It appears that the stress test results will say that only one bank will need additional capital.
This is bullsh@#. The result that only one bank has issues, and they are small was pre-ordained from the start.
Because they don’t want to say that banks are insolvent, and if they said that no banks had issues, the fix would be obvious, so they went with only 1 bank.
It looks like the good doctor (Roubini) agrees. He is saying that the stress tests are not “serious”.
Teck of a job, Timmy.
I normally follow the FDIC, so I missed the closing of the Eastern Financial Florida Credit Union, which was actually a larger financial institution than any of the 4 banks closed yesterday.
Now that Bank of America CEO Ken Lewis’ testimony before NY State Attorney General Andrew Cuomo has been released, members of Congress want the documents to investigate, and are threatening a subpoena if they don’t get them.
Representatives Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, and Dennis Kucinich (D-OH), who the Domestic Policy subpanel, are demanding that all relevant documents be turned over to them, and they are threatening a subpoena:
The implications of Mr. Lewis’ testimony, if accurate, are extremely serious. Under these circumstances failure to comply with the Subcommittee’s request raises the prospect that we will be forced to consider compulsory means to achieve compliance with our request. However, we would prefer your voluntary compliance.
(emphasis mine)
As I’ve said before, it sounds to me like Paulson and Bernanke broke the law, and a full investigation would be a very good idea.
Hell an indictment would be a very good idea.
Because the EU is proposing a cap on executive compensation:
Bankers’ bonuses and golden parachutes would be capped in all European Union countries under a draft policy circulating in Brussels that amounts to one of the broadest responses yet to concerns about executive pay.
No BS about, “If you participate in this program, you are limited,” it applies to everyone.
They are saying, “Just so much and no more never more than a spot or something may happen, you never know what.”
Even if the bankers were doing a good job, that level of remuneration is immoral, whether its a lawyer or a football player.
So, Timothy Geithner will beginning to report the results of the stress test to the banks, and I do not know the results, but the estimate is scary:
“The headlines, not the details, seem to be driving the markets,” said Frederick Cannon, who is in charge of equity research at Keefe, Bruyette & Woods, a boutique investment bank.
Analysts are already betting that the stress tests will show that banks need to raise significant amounts of new capital, as profits made in the first three months of the year give way to more losses, tied to credit card, commercial real estate and corporate loans. An assessment by Mr. Cannon’s firm, which calculated its own stress test for the industry, concluded Thursday that United States banks might need as much as an additional $1 trillion in capital.
I don’t know this guy from Adam, but $1T is a lot of money. US GDP is about $15T.
I would also note that the economy is already doing worse than the worst case in the stress test, so I would expect the final number is likely to be at least twice as much as this.
It looks like the former Treasure Secretary, and the current Chairman of the Federal Reserve pressured Lewis to ignore the normal disclosure requirements to the SEC and his shareholders:.
Bank of America Chief Executive Kenneth Lewis told the New York attorney general he believed former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke wanted him to keep quiet about the worsening terms of the bank’s acquisition of Merrill Lynch, according to testimony reviewed by The Wall Street Journal.
This is actually a big deal, and while I still think that Lewis is an idiot who should be fired for buying Countrywide Financial, it casts a far more sinister light of the involvement of the people who were then two most senior finance officials in the US.
I would note that Paulson has denied this, though the circumstances seem fairly clear:
The Journal said in Thursday’s edition that Lewis doesn’t say in the transcript that he was told specifically to remain silent about Merrill’s burgeoning losses. But the paper quotes Lewis as testifying that disclosing that information “wasn’t up to me,” and that he was warned by Paulson and Bernanke that failing to complete Merrill’s takeover would “impose a big risk to the financial system.”
Citing a person familiar with the matter, the newspaper said Paulson told the NY AG’s office last month that Lewis may have misread some remarks about Treasury’s disclosure requirements as instead pertaining to his bank’s obligations.
The “person familiar with the matter,” is Hank Paulson or one of His Evil Minions™, and, “he misheard me,” is awfully week tea by way of a denial.
As the the Bloomberg article notes:
The allegations in Cuomo’s letter suggest Paulson and other policymakers may have resorted to breaking securities laws in order to protect a fragile financial system, according to Peter Sorrentino, a senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which has about $13.3 billion under management and doesn’t own Bank of America Corp. stock.
