Bloomberg reports: Dodd-Frank’s Tentacles Go Deep. They Won’t Be Cut Fast or Easily. It took seven years to put these regulations in place. Is it rational to think they can be removed in less than 4? If not, then the financial's rally may be a tad bit premature and overdone.

 

Published in BoomBustBlog
Sunday, 31 January 2010 18:00

The Volcker Rule Has Merit

Volcker is correct in that banks conflicts of interests need to be stemmed. One would not have to worry about over regulation if one does not attempt to regulate every single act or attempt to guess what might go wrong. What needs to be done is to use regulation to disincentivize banks from engaging in activities that engender systemic risks and/or harm clients. By putting everybody on the same side of the table, you don't have to worry about outsmarting the private sector. 

 From CNBC:
Sunday, 31 January 2010 18:00

The Volcker Rule Has Merit

Volcker is correct in that banks conflicts of interests need to be stemmed. One would not have to worry about over regulation if one does not attempt to regulate every single act or attempt to guess what might go wrong. What needs to be done is to use regulation to disincentivize banks from engaging in activities that engender systemic risks and/or harm clients. By putting everybody on the same side of the table, you don't have to worry about outsmarting the private sector. 

 From CNBC:
Monday, 11 January 2010 19:00

Banking Hell, Tuesday, January 12, 2010

As I have stated throughout all of last year, the macro, fundamental and political headwinds facing banks make them good shorts and risky investments. They faced a good run in this recent bear market rally, but the spirits have cursed them for the medium term. In addition, these guys act as if they have never heard of PR and strategy, ex. this bonus thing.

Recap in the news:

These fees are coming when banks are not really making the money that it seems like they are making. The big profits stem from the fact that the government gave the "OK" to lie about the credit losses on the rotten assets. These profits are fake if netted out against credit and asset losses. Hence, the bonuses are fake too. If the bonuses get paid out against the backdrop of increasing credit losses and still deflating asset values held with significant leverage on the balance sheet, you would have let the last horse out of the barn.

These proposed fees will just make things worse for the banks. I see bonuses being reduced simply by the mere fact that they are given out as stock at the top of a mini-bank bubble!!!

Monday, 11 January 2010 19:00

Banking Hell, Tuesday, January 12, 2010

As I have stated throughout all of last year, the macro, fundamental and political headwinds facing banks make them good shorts and risky investments. They faced a good run in this recent bear market rally, but the spirits have cursed them for the medium term. In addition, these guys act as if they have never heard of PR and strategy, ex. this bonus thing.

Recap in the news:

These fees are coming when banks are not really making the money that it seems like they are making. The big profits stem from the fact that the government gave the "OK" to lie about the credit losses on the rotten assets. These profits are fake if netted out against credit and asset losses. Hence, the bonuses are fake too. If the bonuses get paid out against the backdrop of increasing credit losses and still deflating asset values held with significant leverage on the balance sheet, you would have let the last horse out of the barn.

These proposed fees will just make things worse for the banks. I see bonuses being reduced simply by the mere fact that they are given out as stock at the top of a mini-bank bubble!!!

Wednesday, 16 December 2009 19:00

Doesn't Morgan Stanley Read My Blog?

At least a few MDs at Morgan Stanley DO read my blog, but it is obvious that the guys in the real estate division don't. Early in 2008 I named Morgan Stanley the "The Riskiest Bank on the Street". The following is one of the reasons why. From Bloomberg: Morgan Stanley Surrenders Five San Francisco Office Towers Bought at Peak [In reading this, notice the extreme irony in one of the country's largest investment banks walking away from a property deal, and contrast it to a homeowner in the same position. Hey, if MS can do it, why can't I?]

Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings, which have been held by the bank’s MSREF V fund. Barnes declined to say when the transfer will occur.

“It’s not surprising this deal ran into trouble,” Michael Knott, senior analyst at Green Street Advisors in Newport Beach, California, said in an interview. “It was eye-opening among a group of eye-opening deals. There was almost no price too high in 2007 for office space in top gateway markets.”

