for the damage to surface and the intensity of Europe’s recession would suggest losses will be huge.
Do bear in mind that Ambrose Evans-Pritchard wrote the original article and he takes great delight in predicting a financial apocalypse, especially regarding the demise of the euro.
[Based on a report by The Daily Telegraph.]
Deutsche Bank likely to report 25 pct Q1 ROE-paper
Sun Apr 26, 2009 10:34am EDT
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Looks like another successful quarter of a big bank. DB will very likely report a big profit. DB is an interesting case because this is one of very few big banks which has almost no toxic debt anymore in the balance sheet. These guys managed to get rid of the toxic waste right before this market collapsed. They never took help from the government and still insist they will not do so in the future. So DB should be fine. However, DB also feels the pressure related to the next waves of the crisis apart from the collapse of private real estate --> See the next post.
Imo no bank can escape from the crisis independent of the question whether it was directly involved in the housing collapse or not.
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FRANKFURT, April 26 (Reuters) - Deutsche Bank (DBKGn.DE) is likely to have reached its long-term goal of a 25 percent return on equity in the first quarter, German newspaper Handelsblatt said, citing financial sources.
In the prelease of a report to be published on Monday, the newspaper also quoted the bank's Chief Executive Josef Ackermann as saying that he was sticking to the target.
"A return on equity of 25 percent has long been what the world's best have achieved. Of course this has become more difficult in the crisis, but some banks have reached this yardstick in the first quarter of this year or have at least come very close," Ackermann told Handelsblatt. (Reporting by Ludwig Burger; editing by Karen Foster)
Has the fundamental situation changed today?
The last couple of minutes proved again that this is a trader's market only. Pure gambling. No investors just traders.
The setback is unavoidable imo. The fundamentals are still very bad. The financial system has not been healed at all and we have lost valuable time to fix it. Watch out for the next quarterly results of banks and dilution action. Banks can not be profitable during such a crisis, and everybody ignores right now the additional trillions of toxic waste still floating around (IMF report).
Ridiculous how Ford was praised for a quarterly loss of several billions. How about a well-deserved bonus for this big loss ? This is simply a disaster and who will buy millions of cars the next one or two years ? And which models ? Those people who just lost their jobs?
What's the psychology behind a sucker rallye ? People get in because everything starts to look better again and a lot of people fear to miss the train. People actually feel comfortable again. And then surprise surprise.
This first wave of the crisis is not over yet (housing pricing still falling until next year) and we will get a second and third wave this time (credit cards, commercial real estate, etc) a lot of governments won't be able to handle after being stripped off dry powder. The first wave of foreclosures was caused by people who never could afford real estate but got it anyway, the next wave of foreclosures is caused by people who could actually afford real estate before the crisis but lost their ability to repay during this crisis, e.g. people who lost their job. The thing important to understand is that all those disasters are not independent of each other but interact with each other.
How about hedge fonds soon attacking all those weak and wounded currencies/governments like Soros did in the past. A perfect opportunity of making money, isn't it? Money is for free these days so the (still not regulated) finance industry will use it "wisely".
Plenty of open issues simply ignored because stocks are going up these days. I'm still not optimistic right now. This once-in-a-lifetime economical crisis is already ending? If this is true it would not be historical.
Whatever you do protect your money first.
The sad thing is: nothing has changed
Morgan Stanley loses $578M in 1st quarter
Morgan Stanley loses $578M in 1st quarter, $1.6 billion in December; company cuts dividend
Wednesday April 22, 2009, 8:35 am EDT
NEW YORK (AP) -- Morgan Stanley says it lost $578 million, after paying preferred dividends, in the first quarter, hurt by the deteriorating commercial real estate market.
The New York-based bank posted a loss of 57 cents per share for the January to March period. It also lost $1.6 billion in December, and cut its dividend.
The first quarter shortfall is sharper than analysts expected. They had forecast a loss of 8 cents per share.
It is also worse than last year's first quarter, when Morgan Stanley earned $1.3 billion, or $1.26 per share.
In addition to the real estate market, Morgan Stanley was also hit, counterintuitively, by an improvement in the value of its own debt in the first quarter. This improvement caused other assets tied to the rates on that debt to lose value.
While people more and more end up in misery, the new administration constantly praises the near end of the crisis.
Irrespective of what Geithner tries to make us believe most banks are not "well capitalized" but virtually insolvent. It is simply not true. Every expert constantly expresses this view.
