• Tag Archives Banking Crisis
  • Goldman Is Allowing Its Clients To Bet On The Next Financial Crisis

    Just over a decade ago, as the S&P was hitting all time highs and there was a line around the block of 30-some year old hedge fund managers, desperate to put other people’s money in various ultra risky investments just so they could pick a few excess bps of yield over Treasurys – a situation painfully familiar to what is going on now – Goldman had an epiphany: create new synthetic products that have huge convexity, i.e., provide little upside (such as a few basis points pick up in yield) versus unlimited downside, link them to the shittiest assets possible and sell them to gullible, yield-chasing idiots (collecting a transaction fee) while taking the other side of the trade (collecting a huge profit once everything crashes). The instruments, of course, were CDOs, and not long after Goldman sold a whole of them, the financial system crashed and needed a multi-trillion bailout from which the world has not recovered since.
    Ten years later, Goldman is doing it again, only instead of targeting subprime mortgages, this time the bank has focused on quasi-insolvent European banks.
    And just like right before the last financial crash, Goldman is once again allowing its clients to profit from the upcoming collapse, or as Bloomberg puts it, “less than a decade after the last major banking crisis, Goldman Sachs and JPMorgan are offering investors a new way to bet on the next one.”
    The trade in question is a total return swap, a highly levered product which is similar or a credit default swap but has some nuanced differences, which targets what are known as Tier 1 , or AT1 or “buffer” notes issued by European banks, and which usually are the first to get wiped out when there is even a modest insolvency event (just ask Banco Popular), let alone a full blown financial crisis.

    This post was published at Zero Hedge on Oct 12, 2017.


  • De-dollarization Not Now

    USD-denominated debt outside the US hits record – even junk bonds.
    China announced today that it would sell $2 billion in government bonds denominated in US dollars. The offering will be China’s largest dollar-bond sale ever. The last time China sold dollar-bonds was in 2004.
    Investors around the globe are eager to hand China their US dollars, in exchange for a somewhat higher yield. The 10-year US Treasury yield is currently 2.34%. The 10-year yield on similar Chinese sovereign debt is 3.67%.
    Credit downgrade, no problem. In September, Standard & Poor’s downgraded China’s debt (to A+) for the first time in 19 years, on worries that the borrowing binge in China will continue, and that this growing mountain of debt will make it harder for China to handle a financial shock, such as a banking crisis.
    Moody’s had already downgraded China in May (to A1) for the first time in 30 years. ‘The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,’ it said.
    These downgrades put Standard & Poor’s and Moody’s on the same page with Fitch, which had downgraded China in 2013.

    This post was published at Wolf Street on Oct 11, 2017.


  • Why would anyone buy European bank stocks?

    The European banking crisis is still brewing. The biggest problem rises from the rules that if a bank is in trouble, they just seize the bank and sell it for 1 and all the shareholders lose everything. This is having serious impact upon the European Banking System as a whole as I previously warned. The Italian bank Carige has had difficulty in trying to raise capital to meet requirements. If any bank cannot raise enough capital to meet the requirements, the European supervisory authorities can seize the bank in accordance with the new rules.

    This post was published at Armstrong Economics on Oct 10, 2017.


  • 6/10/17: CA&G on Ireland’s Tax, Banking Costs & Recovery

    Occasionally, the Irish Comptroller and Auditor General (C&AG) office produces some remarkable, in their honesty, and the extent of their disclosures, reports. Last month gave us one of those moment.
    There are three key findings by CA&G worth highlighting.
    The first one relates to corporate taxation, and the second one to the net cost of banking crisis resolution. The third one comes on foot of tax optimisation-led economy that Ireland has developed since the 1990s, most recently dubbed the Leprechaun Economics by Paul Krugman that resulted in a dramatic increase in Irish contributions to the EU budget (computed as a share of GDP) just as the Irish authorities were forced to admit that MNCs’ chicanery, not real economic activity, accounted for 1/3 of the Irish economy. All three are linked:
    Irish banking crisis was enabled by the combination of a property bubble that was co-founded by tax optimisation running rampant across Irish economic development model since the 1990s; and by loose money / capital flows within the EU, which was part and parcel of our membership in the euro area. The same membership supported our FDI-focused competitive advantage. Irish recovery from the banking crisis was largely down to non-domestic factors, aka – tax optimisation-driven FDI and foreign companies activities, plus the loose money / capital flows within the EU enabled by the ECB. In a way, as Ireland paid a hefty price for European imbalances and own tax-driven economic development model in 2007-2012, so it is paying a price today for the same imbalances and the same development model-led recovery.

