From the just released Bank of America 10-Q: "During the three months ended June 30, 2012, positive trading-related revenue was recorded for 95 percent, or 60 of the 63 trading days of which 75 percent (47 days) were daily trading gains of over $25 million and the largest loss was $11 million. These results can be compared to the three months ended March 31, 2012, where positive trading-related revenue was recorded for 100 percent (62 days) of the trading days of which 95 percent (59 days) were daily trading gains of over $25 million. There were no daily trading losses recorded during the three months ended March 31, 2012." This vaguely reminds us of the JPM's trading performance. Just before they got busted for hiding a $350 billion hedge fund in the firm's "risk hedging" aka CIO/Treasury division that is. Also, if anyone else has problems believing that BofA's trading desk, with or without Merrill, both of which are better known as the C-grade (and that is being generous) of Wall Street traders, could generate profits on 122 of 125 trading days, please lift your hand.
While in principle central banks around the world can talk up the market to infinity or until the last short has covered without ever committing to any action (obviously at some point long before that reality will take over and the fact that revenues and earnings are collapsing as stock prices are soaring will finally be grasped by every marginal buyer, but that is irrelevant for this thought experiment) the reality is that absent more unsterilized reserves entering the cash starved banking system, whose earnings absent such accounting gimmicks as loan loss reserve release and DVA, are the worst they have been in years, the banks will wither and die. Recall that the $1.6 trillion or so in excess reserves are currently used by banks mostly as window dressing to cover up capital deficiencies masked in the form of asset purchases, subsequently repoed out. Which is why central banks would certainly prefer to just talk the talk (ref: Draghi et al), private banks demand that they actually walk the walk, and the sooner the better. One such bank, which has the largest legacy liabilities and non-performing loans courtesy of its idiotic purchase of that epic housing scam factory Countrywide, is Bank of America. Which is why it is not at all surprising that just that bank has come out with a report titled "Shipwrecked" in which it says that not only will (or maybe should is the right word) launch QE3 immediately, but the QE will be bigger than expected, but as warned elsewhere, will be "much less effective than QE1/QE2, both in terms of boosting risky assets and stimulating the economy."
Anyone who has followed the MBIA vs Bank of America saga knows that the only reason why there has been no settlement so far is due to BAC's relentless stonewalling tactics that seek merely to delay the production of discovery which based on preliminary indications is sufficiently damning to let MBIA prevail in the case, and with that to force settlement that based on our and others' former evaluations, could lead to a doubling in the stock (ignoring the massive short-covering squeeze it would immediately create courtesy of the 15.5% Short Interest of the total float, sending the stock even higher than where fundamentals say it should go). Well, based on a just released transcript of Judge Eileen Bransten motion to compel discovery, the end may be in sight, and may come as soon as July 13, or tomorrow. And what is more important, her displeasure with BofA's relentless stonewalling has come to an end. Will Bank of America have no choice but to settle in the very immediate future? Stay tuned to find out.
Fed Chairman Bernanke should be impeached if he does not restore Fed surveillance over primary dealers immediately.
It should come as no surprise to anyone that major commercial banks manipulate Libor submissions for their own benefit. As Jefferies David Zervos writes this weekend, money-center commercial banks did not want the “truth” of market prices to determine their loan rates. Rather, they wanted an oligopolistically controlled subjective survey rate to be the basis for their lending businesses. When there are only 16 players – a “gentlemen’s agreement” is relatively easy to formulate. That is the way business has been transacted in the broader OTC lending markets for nearly 30 years. The most bizarre thing to come out of the Barclays scandal, Zervos goes on to say, is the attack on the Bank of England and Paul Tucker. Is it really a scandal that central bank officials tried to affect interest rates? Absolutely NOT! That’s what they do for a living. Central bankers try to influence rates directly and indirectly EVERY day. That is their job. Congresses and Parliaments have given central banks monopoly power in the printing of money and the management of interest rate policy. These same law makers did not endow 16 commercial banks with oligopoly power to collude on the rate setting process in their privately created, over the counter, publicly backstopped marketplaces.
