Posts Tagged ‘Bank of America’

Bank of America Sets Up War Room, Hires Army of Lawyers

In Financial Markets, High Frequency Trading, International Econnomic Politics, Law & Regulations, National Economic Politics, Technology on 22.01.11 at 01:18

Wikileaks, and its founder Julian Assange, has certainly stirred up some murky waters releasing confidential documents and emails on government activities. Recently Assange stated that he has a large batch of confidential documents that could lead to problems for a major bank, and in at least one interview he has identified that bank to be Bank of America. And the bank are taking the possible threat serious – deadly serious! So does the US Securities and Exchange Commission.

“The nation’s largest bank has set up a war room and assembled a S.W.A.T.  team of lawyers.”

FOX Business Network

According to FOX Business, the largest US bank has set up a war room and assembled a S.W.A.T.  team of lawyers and company officials to deal with the matter if anything should arise. And now the US Securities and Exchange Commission (SEC) is focusing in on the case too.

The Securities and Exchange Commission is keeping a close eye on Bank of America’s (BAC) Wikileaks dilemma to determine whether anything that the info-leaking website might release should have already been turned over to regulators who have conducted numerous investigations into the bank’s activities, FOX Business Network has learned.

The same goes for WikiLeaks.

It is, in fact, illegal to withhold information about criminal activities.

See also: Wikileaks Obstruction of Justice?

If and when the document dump occurs, the SEC – Wall Street’s top cop –  will be examining the material to determine if Bank of America has failed to include the emails and other documents in demands for information the commission has made as part of its many investigations into BofA activities.

Bank of America has been the subject of several high-profile probes by the commission, including issues surrounding its Countrywide Financial subsidiary, and its ill-fated purchase of Merrill Lynch during the dark days of the financial crisis in 2008.

Countrywide, which was the largest issuer of so-called subprime mortgages, has been accused of issuing mortgages to people with little if any documentation of work history or  means to repay the loans.

Neither SEC’s spokesman or BofA’s spokesman had no immediate comment, FOX reports.

If Bank of America purposely failed to turn over documents involving an investigation, the bank could face possible criminal charges of obstructing justice.

But so far, BofA has said that despite all the talk about it being a target, it has no evidence that Assange’s organization has documents involving the bank.

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Bank of America vs. WikiLeaks, the inside story
WikiLeaks should motivate information security managers
Bove: WikiLeaks bluffing about Bank of America
The Most Sued Companies in America

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Bank Of America’s Website Crashes – Another Attack?

In Financial Markets, Health and Environment, International Econnomic Politics, Law & Regulations, National Economic Politics, Technology, Views, commentaries and opinions on 15.01.11 at 16:57

Bank of America says all customers are now able to use their online banking system. However, the BoA website have been down much of the day for an unknown number of customers. There’s no word on when the site will be fully restored. On Twitter the speculations are buzzing that the site has been taken down by hackers who support WikiLeaks.

“We are aware of the issue and are working to resolve it as fast as possible. Please accept our apologies.”

Bank of America (via Twitter)

The bank is responding to users about the problem on Twitter via @BofA_Help. For some users, the website hasn’t been responding for many hours . A BofA spokeswoman said the problems began for the bank’s website at 4 a.m. PST Friday.

BofA says there is no timetable yet for when the website would be back to normal, but says the online banking outage affects “a small population of its customers.” The BofA spokesperson could not provide the number of customers currently affected, Halah Touryalai at writes.

The message also notes that the problems were not because of malware and customer information was not compromised.

On Twitter there’s a lot of buzz about the BofA website failure right now.

At least one Twitter-user speculates about the possibility of the website being hacked by WikiLeaks’ advocates anonymous:

Last year eBay’s, PayPal and Mastercard were faced with down websites after being targeted by groups supporting WikiLeaks.

However – a Bank of America spokesperson says its outage today is not the result of anything WikiLeaks related.

Last night @BofA_Help began addressing the load of complaints.

The responses from  have been pretty standard so far. Most are along the lines of: “We are aware of the issue and are working to resolve it as fast as possible. Please accept our apologies” and Online Banking Outage: Bank of America is working to restore capability as quickly as possible. We apologize for any inconvenience.”

But that’s obviously not stopping the stream of complaints from Twitter users.

Friday is payday for a lot of people, (at least for those lucky enough to be employed these days), and many are probably trying to pay their bills online and check balances.

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It now looks like BoA’s Online Banking Service is up and running again.

But still no information from the bank about what caused their site to crash.