    This post was published at True Economics on Friday, October 6, 2017.


  • The Secret History Of The Banking Crisis

    Accounts of the financial crisis leave out the story of the secretive deals between banks that kept the show on the road. How long can the system be propped up for?
    ***
    It is a decade since the first tremors of what would become the Great Financial Crisis began to convulse global markets. Across the world from China and South Korea, to Ukraine, Greece, Brexit Britain and Trump’s America it has shaken our economy, our society and latterly our politics. Indeed, it has thrown into question who ‘we’ are. It has triggered both a remarkable wave of nationalism and a deep questioning of social and economic inequalities. Politicians promise their voters that they will ‘take back control.’ But the basic framework of globalisation remains intact, so far at least. And to keep the show on the road, networks of financial and monetary co-operation have been pulled tighter than ever before.
    In Britain the beginning of the crisis was straight out of economic history’s cabinet of horrors. Early in the morning of Monday 14th September 2007, queues of panicked savers gathered outside branches of the mortgage lender Northern Rock on high streets across Britain. It was – or at least so it seemed – a classic bank run. Within the year the crisis had circled the world. Wall Street was shaking, as was the City of London. The banks of South Korea, Russia, Germany, France, Belgium, the Netherlands, Ireland and Iceland were all in trouble. We had seen nothing like it since 1929. Soon enough Ben Bernanke, then chairman of the US Federal Reserve and an expert on the Great Depression, said that this time it was worse.

    This post was published at Zero Hedge on Aug 9, 2017.


  • China’s Minsky Moment Is Imminent

    Crescat Capital’s Q2 letter to investors shouold be retitled “everything you wanted to know about the looming bursting of the world’s biggest credit bubble… but were afraid to ask…” Don’t say we didn’t warn you…
    History has proven that credit bubbles always burst. China by far is the biggest credit bubble in the world today. We layout the proof herein. There are many indicators signaling that the bursting of the China credit bubble is imminent, which we also enumerate. The bursting of the China credit bubble poses tremendous risk of global contagion because it coincides with record valuations for equities, real estate, and risky credit around the world.
    The Bank for International Settlements (BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to gross domestic product (GDP) in the household and (non-financial) corporate sector. Three large (G-20) countries are flashing warning signals today for impending banking crises based on such imbalances: China, Canada, and Australia.

    This post was published at Zero Hedge on Aug 6, 2017.


  • Geopolitical Risk, Business, and Investment

    When people think about geopolitics, they tend to think about war, as if the two issues were the same. But that is only partly true.
    Geopolitics is the study of the power of nation states, and war is certainly a determinant of power. But it is only one of many. Things like economics, politics, ideology, and technology work together to form national power, and however useful it may be to learn about any single element, they are inseparable. It’s for this reason that the situation in North Korea is (rightly) seen as a geopolitical problem but the Italian banking crisis (wrongly) is not.
    Before we begin…
    At the risk of stating the obvious, Warren Buffett is an extraordinary forecaster. At the risk of displaying hubris, I am struck by how similar his approach to forecasting the future of companies is to our method of forecasting geopolitics.
    At Geopolitical Futures, we have pinpointed a way that our similarities can benefit you. You’ll find out more at the bottom of this issue.
    But for now, let’s dig in to This Week in Geopolitics.
    Rooted in Geography
    Multifaceted though it may be, geopolitics is nonetheless rooted in geography. Geography dictates what is possible and what is impossible. Iceland, for example, can never conquer Europe, nor will it become a major industrial power.

    This post was published at Mauldin Economics on JULY 10, 2017.


