There is that wonderful scene in Part I when Don Vito says to his son, Michael;
"I didn't want this for you. I wanted something better…I lawyer, maybe. Yeah, a lawyer. A lawyer with a briefcase can steal more money than the entire organization."
Don Vito never met today's Capo di Tutti Capi, Don Eric Holder and the underbosses he has running rampant through the financial system of the United States, but he would have been impressed. Holder and his mob are running the biggest extortion racket ever seen with the latest target being the Bank of America being hit up for $16 or $17 billion or whatever the number is primarily for the actions of Countrywide and Merrill Lynch prior to their acquisition by B of A. I'm not going to get into the arguments pro and con, or who got conned and who didn't (poor Ken Lewis was never the sharpest knife in the drawer whilst Thaine was) and Mazillo was as close to be a crook as one could find but a very well politically connected one. Lewis didn't have the stones to say "no" when the Feds were all over him to bail them out, but of course the only people who get hut in this official corruption are once again the present shareholders who sure as hell had nothing to do with anything. To say once again that Eric Holder is a disgrace is to repeat myself but he is a disgrace. He belongs in a really special ring that perhaps his paisan, Dante, can build for him. Accidente!
Meanwhile, the substantially more honest but probably considerably dumber mob that looks after the well-being of our nation's financial service industry at the Fed and FDIC, announced this week that they were not at all satisfied with the submissions of "living will" from the systemically important banks as required by Dodd/Frank. Holy mackerel, Andy, who would have thunk it. It's been said so many times but it bears repeating; this is an exercise in futility and stupidity perpetuated by a lack of understanding of what happens in a "systemic" event.
Let's start once again with banking 101 that despite constant review, no one still seems to understand. Banks get sick on the asset side of their balance sheet; they die on the liability side. Got it? OK, now try to understand that a will--any will--is designed to set out a series of events that will facilitate the difficulties involving a death, be it of an individual or of a corporation such as a bank. One has a will to insure that the heirs don't fight over the estate and to insure the prompt and orderly wind-down of businesses. A will allow all involved parties to remain calm and rest assured that their claims on the assets of the estate will be properly decided. It is therefore a plan, but as that great American financier and philosopher, Mike Tyson, once stated: "Everybody's got a plan until you get hit in the mouth."
If an institution the size of, say, Goldman Sachs gets in trouble it is because the market loses--for whatever reason--confidence in its ability to service its obligations, the first of which is its deposits… if that occurs, YOU HAVE NO TIME because the liquidity is gone in an instant and when that happens the first question EVERYBODY asks is "will I have a chair when the music stops" not "let's see, how are we going to wind up poor ol' Goldie?" And that sportsfans, is systemic risk and no "living will" solves that. What solves it is central banks stepping in and saying, "you're covered," and quite frankly that is the one, serious reason for having central banks in the first place. If we all told the truth and if everyone understood this we would be far better off. Or sure, we need regulators and rule makers and market watchers but we sure as hell don't need legions trying to solve the unsolvable; far better we work harder at stopping the event before it occurs and that is the strongest argument for and independent central bank as opposed to the hodge-poge of political reaction entities floating about today.
Well, nothing in the world got better today. Hamas started lobbing rockets again so it's game on in Gaza. Putin is keeping everyone guessing and The Leader, recognizing some moral responsibility--although that is tough to figure out as he is becoming more and more non-understandable--dropped a few bombs on ISIS. European economies look weaker and weaker and today Super Mario made it very clear that his policy is bugger thy neighbor by driving the Euro down against the world. The Bund is at 1.06% and the 10 year at @ 2.43% with the Bund keeping it there. The world remains awash in dollars so what should one expect? Why, for the DOW to close UP 200 points! I mean it could be worse.
Showing posts with label Bank of America. Show all posts
Showing posts with label Bank of America. Show all posts
Friday, August 8, 2014
Tuesday, April 29, 2014
HOW'S THAT AGAIN?
