Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com
The primary business of banks is lending.
In the states I made this point when most analysts insisted that ZIRP was good for the banks, to wit...
Now remember, I've been very bearish on the EU and thier banks and sovereign debt in particular, since Q! 2010 - way before most - reference Pan-European sovereign debt crisis. Yesterday morning if you were to Google the term EU recovery, you would see something like this in return...
Well, somebody better tell Draghi, as per Bloomberg: ECB Cuts Key Rate to Record Low to Fight Deflation Threat
The European Central Bank cut its benchmark interest rate to a record low after a drop in inflation to the slowest pace in four years threatened its mission to keep prices stable.
Policy makers meeting in Frankfurt today reduced the main refinancing rate by a quarter point to 0.25 percent. The decision was predicted by three of 70 economists in a Bloomberg News survey. The ECB kept its deposit rate at zero and trimmed the marginal lending rate to 0.75 percent. ECB President Mario Draghi will hold a press conference at 2:30 p.m.
The ECB now has just one more quarter-point cut left before reaching zero, increasing the likelihood of unconventional tools such as quantitative easing or a negative deposit rate if prices slow further or the economic recovery stalls. Euro-area inflation is less than half the ECB’s target and unemployment is at the highest level since the currency bloc was formed in 1999.
“There comes a point where inflation is so weak, and coming in weaker than anticipated, that the case for loosening policy becomes too hard to resist,” said Richard Barwell, senior European economist at Royal Bank of Scotland Group Plc in London, who predicted the cut. “Bad unemployment numbers only make the case stronger.”
Does it seem like I've predicted the future hear once again as that Financial Nostradamus Dude???
A Fed-style quantitative easing program has repeatedly been ruled out by ECB policy makers. The central bank is barred by European Union treaties from financing state debt, making large-scale purchases of government bonds open to a legal challenge.
While Draghi has floated the prospect of a negative deposit rate, the rate for commercial lenders who park excess cash at the central bank, policy makers have said that its effects can’t be adequately predicted. A negative deposit rate could hurt banks’ profitability by lowering money-market rates, potentially hampering credit supply to companies and households and reducing banks’ incentive to lend to other financial institutions.
“If inflation stays low, as seems likely, and the threat of inflation expectations becoming unanchored to the downside increases significantly, then all the tools in the box can come into play,” said Ken Wattret, chief euro-area economist at BNP Paribas SA in London. “But knowing the way the ECB operates and how long it has taken to try and get support for a refi rate cut, doing the big stuff could take some time.”
Well, I believe QE has already been implemented by the ECB accepting trash sovereign debt as marketable collateral, but that's a discussion for another day. Just listen to the Financial Nostradamus dude when he warns what happens when a larger, admitted QE program is instituted. For one, you'd probably eliminate that inflation problem... replacing it with...
As per Bloomberg: IMF says Greece will miss bailout target
The International Monetary Fund published a report predicting that Greece's 2014 budget surplus will fall 0.4 percentage points short of the 1.5 percent gross domestic product mark required by the terms of the country's international bailout. Greece was previously thought to be on track to meet the surplus target, but the forecasts were overoptimistic.
Get the hell outta here! Optimistic! Really? From the IMF???!!! As I channel my post from 2010, aptly titled "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!"
Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.pngimage018.png
Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...
... The EU/EC has proven to be no better, and if anything is arguably worse!... If the IMF was wrong, what in the world does that make the EC/EU?
The EC forecasts have been just as bad, if not much, much worse in nearly all of the forecasting scenarios we presented. Hey, if you think tha's bad, try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!...
Alas, I digress. Back to the Bloomberg/IMF snippet...
Tax collection is sagging; Greece is still in recession; and privatization is proceeding much slower than planned.
But this was quite evident last year as Greece failed to achieve Primary Balance and was slipping ever so farther away from that rather lofty (at least to most of continental Euope on a real, applied basis) goal. Don't say you didn't know, because I told you so, and on a European broadcaster as well...
And back to our snippet of the day...
The Greek finance ministry immediately responded to the new IMF projection, saying the government would do whatever was necessary to achieve a surplus of 1.5 percent GDP: cut spending, step up tax collection or both.
Oh yeah, that will work just fine. Cut off your legs to reduce your weight and drag so you can run faster. Does anyone in these financial ministries know anything about FiNANCE???!!!
Further cuts, however, may be politically untenable: The country is already in turmoil over the government's austerity measures. Meanwhile, failure to reach fiscal targets may delay further aid from both the IMF and the euro area. A new Greek crisis is a distinct possibility for next year.
