Just a few short comments.
1. From a regulatory standpoint, the system is in good shape. Query: do we have the right regulations?
2. Whether correct or not there are a hell of a lot more regulations with which the banks have to deal.
3. Regulations in every situation one can imagine will restrict or make more expensive any business.
4. Regulatory applicability must be examined more closely. Citibank and the First of Boot Hill belong to different holding companies. They should be regulated differently.
5. At the present, the industry is looking more like a bunch of utilities.
6. What we have seen, as expected, has been the roll-out of plans to return excess capital to shareholders through increased dividends and share repurchases. Is the repurchase of shares he best imployment of capital?
7. The answer may be "yes." Why? A global economic expansion in developed countries of less than 2%', substantial regulatory limits on the use of capital, substantial reduction on the ability to trade for one's own account, reduction in international business (Big Danny Lives!), increased competition from a mostly unregulated shadow banking business and, yes, the continued advancement of artificial interest rates.
An aside. Interest differential lending in the corporate sector was never a particularly attractive business, hence the increased emphasis on retail and credit card exposures both of which, however, from a risk standpoint are greatly affected by overall economic conditions. Enter off balance sheet activities leading to, for example, the creation of assets for resale and the distribution of the same. But this being the case, under present conditions big is going to be waaaaay better so expect to see a decline in the number of community banks in the future. Let's hope we see banks in the future.
Showing posts with label Banks. Show all posts
Showing posts with label Banks. Show all posts
Friday, June 30, 2017
Friday, June 3, 2016
...AND THEN THERE WERE NONE
If you have been following the banking story in the Journal it is probably becoming quite clear that Big Danny and his boys don't like banks. They don't like other institutions that have some of the traits of banks like insurance companies. Now they just can't say, "There will be no more banks," so the approach they are taking is to simply regulate them to the point where it is very, very hard to make money, at least at the level where one covers one's cost of capital which today is placed--completely without conviction--at 10%. Maybe at that point they will go away.
And maybe they will. If this reign of regulatory terror continues the institutions may remain but they business that has been part and parcel to banking may well move somewhere else of simply disappear. Just the other day Mr. Tarullo announced that there will be new and certainly higher capital requirements on systemic institutions that should be announced right after the results of the stress tests which are expected around June 23. As an aside, one should keep in mind that there are two aspects to these stress test; one objective and one subjective. Yep. Subjective. On top of that no one knows how the rules are set, so passing a stress test is like being told to shoot behind the duck and even if you hit it you still may not pass because the judge didn't like the way you shouldered your gun. That is why Citigroup failee its stress test a couple of years ago. Big Danny doesn't like Citigroup. Why? Who the hell knows but they failed on the subjective measurements.
Unfortunately, the stress tests are to determine, in concert with the "living wills" just how well a bank can absorb adverse environments and if not, how to keep them from costing the taxpayers a bundle of money. One last time (I'm lying of course): living wills are the biggest load of bovine fertilizer ever created in the finance business. There isn't a lawyer alive who will admit otherwise. Yet, when a entity like the Federal Reserve proclaims an institution is "not in compliance," many things happen; the first and most important being a loss of confidence in the marketplace in the affected institution. It also results in a loss of confidence in the entire banking system in which the institution resides. The dumbos in Washington think the effect is the opposite: the Fed is on the job, all are secure! Wrong. To begin, most of the intelligent world knows that the first thing a Central Bank should do is keep it's mouth shut. Quite inspires confidence, not the babbling, headline grabbing, narcissistic bleatings of a self-styled reformer. At the end, stupidity in one's central bank should not be revealed as occurred in the Metropolitan Life law suit when the court simply told the Fed it was clueless in regard to what it was trying to regulate. But onward it goes and if allowed to continue it will win as having the ability to compensate their shareholders, the banks will simply, give up and move to other businesses or in an attempt to save what they have through reduced cost, allow the machines and programmers to do it, battling furiously against each other to prove that "My algorithm is better that yours." We have seen how that has worked out. Mark to model///what's wrong with that? Of course when mistakes...or heaven forbid, stupidity... occurs in nano-seconds...Never it seems has it crossed the mind of the Fed that they may be increasing future risk rather than reducing the same.
And so, the future of banking? The lines of business will be there but in the hands of others. Hedge funds are heavily in the lending business as we speak. "Wealth Managers" are a major factor in trading. The distribution of risk is alive and well but to the clients of hedge funds...in some cases whether thy know it or not, and in many cases whether they understand the risk or not makes them the intermediators. The Fed rants against Jamie Dimond and his compensation of $26,000,000; how do you deal with a hedggie whose comp is $1,000,000,000. Well, you can't because you don't regulate him and more importantly, you don't regulate his business nor can you because he's private, you see and there are no depositors or shareholders to worry about. You might also think about the over $11 billion is publicly held debt outstanding whose liquidity has already been greatly reduced because the Fed has made it too expensive for a bank to be in that business in the size required. When that effort is increasingly left in privately held hands will the holder of the same or the overall taxpayer benefit? Not from where I sit, but I've been wrong before. Not this time I think.