Wikileaks About to Dump Its 5 Gigabyte Bank File?

In Financial Markets, Health and Environment, Law & Regulations, National Economic Politics, Technology, Views, commentaries and opinions on 10.01.11 at 20:18

Something curious is going on at WikiLeaks. The last release of diplomatic cables from WikiLeaks came out on January 4th. This three-day gap between Wikileaks releases is the longest ever to occur since Wikileaks began releasing the diplomatic cables, senior editor John Carney at CNBC points out.

“I suspect this means something big is about to come out of WikiLeaks.”

John Carney

We still don’t know for sure what bank the documents will allegedly indict. But all indications point to Bank of America. There have also been frenetic activity on the inside of the bank giant lately, with lawyers and spin doctors going through every little piece of stored information that might incriminate Bank of America as an “ecosystem of corruption” or expose the banks fraudulent practice in handling foreclosures. A court ruling on Friday sent ripples through the real estate industry yesterday ruling that banks and lenders must have proper documentation before foreclosing on a home.

Something curious is going on at WikiLeaks.

Or, rather, something is not going on. And that’s curious, according to CNBC senior editor John Carney.

John Carney

“I suspect this means something big is about to come out of WikiLeaks. Something they are taking their time to put together. And that is likely to be the much talked about release of the tens of thousands of documents WikiLeaks founder Julian Assange shows a culture of corruption inside an US bank,” he writes in a new blog post.

“I do not think its a stretch to expect something big to follow Wikileaks’ silence. They published new documents when Assange was arrested. There was a release on Christmas eve and Christmas day. They didn’t rest on New Year‘s eve or New Year’s day.”

And now we’ve had three days of silence.

“Something is coming,” Carney concludes.

Read also:

* Wiki-Founder Compare Upcoming Bank Leak To Enron

* WikiLeaks With 5GB File On Bank of America

Well, to me it seems like the snowball started to roll last Friday after the ruling in the Supreme Court of Massachusetts, stating that banks and lenders must have proper documentation before foreclosing on a home.

Bank of America have been at the center of the foreclosure scandal, together with Wells Fargo. JP Morgan Chase and US Bankcorp.

In second half of 2010 it became clear that the banks had automated the foreclosure process, leaving homeowners no or little possibility to negotiate new terms for their mortgage payments.

As a result thousands have wrongfully been forced out of their homes.

(Read more at;

This is just getting better by the minute….

Stay tuned!

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Related by The Swapper;

WikiLeaks With 5 GB File On Bank of America

In Financial Engeneering, Financial Markets, International Econnomic Politics, Law & Regulations, National Economic Politics, Technology, Views, commentaries and opinions on 01.12.10 at 15:22

According to an interview with WikiLeaks founder Julian Assange in October 2009, the whistleblowers are sitting on a huge file, containing documents originated from the hard drive of an executive at Bank of America. This has fueled the speculation about BoA being the target of the next megaleak by the controversial publisher, planning the uploaded early next year. The share price of Americas largest bank drop on the rumors.

“We want to get as much substantive information as possible into the historical record, keep it accessible and provide incentives for people to turn it into something that will achieve political reform.”

Julian Assange

Bank of America dismiss the speculation that it is the “big US bank” that WikiLeaks founder Julian Assange told Forbes magazine will be the website’s next target. However, the investors are not completely convinced. Bank of America tumbled more than 3% at New York Stock exchange yesterday, but at the moment share price is edging up slightly in the pre-market trading.


The current upward move of 0,6% could also be a sign of traders shorting the stock, taking positions before the US markets open later on today.

No Evidence

“More than a year ago WikiLeaks claimed to have the computer hard drive of a Bank of America executive,” BoA spokesman Scott Silvestri Silvestri says, according to

“Aside from the claims themselves, we have no evidence that supports this assertion. We are unaware of any new claims by WikiLeaks that pertain specifically to Bank of America.”

Here’s the quote from the article in ComputerWorld, October 9 2009:

“At the moment, for example, we are sitting on 5GB from Bank of America, one of the executive’s hard drives,” he said. “Now how do we present that? It’s a difficult problem. We could just dump it all into one giant Zip file, but we know for a fact that has limited impact. To have impact, it needs to be easy for people to dive in and search it and get something out of it.”

(Read the full story here.)

Assange says in an interview with Forbes published Monday, that the information he was preparing to release “could take down a bank or two.”

(See also: Wiki-Founder Compare Upcoming Bank Leak To Enron)

No Surprise, Anyway

Wall Street watchers, however, wondered just how damaging any material could be to one of the big banks, given that many are already plagued by scandal.