Unfortunately, if you try to solve a problem, you first have to understand that there is problem. We will have soon a whole different discussion about Geithner himself.
Nobody's buying the dips today
Has sentiment finally changed ?! People focus on the dark aspects again and realize that banks simply can't be profitable in a deep recession.
Geithner and Summers need to address the banking problems square-on
April 13, 2009 6:42pm
by FT
By Michael Pomerleano
The Obama administration program to address the fragility of the banking system is based on a two major initiatives. First, it has proposed the Geithner- Summers Plan to buy subprime securitized assets from the banks. The toxic assets plan deals with less that 40 percent of the balance sheet of the banks that is in marketable securities. It does not deal with the 60 percent of the balance sheets of US banks that are loans and are not marked to market. Further, it will take six months to get the program in motion. The plan elicited deserved criticism from reputable analysts, including Paul Krugman in his NYT column. As Krugman points out in his column this plan is the third variant of an old plan to lift the value of toxic assets. The plan meets Einstein’s definition of madness: continuing to do the same thing, hoping for a different outcome. Jeff Sachs (FT, March 23), Joseph Stiglitz (NYT, April 1) and Peyton Young (FT, April 1) added their concerns that the plan nationalizes losses and privatizes profits.
The second part of the administration program is the now famous stress test of the nation’s largest banks. The other dimensions of the Geithner plan are the loan-purchase program run by the FDIC, the Treasury securities-purchase component of the PPIP is supplemented by the expanded Fed TALF program, and the various programs aimed at lowering rates in the conforming mortgage market.
This article argues that The Obama administration is in denial regarding the problems in the financial system. The losses in the banking system are not an “unknown unknown”. As shown below, the stress test calculations can be conducted by any informed analyst, and the losses are known with a reasonable degree with approximation. The stress test is simply a “smoke screen” designed to postpone the inevitable moment when the administration has to deal with the well known and severe problems in the banking system.
As with the subprime crisis, there is a collective reluctance to review and analyze the information available and timidity in addressing the obvious problems. The FDIC Quarterly Banking Profile is a quarterly publication that provides the earliest comprehensive summary of financial results for all FDIC-insured institutions. An informed review of the balance sheet of the banking system as of December 31, 2008 shows that Tier 1 capital is $1,296 billion, of which only $1 trillion tangible equity, while the rest of Tier 1 is goodwill, and other intangibles. The loans outstanding are $7,873 billion. The report also informs that the Reserve Coverage Ratio (noncurrent loans to loan losses reserves) has declined from over 220% in 2005 to slightly under 80% in 2008. Further, at this stage the loan losses reserves for the average outstanding loan are slightly over 2 cents on the dollar. Economists at Goldman Sachs estimated recently that banks were valuing their mortgages at about 91 cents on the dollar (Showdown Seen Between Banks and Regulators, NYT, April 10, 2009).
A charitable stress test of the balance sheet uses the following conservative assumptions: Increasing the level of nonperforming loans to 8%, which was the level of non-performing loans during the 1991-2 recession; and establishing a modest coverage ratio of 100%. Without going into the gory details of my calculations, the Tier 1 capital shortfall is $753 billion under those very liberal assumptions. $630 billion (8%) in non performing loans is a very benign estimate. McKinsey-as well as others, such as Goldman Sachs-estimates that US banks may currently hold as much as $2 trillion of impaired assets (A better way to fix the banks (The McKinsey Quarterly February 2009 Lowell Bryan and Toos Daruvala). In the new Global Financial Stability Report the IMF is expected to estimate the potential losses of U.S.-originated credit assets held by banks and others at $2.8 trillion. With more conservative assumptions, including non performing loans comparable to the 1982 recession, and a coverage ratio of 200%, the shortfall of capital is north of $1.5 trillion.
The banking system is severely undercapitalized, with numerous insolvent banks. Clearly a more robust banking system requires far more capital and a robust loan loss reserve adding to the capital cushion. Until the trillion plus of impaired assets are removed and the banking system is recapitalized, credit flows will be restricted. In this context, it is puzzling why the administration is tinkering at the fringes with programs designed to enrich Wall Street. Geithner and Summers need to address the banking problems square-on.
Traders, Not Investors, Fueling This Stock Rally: NYSE Chief
Friday April 17, 2009, 10:55 am EDT
Wall Street's stunning six-week rally has been fed more by traders looking to take advantage of quick swings in the market than investors with a long-term view, NYSE Euronext (NYSE:NYX - News) CEO Duncan Niederauer told CNBC.