Uhhh. PSSST!!! But, we haven't finsighed the "OLD Greek crisis" yet, you know the one I warned you about in 2010! From my 2010 article for subscribers, Greek Debt Restructuring Analysis - Professional, I excerpt as follows:
In 2012, Der Speigel ran an article stating what I told my subscribers for the two years previous - Greece was in a hole that it simply couldn't crawl out of. From the piece aptly titled "Greece Fulfills Its BoomBustBlog Derived Destiny - Shows This Time Really Isn't All That Different After All!!!":
I believe I was one of the very few to declare Greece a foregone default in February 2010 (I Think It’s Confirmed, Greece Will Be the First Domino to Fall and then with with more specificity a month later As I Explicitly Forewarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic!).
By the 2nd quarter of 2010 I was one of the very few to clearly and articulately detail exactly how Greece would default with specific structures in play- What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates. Due to a few institutions who were skeptical, I attempted to make it a bit more real - A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.
Well, Greece defaulted according to plan, despite all of the "people in the know" saying otherwise -Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! - from government officials tothe EC and IMF - Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Even after the default, I made clear that this wasn't over for Greece, for the default actually left Greece worse off fundamentally, not better. Go wonder... I know I did, reference the warning from 5 months ago:
This will be exacerbated by a re-default of the Greek debt that was designed to bail out the defaulted Greek debt. Why will this happen? Greece has severe, rigid structural
problems that simply cannot (and will not) be solved by throwing indebted liquidity at it. As a matter of fact, the additional debt simply exacerbates the problem - significantly! This was detailed in the post Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!
... Subscribers can download my full thoughts on Greece's sustainability post bailout here - debt restructuring_maturity extension blog - March 2012. Professional and institutional subscribers should feel free to email me in order to receive a copy of the Greek restructuring model used to create these charts and come to these conclusions.
Despite extensive, self-defeating, harsh and punitive austerity measures that have combined with a lack of true economic stimulus, Greece has (to date) failed to achieve Primary Balance. For the non-economists in the audience, primary balance is the elimination of a primary deficit, yet the absence of a primary surplus, ex. the midpoint between deficit and surplus before taking into consideration interest payments.
Alas, I digress. Back to the der Spegiel article...
According to a preliminary troika report, the additional shortfalls are the result of lower than expected tax revenues due to the country's ongoing recession as well as a
privatization program which has not lived up to expectations. The troika plans to calculate the exact size of the shortfall when it returns to Athens at the beginning of next month.
I'm sorry, but I simply cannot resist. This article was posted on BoomBustBlog in July of 2011 - Greek Asset Sales Fall Short, As We Virtually Guaranteed They Would In Spring 2010.
In it I reviewed how the BoomBustBlog team detailed EXACTLY how bullshit the privatization plan was, in explicit detail - in the spring of 2010. THAT WAS MORE THAN TWO AND A HALF YEARS AGO, PEOPLE!!!
If a blog can have this much foresight, with this much specificity, than what does one make of this so-called troika??? As excerpted:
This is a tragic Greek comedy. Professional/institutional subscribers should reference the Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb in its entirety.
For those who chose not to subscribe, I am posting excerpts from pages 5 and 6 from said document, don't read this while eating or drinking for fear of spitting up your lunch!
Any subscribers who would have went heavily bearish into these banks when I first commented on the would have done quite well:
Okay, I digress - yet again... With such excessive bullshit, one does tend to get thrown off track. Back to the der Spiegel excerpts...
The news of the potentially greater financing needs comes at a sensitive time for the country. Many in Europe, particularly in Germany, are losing their patience and there has been increased talk of the country leaving the common currency zone. Over the weekend, German Finance Minister Wolfgang Schäuble reiterated his skepticism of additional aid to Greece. "We can't put together yet another program," he said on Saturday, adding that it was irresponsible to "throw money into a bottomless pit."
Well, my friend, if you had that BoomBustBlog subscription, you would have known before you spent that first euro that Greece was a bottomless pit. Let me reiterated what I pasted up top... This situation will simply get worse, considerably worse. I demonstrated in the post The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media that anyone who purchased the last set of bailout bonds from Greece will simply lose their money as well (that's right, just like those who purchased the previous set) since Greece is still running deep in structural problems and can't afford the interest nor the principal on its borrowing. It's really that simple. And guess what? Anyone who dips new money into Greece now will suffer the EXACT same fate!
As excerpted from Greece Sneezes, The Euro Dies of Pneumonia! Yeah, Sounds Bombastic, Yet True!
Wait until a 2nd Greek default (virtually guaranteed as we supplied user downloadable models to see for yourself, the same model used to forecast the 1st default) mirrors history. Of the 181 yrs as a sovereign nation after gaining independence, Greece been in default 58 of them. Don't believe me! Check your history, or just read more BoomBustBlog - Sophisticated Ignorance Or Just A Very, Very Short Term Memory? Foolish Talk of German Bailouts Once Again...