“We already know the banks are grossly incompetent, can’t manage risk and would be dead without taxpayer support,” Barry Ritholtz, a Wall Street money manager who rails on the bankers at his Big Picture blog, told Fortune magazine. “What are we going to find in these leaks — that free checking isn’t really free?”

“Anyone who follows the banking industry knows these guys are essentially insolvent,” said Ritholtz. “So we’re not going to get surprised there.”

Forbes reporter Andrew Greenberg, who conducted the interview with Assange, noted in his blog Tuesday that there likely isn’t much material about Bank of America that isn’t already known.

“As much as any bank on Wall Street, BoA has been scrutinized in recent years by everyone from plaintiffs’ attorneys in class-action investor suits to the New York Attorney General‘s office,” he writes, adding that Assange told him “he had unpublished, potentially damaging documents on multiple finance firms, beyond the bank ‘megaleak’ that we discussed.”

Here’s some of the reports uploaded on YouTube over the last 12 hours.


CNBC reports that Interpol has issued an international arrest order for Julian Assange – and (of course) advising investors to “buy aggressively” into BoA shares…


Julian Assange is probably more wanted by the international authorities than Osama Bin-Laden at the moment – it’s no joke messing with the big bankers:



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Credits: The Price of Accountability

In Financial Engeneering, Financial Markets, Health and Environment, International Econnomic Politics, Law & Regulations, National Economic Politics, Views, commentaries and opinions on 24.10.10 at 00:21

Remember President Barack Obama’s pompous “BP-Will-Be-Held-Accountable”-speech? The president’s remarks on the oil spill dragged BP’s  share price right to the bottom and pushed the CDS’ straight through the roof. However, when The White House this week announced that US banks will be held accountable for any foreclosure violations, there was hardly any reaction in the financial markets at all.

“Whether investors chalked it up to part of mid-term election campaigning or simply could not discern the market impact is debatable.”

Otis Casey

Earlier this week, market price action seemed to suggest that investors were struggling to properly define the extent and impact of the potential foreclosure violations case. By the end of the week, however, I think they’ve started to see a more clear – not pretty – picture.

Bank of America, who had halted foreclosures in all 50 states, signalled on Tuesday that is was time to resume the foreclosure process. As for their process, CEO Brian Moynihan simply said; “Without question we’re doing it right.”

The day before Citigroup stated that their process was “sound”.

“While no one expected that the uncertainty in litigation risk could just disappear overnight, it at least appeared to be moderating a bit,” credit analyst Otis Casey writes in the weekly credit wrap from Markit Financial Information.

“There seemed to be a perception that the majority of the headlines would be read in the rear-view mirror – at least,” Otis Casey writes, but point out: “That sentiment was short-lived.”


Reminiscent of President Barack Obama’s “BP Will Be Held Accountable” speech, the White House announced this week that banks would be held accountable for any foreclosure violations.

This was not surprising, considering that a key part of the President’s communication strategy has been to side with “Main Street” against “Wall Street.”

“Whether investors chalked it up to part of mid-term election campaigning or simply could not discern the market impact is debatable, in any case the announcement did not have anywhere near the same market moving impact on CDS spreads the way that the BP speech did last spring on BP’s CDS spreads,” Casey notes.


“Then some of the biggest investors in the world decided to react like it was “Wall Street vs Wall Street” (nevermind
that PIMCO headquarters is in Newport Beach),” Casey goes on.

Reports surfaced that indicated PIMCO, BlackRock and the Federal Reserve Bank of New York are looking for a way to force  Bank of America to repurchase bad mortgages that is a part of some $47 billion in bonds, packaged by its Countrywide Financial unit.

Other investors are expected to join this group.

“Furthermore, the tactic is expected to be repeated in other cases where investors believe that the quality of mortgages may have been misrepresented,” Casey adds.

CDS spreads on the major mortgage lending banks widened significantly on the news and set a negative tone for the corporate credit markets generally.

However, by the week’s end, the CDS spreads for the major US banks were tighter than where they were a week ago.

Wells Fargo reported record earnings despite lower revenues.

While Bank of America reported a third quarter loss, adjusted results beat analysts’ estimates.

Earnings results in general have given support in the last two sessions, which has helped improve sentiment and again shifted focus away from the foreclosure issues – at least in the news headlines.


On the European side,  a bit more clarity emerged on the subordinated debt of Anglo Irish Bank.