Because of that, the rally likely is to run out of steam as low volume eventually comes back to the bite the market, he said.
"It feels to me we're in a trader's market and not an investor's market," Niederauer said in a live interview from the exchange floor.
Markets are likely to near their March lows after an upswing that has sent the major indexes more than 20 percent higher, he said.
"The volume in March hasn't convinced me that it's the kind of volume that you need to see to believe it was the real beginning of a turnaround," he said. "Instincts tell me we're going to retrace one more time and the rally I believe is the summer rally."
Long-term retail investors--with a three- to five-year time line--remain concerned that the rally is merely a bear-market bounce, and uncertainties in corporate health and the economy still pose dangers, he added.
"I think the real-money investors are still watching because I don't think the fundamentals are in place yet where the people feel like they can do good fundamental homework," Niederauer said. "So the feeling I've got talking to a lot of investors is they're still watching and waiting."
Niederauer called the current rally "too much, too soon," and said investor confidence remains fragile.
"There's no doubt that a lot of the ... equity investing attitudes have been damaged and I think it remains to be seen whether that damage is irreparable," he said. "They're certainly not just going to come running back."
Green Shoots and Glimmers
By PAUL KRUGMAN
Published: April 16, 2009
Ben Bernanke, the Federal Reserve chairman, sees “green shoots.” President Obama sees “glimmers of hope.” And the stock market has been on a tear.
So is it time to sound the all clear? Here are four reasons to be cautious about the economic outlook.
1. Things are still getting worse. Industrial production just hit a 10-year low. Housing starts remain incredibly weak. Foreclosures, which dipped as mortgage companies waited for details of the Obama administration’s housing plans, are surging again.
The most you can say is that there are scattered signs that things are getting worse more slowly — that the economy isn’t plunging quite as fast as it was. And I do mean scattered: the latest edition of the Beige Book, the Fed’s periodic survey of business conditions, reports that “five of the twelve Districts noted a moderation in the pace of decline.” Whoopee.
2. Some of the good news isn’t convincing. The biggest positive news in recent days has come from banks, which have been announcing surprisingly good earnings. But some of those earnings reports look a little ... funny.
Wells Fargo, for example, announced its best quarterly earnings ever. But a bank’s reported earnings aren’t a hard number, like sales; for example, they depend a lot on the amount the bank sets aside to cover expected future losses on its loans. And some analysts expressed considerable doubt about Wells Fargo’s assumptions, as well as other accounting issues.
Meanwhile, Goldman Sachs announced a huge jump in profits from fourth-quarter 2008 to first-quarter 2009. But as analysts quickly noticed, Goldman changed its definition of “quarter” (in response to a change in its legal status), so that — I kid you not — the month of December, which happened to be a bad one for the bank, disappeared from this comparison.
I don’t want to go overboard here. Maybe the banks really have swung from deep losses to hefty profits in record time. But skepticism comes naturally in this age of Madoff.
Oh, and for those expecting the Treasury Department’s “stress tests” to make everything clear: the White House spokesman, Robert Gibbs, says that “you will see in a systematic and coordinated way the transparency of determining and showing to all involved some of the results of these stress tests.” No, I don’t know what that means, either.
3. There may be other shoes yet to drop. Even in the Great Depression, things didn’t head straight down. There was, in particular, a pause in the plunge about a year and a half in — roughly where we are now. But then came a series of bank failures on both sides of the Atlantic, combined with some disastrous policy moves as countries tried to defend the dying gold standard, and the world economy fell off another cliff.
Can this happen again? Well, commercial real estate is coming apart at the seams, credit card losses are surging and nobody knows yet just how bad things will get in Japan or Eastern Europe. We probably won’t repeat the disaster of 1931, but it’s far from certain that the worst is over.
4. Even when it’s over, it won’t be over. The 2001 recession officially lasted only eight months, ending in November of that year. But unemployment kept rising for another year and a half. The same thing happened after the 1990-91 recession. And there’s every reason to believe that it will happen this time too. Don’t be surprised if unemployment keeps rising right through 2010.
Why? “V-shaped” recoveries, in which employment comes roaring back, take place only when there’s a lot of pent-up demand. In 1982, for example, housing was crushed by high interest rates, so when the Fed eased up, home sales surged. That’s not what’s going on this time: today, the economy is depressed, loosely speaking, because we ran up too much debt and built too many shopping malls, and nobody is in the mood for a new burst of spending.