  • ECB Declares Two Italian Banks Have Failed

    The European Central Bank (ECB) has announced as of June 23rd, that it was declaring two Italian banks insolvent. Veneto Banca SpA and Banca Popolare di Vicenza SpA have failed since the two banks repeatedly violated the regulatory capital requirements. The determination was made in accordance with Article 18 (1a) and Article 18 (4a) of the Uniform Resolution Mechanism Regulation.
    The European banking crisis continues.

    This post was published at Armstrong Economics on Jun 24, 2017.


  • Suicide Over European Banking Crisis

    The European ‘bail-in’ rules have been cheered claiming taxpayer money will be spared. However, many seniors bought bank bonds for their retirement. In the rescue of the small Banca Popolare d’Etruria, a retiree who had lost more than 100,000 euros worth of bonds lost everything and committed suicide. There have been many such events that do not always make the press. In Italy, the death of a pensioner who also committed suicide after losing his life savings as a result of a controversial move by the government to rescue four banks. The 68-year-old hung himself at his home in Civitavecchia, a port town near Rome, after the so-called ‘save banks’ plan wiped out 100,000 in savings held at Banca Etruria, one of the four lenders included in the government rescue deal announced on November 22nd, 2015. There was the 23-year old who committed suicide over 8000 in debts for student loans. A Greek pensioner who was 77-years old committed suicide in central Athens shooting himself with a handgun just several hundred meters from the Greek parliament building in apparent despair over his financial debts.

    This post was published at Armstrong Economics on Jun 19, 2017.


  • Fear of Contagion Feeds the Italian Banking Crisis

    At first, deny, deny, deny. Then taxpayers get to bail out bondholders.
    By Don Quijones, Spain & Mexico, editor at WOLF STREET.
    Spain’s Banco Popular had the dubious honor of being the first financial institution to be resolved under the EU’s Bank Recovery and Resolution Directive, passed in January 2016. As a result, shareholders and subordinate bondholders were ‘bailed in’ before the bank was sold to Santander for the princely sum of one euro.
    At first the operation was proclaimed a roaring success. As European banking crises go, this was an orderly one, reported The Economist. Taxpayers were not left on the hook, as long as you ignore the 5 billion of deferred tax credits Santander obtained from the operation. Depositors and senior bondholders were spared any of the fallout.
    But it may not last for long, for the chances of a similar approach being adopted to Italy’s banking crisis appear to be razor slim. The ECB has already awarded Italy’s Monte dei Paschi di Siena (MPS) a last-minute reprieve, on the grounds that while it did not pass certain parts of the ECB’s last stress test, the bank is perfectly solvent, albeit with serious liquidity problems.

    This post was published at Wolf Street by Don Quijones ‘ Jun 16, 2017.


  • ‘Bail-In’ Era for Europe’s Banking Crisis Begins

    Many Banco Popular investors wiped out. Taxpayers off the hook. What it means for Italy. Banco Popular, until today Spain’s sixth biggest bank, is no more. Its assets, including a massive portfolio of small-business clients, now belong to Banco Santander, Spain’s biggest bank. The global giant now has 17 million customers in Spain, a country of just 45 million people. The price was 1.
    Spain’s Ministry of the Economy revealed that by 3 pm Tuesday, Popular was no longer able to contain the deposit outflow. ‘It had exhausted all its lines of liquidity, both ordinary and extraordinary.’ It had run out of collateral to cover any further lines of emergency liquidity.
    This apparently triggered the intervention by the ECB’s Single Resolution Board (SRB), which decided on Tuesday that the bank ‘was failing or likely to fail’ and would have to be wound down, unless a buyer could be found.

    This post was published at Wolf Street on Jun 7, 2017.