The bank announced on Thursday that it was offering to exchange up to approximately 1.6 billion euro principal amount outstanding subordinated debt for new euro-denominated floating rate notes, due 2011, at an effective price of 20% of face value.

A separate offer for 300 million GBP, callable, subordinated notes at 5% of face value was also made.

“The exchange offers are “voluntary” but if holders choose not to participate, they could receive as little as 0.01 euro per 1,000 euro of principal amount,” Otis Casey writes.

The latest quotes are 10 points and 68 points upfront, for senior and subordinated protection, respectively.

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Fitch Place Most US Banks On Negative Rating Watch

In Financial Engeneering, Financial Markets, International Econnomic Politics, Law & Regulations, National Economic Politics, Quantitative Finance, Views, commentaries and opinions on 23.10.10 at 18:24

Fitch Ratings issued Friday a number of separate press releases placing most US banks most US bank, and bank holding companies that are sovereign-support dependent, on Rating Watch Negative. A new proposal, that’s a part of the Dodd-Frank Act, will govern the way the FDIC implements the resolution of financial institutions, and may have adverse credit implications for US financial institutions, according to Fitch.

“The proposed rule is likely to mean that should intervention be necessary some creditors, namely senior debt, subordinated debt, and preferred and common shareholders will incur losses consistent with their treatment as if the entity filed a Chapter 7 (liquidation) bankruptcy petition.”

Fitch Ratings

The financial institutions that stand to be most impacted are Bank of America and Citigroup due to support they have received from the US government. The rating action is a direct result of the recently released Notice of Public Rulemaking, on implementing of the Dodd-Frank Wall Street Reform and the Consumer Protection Act, the agensy says.

The two companies – Bank of America Corporation and Citigroup –  mostly impacted by this announcement

This is due to the fact that both entities’, and their related subsidiaries’, Issuer Default Ratings (IDRs) and their respective senior debt obligations have benefited from support provided by the US government, according to Fitch.

“At the present time, Fitch’s long-term ‘A+’ IDR ratings for Citigroup and Bank of America incorporate a three-notch uplift for the long-term rating and a two-notch uplift for the ‘F1+’ short-term ratings. If Fitch determines on a go forward basis that support from the sovereign state can no longer be relied upon it is not certain that Fitch would immediately lower the IDRs of Bank of America or Citigroup to their unsupported rating levels,” the rating agency says in a press release.

Over the near to intermediate term, Fitch’s fundamental credit assessment of Bank of America and Citigroup will continue to consider existing support already received, such as debt still outstanding issued under the Federal Deposit Insurance Corp. (FDIC’s) Temporary Liquidity Guaranty Program (TLGP), in its ratings of those institutions.

As a result, the IDRs will continue to incorporate support received during the crisis, as well as improvements in intrinsic financial profiles and expectations for continued improvement, Fitch says.

“Each of these companies has maintained a ‘1’ Support Rating, translating into a Support Rating Floor of ‘A+’, since the depths of the recent financial crisis after each firm received and benefited from extraordinary direct support from the US government.”

Fitch’s rating criteria calls for the assignment of the “higher-of either the companies” Support Rating Floor of ‘A+’ or its perceived fundamental stand-alone IDR rating (excluding support), which is currently ‘BBB+/F2’ for both affected companies.

Since Fitch is placing on Rating Watch Negative all US bank and bank holding companies’ Support Ratings and Support Rating Floors, the IDRs of Bank of America and Citigroup and their respective sovereign support dependent ratings are also placed on Rating Watch Negative.

The IDR and issue-level ratings for all other banking companies, except for Bank of America and Citigroup and certain related affiliates, are unaffected by Friday’s actions since the current IDR ratings are all above their current Support Rating Floors.

“The rating actions follow Fitch’s interpretation of the recently released Notice of Public Rulemaking ‘Implementing Certain Orderly Liquidation Authority Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act‘ (proposed rule or NPR), which was issued by the FDIC on Oct. 12, 2010,” Fitch writes in the statement.

The proposed rule will govern the way the FDIC implements the resolution of financial institutions, such as bank and insurance holding companies or other non-bank financial institutions deemed to be systemically important, an authority granted to the agency by Dodd-Frank.

The NPR reiterates that under no circumstances should taxpayers ever be called upon to bail out systemically important financial institutions in the future, nor be exposed to loss in the resolution of these companies.

While the NPR also reiterates the FDIC’s mission of resolving institutions in a manner that ‘maximizes the value of the company’s assets, minimizes losses, mitigates [systemic] risk and minimizes moral hazard,’ it nevertheless makes clear that creditors, including senior bondholders, should bear their proportion of the loss in an orderly resolution.