It’s actually more than that. Just by instructing Lewis to keep his mouth shut, Bernanke and Paulson engaged in a criminal conspiracy, and possibly, because of the power that they held in their positions, racketeering and abuse of power.
The Wall Street Journal has released selected transcripts, and if Lewis’ allegations are true, we have a criminal Chairing the Fed:
Mr. Lewis: I remember, for some reason, we wanted to follow up and see if any progress — as I recall, we actually, had not agreed to call a MAC after the conversation that we had, and so I tried to get in touch with Hank, and, as I recall, I got a number that was somebody at the Treasury kind of guard-like thing. He had a number for Hank, and Hank was out, I think, on his bike, and he — this is vague; I won’t get the words exactly right — and he said, “I’m going to be very blunt, we’re very supportive of Bank of America and we want to be of help, but” — I recall him saying “the government,” but that may or may not be the case — “does not feel it’s in your best interest for you to call a MAC, and that we feel strongly,” — I can’t recall if he said “we would remove the board and management if you called it” or if he said “we would do it if you intended to.” I don’t remember which one it was, before or after, and I said, “Hank, let’s deescalate this for a while. Let me talk to our board.” And the board’s reaction was one of “That threat, okay, do it. That would be systemic risk.”
…
Q: Why do you say it wasn’t up to you? Were you instructed not to tell your shareholders what the transaction was going to be?
Mr. Lewis: I was instructed that “We do not want a public disclosure.”
Q: Who said that to you?
Mr. Lewis: Paulson.
Seriously, this sounds like gangsters making threats, and I would suggest that a criminal investigation is in order.
It looks like the Treasury will allow some of the TARP recipients to pay back their money early, though it is implied that the stress test has to be complete, and that their financial status has to be well capitalized, in order for them to do this.
In a related note, the banks are lobbying to reduce the costs of the loans that they took:
The banking industry is aggressively lobbying the Treasury Department to make it less costly for financial institutions to get out of the Troubled Asset Relief Program.
…
At issue are “warrants” the government received when it bought preferred stock in roughly 500 banks over the past six months as part of TARP. The warrants allow the government to buy common stock in the banks at a later date so taxpayers can receive more of a return on their investment when the banking industry recovers.
Many banks want to return their TARP money and, as part of that effort, want to expunge the warrants. To do that, banks must either buy them back from the government or allow the Treasury to sell them to private investors.
Today, most of the warrants are essentially worthless, because their exercise price is higher than where most banks’ stocks are trading. But the government believes the warrants still have value, since they give the Treasury the right to buy common stock at a set price for 10 years.
Bankers say it is unfair to charge what amounts to a “prepayment penalty,” which makes it additionally onerous to escape TARP. Bank representatives say the cost of buying back the warrants could be equivalent to paying 60% annual interest on short-term loans. That, they argue, would exacerbate banks’ existing problems.
(emphasis mine)
Awww….the poor little babies, they have a “prepayment penalty“, such a pity.
The irony is delicious.
They hafve set up a commission to investigate European illegal fishing off Somalia, which is a good thing, since the pirates started out as fishemen who are being starved by the depletion of their waters by illegal fishing.
It should have happened 5 years ago.
CT state treasurer Denise Nappier, who is responsible for managing the state pension funds, which hold a significant stake in Bank of America, is calling for the CEO Ken Lewis to be kicked off the board, along with, “lead director O. Temple Sloan and chairman of the governance committee Tom Ryan.”
She is not calling for his removal, but rather separation of the rolls of chief executive and chairman of the board of directors, and other significant shareholders are in agreement.
There is a shareholder meeting in 8 days, so this should get interesting.
Pass the popcorn.
BTW, doesn’t Mr. Lewis take an awful picture? He looks mean, spiteful, selfish, and egotistical all at once.
He seems to look that way in all of his pictures….Maybe that’s the real him.
So, Timothy “Eddie Haskell” Genthner spoke before Congress, and said that most banks are adequately capitalized.
I guess that all depends on the definition of “banks”, “most”, and “adequately capitalized.”
