Entries categorized as ‘bank capitalization’
September 15, 2008 · 1 Comment
Amongst the financial news today is something that is truly strange and new. For the first time in almost a century, the Federal Reserve has announced it will lend out money in exchange for equities (shares of stock). According the the Reuters’ report:
“One of the biggest changes the Fed made was to accept equities as collateral for cash loans at one of its special credit facilities, the first time that the Fed has done so in its nearly 95-year history.
One of the most striking new Fed action was its decision to accept equities as collateral for cash loans under its Primary Dealer Credit Facility for investment banks. Until now, collateral was limited to investment-grade debt securities.”
What does this mean? Essentially, that the quality of the collateral held by the Federal Reserve is continuing to deteriorate. Long gone are the days of AAA rated collateral requirements. The Federal Reserve is now potentially the largest player in the stock market. At the very least, it will be subjected to stock market risk, a scary thought. Is this the role of a Central Bank?
The action is summarized by Nouriel Roubini as follows:
[T]he Fed is accepting even more toxic collateral for the TSLF and PDCF, including even equities; so now after having nationalized the mortgage market via the takeover of Fannie and Freddie the government is also starting to manipulate directly the stock market (a step that started with the SEC restrictions on naked short sales of the primary dealers; so the process of turning the US market system in a socialist system controlled by the government is now in full swing. And the Fed takes massive credit and now market risks by its effective purchase of equities.” http://www.rgemonitor.com/roubini-monitor/253567/if_lehman_collapses_expect_a_run_on_all_of_the_other_broker_dealers_and_the_collapse_of_the_shadow_banking_system
Categories: Anglo-Saxon free trade · Ben Bernanke · Central banks · Economy · Fed · Fed flubbed · Fed fluffed · bank capitalization · bank insolvency · bank nationalization · bank reserves · banking crisis · banking system · central bank · collateral · creditworthiness · critical status · fed funds · federal reserve
http://www.thisislondon.co.uk/standard/article-23523323-details/Profit+crash+rocks+banks/article.do
The news hit London on July 30th that one of the most conservative of the British major banking institutions saw its profits plunge by 70%. “The result was far worse than a pessimistic City was expecting and raised fears for high street rivals. HBOS, which owns Halifax, reports tomorrow and Alliance & Leicester the day after. Lloyds TSB blamed the global credit crunch and losses in its insurance business. The figures will heighten government fears that more small banks could collapse such as Northern Rock. Lloyds was regarded as the most conservative of the big banks and had won praise for resisting the temptation to make risky loans during the boom years.”
Categories: Anglo-Saxon free trade · Lloyds · bank assets · bank capitalization · bank earnings · bank failure · bank failures · bank insolvency · bank lending · bank nationalization · bank reserves · bank run · banking crisis · banking system · banks
The latest from Satyajit Das analyzes the question of where bank earnings will likely go from here. It’s a thoughtful and well reasoned piece. His conclusion:
“Glamorous banks reliant on “voodoo banking” may find it difficult to achieve the high performance of the “go-go” years. Banks with sound traditional franchises that have avoided the worst excesses of the last 10-15 years will do well in the changed market environment. Such old fashioned banking may ironically do well in the “new” environment. Interest rates that they charge customers have increased. Bank deposits have become far more attractive than other investments. Stronger banks have also benefited from a “flight to quality”.
Will the recovery in bank stocks take the form of “V” or “U”? It may be a “L”. With the Northern Rock and Bear Stearns bailouts, central banks and governments have signaled that major banks are “too big to fail”. This is a necessary but not sufficient condition for recovery of bank earnings and stock prices. The recovery might take the form of a “L” (Kirsten ITC font) – note the small upturn at the far right of the flat bottom.”
Read the entire article: http://www.eurointelligence.com/article.581+M51e05e0377e.0.html
Categories: Das · Satyajit Das · bank assets · bank capitalization · bank earnings · bank failure · bank failures · bank insolvency · bank reserves · banking system · earnings forecast · financial sector · financial sector earnings · healthy banks · safe banks · shape of recovery
One of the most astute commentators on the economy in Florida and real estate particularly is Mike Morgan. His latest piece is fascinating but makes for a none so cheerful read. He thinks as goes FL goes the rest of the U.S. Is Florida a crystal ball we should all be looking into?