Greece's default will hit an already bank NPA laden Spain quite hard: The Spain Pain Will Not Wane: Continuing the Contagion Saga and ditto with Italy "As We Assured Clients Two Years Ago, Italy's Riding The Broken Promise Express To Restructuring". Once Italy gets hit, the true bank runs will start as socialist France (the so-called half of the EU anchor) loses control of its banking system. Reference "As The French Bank Runs....":
About 6 months ago I said "Economic Depression Is The New Success". In said article, I forcast serial European bank runs, to wit:
From the BBC: Iceland's 'tenacity' lifts economy out of crisis
Whisper it - Iceland's economy is on its way back. The frozen island on the edge of the Arctic, which had 10 straight quarters of shrinking GDP, is suddenly on a steady run of seven quarters of growth averaging at 2.5% per annum - something that few European countries can boast. Unemployment has fallen to just below 5% and confidence is returning...
Ready! Set! Bank Run!!!
Subscriber downloads below (click here to subscribe):
Well, today Bloomberg reports "Icelanders Run Out of Cash to Repay Foreign Debts: Nordic Credit". Basically, as percieved to be cut off from foreign markets, Icelanders are running out of non-Krona denominated cash to pay off foreign debts. Here's more on the dilemma:
Non-krona debt owed by entities besides the Treasury and the central bank due through 2018 totals about 700 billion kronur ($5.8 billion), the bank said yesterday. The projected current account surpluses over the next five years aren’t estimated to reach even half of that and will equal a shortfall of about 20 percent of gross domestic product.
The nation faces a “repayment risk of foreign debt by private entities in the economy, who don’t have access to foreign financial markets,” Sigridur Benediktsdottir, head of financial stability at the Reykjavik-based central bank, said yesterday in an interview. “We view this as being exacerbated or made worse by the fact that our current account is actually declining.”
Prime Minister Sigmundur David Gunnlaugsson has said Iceland’s foreign exchange shortfall is “a matter of huge concern” as he tries to scale back currency controls in place since 2008. The government’s biggest challenge is to allow capital to flow freely without triggering a krona sell-off that would cause Iceland’s foreign debt to spike and undermine the nation’s economic recovery.
Wait a minute, if the Icelandic debt spikes, what happens to the Icelandic banks banks whose primary government bond (aka "risk free", ahem...) holdings happen to be Icelandic. Here's a hint: The Anatomy of a Europan Bank Run!
Last year I wrote "The "Believe In Germany Bailing The EU" Trade: Go Long Magic Wand Raw Materials & Harry Potter Paraphernalia" wherein I warned of both the risk in Germany as a save all, and the risks posed to European FIRE sector companies (and insurers in particular) as a result of this believe in magic over math.
Well, now Bloomberg reports that Poland has literally confiscated private pension manager's bonds with essentially no compensation, ex., they stole them, as per Bloomgerg - Poland to Cancel Bonds From Pension Funds in System Revamp:
Poland will take over and cancel government bonds held by its privately managed pension funds, stopping short of fully “nationalizing” the system as it seeks to curb public debt, Prime Minister Donald Tusk said.
Whaaaat!!!??? Cancel bonds? Outright theft! Listem carefully here. It's not as if I didn't tell you so. Now, what happens to those insurers whose pension funds under management were robbed? Again, revisit "The "Believe In Germany Bailing The EU" Trade: Go Long Magic Wand Raw Materials & Harry Potter Paraphernalia". This plain as day and easy to see coming, and there's a lot more coming!
Remember my many warnings this year on the Irish and EU banking system:
Transparency In The European Banking? Madness, I say! Sheer, Utter Madness!!!
If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It...), the chances of there being any recovery is somewhere between zilch and nil, give or take a euro or two - reference LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%? and The Anatomy of a Serial European Banking Collapse to realize that once a counter party driven bank run starts, there may be less than nothing to divy up in the end. Lehman Brothers' US creditors received roughly 10 to 40 cents on the dollar, but after 5 years of wrangling, the European International arm was full repaid. Hey, do you feel lucky with your life savings? Even if you do feel lucky, you'll still need 5 years to spare and a ton of cash for legal fees.
However, some member states have not ruled out the possibility that insured deposits, i.e. deposits under €100,000, would be forced to bear losses in the event of a bank collapse even though these deposits would be likely to be protected by the deposit guarantee scheme.
As stated earlier, this ain't AAA coverage!