At the same time, the inspector general charged with investigating the TARP says that there is a lack of transparency and safeguards in the program.
Once again, it looks like the only folks who are doing their job for the tax payers are the FDIC who are in discussions with Citi about firing CEO Vikram Pandit.
In energy, oil is up, but we are dealing with the switch over to June delivery contracts, and the dollar was mixed on unexpectedly high business sentiment in Germany.
On a note unrelated to economics, but related to the the article on Geithner, there was following picture, where you see the Code Pink protesters in the background.
These people piss me off. They seem to be dedicated to nothing more than mutual intellectual masturbation as guerrilla theater, and they do nothing but to convince decision makers that anyone who has less Wall Street friendly ideas is a DFH who does not deserve to be listened to.
These folks are playing to lose, but we all lose when they do so.
White supremacist wing nut Hal Turner has posted on his blog (no link to him, ever) that he has an advance copy of the Treasury’s bank stress tests, and that it shows that 16 out of the top 19 banks are already insolvent.
Were it from anyone else, I might be inclined to believe it, as it jibes with my sense of the state of the banking industry, but from him, I’d just as soon ignore it.
Only, I’m posting about it, which begs the question, “Why are you reading this?”
The answer is that I’m posting because a Treasury Department Spokesman formally denied Turner’s claims:
A U.S. Treasury spokesman said there’s no basis to a blog posting that buffeted financial stocks by saying that most of the nation’s largest banks are insolvent.
Andrew Williams, a Treasury spokesman, dismissed the report from Hal Turner of North Bergen, New Jersey, “particularly given we don’t have stress test results yet.” Turner has advocated violence against blacks, Jews and immigrants on his Web site and Internet radio show, according to the Anti- Defamation League, created in 1913 to monitor anti-Semitism.
Why is the US Department of the Treasury responding to what amounts to semi-literate scrawls on the wall of a bathroom stall?
I see three possibilities, in no particular order:
Honestly, none of these alternatives are particularly good ones, and if I had to place a bet, it would be on the last one, which would indicate that in less than 100 days, Mssrs. Geithner & Summers have completely pissed away their credibility, and they know it.
Case in point, the EPA has not declared greenhouse gasses a threat to public health, opening the door for regulation of these gasses.
What’s more, it puts a pin in the Congress to put something in legislation, because the EPA can institute regulations that are far more expansive, without the opportunity for bribery campaign contributions.
While I am regularly (OK, constantly) criticizing the Obama administration for their mishandling of the banking crisis and the banking system and their avoidance of any real investigation of crimes against humanity and corruption by Bush and His Evil Minions&trade, this is real change, and beneficial.
We will now be returning to the regularly scheduled broadcast.
So, now that the economy has turned down, and there is a real possibility that legislation limiting abusive credit card practices might pass Congress, the White House economic team is finally meeting with credit card issuers in order to address the issue:
A Capital One spokeswoman confirmed the meeting.
“We have been invited to the White House and look forward to a constructive dialogue,” she said.
On the eve of the White House meeting, the House Financial Services Committee is planning to consider credit card legislation aimed at reforming the industry, which is facing massive pressure to lessen debt burdens on cardholders, one source said.
Treasury Secretary Timothy Geithner, National Economic Council Director Lawrence Summers and other officials are planning to attend the meeting, but U.S. President Barack Obama is not, the sources said.
(emphasis mine)
Color me skeptical. Between Tim “Eddie Haskell” Geithner, who has been the big bank’s bitch since birth, and Larry Summers, who has taken millions just last year from hedge funds, I can’t see this as anything but an attempt to minimize reforms in the credit card industry.
Obama isn’t there because he wants plausible deniability when they come out with an “agreement” that is far weaker than anything going around Congress.
If it were otherwise, then they would be talking with Congress, not the credit card industry.
Banks number 24 and 25 for the year, a pace of over 75 this year.
Well, let’s start with the good news, that the Conference Board’s consumer confidence index has risen to a 7 month high, I think largely on Obama being president more than anything else, seeing as how the manufacturing reports from the
New York and Philadelphia Federal Reserve Banks, continue to show contraction, though the press is still crowing about how these reports show that the rate of contraction is easing, despite the fact that manufacturing fell in March by the largest amount since VE day, almost 64 years ago.