Finally, after a long wait filled with speculation, we all received the "explanation" of what happened over at B of A today in the Case of the Missing $4 Billion. Try as I might, I can't understand a word of it. The fact were reported to be that the issue involved special debt instruments that had been issued by Merrill Lynch and assumed by B Of A as part of the merger agreement. They were booked on the balance sheet apparently at fair market value which to me is curious in the first place because as a liability the value should have been the face amount. Question: who allowed this to happen? Answer: that's a really good question.
Apparently, as things settled down the market value of these notes rose in price ans at some point, B of A undertook a buy-back campaign, retiring many of these instruments but a at price than that at which they had been valued at acquisition, in effect creating a loss. Question: In what manner were these instruments held? As assumed liabilities they could not be in an investment account. If held in some form of trading account they would undergo a daily mark to market but as liabilities the "value" is always par because they are YOUR liabilities now and that's what you owe upon maturity.
One day, the bank decides, for whatever reason, to redeem these notes and they engage in a buy-back program through open market operations (I assume) to accomplish the same. However, the overall outlook having improved since their acquisition, the price at which the bonds were redeemed was higher than that at the time of acquisition indication that somewhere in this tangle, a loss of some kind had occurred. Question: Was there really a loss?
It seems to me that the instruments being liabilities, should have been booked at par at the time of the original acquisition, meaning that the mistake to the balance sheet was to show fewer liabilities than was in fact the case and in restating the balance sheet to reflect the earlier error really would have meant that the capital ratios that had been reported throughout the years would themselves have to be restated. But, Bank of America having survived throughout this trying period I ask myself who the hell would care and the answer I get back from self is, "no one." In addition, on another one-time basis involving the repos of each individual note could, with the new retroactive revaluation, be booked as a reduction in liabilities at the difference of the then price from par and you would have basically a wash. Instead, we get this quite unbelievable situation that in the end impacts on no one else than the shareholders.
Now, I may be dead wrong about all of this and if there is anyone out there who can set me straight, please do so. But for the life of me I cannot understand how the regulators, who desperately wanted B Of A to save Merrill from collapse, could miss one of the most important pieces of accounting and valuation as is this. But they did and so did everybody else. I guess it's my suspicious nature, but I get the very distinct impression that there is a whole lot of ass-covering going on (read, Federal Reserve) and very little thinking that went before it. I also think that B of A is being forced to take the fall for most of the oversight and shareholders be damned. As I said, I may be dead wrong but if I am only partially correct it is a sad commentary on what we have become.
Apparently, as things settled down the market value of these notes rose in price ans at some point, B of A undertook a buy-back campaign, retiring many of these instruments but a at price than that at which they had been valued at acquisition, in effect creating a loss. Question: In what manner were these instruments held? As assumed liabilities they could not be in an investment account. If held in some form of trading account they would undergo a daily mark to market but as liabilities the "value" is always par because they are YOUR liabilities now and that's what you owe upon maturity.
One day, the bank decides, for whatever reason, to redeem these notes and they engage in a buy-back program through open market operations (I assume) to accomplish the same. However, the overall outlook having improved since their acquisition, the price at which the bonds were redeemed was higher than that at the time of acquisition indication that somewhere in this tangle, a loss of some kind had occurred. Question: Was there really a loss?
It seems to me that the instruments being liabilities, should have been booked at par at the time of the original acquisition, meaning that the mistake to the balance sheet was to show fewer liabilities than was in fact the case and in restating the balance sheet to reflect the earlier error really would have meant that the capital ratios that had been reported throughout the years would themselves have to be restated. But, Bank of America having survived throughout this trying period I ask myself who the hell would care and the answer I get back from self is, "no one." In addition, on another one-time basis involving the repos of each individual note could, with the new retroactive revaluation, be booked as a reduction in liabilities at the difference of the then price from par and you would have basically a wash. Instead, we get this quite unbelievable situation that in the end impacts on no one else than the shareholders.
Now, I may be dead wrong about all of this and if there is anyone out there who can set me straight, please do so. But for the life of me I cannot understand how the regulators, who desperately wanted B Of A to save Merrill from collapse, could miss one of the most important pieces of accounting and valuation as is this. But they did and so did everybody else. I guess it's my suspicious nature, but I get the very distinct impression that there is a whole lot of ass-covering going on (read, Federal Reserve) and very little thinking that went before it. I also think that B of A is being forced to take the fall for most of the oversight and shareholders be damned. As I said, I may be dead wrong but if I am only partially correct it is a sad commentary on what we have become.