  • Deposit Bail In Risk as Spanish Bank’s Stocks Crash

    – Deposit bail in risk as stocks and bonds of Spanish bank – Banco Popular – crash
    – Banco Popular stock crashes most on record – down 63% this year to 34 euro cents
    – Spanish bank tells employees – ‘Don’t panic’
    – Risk of Spanish banking crisis as Banco Popular credit curve inverts
    – Banco Popular needs to find at least 4 billion more capital – analysts
    – Deposits over 100,000 (euro) vulnerable to bail-in
    – EU, U. S., UK push for bank ‘bail-ins’ poses risks to depositors
    Banco Popular’s shares crashed another 17 per cent yesterday to record lows amid concerns the Spanish bank may have to be ‘wound down’ and could see bail-ins of investors and depositors.
    There are increasing fears that there is no buyer for the bank and this saw its share price dropped to 0.34 (34 euro cents). The bank’s stocks had already fallen nearly 50 per cent in the last week and is down 63% this year.

    This post was published at Gold Core on June 6, 2017.


  • Spanish Banking Crisis Spreads As Banco Popular Credit Curve Inverts

    Having told its employees “don’t panic” over the weekend (at the crashing stock and bond prices of Spain’s 6th largest bank), it appears investors are ignoring that message as Banco Popular’s credit curve has inverted for the first time since 2012 in the biggest red flag yet that Spain’s banking crisis is systemic and about to test the EU’s bail-in laws.
    Banco Popular Chairman Emilio Saracho sent a letter to staff assuring them the bank remains solvent after Friday’s stock crash, courtesy of Expansion, google translated:
    “From the management we are aware that the information that is being published affects the work and the spirit of each one of you, but our obligation as professionals is to focus on the day to day and on the clients, since the activity of the bank must continue as it has so far” begins the statement, whose target is the Professional Association of Directors Banco Popular.
    The central message of this letter sent yesterday is the following: “Banco Popular remains solvent and has positive net worth”.
    “Our bank is in a difficult situation,” says Saracho. “For this reason and in order to meet the regulatory requirements that the European Central Bank demands for next year and guarantee our strength and future, we are working on different alternatives.

    This post was published at Zero Hedge on Jun 5, 2017.


  • Shock Waves Spread from Spain’s New Banking Crisis

    Has the time finally come to test the EU’s bail-in law? ****
    The shares of Spain’s sixth biggest bank, Banco Popular, plunged 36% this week to 0.43, reducing the bank’s market capitalization to 1.7 billion. Just three weeks ago, when there was still a glimmer of hope that things could be turned around, it was worth almost double that. Its shares traded at 15 ten years ago, before the collapse of Spain’s mind-boggling housing bubble that left Popular holding billions of euros of real estate assets.
    Popular may not be a systemically important institution, but it’s nonetheless an institution of great import. It has the largest portfolio of small business customers in Spain and enjoys the patronage of one of Spain’s most influential institutions, Opus Dei. Its well-heeled members are among the bank’s most important shareholders and investors, and they stand to lose a lot of money if a last-minute buyer is not found soon.
    This is an outcome that can no longer be discounted, especially after reports emerged on Thursday that senior officials of the ECB’s regulatory arm, the Single Supervisory Mechanism, had warned the bank could be wound down if it fails to find a buyer. But the EU agency charged with overseeing bank failures later issued a statement saying it ‘never issues warnings about banks.’

    This post was published at Wolf Street on Jun 3, 2017.


  • ABOUT JUNE 2/HORRENDOUS JOBS REPORT SENDS GOLD AND SILVER MUCH HIGHER/GOLD SHARES HOWEVER MUCH SUBDUED/TWO BANKING CRISIS MOMENTS TODAY: ONE FROM ITALY AND ONE FROM SPAIN/GYMBOREE IN THE USA READ…

    GOLD: $1276.20 up $9.80
    Silver: $17.49 up 25 cent(s)
    Closing access prices:
    Gold $1279.00
    silver: $17.57
    XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
    SHANGHAI GOLD FIX: FIRST FIX 10 15 PM EST (2:15 SHANGHAI LOCAL TIME)
    SECOND FIX: 2:15 AM EST (6:15 SHANGHAI LOCAL TIME)
    SHANGHAI FIRST GOLD FIX: $127073 DOLLARS PER OZ
    NY PRICE OF GOLD AT EXACT SAME TIME: 1262.90
    PREMIUM FIRST FIX: $7.83

    This post was published at Harvey Organ Blog on June 2, 2017.