Financial Industry 01 (Jul 08 - Aug 09)

[winston]

Chanos: Banks Pulled Off Biggest Heist Ever By: Julie Crawshaw

Kynikos Associates head James Chanos says banks knowingly booked inflated earnings when they sold the financial products that led to their downfall — and then those earnings wound up in bonus pools and lining bankers’ pockets.

"It's the heart of one of the greatest heists of all time," Chanos told Forbes.

Chanos says that by booking assets at a higher than market price, banks effectively reported earnings that never existed. Those earnings first went into a bonus pool that was paid out to bank executives.

“There’s no doubt in my mind that this is fraud,” Chanos says. “This was the bezzle.”

Collateralized asset-backed investments are segregated into tranches, the highest of which are considered safer than the lowest.

Chanos says that banks typically retained three percent to five percent as payment for constructing the product, and that sometimes those fees came from the lowest and most risky tranches.

"In many cases, the fee was a toxic tranche," Chanos notes. "They were immediately worth 30 cents on the dollar, but not priced that way."

Chanos believes guilty bank execs will never be prosecuted for their crimes because the Machiavellian web of how they created and sold collateralized debt and related financial products would cause any jury’s eyes to glaze over.

Charges for impaired loans rose in all customer groups and regions during the first quarter, HSBC Holdings reports.

“The statement was pretty terrible; the U.S. was much worse than we expected,” analyst Simon Willis told Bloomberg.

“HSBC remains pretty cautious and said there is limited appetite for borrowing around the world.”

© 2009 Newsmax.

http://moneynews.newsmax.com/streettalk ... 13005.html

[millionairemind]

From BIG

S&P 500 Financial Sector At Key Inflection Point

The S&P 500 Financial sector is down just over 12% from its recent intraday high last Friday. And heading into next Monday, the sector is currently sitting at a key inflection point that should help identify which way the sector will trade over the next month or so. As shown below, the Financial sector is currently sitting right on support that formed when the sector hit its highs in early April. It's also sitting right at the bottom of the tight uptrend channel that it has been trading in since the March lows. If the sector can hold its price and then trade higher on Monday, technicians will interpret this as a sign that the rally will resume. If the sector breaks support and trades down, the uptrend will be broken and lower prices will most likely ensue.
http://bespokeinvest.typepad.com/

[millionairemind]

A stinging piece on the stress test.

http://www.economist.com/finance/displa ... d=13665327

[kennynah]

i wonder...what "money" will evolve into....in the year 2100 ?

maybe, we could all play Nostradamus...

[millionairemind]

A 3-month rally and now nobody seems keen to sell toxic assets anymore?? Perhaps now they are all worth $1.20 for every dollar in assets..

June 2, 2009, 1.43 pm (Singapore time)

Interest may wane in US toxic-asset plans: Geithner

* Geithner says toxic asset plans still useful as insurance
* Says some banks may be able to repay govt soon
* Taxpayers may see returns on auto investments

BEIJING - Improving confidence may lessen US banks' interest in programmes designed by the government to reduce toxic assets from their balance sheets, US Treasury secretary Timothy Geithner said on Tuesday.

Because banks are raising unexpectedly large amounts of capital from private investors, they may be able to sell more of their impaired assets in the market, Mr Geithner told CNBC during a visit to Beijing.

But he said President Barack Obama's administration would still work with the Federal Reserve and the Federal Deposit Insurance Corp (FDIC) to put asset-purchase programmes in place as insurance.

'We still think they have some value,' Mr Geithner said. 'We're going to work with the FDIC and the Fed to put those funds in place, and we think they'll have some insurance value over time.'

Mr Geithner said banks were having considerable success in raising new capital and that may mean it will be easier for them to handle soured assets on their own.

'Maybe they'll sell them to the markets as a whole,' he said.

Mr Geithner added that some banks that had received big injections of capital from the government may soon be able to repay it. 'I think ... we're going to see substantial repayments from some institutions starting relatively quickly,' he said.