Tuesday, October 4, 2011
THE FIRST TO FALL
Dexia, a Belgian bank with French interests was intervened today by the French and Belgian authorities with a pledge of support from Luxembourg. No pussy-footing, no messing about. Finis. Good bank, bad bank solution for the institution which has been under pressure for some time as a result, among other things, of it's exposure to Greece.
Now if you asked 100 people on Wall Street,"What is Dexia" you would get about 95 blank looks but it's a pretty big institution and by some measures the largest in Belgium. The interesting thing is that in 2008 Dexia was in deep do-do partly because of its ownership of FSA and mostly because their portfolio was rubbish. In fact, at one point they were into the Fed for, if memory serves, around $60 billion which aint chump change. Well, here they are again and that is the story rather than their failure.
Dexia is symptomatic of what ails Euro banking: after the crash they never got their act together and were not pressed to do so by the banking regulators in each country. Dexia is just the first of what I believe is going to be a severe restructuring of European banking but the good news in this case is that the French and the Belgians moved with great dispatch to put a lid on the situation. Whether that lid stays on over the coming weeks is anybody's guess but it was welcome to see such a quick reaction. Our guys put out a notice today that they are prepared to assist the Euros in any way possible (read, dollar funding) but I suspect that at this stage little will be needed. I have no way of knowing but I suspect that the Euros are running as fast as possible to a Euro book which if things get nasty will put a huge strain on the ECB and it's anti-inflation obsession as they will be putting out Euros to the system as fast as they can be printed.Nobody said it would be easy.
Meanwhile, on this side of the pond, Sen. Richard Durbin of Illinois made one of the stupidist speeches on the floor of the Senate yesterday in a career filled with stupid speeches. You might remember as we noted last week, the "Durbin Admendment" to the Dodd/ Frank monstrosity was the proximate cause of the banks raising fees on dubit cards quite dramatically. Stung by the fact that half the world was blaming him for the banks' actions, he decided that he needed to stike back. Never one to miss an opportunity to kick an man when he is down, Sen. Durbin decided to pick on everybody's favorite target, Bank of America, by forcefully suggesting that everybody doing business with Bank of America just walk right in and withdraw all their deposits.
Now Durbin has never been accused of being the brigest bulb in the room but one would hope that as a member of the Senate Finance Committee he was aware of the James Rule that banks get sick on the asset side but die on the liability side. No such luck. The one great thing about the B of A is that they have the most stable deposit base of probably any bank in the world but up pops this idiot and to deflect attention from his own stupidity he tries to change all that. Anything, ANYTHING that might cause any adverse affect on the liquidity of the system in times like these is pure madness. But with men like this in the highest seats of power is it any wonder that we are in a spot of trouble financially? These jerks are simply not to be believed. As I have said, it's for times like this that the Good Lord made wiskey. Guess where I'm headed.
Now if you asked 100 people on Wall Street,"What is Dexia" you would get about 95 blank looks but it's a pretty big institution and by some measures the largest in Belgium. The interesting thing is that in 2008 Dexia was in deep do-do partly because of its ownership of FSA and mostly because their portfolio was rubbish. In fact, at one point they were into the Fed for, if memory serves, around $60 billion which aint chump change. Well, here they are again and that is the story rather than their failure.
Dexia is symptomatic of what ails Euro banking: after the crash they never got their act together and were not pressed to do so by the banking regulators in each country. Dexia is just the first of what I believe is going to be a severe restructuring of European banking but the good news in this case is that the French and the Belgians moved with great dispatch to put a lid on the situation. Whether that lid stays on over the coming weeks is anybody's guess but it was welcome to see such a quick reaction. Our guys put out a notice today that they are prepared to assist the Euros in any way possible (read, dollar funding) but I suspect that at this stage little will be needed. I have no way of knowing but I suspect that the Euros are running as fast as possible to a Euro book which if things get nasty will put a huge strain on the ECB and it's anti-inflation obsession as they will be putting out Euros to the system as fast as they can be printed.Nobody said it would be easy.