This year Jeroen Dijsselbloem, head of the group of 17 euro zone finance ministers, said that losses on bondholders and depositors could form part of future bank bailouts as euro zone officials seek to move the burden of bailouts away from taxpayers – as was the case in the Irish bailout – and on to private investors.
The European Commission argues that this switch from so-called “bailouts” to “bail-ins” would result in an allocation of losses that would not be worse than the losses that shareholders and creditors would have suffered in regular insolvency proceedings that apply to other private companies.
Ahem, that non-sense only works on the uneducated and/or the unassuming. The major difference is that creditors that would be subject to regular dissolution proceedings AND that are unsecured, would demand considerably higher rates of return. A borderline solvent bank whose officers AND regulators admit publicly is in need of additional capital infusions after receiving three thus far, and 96% losses in its publicly traded equity, would have to borrow money at 18%, not 2% - and that's being generous. See the bank deposit rate calculator below.
While the inclusion of large savers in future bank bailouts is now widely accepted, significant differences still remain between member states.
While the new rules governing bank resolution were first intended to come into place in 2018, since the Cypriot bailout there have been calls from senior EU figures such as European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn to introduce the new regime as early as 2015.
The Irish presidency of the European Council is hoping to reach a common position by the end of next month.
The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???
Side note:
The video below was the result of a collaborative effort to bring Mr.Middleton to Ireland through a crowdfunded campaign. While the effort fell through, we have recycled some of the material to ascertain interest in his visiting Ireland on an independent basis. If you're Irish, from Ireland or simply find this financial/ethical malarkey disagreeable and would be interested in seeing Reggie Middleton visit Ireland to disseminate his research, create new resarch, hold town hall style discussions on how to "occupy the banks" or simply have a good, old-fashioned breaking of the bread, let us know of your willingness to contribute to a crowdfunded project on Indiegogo. If there is enough interest to make this happen, we will create a project to fund Reggie's trip and create saleable research. Let Reggie know directly by contacting him via email: reggie at boombustblog dot com
Other hard hitting pieces on the resurgent EU banking crisis
"Till default do us part, A half-hearted banking union raises more risks than it solves". To wit:
Almost a year ago, as the euro crisis raged, Europe’s leaders boldly pledged a union to break the dangerous link between indebted governments and ailing banking systems, where the troubles of one threatened to pull down the other. Yet the agreement that seems likely to emerge from a summit later this month will be one that does little to weaken this vicious link. If anything it may increase risks to stability instead of reducing them.
Almost everyone involved agrees that in theory a banking union ought to have three legs. The first is a single supervisor to write common rules and to enforce them uniformly. Next are the powers to “resolve” failed banks, which is a polite term for deciding who takes a hit; these powers also require a pot of money (or at least a promise to pay) to clean up the mess left by bust lenders and to inject capital into those that can get back on their feet. The third leg is a credible euro-wide guarantee on deposits to reassure savers that a euro in an Italian or Spanish bank is just as safe as one in a German or Dutch bank. National insurance schemes offer scant reassurance to savers when sovereigns are wobbly and insured deposits make up a big chunk of annual GDP (see chart).
My latest appearance on the Max Keiser show at 11:52 in the video.
As for Android, Google, Glass, security and privacy, I took the liberty of posting the discussion from the my last article on this topic. It should be of interest to both the paranoid and the techy types....
Yet through disinformation borne ignorance, we already have the masses clamoring for a "safe' closed proprietary OS like iOS as compared to an open tool chest exposed to oh so many eyes.
> Who has the time to read through a mountain of computer source code? Computer source is difficult to read and understand. Reading source code written by other people and understanding it, will take longer than writing it yourself.
Nah! We are not protected.
So, let's revisit Glass. Glass is a cool device, but from a hardware perspective, it's not expensive to build once engineered. If the Moto X can be sold for $200, that will likely be the ceiling for Glass, which would probably be sold for less if subsidized by Google. Throw in a half billion dollar ad budget (Glass is already extremely popular and is not advertised or even for sale yet) and you have a definite game changer in the mix.
Imagine if these computer glasses that changes the way we do everything sold for $150, with the full marketing awareness powers of Google behind them. Uh Oh, it's a whole new world.
Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:
The biggest risks to these price points are:
From my appearance on RT's Prime Interest last Tuesday.
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From one of my reader's comments on the topic of NSA, privacy and Android..
"most people see Google Glass as real-time snooping tool for the NSA."
That's because most people are (if your statement is in any way true) are ignorant to how things truly work. Glass is powered by Android, which is open sourced. This means that anyone and everyone can modify the code base and if those modifications (improvements) are accepted into the official code base then the whole world has the ability to examine those changes as well as the entire code base.