The San Francisco transfer would mark the second real estate deal to unravel this year for Morgan Stanley, which bet on the property markets as prices were rising. The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities. U.S. commercial real estate prices have dropped 43 percent from October 2007’s peak, Moody’s Investors Service said last month.

Lost Value

The Morgan Stanley buildings may have lost as much as 50 percent of their value since the purchase, Knott estimated.

“This isn’t a default or foreclosure situation,” Barnes said. “It is a negotiated transfer to our lenders.”

Morgan Stanley bought 10 San Francisco buildings in the city’s financial district as part of a $2.5 billion purchase from Blackstone Group in May 2007. The buildings were formerly owned by billionaire investor Sam Zell’s Equity Office Properties and acquired by Blackstone in its $39 billion buyout of the real estate firm earlier that year.

The buildings Morgan Stanley is giving up are One Post, 201 California St., Foundry Square I, 60 Spear St. and 188 Embarcadero. The towers have a combined 1.3 million square feet, according to Colliers International.

The bank will continue to own the other office buildings it acquired in the Blackstone deal, Barnes said.

Morgan Stanley, based in New York, was the biggest property investor among Wall Street firms at the time of the purchase. The transaction made the company one of the largest office landlords in San Francisco, adding 3.9 million square feet of office space there.

Defaults Rise

Commercial mortgage defaults more than doubled in the third quarter from a year earlier as occupancies fell, according to Real Estate Econometrics LLC. Office vacancies will reach a near-record 19 percent in the first quarter of 2011, broker CB Richard Ellis Group Inc. estimated.

Property sales financed with commercial mortgage-backed securities plunged 95 percent from a record $237 billion in 2007, according to JPMorgan Chase & Co. A lack of securitized debt is driving down values, which may fall 55 percent from their peak, Moody’s said.

San Francisco prime office rents fell 37 percent in the third quarter from a year earlier, the biggest decline since 2001, as companies cut jobs, Colliers said. The vacancy rate rose to 14 percent, the highest since 2005. Almost 1.4 million square feet of space was returned to the market in the first nine months of the year.

In September of 2007, in the very first post on my blog, I announced that the CRE market would crash. I made the announcement again in December of that year and even created a schedule of who would be crashing with their CRE sales. See "Will the commercial real estate market fall? Of course it will" 09 December 2007.

Wednesday, 16 December 2009 19:00

Doesn't Morgan Stanley Read My Blog?

At least a few MDs at Morgan Stanley DO read my blog, but it is obvious that the guys in the real estate division don't. Early in 2008 I named Morgan Stanley the "The Riskiest Bank on the Street". The following is one of the reasons why. From Bloomberg: Morgan Stanley Surrenders Five San Francisco Office Towers Bought at Peak [In reading this, notice the extreme irony in one of the country's largest investment banks walking away from a property deal, and contrast it to a homeowner in the same position. Hey, if MS can do it, why can't I?]

Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings, which have been held by the bank’s MSREF V fund. Barnes declined to say when the transfer will occur.

“It’s not surprising this deal ran into trouble,” Michael Knott, senior analyst at Green Street Advisors in Newport Beach, California, said in an interview. “It was eye-opening among a group of eye-opening deals. There was almost no price too high in 2007 for office space in top gateway markets.”

The San Francisco transfer would mark the second real estate deal to unravel this year for Morgan Stanley, which bet on the property markets as prices were rising. The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities. U.S. commercial real estate prices have dropped 43 percent from October 2007’s peak, Moody’s Investors Service said last month.

Lost Value

The Morgan Stanley buildings may have lost as much as 50 percent of their value since the purchase, Knott estimated.

“This isn’t a default or foreclosure situation,” Barnes said. “It is a negotiated transfer to our lenders.”

Morgan Stanley bought 10 San Francisco buildings in the city’s financial district as part of a $2.5 billion purchase from Blackstone Group in May 2007. The buildings were formerly owned by billionaire investor Sam Zell’s Equity Office Properties and acquired by Blackstone in its $39 billion buyout of the real estate firm earlier that year.

