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Hoenig Says Big Banks Must Either Add $210 Billion In New Capital Or Reduce Total Assets By $3 Trillion; Bank Capital Raises Imminent
In a speech before the US Chamber of Commerce, Kansas Fed's outspoken President Thomas Hoenig said that not only does he endorse the Volcker Rule and urges the U.S. to ban proprietary
trading at banks, but, more critically, said that if larger bank holding companies were held under the same capital supervision requirements as smaller regional banks, the big banks would either have to raise a whopping $210 billion in new capital, or reduce their assets by a whopping $3 trillion! Read the last statement and tell us how this is even remotely inflationary. Note, this is not to increase capital prudence, but merely to ensure equal footing with everyone else in the industry. And one wonders why everyone knows that the entire US financial system, now essentially comprised of 5 infinitely big banks, is completely insolvent. The take home - the manipulated market action over the past month is purely to afford the big banks to raise more equity in the form of follow on offerings.
To be sure, Hoenig did not want to start a revolution, and kept up with the party line of claiming the the Fed has to be a regulator of all, not just the $50 bn+ banks. He said that if the Fed were limited in its supervision authority it would be purely a Wall Street Central Bank - we wonder how that is different from what is going on now, as the Fed is and always will be Lloyd Blankfein's provider of last resort credit (and equity) facilities.
Some more soundbites, via Bloomberg:
“We will not have a healthy financial system now or in the
future without making fundamental changes that reverse the
wrong-headed incentives, change behavior and reinforce the
structure of our financial system,”
“A credible resolution process, simple rules for leverage
and loan-to-value limits, and the Volcker rule reforms will
allow all banks to compete on an equitable basis,” Hoenig said
in prepared remarks at a conference on financial markets, hosted
by the business group. “Reinstating these fundamental
principles will enhance consumer, business and Main Street
access to that most essential resource -- capital.”
He also didn’t comment on the part of the Senate bill that
would strip Fed supervision of all banks except those with
assets of more than $50 billion, which means most of the
regional Fed banks would supervise no firms or just a few. The
Kansas City Fed district has no single bank holding company with
more than $50 billion in assets.
Hoenig said he “couldn’t agree more” with people who say
that if a financial firm is too big to fail, then it’s too big.
The top 20 U.S. banks held Tier 1 common equity equal to
5.1 percent of their assets at the end of 2009, compared with
6.7 percent for other banking firms, Hoenig said. That reflects
implied support from the government and lets the firms issue
more and cheaper debt, he said.
“This framework has failed to serve us well,” Hoenig
said, citing losses during the financial crisis and rescues from
the Troubled Asset Relief Program that resulted in an
“immediate reduction in lending to Main Street.”
As a result of these remarks, which have tipped the Fed's hand, and with the assistance of arguably the greatest financial analyst ever in the face of Dick Bove, we are fully confident that banks like Citi and BofA will come to market with yet another capital raising round over the next several weeks. This also explains the incredible melt up on forced short covering and rolling buyins, which is precisely what happened in March and April of last year, just before the financials did their first capital raising round.
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The even funnier thing is the supposed $3T in assets isn't worth jack squat if they tried to liquidate unless the fed bought them all.
ahhhh dick bove and his latest prognostications
Banks may quadruple over the next two to three years. The catalyst is the reduction in loan losses. That's all that investors in banks care about.
greatest financial analyst indeed.
t-250 days to dow 36,000.
Citi is a buy of a lifetime at $20.
--Dickhead Bove
Where's that monster class action lawsuit on that super duper destroyer of wealth garden gnome Bove? That sack of shit has left a cross country long trail of gullible victims..
If you can't beat them, join them....time to turn to a life of crime
So the short of it is the large bank holding companies are certifiably insolvent......minus all the usual Fed double-speak, under-speak, etc.
I'm sure Hoenig got a big golf clap from the US Chamber of Collusion. Their dues come largely from the financial industry. He'll be blackballed from speaking there ever again.
All I want to do is go long SRS, and I'd love for TPTB to get the hell out of the way.
Would you please realize that the SRS is REITS--not banks! It is a fatally flawed ETF as well because nearly 10% of it (last time I looked) was tracking SPG.
The SKF is for banks or SEF (single inverse).
Yeah, I know that. If TPTB stop propping up CRE valuations, we can make some money.
“We will not have a healthy financial system now or in the future without making fundamental changes that reverse the wrong-headed incentives, change behavior and reinforce the structure of our financial system,”
Silly rabbit. It's not about a healthy economy, it's about healthy (or at least profitable and thus bonus spewing) too-big-to-fail banks. All illusions as to who controls whom was removed last year. Get with the program. Either you're some egalitarian fool or you're attempting to keep the cattle cuing up to the pen for slaughter. I vote the latter.
Beef, it's what's for dinner.
http://www.youtube.com/watch?v=7VvvAp-2v4o
http://www.youtube.com/watch?v=tVrqSYHxUQI&feature=related
The banks are winning and we are losing. That dynamic will reverse. When? Wish I knew. It is at least 6 months overdue.
These problems can all be solved with SPE's and Repo 105's. No problem at all. Just ask your accountants and don't respond to that infamous blogger, PwC, he's just a smarty pants.
So the the big banks write off $3 trillion in "assets" like empty houses with the copper pipes removed and the empty strips malls left by the bankrupt small businesses. The banks can just take a fat tax deduction and earn tax free bonuses forever.
Where there is smoke there is usually fire. Look for another big wave of write downs. It's about fuc*in* time. Actually, I'll believe it if it ever happens. Wishful thinking.
Ben would wake up that morning, have a smoke and a glass of grapefruit juice, make one phone call to some button pushing plebe and this problem would be solved...on the back of the US taxpayer...
just before the financials did their first capital raising round.
That makes it unanimous. No one should call the shot callers original.
I guess that explains the recent Fed-funded financial stock rally.
Where can I sign up for some BAC, C, and WFC??? Seriously, I want IN at these ridiculously low prices!! Come on, jump on board....
It's important to remember that Hoenig's "bold talk" is only that and designed solely to preserve the illusion of a functioning marketplace of ideas at the Fed. He serves no other function. His views will not be acted upon, and he knows it - it's in his script. I think you can also characterize as a "melt up" the concept of the Fed increasing the boundaries of its realm and authority, in the face of the fact that as a regulator, the Fed is a dismal failure. Strictly a low volume event attaining new highs, since no one seriously thinks it is the right thing to do, but We The People are utterly powerless to prevent it. Savor that thought.
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