Employment will eventually recover — it always does. But it probably won’t happen fast.
So now that I’ve got everyone depressed, what’s the answer? Persistence.
History shows that one of the great policy dangers, in the face of a severe economic slump, is premature optimism. F.D.R. responded to signs of recovery by cutting the Works Progress Administration in half and raising taxes; the Great Depression promptly returned in full force. Japan slackened its efforts halfway through its lost decade, ensuring another five years of stagnation.
The Obama administration’s economists understand this. They say all the right things about staying the course. But there’s a real risk that all the talk of green shoots and glimmers will breed a dangerous complacency.
So here’s my advice, to the public and policy makers alike: Don’t count your recoveries before they’re hatched.
Swiss banks have obviously not the option of creative accounting
Who belives that US banks are realistically in better shape ?
UBS sees $1.75B Q1 loss, to cut 8,700 jobs
UBS says its Q1 loss will be near $1.75 billion, plans to cut 8,700 jobs
ZURICH (AP) -- UBS AG, Switzerland's largest bank, said Wednesday it expects a first quarter loss of nearly 2 billion Swiss francs ($1.75 billion) and that it will cut 8,700 jobs worldwide by the end of next year.
It also said clients have continued to withdraw their money from the bank in the wake of its decision to cooperate more closely with foreign authorities over tax evasion.
The company, which has been hard-hit by subprime-related losses, said it will "adapt its size to the changed market conditions and lower levels of business."
"UBS is planning cost savings by the end of 2010 of approximately 3.5 to 4 billion francs compared to 2008 levels," the bank said in releasing details on its situation in advance of the annual shareholders meeting.
In prepared remarks for the meeting, new Chief Executive Oswald Gruebel said the bank knows where it has to set to work.
"It will be a long road back to success without any quick fixes," said Gruebel. "Rather, we will move forward step by step in a rigorous and disciplined manner."
The bank, which already has suffered billions of dollars of losses over the past two years and received a bailout from the Swiss government, said it "estimates that it will report a loss attributable to shareholders of almost 2 billion francs in first quarter 2009."
It said the shortfall is due mostly to losses of about 3.9 billion francs on previously disclosed bad investments, credit loss expenses and adjustment in values of toxic assets.
The company's share price plunged as much as 8.7 percent in early trading on the Zurich exchange, before recovering somewhat to fall only 0.8 percent to 13.16 francs ($11.46).
UBS said its wealth management and Swiss bank division recorded an outflow of net new money totaling 23 billion francs. That occurred mainly after the announcement of a settlement with U.S. authorities over their investigation into UBS's alleged assistance to wealthy Americans seeking to avoid paying U.S. taxes.
At the same time it said its wealth management Americas unit recorded net new money of around 16 billion francs.
The bank said it still expects to have a tier 1 capital ratio of about 10 percent at the end of the first quarter.
The bank said the job cuts would be unavoidable because it needs to have cost savings in all areas.
"UBS expects to reduce the number of its employees to about 67,500 in 2010," a statement said. "At the end of March 2009 UBS employed 76,200 people in over 50 countries."
The bank said it would continue to reduce risks and was conducting a review to decide which high-risk and unpromising businesses it will exit.
UBS has been in a showdown with Washington over wealthy American tax evaders.
It has provided U.S. investigators the bank details of up to 300 wealthy Americans suspected of tax fraud, but has refused to identify about 50,000 more U.S. account holders Washington wants.
The Swiss bank has previously announced a $780 million fine and restitution package agreed with U.S. authorities to settle the tax evasion investigation.
Full first-quarter results and other details about the bank's plans will be released May 5, it said.
GM could trigger it together with dilution of bank stocks
media news more and more talk about the soon to be expected end of this ridicolous rally, just a few bad companies news and it will start. So public expectation will be there.
This speculation/spending hype in various markets (housing, credit cards, stock markets, etc) resulting in the worst crisis for decades has been followed by another brainless hype. When do people learn this lesson?
Real growth will be possible again after somebody has finally paid for all this debt. Anouncements or changing accounting rules do not change the fundamental picture. The new government has perfectly adopted the approach of the former administration. Fundamental recovery will still take years. Government blew the opportunity to end this as soon as possible. Wall Street still owns the government and taxpayer and lay offs pay for all this. Government should have sacrificed the banks.
However, the big money have been waiting on the sidelines the last couple of weeks. These guys look on the fundamental picture.
