Bank of America
Bank of America's $10 Billion In 2014 Legal Charges Mask Ugly Trends, Net Interest Margin Drops To Lowest On RecordSubmitted by Tyler Durden on 07/16/2014 07:00 -0500
Another quarter down, another desperate attempt by Bank of America to mask a serious underlying business deterioration using bells, whistles, and gimmicks.
If last week's big "Risk Off" event was the acute spike in heretofore dormant Portugese bank troubles (as a reference Banco Espirito Santo has a market cap at the close last night stood at around €2.1bn ($2.9bn), contrasting to Goldman Sachs ($78.1bn) and JP Morgan ($220.5bn)), then yesterday's acceleration in the Portuguese lender's troubles which as we reported have now spread to its holding company RioForte which is set to default, were completely ignored by the market. Today this has conveniently flipped, following a Diario Economico report that Banco Espirito Santo has the potential to raise capital from private investors. No detail were given but this news alone was enough to send the stock soaring by nearly 20% higher in early trading. Still, despite the "good", if very vague news (and RioForte is still defaulting), Bunds remained bid, supported by a good Bund auction, in part also dragged higher by Gilts, which gained upside traction after the release of the latest UK jobs report reinforced the view that there is plenty of spare capacity for the economy to absorb before the BoE enact on any rate rises. Also of note, touted domestic buying resulted in SP/GE 10y yield spread narrowing, ahead of bond auctions tomorrow.
Now that the World Cup is over, and following last week's global macro reporting slumber (aside for the Portuguese risk flaring episode of course), things pick up quite a bit in the coming week. Here are the key events.
There has been an informational overload this morning, when as we reported previously, one after another bank scrambled to issue reports, some full of typos and clearly unvetted by compliance, calming the market and desperate to see all important confidence return to the peripheral market. Most of these notes have been nothing short of outright propaganda and disinformation, or a confirmation the analysts had zero idea what they were doing (case in point Goldman which had the stock at a Buy rating until this morning, even as the stock was virtually wiped out in recent weeks). Some, actually, have done the work. Below we provide some of the less then insightful reports, as conveniently summarized by Bloomberg, and we conclude with perhaps the best piece so far - one written by Bank of America's Richard Thomas who alone among the sell-side penguin circus, was as close as he could be, to predicting this week's outcome.
For the past several weeks it felt as if Bank of America's chief technician, MacNeill Curry (or at least his clients) had an infinite balance sheet to fund relentless P&L losses, resulting from his daily recommendation to short the 10 Year, which contrary to the best wishes of the Fed and the sellside penguins constantly refused to go lower and validate the "economy is getting better" thesis. Today, even his TBTF balance sheet finally ran out, and moments ago he finally capitulated, and was stopped out on his TYU4 short.
- Espirito Santo Financial Suspends Shares, Bonds on ESI Exposure (BBG)
- Europe Stocks Drop for Fifth Day as Espirito Santo Sinks (BBG)
- Espirito Santo Creditors Doubt Containment on Missed Payment (BBG)
- French Stocks Seen Extending Losses on Economy Concern (BBG)
- Stocks Slide With Portugal Bonds as Yen Gains; Oil Drops (BBG)
- U.S. Probes Hacking of Government Computers at Personnel Agency (WSJ)... finds terabytes of porn
- It's Congress' fault: Obama rejects criticism over border crisis (Reuters)
- Israel Mobilizes 20,000 Troops for Possible Gaza Invasion (BBG)
- Chinese hackers pursue key data on U.S. workers (NYT)
- Donetsk Primed for Siege as Ukraine Army Hems In Rebels (BBG)
The trouble with capitalism’s guardians is that they have no respect for it. Markets have been around for at least 2,000 years. Since then they have evolved in many directions, with fancy and sophisticated techniques… and elaborate systems and complicated instruments that take a PhD to understand. But despite all the brain power put into trying to figure them out, markets still surprise, confound and puzzle everyone. You’d think Janet Yellen and other central bankers would take a step back and stand in awe. Heaven and hell are full of people who thought they could take the risk out of markets. Some went broke. Some blew their brains out... others both.
"US lending to businesses is reaching record levels but banks are privately warning that the activity should not be seen as evidence of an economic recovery." And the stunner: "Much of the corporate lending is going to fund payouts to shareholders, finance acquisitions and fuel the domestic energy boom, bankers say, rather than to support companies’ organic growth."