The buildings Morgan Stanley is giving up are One Post, 201 California St., Foundry Square I, 60 Spear St. and 188 Embarcadero. The towers have a combined 1.3 million square feet, according to Colliers International.

The bank will continue to own the other office buildings it acquired in the Blackstone deal, Barnes said.

Morgan Stanley, based in New York, was the biggest property investor among Wall Street firms at the time of the purchase. The transaction made the company one of the largest office landlords in San Francisco, adding 3.9 million square feet of office space there.

Defaults Rise

Commercial mortgage defaults more than doubled in the third quarter from a year earlier as occupancies fell, according to Real Estate Econometrics LLC. Office vacancies will reach a near-record 19 percent in the first quarter of 2011, broker CB Richard Ellis Group Inc. estimated.

Property sales financed with commercial mortgage-backed securities plunged 95 percent from a record $237 billion in 2007, according to JPMorgan Chase & Co. A lack of securitized debt is driving down values, which may fall 55 percent from their peak, Moody’s said.

San Francisco prime office rents fell 37 percent in the third quarter from a year earlier, the biggest decline since 2001, as companies cut jobs, Colliers said. The vacancy rate rose to 14 percent, the highest since 2005. Almost 1.4 million square feet of space was returned to the market in the first nine months of the year.

In September of 2007, in the very first post on my blog, I announced that the CRE market would crash. I made the announcement again in December of that year and even created a schedule of who would be crashing with their CRE sales. See "Will the commercial real estate market fall? Of course it will" 09 December 2007.

The title just about says it all. The only thing missing is that it doesn't tell you that the banks that are too big to ensure financial stability are still getting bigger, and riskier. Before we go on, let's get a few things established for those who have not followed me regularly. Note to avoid redundancies: If you have not read me regularly, I suggest you peruse the "Credibility" side bar below. If you have not followed my recent banking articles over the last few weeks, then continue below. If you have been hanging off of my every word, then skip down to the "Break'em up, and break'em up now!" section, otherwise please read on. I strongly believe that the content of this article can change many a perception of the big banks in this country, and hopefully alert many to the risks that have been concentrated therein, even after the meltdowns that we have had to suffer at the collapse of

The title just about says it all. The only thing missing is that it doesn't tell you that the banks that are too big to ensure financial stability are still getting bigger, and riskier. Before we go on, let's get a few things established for those who have not followed me regularly. Note to avoid redundancies: If you have not read me regularly, I suggest you peruse the "Credibility" side bar below. If you have not followed my recent banking articles over the last few weeks, then continue below. If you have been hanging off of my every word, then skip down to the "Break'em up, and break'em up now!" section, otherwise please read on. I strongly believe that the content of this article can change many a perception of the big banks in this country, and hopefully alert many to the risks that have been concentrated therein, even after the meltdowns that we have had to suffer at the collapse of

I am now releasing the additional calculated capital requirements for several banks, with the full set of calculations available for download for free registered users. I am releasing my proprietary work to demonstrate to those who do not currently subscribe to BoomBustBlog the depth and breadth of this site's capabilities. 

The Methodology Used 

As stated in my original release of the Sun Trust Stress Test Analysis, I don't necessarily agree with the methodology and assumptions of the government's version of the stress test. For one, they don't risk weight earnings, only assets. Some of the investment banking operations take significant risks to generate earnings (see "Goldman Sachs Banking Secrets Mr. Geithner May Not Share With You!), and these actions pose systemic risk. In addition, the bar is too low to be considered truly stressful (eg. 8.4% average unemployment as a base case in an 8.5% unemployment environment, trending upwards). I have rectified the problem of floating government targets and expectations by creating a scenario analysis that covers multiple assumptions, thus the readers can decide for themselves which set of assumptions to use in order to arrive at what they feel would be the government's (or the most realistic) conclusion.

Page 1 of 2