- Beggars can't be choosers after all: Greece Drops Demand to Ease Bailout Terms (FT)
- It took journalists 4 years to get that under ZIRP all banks have to be hedge funds: US Banks Taking Risks in Search of Yield (FT)
- Made-In-London Scandals Risk City Reputation As Money Center (Bloomberg)
- Merkel Approval Rises to Highest Since 2009 After EU Summit (Bloomberg)
- Judge orders JPMorgan to explain withholding emails (Reuters)
- U.S. hiring seen stuck in low gear in June (Reuters)
- Germans Urged to Block Merkel on Integration (WSJ)
- Crony Capitalism Rules: Countrywide used VIP program to sway Congress (Reuters)
- Barclays’ US Deal Rewrites Libor Process (FT)
- Cyprus Juggles EU and Russian Support (FT)
- Delay Seen (Again) For New Rules on Accounting (WSJ)
- Lagarde Says IMF to Cut Growth Outlook as Global Economy Weakens (Bloomberg)
The middle class has a gut feeling they are being screwed by somebody, they just can’t figure out who to blame. The ultra-wealthy elite keep up an endless cacophony of propaganda and misinformation designed to confuse an increasingly uneducated and willfully ignorant public while blurring the facts for those educated few capable of understanding the truth. They have been able to keep the masses dumbed down through government run education; distracted by sports, reality TV, Facebook, internet porn, and igadgets; lured by mass media messages of materialism; and shackled with the chains of debt used to acquire the goods sold by mega-corporations. We’ve become a society oppressed by a small faction of ultra-wealthy masters served by millions of impoverished, uneducated, sedated slaves. But the slaves are getting restless and angry. The illegally generated wealth disparity chasm is growing so large that even the ideologue talking head representatives of the elite are having difficulty spinning it. Even uneducated rubes understand when they are getting pissed on.
Nobody on the Buy Side wants to sue JPM, Goldman Sachs, Morgan Stanley et al for securities fraud on the more problematic deals of the past decade.
Earlier today we reported of an instance of fiduciary impropriety so gross and abhorrent - namely the director of insolvent and nationalized Bankia preparing to receive €14 million in severance - that the public outcry was furious and instantaneous. The result: less than 12 hours later Expansion reports that according to Bankia president Jose Ignacio Goirigolzarri, the management of the the firm will waive their pension rights, and the infamous Aurelio Izaquierdo will not get his accrued pension when leaving the firm. Now, if only anyone in America had half the guts to do what it took Spain less than a day to turn around...
As either taxpayers or long-term JPM investors, we should be more grateful than sorry about the JPM CIO Ina Drew.
The only good news spin this morning was that the Greek, pardon Spanish contagion, has not reached Italy, after the boot-shaped country sold €5.25 in bonds this morning at rates that did not indicate a meltdown just yet. It sold its three-year benchmark at an average 3.91 percent yield, the highest since January but below market levels of around 4 percent at the time of the auction. It also sold three lines due in 2020, 2022 and 2025 which it has stopped issuing on a regular basis. And this was the good news. The bad news was the not only has the Spanish contagion reached, well, Spain, but that everything else is now coming unglued, as confirmed first and foremost by the US 10 Year which just hit a new 2012 low of 1.777%. Spain also is getting hammered with CDS hitting a record wide of 526 bps overnight, and its 10 Year hitting 6.26% after the country sold 364 and 518-Day Bills at rates much higher rates than on April 17 (2.985% vs 2.623%, and 3.302% vs 3.11%). But the highlight of the day was the Banco de Espana release of the Spanish bank borrowings from the ECB, which to nobody's surprise soared by €36 billion in one month to €263.5 billion, more than doubling in 2012 from the €119 billion at December 31.
There is hardly any more long-suffering investor in this market than anyone who has held the stock of that worst of breed American bank: Bank of Countrywide Lynch (BAC), which following the worst M&A transaction in history, namely its purchase of Countrywide, has found out that one does not pay billions for hundreds of billions in contingent liabilities, which will manifest themselves in tens of billions in putback claims against the underreserved bank over time. But all that is now known, grudgingly, after being pointed out here back in 2010, and when all is said and done, BofA will be finished, with the contingent liability pool spun off in a special purpose entity which files for bankruptcy, while the equity remaining at the successor entity will be worth pennies on the dollar. The question is what are the catalysts that get the bank there. Luckily, yesterday the bank itself highlighted what the key driver to put events in motion may be, after it disclosed that should the bank be downgraded, which it will be as Moody's has warned, it would need to post up to $6.2 billion in collateral: an amount which would cripple the bank's liquidity, and send its stock plunging as visions of AIG resurface, and concerns about a toxic downward spiral emerge.
"Please advise us regarding a reliable procedure whereby the appropriate foreclosing party can be situated in the matter such that we can proceed to judgment of sale"