Taking the rate of change month to month is stupid, it’s the noisiest way to measure things, but there is real pressure to report prosperity “just around the corner,” because the alternative is to make real systemic changes that would have to be to the disadvantage of people like bank and brokerage presidents.
The fact that housing starts fell again, (top pic) and the weekly jobless numbers remained at very high levels, they dropped a bit, but continuing claims (bottom pic) remained at scary numbers. (click pics to be taken to the Calculated Risk posts in question)
CRE is suffering too, with office vacancies rising to a 3 year high.
Citi actually reported better quarterly numbers than expected, losing about 18¢ a share, less than the forecast 32¢.
Part of the problem is that we are still seeing distressed bonds selling for 3.5¢ on the dollar:
Credit-default swaps traders set a value of 3.25 cents on the dollar for bonds of an AbitibiBowater Inc. unit to settle derivatives linked to the newsprint maker that’s now in bankruptcy protection.
The price means sellers of credit swaps guaranteeing as much as $1.1 billion against a default by the Abitibi- Consolidated unit would pay 96.75 cents on the dollar to settle the contracts. Eleven dealers, including JPMorgan Chase & Co., Barclays Plc and Morgan Stanley, bid in the auction, which was administered by Markit Group Ltd. and broker Creditex Group Inc.
Oh…..My…..Ghod!
This might explain why BankUnited has been given 20 days by regulators to find a buyer, or they will be shut down.
Meanwhile, oil rose slightly on the consumer confidence numbers, as did the US dollar and Pound Sterling.
Goldman Sach’s CFO, David Viniar, says that he is mystified at why people care about the dealings between AIG and Goldman, “They’re one of thousands and thousands and thousands of counterparties and the results of any trading with AIG are completely immaterial to what we do…I am mystified by this fascination with AIG.”
People are interested because you bought phony insurance contracts (CDS’s) from them, and when they imploded, you got the taxpayer to pay out at 100¢ on the dollar, creating yet another subsidy for you corrupt bastards.
Even people who don’t understand the whole picture, they know that this is corrupt, and that they are being stuck with the check for this.
Your claim that profits on AIG deals, “rounded to zero”, in 2008 is bullsh%$. In a fair system, your firm should have lost millions, if not billions, were it not for yet another subsidy of you corrupt losers.
And 100% correct. The numbers now are already worse than the “worst case” scenario that the Treasury is using.
The Money quote is, “Conclusion: Actual macro data for 2009 are already worse than the more adverse scenario in the stress tests. These are not stress tests but rather fudge tests.” (emphasis original)
I agree.
This is getting way out of hand, and someone needs to go postal on everyone involved in this process:
There’s a major problem and a minor problem. The minor problem is documentation. I’ve spent four weeks now looking for someone who can give me the details of the stress test so that we can do an independent evaluation of whether the stress test is any good.
We get: “someone will call [you] right back.” Only the call doesn’t come.
Hopefully, this will improve with Kashkari’s replacement, but my guess is that this comes from Geithner, not Kashkari.
Goldman Sachs, as I mentioned yesterday, is looking to sell shares to pay off the TARP, which is made easier by their recent profit numbers.
How did they make those numbers, it turns out that they put their losses into December, and then dropped the month from their quarterly results
Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.
The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.
How remarkably convenient.
Then we have Wells Fargo, which also announced good quarterly results, and now analysts are saying that losses uncovered in the stress test will uncover $120 billion in losses, and require that $50 billion in capital be raised.
But wait, there’s more, as other analysts are saying that Bank of America is likely seriously short on capital, and will need to dilute its shareholders stocks.
Finally, because they haven’t boned the taxpayer enough, Citigroup is looking to cut its conversion ratio, the rate at which it is planning to convert its preferred stock to common stock, and the largest preferred shareholders is, you guessed it, the American taxpayer, because the share price for the common stock has gone from about 98¢ to $3.97/share when I checked the number today.
Timothy “Eddie Haskell” Geithner should go tell Citi CEO Vikram Pandit to go Cheney himself, but he won’t because, he’s is the big bankers’ bitch.