Meanwhile, on this side of the pond, Sen. Richard Durbin of Illinois made one of the stupidist speeches on the floor of the Senate yesterday in a career filled with stupid speeches. You might remember as we noted last week, the "Durbin Admendment" to the Dodd/ Frank monstrosity was the proximate cause of the banks raising fees on dubit cards quite dramatically. Stung by the fact that half the world was blaming him for the banks' actions, he decided that he needed to stike back. Never one to miss an opportunity to kick an man when he is down, Sen. Durbin decided to pick on everybody's favorite target, Bank of America, by forcefully suggesting that everybody doing business with Bank of America just walk right in and withdraw all their deposits.
Now Durbin has never been accused of being the brigest bulb in the room but one would hope that as a member of the Senate Finance Committee he was aware of the James Rule that banks get sick on the asset side but die on the liability side. No such luck. The one great thing about the B of A is that they have the most stable deposit base of probably any bank in the world but up pops this idiot and to deflect attention from his own stupidity he tries to change all that. Anything, ANYTHING that might cause any adverse affect on the liquidity of the system in times like these is pure madness. But with men like this in the highest seats of power is it any wonder that we are in a spot of trouble financially? These jerks are simply not to be believed. As I have said, it's for times like this that the Good Lord made wiskey. Guess where I'm headed.
Thursday, October 1, 2009
HOT DAMN!
Well, I'll tell ya what's the truth. I was fixin' on taking a few days off to sit and have a good ol' tongue wag with my Brit buddy but thisa here is too good to waste. Our boy, good ol' Kenny Lewis done stuck it to them Yankees up in New Yawk and the damn Revenuers in Washington yeserday but goooood! He done went out an quit on 'em! Yessiree, he done told 'em y'all can take this job and stick it where the sun don't shine. You aint gonna have ol' Ken to kick around no more. And guess what? Y'all got no bod ee to replace me. So i'ma gonna take my $100,000,000 and git outa town!! Now aint that the damndest! Never knew ol' Ken had it in him. Course the damn stock tanked a bit but that's ok. Our girl friend Shelia is gonna suck the banks dry anyway come year end so we aint carin' too much about that. My Brit buddy says that's put a cat amungst the pigeons whatever the hell that means but I suspect he's a'saying we got us a hell of a mess on our hands at the biggest bank in the country. Aint nobody runnin' the damn thing! And all of them fancy brokers ol Ken bought at Merrill Lynch. Firstist they be told that gonna work for this Sally Kraw--whatever--gal who didn't do jack at Citicorp and now the guy that brung 'em just went home alone. Man oh man, I do wish I had me a Bank of America phone book. We could trade that for cash money!
Whoo-eee!
Whoo-eee!
Thursday, May 7, 2009
MUCH ADO ABOUT....
Well, I didn't get any help at all yesterday which is why nothing appeared. That was bad, then the day turned awful as Barcelona drew with Chelsea 1-1 at Stanford Bridge to win the semi-final on a well-earned goal 2:45 into extra time. Bummer. The ground was an hour walk from our old digs in London or a 15 minute ride down the King's Road on the #12. This was personal. On top of all that the match was refereed by Mr. Ovrebo, a Norwegian, who, among other things managed to miss a hand ball in the box by Gerard Pique of Barca that was witnessed by 65,000 in the ground and 200,000,000 across Europe, two other probable penalties in the box and then, just to show he was impartial, issued a red card to Barca's last starting defender for very little which means they face the dreaded Manchester United in two weeks at Il Stadio Olympio nella Roma with a back line of four guys named Schwartz. Not good. Now for those who don't follow this sport too closely, Norway does not have professional referees. Mr Ovrebo has a day job which means these two sides had the most important match of the year and in the case of many of the players, their lifetimes, refereed by an amateur. Mr. Ovrebo receives a fee for the evening and expenses. You pay peanuts, you get monkeys. Got the picture.