JPMorgan Chase & Co and American Express Co on Monday announced plans to sell US$5.5 billion of common stock, hoping to position themselves to quickly repay funds from the government's bank bailout plan.

The two companies were among the 19 US lenders to recently undergo government 'stress tests' of their ability to weather a deep recession, and were among the nine that regulators said did not need more capital.

The Fed said on Monday the government would announce next week which of the 19 will be allowed to repay the government. One condition for repayment is that they are able to raise money in the public equity markets.

Reluctant investor
Mr Geithner said there was legal flexibility for the Treasury to use any money repaid and that it would do so if necessary.

'We'll use that because, again, we want this economy to emerge as quickly as possible to a stronger foundation for growth,' he said.

Mr Geithner added that he felt there was 'a reasonable prospect' that taxpayers would get some return from the tens of billions of dollars invested in the ailing domestic auto industry.

General Motors Corp (GM) filed for bankruptcy on Monday as the Obama administration decided to push GM into a fast-track bankruptcy and provide US$30 billion of additional taxpayer funds to restructure the automaker.

Mr Geithner called criticism of the Obama administration's significant investments in industry unjustified and said they would be temporary.

'We are the exceptionally reluctant investor, when we've had to be an investor,' he said. 'We will try to make sure we get out as quickly as we can.'

Despite the Federal Reserve's purchase of hundreds of billions worth of US Treasury debt, there was no suggestion it was effectively monetising debt, he said.

'There's no risk of that in the United States,' he said, adding that Fed chairman Ben Bernanke was 'completely committed' to keeping inflation low. -- REUTERS

[millionairemind]

Bank Profits From Accounting Rules Masking Looming Loan Losses
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By Yalman Onaran

June 5 (Bloomberg) -- Big banks in the U.S. say they’re on the mend. The five largest were profitable in the first quarter, rebounding from record losses for the industry in the fourth quarter. Share prices have jumped, with the KBW Bank Index doubling since March 6.
http://www.bloomberg.com/apps/news?pid= ... C3LxSjomZ8

[winston]

The Banks Are Back... or Are They? By Andrew Gordon, ETR

Their profits are up. Their write-downs are lower. The government is riding shotgun for them. And the worst is over.

The banks are back, right?

Goldman Sachs, JP Morgan, Bank of America, Wells Fargo, and even Citigroup all reported profits for the first quarter of 2009. But a closer look under the hood reveals some "creative accounting"...

1) Bank of America arbitrarily increased the value of its Merrill Lynch assets.
2) Goldman Sachs bunched much of its losses into the month of December - a month it skipped reporting on this year.
3) JP Morgan's bonds fell in price. And that perversely allowed the bank to increase its bottom line.

Most of the banks did extremely well in fixed-income, currency, and commodities trading this past quarter. So is this the new bank model? Making boatloads of money from Forex and bonds?

Not likely. It looks more like a one-time bonanza to me.

The Fed and European central banks were broadcasting their quantitative easing efforts. It's not hard to make money when the government is telling you which way rates are going. But now that the run-up to quantitative easing is over, making those oversized profits will get a lot harder. So where else will the banks be getting their money?

A bank's loans are only good assets if they get paid back. And the brutal recession we're having is forcing more and more loans into default. When their loans go into default, banks go from earning money to spending money. Each foreclosure, for example, costs a bank about $50,000.

The banks still have some tough sledding ahead.

[winston]

Faster banking sector 'cleansing' needed, says IMF head

MONTREAL: Nations must speed up their "cleansing" of banks' toxic assets in order to get credit flowing, or risk scuttling a global economic recovery in 2010, IMF director Dominique Strauss-Kahn said on Monday.

"The most credible scenario is that recovery will take place in the first half of 2010, with a turning point in September or October," Strauss-Kahn said in a speech at the International Economic Forum of the Americas in Montreal.