This makes Android and the hardware running Android the safest popular mobile OS available because it is near impossible to hide things from driven eyes that want to find things.
Contrast this to a closed commercial system like Windows Phone or iOS where the government simply has to compromise one codebase or one company and it has an in to all users, none of which can see or modify what they have purchased.
NSA to Android is like having to lock a million doors, with tens of millions of keys floating around in the hands of hundreds of thousands of locksmiths. NSA to Apple iOS, et. al. is like having one door with one lock, and nobody has the key - locksmith or not!
If you were the NSA, which would oyu rather have as the world's primary OS? Mass adoption of a single commercial, closed system such as Windows of iOS is the NSA's wet dream in comparison to the veritable nightmare that Android and all of its eyes and tinkerer's must be. Yet through disinformation borne ignorance, we already have the masses clamoring for a "safe' closed proprietary OS like iOS as compared to an open tool chest exposed to oh so many eyes.
On Wednesday, 17 April 2013 I queried "What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors?" In such query, I levied some heavy accusations at the Bank of Ireland. Its worth a read if you haven't done so already. Well, two months later, I read in the Irish Independent the following: Internal probe at Bank of Ireland
AN inquiry is under way within Bank of Ireland's private banking division, as the bank's internal auditors investigate what have been described as "possible irregularities".
The Sunday Independent has learned that Bank of Ireland's auditors have been inside the division, which counts many of Ireland's most wealthy and powerful individuals among its clients, at various stages over the past six weeks, conducting what one source described as a "thorough examination" of its activities.
Hmmmm. Now, that's interesting. Six weeks ago would have been about two weeks after I dropped my bomb of a scorching missive on sheeple who are to this day, much too trusting of the banking system. That two weeks is just about the amount of time it would have taken a big corporation to act on the information that I levied (if it was in a rush). Wholly a coincidence, I'm sure!
The bank's audit team is seeking to establish if any of its private banking clients' affairs have been handled in any way improperly.
The bank's management is understood to be treating the matter "very seriously". Commenting on this, one well-placed source said: "The investigation isn't complete yet. It's difficult to say when it will be complete. We are obliged to follow due process before we come to any conclusions."
Asked if Bank of Ireland had brought in any third parties to assist with the investigation or if it had made contact with gardai even on a preliminary basis, the source said: "No, the matter is being dealt with internally and all appropriate procedures are being followed.
... The source stressed that clients of the division that is under investigation would be notified immediately in the event that the bank uncovered any evidence to show that their affairs had been inappropriately managed.
I have to be honest, I hate it when people ask me for free advice. After all, if my advice/opinion/knowledge was thought to be worth something, then people ought to act like it, no? Well, methinks one should make an exception to the rule this one time and offer some free advice to the "internal audit team" at the Bank of Ireland. I know, I know... Nobody asked me, but since they haven't bothered to bring in any third parties yet, why not invite myself and crash the party?
Let's, once again, reference my post from two months ago - What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors? wherein I will update the ADR performance chart for the bank if Ireland.
As you can see, there was a significant and material loss taken by ADR holders during the time in question at BoI. But, following the auspices of this story in the Independent, yet using our BoomBustBlog investigative resources, there's much more here than meets the eye. A document that I made available to professional/institutional subscribers details how the Bank of Ireland sought and received an exemption from SEC rule 102 of Regulation M (click here to brush up on your US securities law). In short, this exemption allowed the bank to literally trade in its own securities, provided it wouldn't abuse the privilege. See an excerpt below...
This letter worked literal wonders for the Bank of Ireland stock within days of being issued. Even more miraculous is the fact that it wasn't public information at the time yet the public somehow knew to bid the shares up by nearly 100%. Hmmmm! Coincidence, eh?
Even more damning is the fact that the alleged historical trading volume in the shares in question (a pertinent fact used as an argument to get the Reg M exemption in the first place) spiked by nearly 5X!!!
...Bank of Ireland Private Banking is, according to its website, "Ireland's largest and oldest private bank. The country's leading entrepreneurs, business leaders, professionals and families trust us to manage their wealth with discretion and integrity."
If the private banking client's capital was used to churn these shares, then.... Oh Boy~~~
Per Wikipedia: Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for a security, commodity or currency. Market manipulation is prohibited in the United States under Section 9(a)(2)[1] of the Securities Exchange Act of 1934, and in Australia under Section s 1041A of the Corporations Act 2001. The Act defines market manipulation as transactions which create an artificial price or maintain an artificial price for a tradable security.
If the stock was churned, the price would have increased temporarily until the performance numbers of the loss making bank would have came to fore. But then again, what would management have to gain by manipulating the stock in such fashion. After all, bankers aren't incentivized or measured by share prices, bonuses, year and reviews, etc., right???