Anyway, this morning we awakened to the results of the stress test and an explanation of the same by Our Hero on the Op Ed page of the New York Times. Neither the results nor the explanation told us anything. It would appear that Bank of America was designated as the institution that led the hit parade of those in need of more capital and on the other end of the list was Citigroup who was long expected to be in the most dire straits. Not so. Bank of America's need was listed at $35 billion but C came in at only $5 billion. Equity markets yawned and promptly bid up bank stocks as they had been doing all week. Mr. Geitner proclaimed that this exercise replaced uncertainty with transparency and would bring more private capital to the financial system. Well, I guess I, like St Paul have to get knocked off my ass on my ass, but I am still seeing through a glass darkly. I don't know any more about the true state of the banks any more than I did 6 months ago other than for Our Hero telling me all will be fine now that he and The Leader are on the case. One might keep in mind that most of this went down the gurgle tube when he ran the NY Fed and while I don't for one moment wish to blame him, there remains a suspicion that he provides little to the solution. He sure can play to the markets, however. I don't wish to be misunderstood. I am not for a moment suggesting the this exercise was a white wash. The Fed ran it and the Fed does not play games. I'm sure what was done was fully professional.
One thing that was revealed, almost by accident, is that all of the banks have rather high capital ratios; certainly higher than the regulatory ratios of the Basel Accord. The shortfalls discussed are all related to primary capital or common equity which we have discussed earlier in the week. The yawn of the markets was probably a result of all the equity geniuses realizing that, 'Hey, these guys need but convert some of what they already have and everybody is home and dry." It also has probably provoked some thought that there may be something else involved here than just the designation and then recategorizing capital that was there in the first place. Now some of that preferred is Uncle's money and given what has already transpired, banks will probably be loath to provide any more direct ownership to the government. But the problem, if there was one, appears to be quite manageable. Now, provided Our Hero and his mob get the hell out of the way, stop this ridiculous asset swap/sale idea and keep positive, confidence and the liquidity which always follows will return. And that, boys and girls was what it was all about in the first place.
Mother's day this weekend, bless them all. We are off to see one of them and one pack of grandchildren. See you next week.
Anyway, this morning we awakened to the results of the stress test and an explanation of the same by Our Hero on the Op Ed page of the New York Times. Neither the results nor the explanation told us anything. It would appear that Bank of America was designated as the institution that led the hit parade of those in need of more capital and on the other end of the list was Citigroup who was long expected to be in the most dire straits. Not so. Bank of America's need was listed at $35 billion but C came in at only $5 billion. Equity markets yawned and promptly bid up bank stocks as they had been doing all week. Mr. Geitner proclaimed that this exercise replaced uncertainty with transparency and would bring more private capital to the financial system. Well, I guess I, like St Paul have to get knocked off my ass on my ass, but I am still seeing through a glass darkly. I don't know any more about the true state of the banks any more than I did 6 months ago other than for Our Hero telling me all will be fine now that he and The Leader are on the case. One might keep in mind that most of this went down the gurgle tube when he ran the NY Fed and while I don't for one moment wish to blame him, there remains a suspicion that he provides little to the solution. He sure can play to the markets, however. I don't wish to be misunderstood. I am not for a moment suggesting the this exercise was a white wash. The Fed ran it and the Fed does not play games. I'm sure what was done was fully professional.
One thing that was revealed, almost by accident, is that all of the banks have rather high capital ratios; certainly higher than the regulatory ratios of the Basel Accord. The shortfalls discussed are all related to primary capital or common equity which we have discussed earlier in the week. The yawn of the markets was probably a result of all the equity geniuses realizing that, 'Hey, these guys need but convert some of what they already have and everybody is home and dry." It also has probably provoked some thought that there may be something else involved here than just the designation and then recategorizing capital that was there in the first place. Now some of that preferred is Uncle's money and given what has already transpired, banks will probably be loath to provide any more direct ownership to the government. But the problem, if there was one, appears to be quite manageable. Now, provided Our Hero and his mob get the hell out of the way, stop this ridiculous asset swap/sale idea and keep positive, confidence and the liquidity which always follows will return. And that, boys and girls was what it was all about in the first place.