Some smart guy once said, "Power corrupts and absolute power corrupts absolutely." Somebody had best try to stop these guys before they do truly serious damage not just to the system but to the country as a whole. We might start to pay attention to this seemingly growing myth that the Federal Reserve is this vast wealth of information and knowledge, inhabited by the smartest people we have. It never was although in the past it was far more in approaching this status than it is today. Then, it was inhabited by people who understood the true role and more importantly, understood their limitations in an increasingly complex world. Today, we have poor Janet who seemingly wants to do good and Billy the Dud who is incapable of speaking in other than profound terms as to the wisdom and truth of his models proving that all that has been done was fully in the right............except that......
.........May Jobs came in today at 38,000.......Those not looking for work was at the highest percentage in over 40 years--93,000,000 Americans who have dropped out......March and April revisions were down 58,000. And just a week ago EVERYBODY was alerted to a "normalization" in June because of the rosy outlook. And you guys are charged with guiding the American financial system? Where the hell did we go wrong?
And maybe they will. If this reign of regulatory terror continues the institutions may remain but they business that has been part and parcel to banking may well move somewhere else of simply disappear. Just the other day Mr. Tarullo announced that there will be new and certainly higher capital requirements on systemic institutions that should be announced right after the results of the stress tests which are expected around June 23. As an aside, one should keep in mind that there are two aspects to these stress test; one objective and one subjective. Yep. Subjective. On top of that no one knows how the rules are set, so passing a stress test is like being told to shoot behind the duck and even if you hit it you still may not pass because the judge didn't like the way you shouldered your gun. That is why Citigroup failee its stress test a couple of years ago. Big Danny doesn't like Citigroup. Why? Who the hell knows but they failed on the subjective measurements.
Unfortunately, the stress tests are to determine, in concert with the "living wills" just how well a bank can absorb adverse environments and if not, how to keep them from costing the taxpayers a bundle of money. One last time (I'm lying of course): living wills are the biggest load of bovine fertilizer ever created in the finance business. There isn't a lawyer alive who will admit otherwise. Yet, when a entity like the Federal Reserve proclaims an institution is "not in compliance," many things happen; the first and most important being a loss of confidence in the marketplace in the affected institution. It also results in a loss of confidence in the entire banking system in which the institution resides. The dumbos in Washington think the effect is the opposite: the Fed is on the job, all are secure! Wrong. To begin, most of the intelligent world knows that the first thing a Central Bank should do is keep it's mouth shut. Quite inspires confidence, not the babbling, headline grabbing, narcissistic bleatings of a self-styled reformer. At the end, stupidity in one's central bank should not be revealed as occurred in the Metropolitan Life law suit when the court simply told the Fed it was clueless in regard to what it was trying to regulate. But onward it goes and if allowed to continue it will win as having the ability to compensate their shareholders, the banks will simply, give up and move to other businesses or in an attempt to save what they have through reduced cost, allow the machines and programmers to do it, battling furiously against each other to prove that "My algorithm is better that yours." We have seen how that has worked out. Mark to model///what's wrong with that? Of course when mistakes...or heaven forbid, stupidity... occurs in nano-seconds...Never it seems has it crossed the mind of the Fed that they may be increasing future risk rather than reducing the same.
And so, the future of banking? The lines of business will be there but in the hands of others. Hedge funds are heavily in the lending business as we speak. "Wealth Managers" are a major factor in trading. The distribution of risk is alive and well but to the clients of hedge funds...in some cases whether thy know it or not, and in many cases whether they understand the risk or not makes them the intermediators. The Fed rants against Jamie Dimond and his compensation of $26,000,000; how do you deal with a hedggie whose comp is $1,000,000,000. Well, you can't because you don't regulate him and more importantly, you don't regulate his business nor can you because he's private, you see and there are no depositors or shareholders to worry about. You might also think about the over $11 billion is publicly held debt outstanding whose liquidity has already been greatly reduced because the Fed has made it too expensive for a bank to be in that business in the size required. When that effort is increasingly left in privately held hands will the holder of the same or the overall taxpayer benefit? Not from where I sit, but I've been wrong before. Not this time I think.
