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Frontrunning: September 7
- Noooo, they lied to us, this can't be: Europe's Bank Stress Tests Minimized Debt Risk (WSJ)
- Captain obvious headline of the day: Strong Yuan Would Hurt China: Economists (Reuters)
- Captain obvious headline runner up: Greece Default Risk Is `Substantial,' Pimco's Bosomworth Says (Bloomberg)
- Peter Orzsag shows why he got out of Dodge: "In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether." (NYT)
- French unions test Sarkozy in pensions strike (Reuters)
- The Obama Economy: How trillions in fiscal and monetary stimulus produced a 1.6% recovery (WSJ Editorial)
- Get ready for anti-incumbent wave (WSJ)
- GDP plus change in debt - and the US flow of funds (Steve Keen)
- China Unveils Plans of Industrial Relocations (China Daily)
- Australian PM Gillard retains power (Reuters)
- Your Fat Paycheck Keeps Neighbors Unemployed: Kevin Hassett (Bloomberg)
- Japan PM Ahead in Party Race, Margin Small (Reuters)
- All change at UK banks, Diamond gets top Barclays job (Reuters)
- Insiders Give Away Their Thoughts When Buying: John Dorfman (WaPo)
- U.S. Outlook Prompts Warnings by Japan, Australia Central Banks (Business Week)
- German Banks May Need to Raise $135 Billion on Rule Changes, Group Says (Bloomberg)
- Comic relief from the definition of ex-dumb money: Private sector adds 1.8 million jobs (Beach Pundit)
- Lehman’s Last Hours (NYT)
Economic Data:
- Australia RBA Cash Target 4.5% - in line with expectations. Consensus 4.5%. Actual 4.5%.
- Australia Home Loans Consensus 1.0%. Previous -3.9%.
- Japan BOJ Target Rate 0.10% - in line with expectations. Consensus 0.10%. Previous 0.10%
- Japan Leading Index CI 98.2 m/m – in line with expectations. Consensus 98.2 m/m. Previous 99 m/m.
- Japan Coincident Index CI 101.8 m/m – in line with expectations. Consensus 101.8 m/m. Previous 101.3 m/m.
- Germany Factory Orders (sa) for July -2.20% m/m 17.70% y/y -lower than expected. Consensus 0.50% m/m 20.60% y/y. Previous 3.60% m/m 24.70% y/y.
- Norway Consumer Confidence for Q3 22.7 - higher than expected. Consensus 16.5. Previous 18.5.
- Norway Industrial Production SA for July -2.90% m/m -7.80% y/y.Previous -1.30% m/m -4.20% y/y.
- Norway Ind Prod Manufacturing SA for July 0.10% m/m 6.60% y/y -higher than expected. Consensus -0.8% m/m. Previous 3.3% m/m 7.20% y/y.
- Switzerland Unemployment Rate for August 3.60% - in line with expectations. Consensus 3.60%. Previous 3.60%.
- Switzerland Unemployment Rate (sa) for August 3.80% - higher than expected. Consensus 3.70%. Previous 3.80%.
- Sweden Budget Balance for August 8.4B.Previous 12.5B.
»
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They didn't lie, they Geithnered.
Europe Stress Tests Understated Debt Risk
By DAVID ENRICHOf THE WALL STREET JOURNAL
LONDON -- Europe's recent "stress tests" of the strength of major banks understated some lenders' holdings of potentially risky government debt, a Wall Street Journal analysis shows.
As part of the tests, 91 of Europe's largest banks were required to reveal how much government debt from European countries they held on their balance sheets. Regulators said the figures showed banks' total holdings of that debt as of March 31.
At the time, worries about banks' government-debt holdings were fanning fears about the health of Europe's
banking system as a whole. Release of the bank data was considered the main benefit of the stress tests, which were widely criticized as being lenient overall.
An examination of the banks' disclosures indicates that some banks didn't provide as comprehensive a picture of their government-debt holdings as regulators claimed. Some banks excluded certain bonds, and many reduced the sums to account for "short" positions they held--facts that neither regulators nor most banks disclosed when the test results were published in late July.
Because of the limited nature of most banks' disclosures, it is impossible to gauge the number of banks that excluded portions of their sovereign portfolios from their disclosures, or the overall effect of that practice.