"He who controls the past controls the future. He who controls the present controls the past" - From George Orwell’s 1984. The reason Big Brother and his band of technocrat authoritarians spend so much time and effort erasing history in the classic novel 1984, is because they are a bunch of total criminals and they know it. Their grip on power is made so much easier if the proles are kept ignorant, confused and in the dark. This strategy is not just fiction, it is the philosophy of tyrants and authoritarians throughout history. While the internet is an amazing tool for communication and free speech, we must also be aware of how it can be abused by those in power who wish to whitewash history.
- France's Sarkozy faces corruption probe in blow to comeback hopes (Reuters)
- Ukraine Says Military Offensive Against Rebels Yielding Results (WSJ)
- JPMorgan Investors Show Support for Dimon in Cancer Fight (BBG)
- World’s ATM Moves to Frankfurt as Yellen’s Fed Slows Cash (BBG)
- Argentina Seen Backtracking on Fernandez Vows as Legacy at Risk (BBG)
- Palestinian teen killed in possible revenge attack (Reuters)
- The Bill and Hillary Clinton Money Machine Taps Corporate Cash (WSJ)
- London House Prices Surge the Most Since 1987, Nationwide Says (BBG)
- Last Jew in Afghanistan faces ruin as kebabs fail to sell (Reuters)
There has been a growing number of defaults since China first broke its non-payment cherry earlier this year. Names like Chaori Solar have "promised" to pay back the money they owe, only to falter on that promise mere months after a temporary reprieve. Wide-scale panic has for now been avoided by liquidity provision to banks (not shadow-banks) and mini-stimulus which many assumed was targeted at keeping the state-owned enterprises (SOEs) alive no matter what. That 'hope' all changed this weekend... As Bloomberg reports, Qilu Bank's annual report shows that Licheng district urban construction development company has not paid its loan interest..."To the best of our knowledge, this is the first official disclosure of a LGFV default on a bank loan."
BTFATH! That was the motto overnight, when despite a plethora of mixed final manufacturing data across the globe (weaker Japan, Europe; stronger China, UK) the USDJPY carry-trade has been a one-way street up and to the right, and saw its first overnight buying scramble in weeks (as opposed to the US daytime trading session, when the JPY is sold off to push carry-driven stocks higher). Low volumes have only facilitated the now usual buying at the all time highs: The last trading day of 1H14 failed to bring with it any volatility associated with month-end and half-end portfolio rebalancing - yesterday’s S&P 500 volumes were about half that compared to the last trading day of 1H13.
It appears the same 'contagion' that is driving copper prices higher is also impacting gold and silver this morning. As we have noted previously, the CCFD unwind drives synthetic short (hedge) covering and inevitably rolls down the curve to drive spot strength (as the paper gold market tail wags the 'physical' market's dog). Gold is at 3 month highs and silver getting close...
Banks and other lenders issued 3.7 million credit cards to so-called subprime borrowers during the first quarter, a 39% jump. "Even though [those borrowers] could be considered subprime, they're still creditworthy," is the deja-vu all over again message from the Financial Services Roundtable, who proudly crow, they are "starting to see an environment where issuers are feeling more comfortable to extend credit." How great is that? What could go wrong? One credit union exec notes, "lenders in general have really saturated the higher-credit-quality market, so it is only natural that as they look for growth opportunities, they expand downward," and sure enough, as one new borrower exclaimed, "my credit score is probably terrible," adding "I was surprised they'd give so much." Exceptional America is back...
- Minorities Seen Driving U.S. Household Growth (Reuters)
- GM prepares to recall some Cruze sedans with Takata air bags (Reuters)
- PBOC Halts Repos as China Money Rate Climbs to Seven-Week High (BBG)
- Ukraine Optimism Wavers on Peace as Cease-Fire Winds Down (BBG)
- Economic Rebound Seen Undercut by Weak Pay as Vote Winner (BBG)
- Cracks Open in Dark Pool Defense With Barclays Lawsuit (BBG)
- The Survivor: How Eric Holder outlasted his (many) critics (Politico)
- IBM, Lenovo Tackle Security Worries on Server Deal (WSJ)
- Militants take Iraqi gas field town, president calls parliament session (Reuters)
- Carney Surprises Confounding Markets as BOE Manages Guidance (BBG)