This more stringent mandate to impose losses on senior unsecured creditors calls into question the very core of Fitch’s Support rating framework, the likelihood of full and timely payment in the event that the rated institution faces serious financial deterioration in the future.

Resolution of the Rating Watches will be based in part on language from the final rule once formally adopted as well as Fitch’s view on how the final rule will impact its view of support.

The FDIC’s proposed rule is likely to mean that should intervention be necessary some creditors, namely senior debt, subordinated debt, and preferred and common shareholders will incur losses consistent with their treatment as if the entity filed a Chapter 7 (liquidation) bankruptcy petition, Fitch explains.

“Importantly, Fitch has not imputed sovereign support in its ratings for bank holding company creditors, i.e. most U.S. bank holding companies carry a ‘5’ Support rating.”

“Fitch believes that the NPR is one of many across numerous jurisdictions globally to govern how policy makers and regulators may address failing or failed institutions in the future.”

Recently introduced resolution regimes in some countries in Europe have so far provided similar wide-ranging powers to the banking authorities to impose losses on bank creditors but have, nevertheless, left open the possibility of taxpayer support.

The proposed NPR appears to divide senior creditors’ claims by maturity and stated purpose and introduces a number of considerations for Fitch’s ratings of these systemically important institutions.

Fitch alsp notes that some obligations, including short-term senior debt and certain other creditors such as ‘commercial lenders or other providers of financing who have made lines of credit available to the covered financial company that are essential for its continued operation and orderly liquidation’ are specifically differentiated from senior bondholders in the NPR.

“Should this carve out provision remain as part of the final rules, Fitch would need to consider how best it would rate the segregated obligations,” Fitch writes.

Adding: “The proposed rule, as required by U.S. law, is subject to a public comment period of at least 30 days from publication in the Federal Register so it is important to note that material changes to the proposal could occur before enactment.”

Once implemented, Fitch believes that the proposed rule will serve as the road map by which the FDIC implements its expanded authority in the resolution of a systemically important failed institution.

In the past, systemically important institutions that became troubled typically received some form of federal support and/or regulatory forbearance that allowed them to continue operating through a rehabilitation period, with creditors and shareholders often becoming significant beneficiaries.

The FDIC has used a “least cost [to the deposit insurance fund] resolution” approach in carrying out its resolution activities since the Financial Institutions Regulation, Reform and Improvement Act (FIRREA) of 1989.

This approach is preserved in the NPR and is consistent with the Dodd-Frank mandate of maximizing the value of assets and minimizing losses.

The proposed rule additionally preserves many tools for the FDIC to use to further incorporate the requirements of Dodd-Frank that resolutions mitigate systemic risk and minimize moral hazard.

“Fitch has long recognized through its Support Ratings the role that support plays in global banking. In most developed markets, governments have historically taken a dual approach to assuring the stability of their financial infrastructure including strong regulatory oversight on the front end and backstopping critical components of the system in times of duress.”

The proposed rule for implementing Dodd-Frank preserves a wide array of tools for the FDIC to resolve systemically important institutions while also mitigating systemic risk and financial contagion.

Under the proposed resolution approach, select creditors may benefit from some forms of support under certain circumstances and where, in the judgment of the FDIC, the alternatives would ultimately put the system at greater risk.

“That said, whereas bondholders, both senior and subordinated, and even shareholders, have benefited from support in the past, direct support for these creditors is effectively prohibited under Dodd-Frank,” Fitch Ratings concludes.

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Flight to Mystery

Will Basel III Crush the Global Economy?

Webster Tarpley: The Financial Reform Is A Failure

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Two Thirds of Americans Support Stricter Financial Regulations

Fitch: The Long-Term Goldman-Effect

A Report To Make You Go “Hmmm…”

Meredith Whitney: Even More Bearish On Housing And Financials


US Hit By $3 Trillion Bailout Estimate

In Financial Markets, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 27.09.10 at 00:08

The talented people at Zero Hedge makes a hard hitting analysis of the next phase of quantitative easing by the Federal Reserve. Their estimate for the whole so-called QE2 is stunningly 3 trillion dollar – almost the double of QE1 with a price tag of 1,7 trillion. Here’s some highlights, and link to the full report.

Perhaps at this point it is prudent to recall what the first definition of credit is:

1. Belief or confidence in the truth of something.

By that definition, America‘s “credit” has ran out.