Excerpt: “I was going to call this “Banks March Us Into Depression,” or maybe more fitting is . . . “Complete Collapse of US Banking System.” Folks, that is what we are looking at. I don’t see any way around it. What we’re seeing here in Florida, is your crystal ball. And what happens here, is coming to a town near you . . . soon. This past week I didn’t write anything, because what I am seeing unravel is disturbing to the point I had to question what I was seeing and hearing. So I decided to take as much time as I needed to digest it all, and then put something together for you. So here goes . . .
I could prepare volumes of spread sheets with Bernankesque numbers. I could talk about commodity prices and oil and third world politics and a dozen other metrics that all lead to the same conclusion. But let me give you a ground zero look. That’s what I do best. I will leave the manipulation of the numbers to the folks on Wall Street that do it best. The same folks that have created the precipice they will soon push us off.
I spend a great deal of time dealing with Asset Managers hired by banks stuck with REOs. So as not to re-hash the events leading to the housing crisis, I will not discuss the free-money policies of the past, and I will not discuss the absolute lack of accountability in making the bad loans of the past. Let’s just deal with how the banks are attempting to recover.
Unfortunately, banks are not making a realistic effort to address the crisis. That may be because they cannot. As the banks and builders have announced write down after write down, my mantra has been . . . and continues to be . . . NOT ENOUGH – NOT ENOUGH – NOT ENOUGH. I still believe that. The builders and the banks have underestimated the magnitude of the problem, and they continue to do so. Analysts continue to look at the rear-view mirror and attempt to manipulate numbers based misguided historical assumptions.” Full article floridacrystalball
Categories: Florida economy · Mike Morgan · Morgan · REOs · bank capitalization · bank failure · bank insolvency · bank reserves · banking crisis · banking system · bankrupt · collapse · commercial real estate · consumer sentiment · consumer spending · contracting credit market · deflation · deleveraging · delusional markets · depression · real estate
No, we’re not out of the woods. B&B in the UK and now Lehman on Wall Street are showing that when the tide goes out, we see who’s swimming naked. Simply put, it’s not a good sign when investment banks and banks have to use credit to survive. As observed so well today, what goes up must come down harder:
“Lehman is in serious trouble on Wall Street. But that’s nothing compared to Bradford & Bingley in the UK, which may be wiped out in a matter of days. As you can see below, they were very close a few days ago. A bank run has been avoided so far because of an alleged government guarantee for every first £35.000 in deposits. What that is truly worth remains to be seen if bank failures come fast and furious in the UK.
That scenario is not that far out in left field; most large UK banks are caught up in rights issues. That over-supply means that to get any new capital, they’ll have to sell themselves dirt cheap. Which in turn will provoke enormous anger among shareholders. It could happen very soon. But yes, it’s still possible that Gordon Brown sells the future of his people to save the banking system.
Not that Lehman is looking good, mind you, they’re going “money intravenous” for the third time in a few months, and they lost over 50% of their values at the same time. If that trend doesn’t stop, there is no way out of failure or a fire-sale. And following tight on the Lehman heels, Wachovia is lined up for the emergency room, and perhaps the last rites. Or, you guessed it, a fire-sale.
People are often asking for “the” moment, and “the” writing on the wall. How about this: “Sales of [US] commercial properties were down 71 per cent in the first quarter compared with a year earlier.[..] Commercial property prices in the US in February saw their sharpest decline since records began nearly 15 years ago.”
http://theautomaticearth.blogspot.com/2008/06/debt-rattle-june-3-2008-what-goes-up.html
Categories: CDS · Lehman · bank capitalization · bank failure · bank failures · bank insolvency · bank nationalization · bank reserves · bank run · banking crisis · investment bankers · investment banking · money IV · run on banks
Despite some variation, average ratio of high risk assets to equity was 188% across these major banks:
Many thanks to Russ Winter for chart and graphic!
Categories: Economy · bank assets · bank capitalization · bank failure · bank failures · bank insolvency · bank reserves · bank safe · banking crisis · banking system · banks · collateral · financial sector
For curiosity’s sake, take a look at the historical dollar amount of borrowing by depository institutions (banks) from the Federal Reserve. It is hard not to notice that what we have here is unprecedented over the last 100 years. When you hear someone say the credit crisis is almost over, check this chart and think again.
Total Borrowings of Depository Institutions from Fed. Reserve 1910 – present (Billions $US)
Categories: Fed · NY Fed · Treasuries · bank assets · bank capitalization · bank failure · bank failures · bank insolvency · bank nationalization · bank reserves · bank safe · banking crisis · banking system · demand deposits · federal reserve · nonborrowed reserves · reserve requirements · reserves · socializing losses · state owned banks · subprime · what inning are we in