Whats idea of that ? Pumping followed by diluting the stock at a higher price ?
Right, whatever it is currently done is some sort of lipstick approach only. There are real losses still everywhere and somebody has to pay for it, switching it in a thousand ways from private to public and back to some kind of fake private which is effectively paid by the taxpayer does not create value out of crap again.
Just prevents recovery because you have to clean it completely out of the system as soon as possible before the system starts to operate again.
Banks will be forced to put down their pants soon though accounting rule changes help to fool some less informed public for some additional time. Government just tries to avoid another official Lehman headline after they promised it but some big banks are virtually undead and just suck in more good money and more and more printed money. The problem is that the banks remain in some kind of stand-by-mode in terms of lending money to the real economy, so the credit markets remain frozen. Sacrifice the banks now and get the real economy going again not vice versa. All bright minds from Harvard etc. doing research in this field suggest it. But Wall Street obviously still owns the government.
Government's approach is wrong because it is not aggressive enough. Better end it as soon as possible in order to get a proper restart of the system.
Reminds me of a windows breakdown on your personal computer, you wait and wait but at the end of the day you finally lose patience and press the reset button which is the only thing that helps. Obama will look weak soon when this mistake gets more and more clear to the public.
Germany extends short-selling ban on bank stocks
Monday March 30, 04:22 PM
By Jonathan Gould and John O'Donnell FRANKFURT, March 30 (Reuters) - Germany's Bafin has extended its ban on short selling for 11 companies until the end of May, the stock-markets watchdog said on Monday.
The ban on betting against bank stock price falls is intended to stop this type of trading, which has been blamed for aggravating the volatility of rocky bank shares.
Short-sellers are investors who borrow shares and sell them on in the hope of buying them back at a lower price, to make a profit.
Bafin's ban applies to an especially high-risk form of trading called 'naked' short selling, where the trader sells stock he has not yet borrowed.
The regulator said that the reasons for the original ban unveiled in September were still valid because bank stock prices remained unsteady.
'In particular, there continues to be an unusual volatility in the shares of banks, stock-market operators, insurers and other financial services firms,' Bafin said in a statement.
The authority said that there had been sharp rises in the prices of credit default swaps -- reflecting a higher cost of getting insurance against defaults.
Stock market regulators around the world introduced curbs on short-selling, especially in financial stocks, last year.
Financial supervisors are seeking a global approach to regulating the practice.
Italy has extended its short-selling ban on shares in banks, insurers and companies conducting capital increases until May 31. Australia and Japan have also extended their bans.
The UK, meanwhile, lifted the ban that it had imposed but requires investors to disclose short positions in banks and companies going through a rights issue.
Bafin's ban affected shares in the following companies:
- Aareal Bank (Xetra: 540811 - news)
- Allianz
- AMB Generali Holding (Xetra: 840002 - news)
- Deutsche Bank (Xetra: 514000 - news)
- Commerzbank
- Deutsche Boerse (Xetra: 581005 - news)
- Deutsche Postbank (Xetra: 800100 - news)
- Hannover Rueckversicherung
- Hypo Real Estate Holding
- MLP
- Munich Re
Short selling has been completely banned since Oct 2008 for financials in the German markets. The ban has been recently extended until May 2009
haven't prevented those stocks from taking anyway
Toxic debts could reach $4 trillion, IMF to warn
Gráinne Gilmore, Economics Correspondent
Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.
The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.
Banks and insurers, which so far have owned up to $1.29 trillion in toxic assets, are facing increasing losses as the deepening recession takes a toll, adding to the debts racked up from sub-prime mortgages. The IMF's new forecast, which could be revised again before the end of the month, will come as a blow to governments that have already pumped billions into the banking system.
Paul Ashworth, senior US economist at Capital Economics, said: “The first losses were asset writedowns based on sub-prime mortgages and associated instruments. But now, banks are selling ‘plain vanilla' losses from mortgages, commercial loans and credit cards. For this reason, the housing market will play a crucial part in how big the bad debt toll is over the next year or two.”
In its January report, the IMF said: “Degradation is also occurring in the loan books of banks, reflecting the weakening outlook for the economy. Going forward, banks will need even more capital as expected losses continue to mount.” At the same time, there is a clear shift in congressional attitudes in the United States about simply pumping money into the system, Mr Ashworth said. The British Government is also under pressure to repair its tattered finances. Injecting more money into the banks could further undermine its fiscal position.