Recently the debate over when QE2 will occur has taken a back seat over the question of what the implications of the FED’s latest intervention in monetary policy will be, as it is now certain that Bernanke will attempt a fresh round of monetary stimulus to prevent the recent deceleration in the economy from transforming into outright deflation.

Whether or not the FED will decide to engage in QE2 on its November 3 meeting, or as others have suggested December 14, and maybe even as far out as January 25, the actual event is now a certainty.

And while many have discussed this topic in big picture terms, most notably David Tepper, who on Friday stated that no matter what, stocks will benefit from QE2, few if any have actually considered what the impact of QE2 will be on the FED’s balance sheet, and how the change in composition in FED assets will impact all marketable asset classes.

We have conducted a rough analysis on how QE2 will reshape the FED’s balance sheet:

We were stunned to realize that over the next 6 months the FED may be the net buyer of nearly $3 trillion in Treasures, an action which will likely set off a chain of events which could result in rates dropping all the way to zero, stocks surging, and gold (and other precious metals) going from current price levels to well in the 5 digit range.

A Question of Size

One of the main open questions on QE2, is how large the FED’s next monetization episode will be.

This year’s most prescient economist, Jan Hatzius, has predicted that the minimum floor of Bernanke’s next intervention will be around $1 trillion, which of course means that he likely expects a materially greater final outcome from a FED that is known for “forceful” action.

Others, such as Bank of America‘s Priya Misra, have loftier expectations:

We expect the size of QE2 to be at least as much as QE1 in terms of duration demand.

As a reminder, QE1, when completed, resulted in the repurchase of roughly $1.7 trillion in Treasury and MBS/Agency securities.

It is thus safe to assume that the FED’s QE2 will likely amount to roughly $1.5 trillion in outright security purchases.

However, as we will demonstrate, this is far from the whole story, and the actual marginal purchasing impact will be substantially greater.

A Question of Composition

Probably the most important fact that economists and investors are ignoring is that QE2 will be accompanied by the prerogatives of QE Lite, namely the constant re-balancing the FED’s balance sheet for ongoing and accelerating prepayments of the MBS/Agency portfolio.

This is a critical fact, because once it becomes clear that the FED is indeed commencing on another round of monetization, rates will collapse even more beyond recent all time records (and if we are correct, could plunge all the way to zero).

What is very important to note, is that as Bank of America’s Jeffrey Rosenberg highlights, a material drop in rates, which is now practically inevitable, is certain to cause a surge in mortgage prepayments of agency securities:

“Our mortgage team highlights a 100 basis point decline in rates would raise the agency universe of mortgages refinanciability from currently about half to over 90%.”

Full report link.

Additional: BofA Securitization Weekly 9.17.pdf

Related by the Econotwist:

The US FED Launch The QE2 – Beta Version

Helicopter Ben; Cleared For Take Off

USA Could Be Forced Into Another Trillion Dollar Bank Rescue

James Bullard: The Future Of FED

US Economic growth slows to 1,6% – Does Quantitative Easing Really Matter?

Is Quantitative Easing An Attack On Your Freedom?

EUR Knocked Off Its Pedestal



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Bankers Hail The New Basel III Regime

In Financial Markets, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 14.09.10 at 02:20

It’s been a great day for the financial industry. The announcement of the new rules on capital requirements by the Basel Committee Banking Supervision – also known as Basel III – was met with standing ovations from a number of industry representatives, Monday. The financials were also the major mover in today’s stock trading. Leading institutions like the US Federal Reserve, ECB, Goldman Sachs and Bank of America have all made statements, praising the new rules that will not be fully implemented until 2019.

“This action, in combination with the agreement reached at the July 26, sets the stage for key regulatory changes to strengthen the capital and liquidity of internationally active banking organizations in the United States and around the world.”

United States Federal Reserve Bank

Baudouin Prot BNP Paribas

CEO Baudouin Prot, BNP Paribas.

Today’s rally in financial stocks all over the world is most of all a relief rally. The result of the Swiss banking committee’s work with new requirements is precisely as the industry leaders expected. Not too strict, and with plenty of time to shore up the minimum of needed cash. But the best of all: We have now official, global laws that acknowledge the too-big-to-fail principal and makes sure they will be rescued if another crisis occur in the coming years.

Most of the big players in the financial sector gained between 3% and 6% in Monday’s stock trading.

Deutsche Postbank, however, fell almost 8% after Deutsche Bank AG offered between 24 euros and 25 euros a share to increase its stake in the lender. Deustche Bank, Germany’s largest lender, gained 1.7 percent after saying it would raise at least 9.8 billion euros ($12.6 billion) in its biggest-ever share sale to buy Postbank and meet the stricter capital rules.