But countries must speed up efforts to decontaminate their banking sectors of bad investments that triggered a global credit crunch and fanned a recession, he said. "The process is much too slow."

"That's probably the biggest downside risk for a 2010 recovery," said Strauss-Kahn.

"You'll never recover until the cleansing has been completed," he said.

Also worrying, according to Strauss-Kahn, is that foreign capital required by emerging countries such as Mexico, Colombia or Poland has dried up, which could lead to "consequences for the rest of the world."

And developing countries reliant on trade, though mostly unscathed by last year's credit crunch, are now reeling from an ensuing slowdown of the global economy, stoking fears of civil unrest and war, he said.

"It's a global concern for the recovery itself because in those countries democracy is in most cases rather new and unstable," Strauss-Kahn explained.

"Economic problems create social unrest and social unrest creates threats to democracy and in turn those problems may turn to civil war, or foreign wars," he said, pointing to "a lot of examples in the past" of this cascading of economic woes into armed conflict.

Other concerns include how to live with the huge increases in fiscal deficits and public debt accumulated over the past year to pay for massive stimuli to try to soften the recession.

"This probably avoided a deeper crisis," Strauss-Kahn said. "However, there's a cost."

"After the crisis the world will not look like it was before," he said. In addition to the curbed fiscal situation, "a new balance of power among nations will take place."

"The next world will not the same." - AFP/de

[millionairemind]

June 9, 2009, 1.59 pm (Singapore time)

US bailout panel says more bank stress tests needed

WASHINGTON - Bank stress tests should be repeated if the US unemployment rate rises beyond levels assumed by regulators in a recent round of examinations that provided relief to markets, according to a report released by a bailout watchdog panel on Tuesday.

The Congressional Oversight Panel said in the report that the stress tests should also be repeated periodically as long as banks continue to hold 'appreciable amounts' of toxic assets.

The monthly report from the panel, led by Harvard Law School Professor Elizabeth Warren, said the stress tests, ordered by the US Treasury Department for the top 19 US bank holding companies, used a risk-modelling approach that on the whole was 'reasonable and conservative'.

But the panel noted that it is impossible for an outside party to replicate the loss projections that form the core of the tests.

It noted, however, that the 'more adverse scenario' assumption for the US unemployment rate in the tests has nearly been met so far in 2009. The May unemployment rate of 9.4 per cent pushed the average for the year to 8.5 per cent, not far from the 8.9 per cent assumed.

'We recommend that Treasury publicly track the status of its stress test macro-economic assumptions (unemployment, GDP, and housing prices) and repeat the stress test if the adverse scenario assumptions have been exceeded,' the panel said.

The stress test results on May 7 caused many investors to breathe a sigh of relief when regulators ordered 10 of the top 19 US banks to raise nearly US$75 billion in new capital, far less than feared. Since then, the tested banks as a group have executed or announced share sales totalling about US$65 billion.

The report also comes as the Treasury is preparing to announce which of these banks will be allowed to repay billions of dollars in emergency government capital injections received last fall.

Nine of the 19 banks, which each have assets exceeding US$100 billion in assets, have met key conditions set by the Federal Reserve for repayment, including selling new shares, issuing debt without a government guarantee, and resolving capital deficiencies identified by the stress tests. The nine banks have received US$66.7 billion in government capital.

The Wall Street Journal earlier reported that nine banks will be allowed to repay more than US$50 billion in taxpayer funds. Bloomberg reported that 10 banks will be allowed to repay. The Treasury did not respond to queries about the stories, which cited unnamed people familiar with the matter.

The oversight panel's report acknowledged that the stress tests had a positive effect on market confidence, but it cautioned against assigning too much value to them.

They do not model bank holding company, or BHC, performance under 'worst case' scenarios, and as a result they do not project the capital necessary to prevent banks from being stressed to near the breaking point'. -- REUTERS

[kennynah]

same old boring news.... stress test what??? can make it, will make it...

by now, cannot make, already chap lup liao...