I have released information that has apparently caused quite a bit of high level C-suite types to head for the hills, reference BoomBustBlog Hard Hitting, Bleeding Edge Research Results In 2nd High Level Ouster/Resignation In The UK & Euroland.
If you believe that the information above actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convey my message.
Those of you in Ireland who may not want to get "Cyprus'd", ie. have your bank accounts fund another bailout, should contact the Office of the Director of Corporate Enforcement. Click this link, and tell them Reggie from NYC sent 'ya. Seriously! The reason why Irish banks haven't been reformed was because not enough light has been shown on the activities. See a valid attempt at such here. This is the time, for the tea leaves foretell the next bank collapse & bailout will be funded directly out of your bank accounts, reference Ireland, You May Very Well Be Bust & I Make No Apologies For What I'm About To Show You for those who don't believe me. See Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" for an example of a bank statement of a Cypriot who didn't take the regulation of his bank seriously!!!
Yesterday I opined extensively on transparency (actually, the lack thereof) in the European banking system - Transparency In The European Banking? Madness, I say! Sheet, Utter Madness!!! I tore into the Irish banks as well as reminding all of the 2011 research that found the French banks to be the weakest link in pan-European banking contagion. Of course, you'd never here that from the sell side. Well, as luck would have it, look what I found on Euromoney.com today (Hat tip @StaceyHerbert)...
According to systemic risk measures for European financial institutions, developed by the Centre for Risk Management at Lausanne (CRML), French regulators would need to provide €300 billion, as of mid-May, to fulfil regulatory requirements in the event of a global financial crisis, defined as a 40% semi-annualized fall in global stock markets.
Using methodology developed in collaboration with the well-known and influential New York University Stern’s Volatility Institute, run by NYU professor Leonard Stern and Nobel laureate Robert Engle, the index gauges large European banks’ systemic risk by measuring size, leverage and exposure to global equity market shocks. The dynamic index, updated on a monthly basis, reveals that, as of mid-May, Crédit Agricole has the greatest risk exposure of any bank in Europe, followed by Deutsche Bank and BNP Paribas.
Hmmm... Now, where have we heard this before?
The WSJ article excerpted above quotes BNP management as saying: "The bank has €135 billion in "unencumbered assets after haircuts" that are eligible to central banks."
OK, I'll bite. Excactly how did BNP get to this €135 billion figure? Was it by using Lehman math? Methinks so, as clearly delineated in my resarch report on the very first page:
BNP_Paribus_First_Thoughts_4_Page_01
As excerpted from our professional series Bank Run Liquidity Candidate Forensic Opinion:
... Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above. Here I demonstrated what more realistic numbers would look like in said model...
Last month I posted updates of my search and studies of distressed European assets stemming from the banking crisis to be had at prime risk adjusted returns, see Preparing Resources To Shop For Distressed Assets As Banks Refuse To Come Clean On Near Fraudulent Reporting and Which Banks Are We Looking At To Shop For Assets?. Well, a month later, the Economist economist jumps into the fray with the article "Till default do us part, A half-hearted banking union raises more risks than it solves". To wit:
Almost a year ago, as the euro crisis raged, Europe’s leaders boldly pledged a union to break the dangerous link between indebted governments and ailing banking systems, where the troubles of one threatened to pull down the other. Yet the agreement that seems likely to emerge from a summit later this month will be one that does little to weaken this vicious link. If anything it may increase risks to stability instead of reducing them.
Almost everyone involved agrees that in theory a banking union ought to have three legs. The first is a single supervisor to write common rules and to enforce them uniformly. Next are the powers to “resolve” failed banks, which is a polite term for deciding who takes a hit; these powers also require a pot of money (or at least a promise to pay) to clean up the mess left by bust lenders and to inject capital into those that can get back on their feet. The third leg is a credible euro-wide guarantee on deposits to reassure savers that a euro in an Italian or Spanish bank is just as safe as one in a German or Dutch bank. National insurance schemes offer scant reassurance to savers when sovereigns are wobbly and insured deposits make up a big chunk of annual GDP (see chart).
The logic behind this chart has been the engine behind out contagion model, the core thesis behind the short on continental Europe in general (see Overbanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe) and our hypothesis against the French banks - reference "On Your Mark, Get Set, Bank Run".
There's much more to this bank run, capital flight thingy in Europe. I explained it in detail over two years ago:
First, the European banks are just too big in relation to Europe, herself!
Second, as stated in the Economist, we have a liquidity time bomb!