The German banking association is also the only member of the Basel Committee who have made critical remarks on the new Basel III retirements.

See: Basel III And The Fawlty Towers

Rasmussen, Stiglitz, Stetter presents: BASEL III

A Significant Step

“The US federal banking agencies support the agreement reached at the September 12, 2010, meeting of the G-10 Governors and Heads of Supervision (GHOS). This action, in combination with the agreement reached at the July 26, 2010, meeting of GHOS, sets the stage for key regulatory changes to strengthen the capital and liquidity of internationally active banking organizations in the United States and around the world,” the FED write in a statement.

Chairman Ben Bernanke, US FED.


“The agreement represents a significant step forward in reducing the incidence and severity of future financial crises, providing for a more stable banking system that is less prone to excessive risk-taking, and better able to absorb losses while continuing to perform its essential function of providing credit to creditworthy households and businesses.”

“Today’s agreement represents a significant strengthening in prudential standards for large and internationally active banks,” Ben Bernanke & Co points out.


Full FED statement.

Positive Impact

Calculations done by Zero Hedge show that the the 3.5% minimum common equity ratio by 2013 means the leverage will be just under 30 times – or enough for every bank in the world to pull a Lehman, which blew itself up at roughly the same leverage.

(In comparison; US banks had a leverage of  “only” 20% before the crisis hit).

“All who think European banks will survive through 2019 with this type of leverage should look into investing in these great companies: New Century Financial, Countrywide, and IndyMac,” Tyler Durden at Zero Hedge comments.

But who cares about old trivial stuff like that?

Certainly not Bank of America:

“We think the numbers are in line with prior market expectations and the implementation period long enough and therefore not at all alarming. In fact, our initial read of the impact on banks is positive. Credit investors should look forward to a number of capital risings from European banks, as looks like is already happening. This should be very bullish for bank spreads, in our view,” BoA says in their happy greetings.

Here are some other highlights – taken completely out of context, of course:

“The Committee believes that large banks will require 2a significant amount of additional capital to meet these new requirements.” Oddly, they think that smaller banks already meet them. We’d not be sure that this is true, at least in Europe.”

“This looks quite bullish for us for calls of Tier 1’s, especially those after 2013. In the meantime, note that we have no concrete agreement on the new format of new bank capital instruments.”

“Note too that the government capital injections, even if they don’t meet the new format, are to be grandfathered to 2018, giving banks plenty of time to adjust.”

“We had thought that some kind of countercyclical buffer would have been built into provisioning (like in Spain) but it looks like its just being done via higher equity.”

“No change to the overall level of capital, but it’s hard to see anything other than a major de-emphasising of anything that isn’t common – as we were expected.”

Small Macro Risks

Also Goldman Sachs are pleased with Sunday’s Basel agreement, but perhaps a bit more uncertain about what the impact will be, if any.

CEO Lloyd Blankfein, Goldman Sachs.


“There are two crucial questions when trying to assess the macro-economic implications of the new regulatory environment for banks. 1) by how much will banks have to raise their capital on the back of these changes. 2) Will lending become more costly/rationed and what are the growth implications of this. Our banks team estimates that only 4 banks among the 47 European banks covered have a core tier 1 ratio of below 7% by 2012. While this looks reassuring, it is less straightforward, however, to assess what the figure for the whole banking sector – including the non-public parts of the banking sector – looks like. The head of the Dutch central bank Wellink is cited this morning as saying that banks would need “hundreds of billions” to meet new capital requirements, though the economy, according to Wellink, will not be impacted by this. It is not clear where these numbers are coming from and other ECB board members have not mentioned any figures when commenting on the new capital rules,” Goldman Sachs analyst Dirk Schumacher writes.

“Assuming that the banking sector as a whole would currently show a 4% ratio, as required under the old Basel II regime, the overall growth impact looks manageable.”

“Implementation will start in 2013 and will have to be finished by 2018. This should give banks sufficient time to adjust, arguing for an overall small macro impact of the new capital regime.”

Here’s a copy of the full commentary by Goldman Sachs.

No Problemo

In stores January 2011 (Limited Edition)

The US investment firm, Credit Sights, highlights that it is impossible to actually do any practical bank-by-bank analysis due to “the long lead-in period, lack of disclosure, and the remaining uncertainties over changes to certain risk weightings and allowable capital instruments, while new criteria are still being finalized.”