The IMF's jump will come as little surprise to economists who have suggested that the bad debts will be much higher than anticipated. Nouriel Roubini, chairman of RGE Monitor, expects bad debts from US-originated assets to reach $3.6 billion by the middle of next year. This figure is expected to rise when bad debts from assets elsewhere are calculated, he said.
Stress tests? Has anybody an update ?
This is the discussion which will develop soon:
"Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out".
And this discussion will ruin stock prices of banks soon again. We will realize that all this big money thrown against poisened balance sheets was not enough and government is running out of options.
How about those stress tests ?
amazing, that is what I meant in my first post today. Former crisis was smaller so the size of the model is not fitting yet, the model of the former crisis is too small.
We hear more and more voices of high-ranked experts, who express the opinon that the actions taken recently to solve the crisis in the financial system were wrong and insufficient, and will even inhibit the economical recovery.
These people are the real experts in contrast to those who make their daily living in the stock markets, who are driven by wishful thinking.
Geithner effectively sacrifices the US economy and taxpayer to save undead banks. Experts say he should have sacrificed the banks in order to save the economy. Japan made the same mistake in the eighties, while Japan at that time had the privilege that the rest of the world did not have similar problems. This time the whole world faces this disaster at the same time.
Now, obviously you have underestimated the momentum of the bear market rally going on the last couple of weeks. I did too. Imo, the reason is that you applied data from earlier disasters 1:1. However, this crisis is much bigger than everything we have seen the last couple of decades and thus the bear market rally is also bigger but also the next drop will be bigger. The model used for the prediction is simply not fitting on the size of this crisis. Apart from that you have been amazingly accurate, and I fear you continue to be the next couple of months. For the worst crisis in a hundert years we have felt only few pain so far.
The fundamental economic data world-wide are dismail, simply historically bad, and the consequences from such data will also be historical soon, it just takes some more time until all this has fully developed. The new government will learn from its first big mistake when the financial system does not stablize the way it is assumed. And peple will realize that the new government has messed this up though it has inherited and not caused the crisis.
Your feet has reached the promised land
now we will see how long you can stay there
make it or break it moment, no doubt
like the person who saw the holy land but couldn't enter it
M2M just lipstick, won't change dark reality
Would be formation of a double top
Deutsche Bank’s Banziger Says Crisis ‘Far From Over’
By Aaron Kirchfeld
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Forget the rally for a moment and check the fundamental data of the banks. Look at the last sentence below of somebody who has no interest to paint a gloomy picture. Huge numbers, less than half of the waste is covered and covered does not mean paid off or cleaned up yet. Taxpayer and inflation will pay in the future. There is still a lot more toxic waste floating around in the banks. Only half of the holes in the bucket are sealed but water is still flowing out. And governments find it more and more painful to come up with the money and fill all the other holes. Being bearish for the next couple of weeks does not look stupid based on such fundamental data.
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March 30 (Bloomberg) -- Deutsche Bank AG Chief Risk Officer Hugo Banziger said the global credit crisis is “far from over” and global financial regulations must be overhauled to regain investor trust.
“We are in the middle of it,” Banziger, 53, said today at an event at the Frankfurt School of Finance and Management. The industry has “an opportunity” to build a stable financial system that seeks higher capital buffers, and encourage investors to return money to the market and help stem the crisis, he said.
Deutsche Bank in February reported its first annual deficit in more than 50 years after the worst financial crisis since the Great Depression pummeled bond and stock trading. The crisis has caused $1.3 trillion in losses for financial companies worldwide, a total that may climb to more than $3 trillion, Banziger said today, citing forecasts.
pumping poisened banks and dumping it soon again
Is this the current scheme ?
our criminal friends from WS still own the markets
Consumer confidence is one thing, what people will have in their wallets soon the other thing.
I don't trust in the consumer. Losing the house, the job and the credit card limit will affect the consumer's confidence soon.
Why didn't he say this last week?
While stock brokers and analysts say that the banks are already fine and the worst is behind them, most of the high-profile economic scientists like Rogoff believe that the banks still require some sort of structured bankruptcy or nationalization.
Analysts are generally too optimistic because they make a living by active stock markets, and they want to have investors back as soon as possible. In contrast thereto, the economists are scientists, who are (normally) only dedicated to the reality and not wishful thinking.
Buyers will assume that they can get in a lot cheaper if they wait a few days or even weeks, not to mention those who starti shorting it again.
Market has searched for good news for weeks recently. Now they will search for the bad news again and there are a lot of bad news still out there.