Mother's day this weekend, bless them all. We are off to see one of them and one pack of grandchildren. See you next week.
Tuesday, May 5, 2009
I NEED SOMEBODY TO HELP!
This is becoming very difficult. There is very little going on and it appears that the entire world is awaiting the results of the "stress test" scheduled for Thursday. Well, that is inaccurate. Not the entire world. It appears that the International Monetary Fund has found a mission that of predicting with unerring accuracy the condition of the U.S. Banking system an the requirements facing the same for new capital. Excuse me if I am underwhelmed, then again, one must keep in mind that the Fund has friends in high places as it was no other than Our Hero was once an employee. It was there that he became confused as for the need to pay payroll taxes for you see, you salary from the Fund is essentially tax free (they pay it) and it's easy to become confused...oh, why bother. Suffice to say, it has been a dull day in a fairly dull week.
But, we labor on to report that rumor has it the Wells Fargo, Citibank, B of A and apparently a few others are a bit short of the ready according to the Regulator mob. Oh that ominous note, the bank index has traded up big time. Go figure. Or maybe it's not so hard. Part of the report is supposed to set guidelines for "tangible common equity" for each individual bank and it may well be that the stock boys have no more idea than yours truly what the hell "tangible common equity" is supposed to do to make anyone of us sleep better at night. Oh I know the definition;this is the stuff that is supposed to be there at the end of the day after a bankruptcy. The percentage being floated about is 4--4 1/2% of total footings. Last time I looked the Incredible Shrinking Citicorp had about $2 TRILLION in total footings. If any among you feel that 4% of that number is just about right, would you contact me with your reasoning and the best reasonoer will win a prize. I case of ties, duplicate prizes will be awarded. Employees or any member of the family of a Citicorp employee are not eligible. This offer is available to only members of this planet. Advanced life forms from other galaxies are not eligible. All entries must be postmarked by tomorrow at midnight, eastern daylight time. We are going to get to the bottom of this thing.
Once there is agreement, the short-fall institutions will scurry out into the market to raise the necessary capital from private sources or failing that, Our Hero will make up the difference after about six months...assuming that anyone is left after six months. Actually, I was in favor of this approach a few months back but the major difference in my thinking was that there are some things that are best done in private. Announcing to the world that the First National Bank of Boothill (apologies, Chris Fides) is in extremis is not exactly the best way to prepare the market for a fund raising operation on behalf of FNBB or at least in my experience it never has been. But, I have been wrong before (two or three time to be exact) and there is a price for everything so this could become really interesting. Then again, if people believe that the fund raisers are in the nature of a Government Sponsored Organization ala Fanny and Freddie...well, we shall see. Only thing is those two didn't come out well in the end did they? Neither did Mr. & Mrs. Tax Payer. Then again, the Treasury could provide the funds directly as suggested, but that might result in more howls and shouts for ownership on the part of the government rising to a fever pitch. You pay peanuts, you get monkeys. $2 TRILLION in assets run by monkeys? Hummmmm.
You can see my problem. I'm just sitting out here in fly-over country waiting for a bit of inspiration. Worse yet, of the 10,000 Peonies in the world the wife just bought at least 500 of the 1500 she doesn't already own. She buys, she doesn't plant. They are pretty, however. I've left a pass and not at the gate house for John Lennon in case he comes by to visit. HELP!
But, we labor on to report that rumor has it the Wells Fargo, Citibank, B of A and apparently a few others are a bit short of the ready according to the Regulator mob. Oh that ominous note, the bank index has traded up big time. Go figure. Or maybe it's not so hard. Part of the report is supposed to set guidelines for "tangible common equity" for each individual bank and it may well be that the stock boys have no more idea than yours truly what the hell "tangible common equity" is supposed to do to make anyone of us sleep better at night. Oh I know the definition;this is the stuff that is supposed to be there at the end of the day after a bankruptcy. The percentage being floated about is 4--4 1/2% of total footings. Last time I looked the Incredible Shrinking Citicorp had about $2 TRILLION in total footings. If any among you feel that 4% of that number is just about right, would you contact me with your reasoning and the best reasonoer will win a prize. I case of ties, duplicate prizes will be awarded. Employees or any member of the family of a Citicorp employee are not eligible. This offer is available to only members of this planet. Advanced life forms from other galaxies are not eligible. All entries must be postmarked by tomorrow at midnight, eastern daylight time. We are going to get to the bottom of this thing.