But that doesn’t stop the European bank analysts from analyzing themselves straight into a new golden bank area.

Here are some more happy thoughts, as collected by The Guardian:

Chris Weston at IG Markets: “Global banks will like the news that they have been given an extended period [to comply with the rules] and the fact that they’re not going to have to rush to raise capital.”

Gary Jenkins, analyst at Evolution Securities: “All other things being equal, an increase in capital for the banking sector is of course good news for bondholders and the combination of the new regulatory regime and the stress tests does seem to have restored some confidence in the sector as evidenced by the recent amounts of bond issuance.”

Financial analysts at Oriel Securities: “The final outcome on Basel III determined by regulators over the weekend looks positive for UK banks. UK banks at face value appear to comply well with the new guidelines.”

Eleonore Lamberty, analyst at ING Credit Research: “Currently, the majority of European banks will have no problem to meet the new requirements. For the handful of banks that would find it more difficult, the very lengthy implementation period ensures that any capital shortfalls can be addressed, possibly through retained earnings. The industry-wide expectation of significant capital-raising exercises has hereby become much less compelling.”

Joseph Dickerson at Execution Noble: “We believe that the market will be punitive to banks which don’t meet a core tier 1 ratio of 9.5% – 10% under new requirements by 2012. While this is somewhat arbitrary timing, our research has shown that the market is already applying a multiple discount to banks with weaker capital positions, and almost all of the banks in our coverage classify as “systemically important”.

And The Winners Are…. 

Andrew Lim, analyst at Matrix Corporate Capital, is even sure who’s going to be the winners and losers in the new capital regime.

(Quite obvious, really, since they are owned and controlled by their governments):

“Even without taking into account a phasing-in period, the large-cap commercial banks exceed the minimum common equity ratio (including conservation buffer) of 7% by 2012. We see this as a significant positive for the sector on a number of fronts,” Mr. Lim writes.

And continues:

This sets the stage for a capital return to shareholders, via special dividends and accretive buybacks.

Unlike the bank stress tests, we see the minimum capital ratios as reassuringly onerous.

For the first time, the capital strength of the sector can be compared on a like-for-like basis. We believe the market will appreciate the increased transparency that will come to the sector, which will lead to higher ratings for the banks (as was the case 30 to 40 years ago).

The return of excess capital might be limited by the implementation of a countercyclical buffer on top of the conservation buffer. The implementation of this is unclear at present. If applied in its most onerous form, we believe only the Nordic banks will have what could strictly be termed excess capital.

The Nordic banks (DnB NORD, Handelsbanken, and Nordea) are in the strongest relative position. We believe these banks will be in the best position to consider returning the most amount of capital to shareholders, and will be the earliest to do so as well.

Lloyds looks to us likely to have one of the strongest common equity ratios by 2012. It should be noted that this is due to its strong organic capital generation, combined with its plan to reduce RWA (ie shrink the balance sheet). Lloyds does not currently have a strong Basel III common equity ratio by our analysis (unlike the Nordic banks), so the market must have conviction that Lloyds’ management can deliver. Unlike the Nordic banks, Lloyds will not be in such a privileged position to return capital as early and must wait until it generates sufficient capital.

The Italian banks UniCredit and Intesa and Spain’s BBVA are in the weakest relative position, having common equity ratios which are just above 7%. We do not think they will seek to raise capital, since our analysis does not include the phasing-in period. However, they do not look like they will have excess capital by our analysis.

Santander, HSBC, Barclays and Standard Chartered appear by our analysis to be average compared to the peer group having common equity ratios of 8%-9%. These banks are comfortably above the minimum of 7%. They will be in a position to return some excess capital to shareholders in our opinion, but are not likely to do so as quickly (or as much) as for the Nordic banks.

Well, I’m not a financial analyst,  but I usually know who I’m talking about when I make my comments.

Unfortunately, it seems like Andrew Lim at Matrix Corporate Capital do not.

He mention DnB NORD as one of the best positioned Nordic banks.

But the fact is that DnB NORD is a Baltic zombie bank, owned (currently 51%) by the Norwegian bank DnB NOR.

Surely, just a little mix-up. Nothing to worry about. Everybody’s fine!

(At least until 2019..)

Related by the Econotwist:

Central Bankers Announces A Higher Form Of Capital Standards

Will Basel III Crush the Global Economy?

German Banks With More Than 200 Billion Euro In Faul Credits

European Banks Hunting For EUR 1,65 Trillion

Morgan Stanley: Governments WILL Default


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