Some smart guy once said, "Power corrupts and absolute power corrupts absolutely." Somebody had best try to stop these guys before they do truly serious damage not just to the system but to the country as a whole. We might start to pay attention to this seemingly growing myth that the Federal Reserve is this vast wealth of information and knowledge, inhabited by the smartest people we have. It never was although in the past it was far more in approaching this status than it is today. Then, it was inhabited by people who understood the true role and more importantly, understood their limitations in an increasingly complex world. Today, we have poor Janet who seemingly wants to do good and Billy the Dud who is incapable of speaking in other than profound terms as to the wisdom and truth of his models proving that all that has been done was fully in the right............except that......
.........May Jobs came in today at 38,000.......Those not looking for work was at the highest percentage in over 40 years--93,000,000 Americans who have dropped out......March and April revisions were down 58,000. And just a week ago EVERYBODY was alerted to a "normalization" in June because of the rosy outlook. And you guys are charged with guiding the American financial system? Where the hell did we go wrong?
Wednesday, May 13, 2009
RANDOM THOUGHTS
Mother's Day was wonderful. We visited Number Two Son and the wife reveled in a passel of grandkids. Stayed longer than expected, hence the slippage. Apologies.
Well, as predicted, The Leader and the mob pounded the secured lenders involved in Chrysler into submission and the quickey bankruptcy can move forward apace. The TARP banks involved had already folded like a bunch of cheap suits as chronicled in a wonderful front page story last week on good ol' Jimmy Lee at J.P.Morgan who talked tough and carried a limp noodle when it came to backing it up. The pundits on both political spectrums have been having a field day with the secured guys, one set wailing about the trampling of the 5th. amendment while the other has been proclaiming the brilliance of The Leader and his team in doing the "right thing" in the face of heartless opposition. Don't know why such a big deal is being made of all this. The secured guys for the most part, were bottom feeders who owed the stuff at a considerable discount hoping to make a quick killing. That being said, the law was on their side and the "willingly" agreed to relinquish their claims not being prepared to stand up to the political and financial pressure but knowing that their downside was certainly way less than 100 cents on the buck. Sometimes you win, sometimes...In any case, the GM situation is considerably different and it is here we shall see if anyone has the guts to stand up to The Leader.
The fall-out, however, may well well be the mother of all unintended consequences. The price of finance just went up for everybody and the financing normally available in bankruptcies may well disappear. Ask yourself: would you be dumb enough to provide debtor in possession financing to an entity that possibly could have a politically connected class of creditors...i.e. unions? Count me out. The landscape could change. I also look forward to watching the UAW bargaining with themselves in the future with taxpayer's money in the balance. This is a sorry scene but for blog writers, a gold mine. I think I'll be around for a while.
Also last week was the Treasury's $16 billion 10 yeqr auction. It wasn't a disaster but it was close. Yield shot up to 4.3% on tepid demand. For those of you who don't know how this works, there is in place a group of financial institutions know as "Primary Dealers." At one time they numbered around 40; today they are fewer than half that number. To be in this club you have to bid on Treasury auctions, assuring the "success" of the issuance by the Treasury. The price at which you bid is very much dependent on the demand you have from the market into which you resell the issue. If things go as they are supposed to go, you are guaranteed a profit, but if you miscalculate demand...well, lets just say you're wearing Treasury paper for a while and if this situations persists you may well sell it at a loss. Predictably, the dollar was hit but not as hard as some thought would happen. Nevertheless, the predicted future is coming into focus. The Fed keeps pumping money out short term and medium to long term rates continue to rise on fears of the future inflation that is all but a certainty. On top of all this, the CBO revamped its budget deficit numbers upward (they are still underestimated) and commodity prices continued in their rise. As The Yogi Man used to say about left field in the Big Ball Park in October, "It gets late early out there." But with yield curve, the banks should make a bundle short term--the big banks that is with big trading operations--and it was a beautiful Mothers Day. What, me worry?
And speaking of banks, Our Hero has been all over the place--including another unfortunate little skit on SNL--preaching the gospel of regulation, redistribution and redemption, in language so flowing that it is nearly impossible to understand what the hell he is really saying. He's still flogging the idea of his public/private partnership although one would think that any rational human being witnessing the treatment of the private sector in the car business would run like hell in the opposite direction. We shall see. He also wants a systemic risk regulator: I thought we had one in the Congress of the United States as Per Freddie and Fanny...who by the by, just announced that they had lost another gazillion dollars and need another $8 billion or so of new taxpayer money. Those regulator-things sure do work. He was speaking to the itsy-bitsy bankers' association today and promised that he was going to take money from the big guys and give it to them. Huzzahs all-around. Boy sure know how to wow a crowd.