Once there is agreement, the short-fall institutions will scurry out into the market to raise the necessary capital from private sources or failing that, Our Hero will make up the difference after about six months...assuming that anyone is left after six months. Actually, I was in favor of this approach a few months back but the major difference in my thinking was that there are some things that are best done in private. Announcing to the world that the First National Bank of Boothill (apologies, Chris Fides) is in extremis is not exactly the best way to prepare the market for a fund raising operation on behalf of FNBB or at least in my experience it never has been. But, I have been wrong before (two or three time to be exact) and there is a price for everything so this could become really interesting. Then again, if people believe that the fund raisers are in the nature of a Government Sponsored Organization ala Fanny and Freddie...well, we shall see. Only thing is those two didn't come out well in the end did they? Neither did Mr. & Mrs. Tax Payer. Then again, the Treasury could provide the funds directly as suggested, but that might result in more howls and shouts for ownership on the part of the government rising to a fever pitch. You pay peanuts, you get monkeys. $2 TRILLION in assets run by monkeys? Hummmmm.
You can see my problem. I'm just sitting out here in fly-over country waiting for a bit of inspiration. Worse yet, of the 10,000 Peonies in the world the wife just bought at least 500 of the 1500 she doesn't already own. She buys, she doesn't plant. They are pretty, however. I've left a pass and not at the gate house for John Lennon in case he comes by to visit. HELP!
Tuesday, April 28, 2009
QUEL SURPRISE!
That's French folks. Know what it means? Stunner of all stunners, it appears--at least according to the Wall Street Journal--that Bank of America and Citigroup might need more capital. Then again, if one speaks with the people who are running the institutions, maybe they don't. And whilst we try to unwind this little conundrum, didn't the Administration, taking a page from "A Walk in the Sun," which is of course familiar to our loyal readers, announce some time ago that, "Nobody dies?" Well, if you have in effect guaranteed the largest banks around, why the hell to they have to go through this exercise of raising more capital in what might be categorized as perhaps not the best of times for such an exercise? Seems like a waste of time to me; hell, just let them earn their way out of it (if they can) just like banks have always done.
Then of course is the irksome question of what kind of capital are we talking about. In theory, capital in regard to a bank as with most other organization is there to protect the institution from losses and by the standards of the Basel Accord all the banks who were subjected to the stress test have adequate capital. Ah ha, say some, there is capital and then there is CAPITAL. It would appear for example the the $45 billion Uncle has in Citigroup aint the kind of Capital one wants because it is in the form of preferred shares not common shares or to make it real simple, the kind of capital against which losses can be directly charged. If your reaction to the thought that $45 billion is no good is, "Huh" you and I are on the same page. Now this piece of regulatory genius comes from the same folks that were all for mark to market treatment for everything, but if you eliminate the mark to market "risk" and get back to cash accrual, doesn't a good deal of the concern for what kind of capital one has go away (as if it should have been there in the first place)? This of course begs the question as to whether "Capital" is relevant in a banking context, but you've heard enough from me on that subject. Nevertheless Mr. Pandit, Citi's CEO has announced his intention of converting the government's preferred shares into common equity thereby making Our Hero The Head Hummer at the joint that never sleeps. The fact that it completely and totally screws the equity holders and everybody else who stuck with this thing until the next generation at least is apparently of no interest to anyone. It can well be said that Citi was nationalized months ago but the finality of this action is still a bit off-putting. Worse yet, is the thought of the government getting control of a pot of money this big. Yikes! In one swell foop, The Leader has found himself the biggest pot of gold around which he can redistribute in the name of the exercise of a management function. Of course Mr. Pandit will pander to the thought in order to keep his job, and one wonders why as he has more money that he could possibly ever spend in a life-time unless he marries my wife. Then too, the Chairman, Mr. Parsons, has caused to be appointed four new directors to the Board who know something about banks and banking...in fact they know A LOT about banks and banking. Michael O'Neill is one of the best I have ever known. There may be hope.
