Tuesday, August 4, 2015

CONTINUED EURO THOUGHTS

A headline stated that the Greek banks crashed again today in the stock exchange as if a shocking "dog bites man" story could not be found.  Of course they crashed.  They are insolvent.  Next.

Well, next was a story suggesting that a new Greek bail-out might be too expensive.  "The sun rises in the East," is sure to follow.

Also crowding the headlines was the report that the central figure in the LIBOR-fixing scandal was sentenced to 14 years in prison was doing, apparently, no harm to any man, dog or institution that could be proven.  Cheering all around.  This poor, somewhat autistic bugger apparently had no idea he was doing anything other than attempting to make his bank a lot of money (and a lot for himself to be sure) by trying to get LIBOR to match up to the valuation he wanted for his proprietary positions in derivatives.  OK, not right, but 14 years?  At best, LIBOR has been a creature of banking imagination; you can't lie about it...it doesn't exist.  OK, claw back bonuses, restate earnings, fire a bunch of people who surely knew about it including the Bank of England especially when things began getting awkward in 2008.  Not telling the world what the market's true feeling was regarding Barclay's credit risk might have got you a George Cross back then, but 14 years?  Henry VIII's wives got a better deal than this guy, but England has shown that justice will be done to those horrible monsters who work in the City and we are all better off for it.

That, in a nutshell, is pretty much the attitude in Europe about the banking business.  The shock of gambling going on in Rick's Cafe Americain was probably more real that the acceptance of reality in European banking over the past half century.  And today, clipping about the edges is still deemed to be sufficient...or so it seems.  I should probably point out that the harshest and most individual-centric regarding the banks have been taken by the Brits, but the divide between the official and private sector was and still is the greatest in the UK.  Ah yes, we have seen management changes, dissolutions, reorganizations and alike on the Continent but the overall relationship has not changed: the banks are there for the governments and the fulfillment of governmental policies.  The financing of those policies is too easy and the ability to finance across national borders based on the fiction that Europe is one, big, happy, similar credit risk remains pervasive even today.

What has been created is a conceptual Euro-banking system when in practice it remains a system of banks separated by nationality and operating not under one set of rules but under those created by the country of incorporation.  Oddly, where there is unity of regulation, they generally get it wrong.  there is no question that the EU's and the ECB assignment of zero risk weighting to any national credit within the EU was directly responsible for the massive mispricing of risk within the southern tier.   In an odd sense, allowing bankers to be stupid in the extreme has been used by some as an excuse for bailing them out...especially by the bankers. Over Here, all the talk is of Too Big To Fail: I've always believed that a more compelling matrix might be Too Dumb to Exist which would work quite nicely Over There.  Coupled with an appalling lack of urgency on the part of regulatory bodies to force banks to immediately recognize their true condition, the lack of reality existing in the psyche of European finance has been stupefying and detrimental to growth.  I will once again use the example of Citigroup to illustrate what I mean.

Citigroup, in 2010 was arguably in the worst shape of any American institution.  Since that poin, the entire organization has been restructured.  Over one billion dollars of assets have been shed.  Business lines having marginal returns are no more.  Today while there is still a goodly way to go, the company is probably the best capitalized bank in the United States...among a group of institutions which hardly blinked at the issuance of new capital requirements by the Fed--which, in a number of cases made no sense whatsoever.  Nothing like that has happened in Europe...nor could it.  I might also mention that most of the institution accomplished like feats on their own initiative.  It was a brutal exercise but today even the Euros admit that the American institutions are dominant and it is difficult if not impossible to compete...despite the stupidity of regulation such as Dodd/Frank which inhibits growth not only within the industry but in the economy as well.  Waht can they do?  Tune in tomorrow while I try to figure that out.





No comments:

Post a Comment