Finally, a political comment. I watched The Leader this morning accepting the pledge of the Congressional leadership to have the reform of health care settled before the August recess. Joy unbounded. At the end as he was about to head North, Nancy Pelosi planted a kiss on his Southernmost feature in a manner unseen even in a town famous for such drooling acts. Now it is well-known that Nancy has gotten both of hers in a wringer over these "torture briefings" and Rahm's buddy Stenny has expressed the view that maybe their should be some hearings on what Nancy didn't hear and why, but this?! Is Nancy long for the Speaker's Office? Jeeze, she may have to fly commercial.
A follow-up tomorrow
Well, as predicted, The Leader and the mob pounded the secured lenders involved in Chrysler into submission and the quickey bankruptcy can move forward apace. The TARP banks involved had already folded like a bunch of cheap suits as chronicled in a wonderful front page story last week on good ol' Jimmy Lee at J.P.Morgan who talked tough and carried a limp noodle when it came to backing it up. The pundits on both political spectrums have been having a field day with the secured guys, one set wailing about the trampling of the 5th. amendment while the other has been proclaiming the brilliance of The Leader and his team in doing the "right thing" in the face of heartless opposition. Don't know why such a big deal is being made of all this. The secured guys for the most part, were bottom feeders who owed the stuff at a considerable discount hoping to make a quick killing. That being said, the law was on their side and the "willingly" agreed to relinquish their claims not being prepared to stand up to the political and financial pressure but knowing that their downside was certainly way less than 100 cents on the buck. Sometimes you win, sometimes...In any case, the GM situation is considerably different and it is here we shall see if anyone has the guts to stand up to The Leader.
The fall-out, however, may well well be the mother of all unintended consequences. The price of finance just went up for everybody and the financing normally available in bankruptcies may well disappear. Ask yourself: would you be dumb enough to provide debtor in possession financing to an entity that possibly could have a politically connected class of creditors...i.e. unions? Count me out. The landscape could change. I also look forward to watching the UAW bargaining with themselves in the future with taxpayer's money in the balance. This is a sorry scene but for blog writers, a gold mine. I think I'll be around for a while.
Also last week was the Treasury's $16 billion 10 yeqr auction. It wasn't a disaster but it was close. Yield shot up to 4.3% on tepid demand. For those of you who don't know how this works, there is in place a group of financial institutions know as "Primary Dealers." At one time they numbered around 40; today they are fewer than half that number. To be in this club you have to bid on Treasury auctions, assuring the "success" of the issuance by the Treasury. The price at which you bid is very much dependent on the demand you have from the market into which you resell the issue. If things go as they are supposed to go, you are guaranteed a profit, but if you miscalculate demand...well, lets just say you're wearing Treasury paper for a while and if this situations persists you may well sell it at a loss. Predictably, the dollar was hit but not as hard as some thought would happen. Nevertheless, the predicted future is coming into focus. The Fed keeps pumping money out short term and medium to long term rates continue to rise on fears of the future inflation that is all but a certainty. On top of all this, the CBO revamped its budget deficit numbers upward (they are still underestimated) and commodity prices continued in their rise. As The Yogi Man used to say about left field in the Big Ball Park in October, "It gets late early out there." But with yield curve, the banks should make a bundle short term--the big banks that is with big trading operations--and it was a beautiful Mothers Day. What, me worry?
And speaking of banks, Our Hero has been all over the place--including another unfortunate little skit on SNL--preaching the gospel of regulation, redistribution and redemption, in language so flowing that it is nearly impossible to understand what the hell he is really saying. He's still flogging the idea of his public/private partnership although one would think that any rational human being witnessing the treatment of the private sector in the car business would run like hell in the opposite direction. We shall see. He also wants a systemic risk regulator: I thought we had one in the Congress of the United States as Per Freddie and Fanny...who by the by, just announced that they had lost another gazillion dollars and need another $8 billion or so of new taxpayer money. Those regulator-things sure do work. He was speaking to the itsy-bitsy bankers' association today and promised that he was going to take money from the big guys and give it to them. Huzzahs all-around. Boy sure know how to wow a crowd.
Finally, a political comment. I watched The Leader this morning accepting the pledge of the Congressional leadership to have the reform of health care settled before the August recess. Joy unbounded. At the end as he was about to head North, Nancy Pelosi planted a kiss on his Southernmost feature in a manner unseen even in a town famous for such drooling acts. Now it is well-known that Nancy has gotten both of hers in a wringer over these "torture briefings" and Rahm's buddy Stenny has expressed the view that maybe their should be some hearings on what Nancy didn't hear and why, but this?! Is Nancy long for the Speaker's Office? Jeeze, she may have to fly commercial.
A follow-up tomorrow
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