And as for our North carolina good ol' boys...Damn, our boy Ken just found out those damn Yankees at PIMCO ar 'bout to vote 22,000,000 shares 'gainst hisself and all o' the 18 of his boys on the board. Actually, you have to feel sorry for poor ol' Ken. Seems as though he got handled by Paulson and Bernanke and Our Hero---yes, dear reader he was there as well--and as a result all sorts of folks are calling for him to be thrown in the hoosegow for misleading his shareholders. I haven't a clue as to the true story but I can sympathize with him as many years ago I was asked by a group of regulators to extend credit to a certain Latin American Country with all of my management missing in action. It is a very lonely feeling. Anyway, there has been speculation that B of A would find it easier to raise capital than Citi. With a new Chairman and CEO and an entire new board if PIMCO finds the support it needs? I don't think so unless markets have changed more than I realize since I put down my green eye shade. So one might ask, "What is to be accomplished by all this at this time?" Beats the hell out of me again. I'm not much help am I? Maybe we will have some answers tomorrow. If you have any ideas, clue me in.
Then of course is the irksome question of what kind of capital are we talking about. In theory, capital in regard to a bank as with most other organization is there to protect the institution from losses and by the standards of the Basel Accord all the banks who were subjected to the stress test have adequate capital. Ah ha, say some, there is capital and then there is CAPITAL. It would appear for example the the $45 billion Uncle has in Citigroup aint the kind of Capital one wants because it is in the form of preferred shares not common shares or to make it real simple, the kind of capital against which losses can be directly charged. If your reaction to the thought that $45 billion is no good is, "Huh" you and I are on the same page. Now this piece of regulatory genius comes from the same folks that were all for mark to market treatment for everything, but if you eliminate the mark to market "risk" and get back to cash accrual, doesn't a good deal of the concern for what kind of capital one has go away (as if it should have been there in the first place)? This of course begs the question as to whether "Capital" is relevant in a banking context, but you've heard enough from me on that subject. Nevertheless Mr. Pandit, Citi's CEO has announced his intention of converting the government's preferred shares into common equity thereby making Our Hero The Head Hummer at the joint that never sleeps. The fact that it completely and totally screws the equity holders and everybody else who stuck with this thing until the next generation at least is apparently of no interest to anyone. It can well be said that Citi was nationalized months ago but the finality of this action is still a bit off-putting. Worse yet, is the thought of the government getting control of a pot of money this big. Yikes! In one swell foop, The Leader has found himself the biggest pot of gold around which he can redistribute in the name of the exercise of a management function. Of course Mr. Pandit will pander to the thought in order to keep his job, and one wonders why as he has more money that he could possibly ever spend in a life-time unless he marries my wife. Then too, the Chairman, Mr. Parsons, has caused to be appointed four new directors to the Board who know something about banks and banking...in fact they know A LOT about banks and banking. Michael O'Neill is one of the best I have ever known. There may be hope.
And as for our North carolina good ol' boys...Damn, our boy Ken just found out those damn Yankees at PIMCO ar 'bout to vote 22,000,000 shares 'gainst hisself and all o' the 18 of his boys on the board. Actually, you have to feel sorry for poor ol' Ken. Seems as though he got handled by Paulson and Bernanke and Our Hero---yes, dear reader he was there as well--and as a result all sorts of folks are calling for him to be thrown in the hoosegow for misleading his shareholders. I haven't a clue as to the true story but I can sympathize with him as many years ago I was asked by a group of regulators to extend credit to a certain Latin American Country with all of my management missing in action. It is a very lonely feeling. Anyway, there has been speculation that B of A would find it easier to raise capital than Citi. With a new Chairman and CEO and an entire new board if PIMCO finds the support it needs? I don't think so unless markets have changed more than I realize since I put down my green eye shade. So one might ask, "What is to be accomplished by all this at this time?" Beats the hell out of me again. I'm not much help am I? Maybe we will have some answers tomorrow. If you have any ideas, clue me in.
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