But the exposure to government debt of at least some banks, such as Barclays PLC (BCS, BARC.LN) and Credit Agricole SA (CRARY, ACA.FR), was reduced by a significant amount, according to industry officials and financial filings made by the banks. Adding to the haziness, the stress tests' reported sovereign-debt levels differed, sometimes widely, from other international tallies and from some banks' own financial statements.
The findings undermine a primary goal of the stress tests--namely, to reassure investors and bankers world-wide the soundness of Europe's financial system. "That would certainly be unhelpful to people's perceptions' of the tests" credibility, said UBS banking analyst Alastair Ryan. Reducing banks' reported holdings of government debt "was clearly helpful for the thing [regulators] were trying to achieve: convincing you that there's not a problem."
Representatives of several banks said they were simply following the guidance provided by the Committee of European Banking Supervisors, the London-based group that coordinated the tests. A CEBS spokeswoman declined to comment.
The stress tests' upbeat results--only seven banks flunked, and were deemed short of just EUR3.5 billion ($4.51 billion) of capital--initially soothed markets. But fears have flared up again as heavily indebted countries like Ireland and Greece continue to struggle. Among other warning signs, the costs of insuring many bank and government bonds against default in countries such as Portugal, Ireland, Greece and Italy
have jumped above their pre-stress-test levels.
There's no established protocol for how banks should report these holdings. Until recently, investors generally didn't worry about government-debt holdings, viewing them as essentially risk-free. So most banks simply lumped the holdings into broader asset categories on balance sheets.
Things changed last spring as fears of government defaults intensified. Greece for a time appeared poised to default on its public debts, until a massive European Union bailout defused that crisis.
The banks based their stress-test disclosures on a template provided by CEBS. The template asked for banks to disclose their "gross' and "net" exposures to sovereign risk in each E.U. country. Most banks' disclosures didn't define "gross' and "net" beyond saying that the latter were "net of collateral held and hedges."
The implication was that the disclosures--particularly the gross exposure figures--were all-encompassing. In a document it published along with the test results, CEBS said "the disclosure of total exposures to sovereign debt by individual banks allows for a full assessment of their respective capital positions."
But some banks' figures didn't represent their total holdings. Barclays, for example, excluded some government bonds it was holding for trading purposes. The rationale, according to Barclays officials, was that the bonds were directly related to transactions the big U.K. bank was performing for corporate or government clients, and that the holdings vary widely from day to day. Barclays didn't disclose that it wasn't listing its full holdings.
Excluding the bonds reduced Barclays' portfolio of Italian sovereign debt--which the bank said was GBP787 million ($1.22 billion)--by about GBP4.7 billion, Barclays officials said. The bank's holdings of Spanish government bonds, listed at GBP4.4 billion, shrank by about GBP1.6 billion.
Barclays said it excluded the holdings based on guidance from CEBS, which was communicated to the bank via the U.K.'s Financial Services Authority. "We've done exactly what CEBS told us," a Barclays spokesman said.
An FSA spokeswoman declined to comment.
Other banking companies excluded bonds held by subsidiaries. France's Credit Agricole didn't count sovereign debt held by its insurance unit. A Credit Agricole spokeswoman said the company followed guidance from regulators.
Some banks' figures also were whittled down by accounting for "short" positions they held in various
countries' debt. For example, if a bank held EUR100 million of Greek debt and EUR25 million of short positions in Greek debt, the gross figure was listed as EUR75 million.
CEBS didn't disclose that the banks were calculating the figures in that way.
There are other signs that banks' disclosures understated the actual government-debt exposure in the European banking system. Jacques Cailloux, chief European economist at Royal Bank of Scotland (RBS, RBS.LN), compared banks' stress-test disclosures with figures compiled by the Bank for International Settlements. His conclusion: The BIS data shows banks in some countries holding far more sovereign debt than was picked up in the stress tests.
Bosomworth?
hey bastard, what is bosomworth?
Boulder County officials said they do not have an update yet this morning on the current status of the fire that began in Fourmile Canyon on Monday morning before scorching thousands of acres and destroying an unknown number of homes.
tyler this is a good article. you might like to read.
It was strong stuff. But it was also an insight into the way the rich have changed over the past decade. They are, it turns out, a nasty bunch of people who are only getting nastier.
concluded they were “nastier,” in the sense of being keener to punish others.
Ultra-Rich in Finance Are Meaner Than Rest of Us: Matthew Lynn
DOW/S&P500/FTSE/EURO short signal continues:
http://stockmarket618.wordpress.com