As excerpted from our professional series Bank Run Liquidity Candidate Forensic Opinion:
BNP_Paribus_First_Thoughts_4_Page_01BNP_Paribus_First_Thoughts_4_Page_01
This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above. Here I demonstrated what more realistic numbers would look like in said model... image008image008
To note page 9 of that very same document addresses how this train of thought can not only be accelerated, but taken much further...
BNP_Paribus_First_Thoughts_4_Page_09BNP_Paribus_First_Thoughts_4_Page_09
So, how bad could this faux accounting thing be? You know, there were two American banks that abused this FAS 157 cum Topic 820 loophole as well. There names were Bear Stearns and Lehman Brothers. I warned my readers well ahead of time with them as well - well before anybody else apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?). Well, at least in the case of BNP, it's a potential tangible equity wipe out, or is it? On to page 10 of said subscription document...
BNP_Paribus_First_Thoughts_4_Page_10BNP_Paribus_First_Thoughts_4_Page_10
Yo, watch those level 2s! Of course there is more to BNP besides overpriced, over leveraged sovereign debt, liquidity issues and ALM mismatch, and lying about stretching Topic 820 rules, but I think that's enough for right now. Is all of this already priced into the free falling stock? Are these the ingredients for a European bank run? I'll let you decide, but BoomBustBloggers Saw this coming midsummer when this stock was at $50. Those who wish to subscribe to my research and services should click here. Those who don't subscribe can still benefit from the chronology that led up to the BIG BNP short (at least those who have come across my research for the first time)...
Thursday, 28 July 2011 The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
Lastly... When everybody's lying, no one is trusted with telling the truth! There's the sovereigns themselves lying through their collective teeth, reference Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware! There's the so-called "Troika", reference Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!. Then there's these banks and those damn stressless stress tests... Again, as excerpted from French Banks Can Set Off Contagion That Will Make Central Bankers Long For The Good 'Ole Lehman Collapse Days!:
On that note, ZeroHedge has come out with a blockbuster explanatory article: Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, €400 Billion Capital Shortfall
A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related.
I'd like to add that I've ridiculed all of these stress tests, US and European, although the European stress tests were by far the biggest joke. Dexia passed with a grade of A (or so), and will be nationalized momentarily. 'Nuff said!
To wit: "In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls,SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.
And the scary charts:
1. Capital Shortfalls under Stress Test part Trois (9% min. CET1 ratio)
Judged against these three requirements, Europe’s new plan is a miserly one. Its outlines emerged in a joint paper released on May 30th by France and Germany. The minimalism of the paper suggests the summit will offer little more than the establishment of single supervisor and a promise to set up a vaguely defined “resolution mechanism”.
Those who follow me know that I'm medium term bearish on both any sovereign nations and their out-sized, profligate, insolvent banking systems which they support. Ireland makes a good example - If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It... and
The Beginning Of The Great Irish Unwind?!?!?!.
Back to that Economist article:
If a pot of money is pledged it will probably be a small fund raised through a tax on banks and without the backing of governments. If Europe’s bail-out fund, the European Stability Mechanism (ESM), is referred to it is likely to be only as a last resort to recapitalise lenders after ailing countries have already bankrupted themselves standing behind their banks. A euro-wide deposit insurance fund is so controversial it isn’t polite to mention it.
...The legal challenges are also enormous. Each country in the euro has its own bankruptcy code. A change in the treaties governing the European Union would probably be needed to give a new resolution authority the power to seize bank assets and impose losses on creditors.
Events outside the negotiating room have also reshaped the scope of a banking union. The “bail-in” of Cypriot banks earlier this year dipped into the savings of uninsured depositors in order to recapitalise lenders. Repeating that tactic would risk deposit flight from peripheral banks and a sharp increase in banks’ funding costs. But rather than committing public funds to shore up banks elsewhere, some politicians would doubtless prefer to hit uninsured depositors again.
But,,,, but,,,, without a definitive source of "rescue" capital, a bail-in is all but guaranteed, right Ireland???!!! I hate to pick on them, but the Irish make a good example - If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It... and
The Beginning Of The Great Irish Unwind?!?!?!
A strategy of incrementally moving towards a full banking union might have worked in normal times. Doing so in the middle of a crisis is risky. Over the coming year the ECB will have the unenviable task of assessing the health of the banks it is about to supervise. Its root-and-branch examination may well reveal gaping holes at a number of big banks. Yet without ready access to a pot of money to fill these holes, the ECB could be reluctant to force banks to come clean. “It is madness to expose capital shortfalls if you don’t know where new capital is going to come from,” says one bank supervisor.
Oh, I see. This must explain the blatantly fraudulent-esque goings on I uncovered in the Irish banking system. In case you haven't heard, I issued a Direct Challenge To Federal Reserve & Irish Central Bank Bubble Blowers. When I did Provide Proof That The Entire Irish Banking System Is A Sham, the ECB did absolutely nothing! No phone calls! No meetings! No emails! Makes you wonder why, eh?
"Over the coming year the ECB will have the unenviable task of assessing the health of the banks it is about to supervise. Its root-and-branch examination may well reveal gaping holes at a number of big banks. Yet without ready access to a pot of money to fill these holes, the ECB could be reluctant to force banks to come clean."
Madness, I tell you! Madness!!!
First up, a quick history lesson courtesy of Wikipedia:
"No taxation without representation" is a slogan originating during the 1750s and 1760s that summarized a primary grievance of the British colonists in the Thirteen Colonies, which was one of the major causes of the American Revolution. In short, many in those colonies believed that, as they were not directly represented in the distant British Parliament, any laws it passed taxing the colonists (such as the Sugar Act and the Stamp Act) were illegal under the Bill of Rights 1689, and were a denial of their rights as Englishmen.
The phrase captures a sentiment central to the cause of the English Civil War, as articulated by John Hampden who said “what an English King has no right to demand, an English subject has a right to refuse” in the Ship money case.
... The British Parliament had controlled colonial trade and taxed imports and exports since 1660.[1] By the 1760s, the Americans were being deprived of a historic right.[2] The English Bill of Rights 1689 had forbidden the imposition of taxes without the consent of Parliament. Since the colonists had no representation in Parliament, the taxes violated the guaranteed Rights of Englishmen.
...The phrase had been used for more than a generation in Ireland.[7][8] By 1765, the term was in use in Boston, and local politician James Otis was most famously associated with the phrase, "taxation without representation is tyranny."[9] In the course of the Revolutionary era (1750-1783), many arguments seeking to resolve the dispute surrounding Parliamentary sovereignty, self-governance, taxation, and the constitutional rights of 'commoners' to representation were pursued.[10]
Why go through this US grade school history lesson? Well, UK taxpayers have been paying substantial taxes to essentially bail out an Irish bank with no say so in how said bank is operated. As a matter of fact, they don't even know the extent of said bank's indebtedness despite paying a ton of money to bail it out. RBS investors have taken material losses due to this very same bank. Both of these parties went without adequate disclosure or... "representation". A couple of months ago I penned a piece titled "I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets!" wherein the Royal Bank of Scotland's failure to adequately report the full (and quite excessive, in my opinion) liabilities of its ill-fated acquisition, Ulster Bank of Ireland. Ulster Bank pumped massive losses into RBS, who in turn neared collapsed and required a massive bailout by the UK taxpayer (billions of pounds massive), who still owns 81% of this sick creature as I type this missive. Those losses were generated by an Irish bank in Ireland, but paid by UK citizens, and the losses were materially understated in my opinion for Ulster Bank was/is much less solvent than RBS is letting on through its US SEC reporting, having encumbered all of its ECB eligible assets available for lending... ALL OF ITS ASSETS! See "I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets!" for complete details, it's a doozy!
I know more than a couple of UK taxpayers who'd much not rather pay Irish bad debts. I decided to rub a little salt in the UK wound by throwing some arithmetic illumination on the situation via an embedded Irish bad bank tax calculator...
I've taken the liberty of pre-populating the input fields for you, but if you don't agree with the numbers then by all means insert your own!
Lo and behold, about a monthafter my reports the BBC published an article titled "Will the bad be taken out of RBS?" wherein they reported on plans to split the farce formerly known as a bank - RBS - into a good bank/bad bank scheme (ahem!). Shortly thereafter, the Irish Times ran the following article "UK Treasury considers Irish takeover of Ulster Bank - Reports suggest UK authorities want the Irish government to take control of bank". I really, really wonder why? As excerpted:
A “radical” restructuring of Royal Bank of Scotland, which is largely owned by the UK taxpayer, could see it transfer control of its Irish operation, Ulster Bank, to the Irish government.
The future of RBS is currently being considered by the Parliamentary Commission on Banking Standards, and a draft report from the commission called for the split of RBS into a good bank and a bad bank.
However, a speculative report from BBC business editor Robert Peston has suggested that “another, more radical option is also being assessed by the Treasury”.
This would involve somehow removing Ulster Bank from RBS. The bank has been one of the worst performing parts of the group, with losses of £1 billion in 2012.
Mr Peston said that one idea raised is to “transfer Ulster Bank into the arms and ownership of the Irish government”, by swapping all or part of the bank for the British loans and investments currently owned by Ireland’s “bad bank”, the National Asset Management Agency (Nama).
Hmmm... That's interesting, trading trash for garbage!
Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com