- Italy Is Biggest Risk to Euro, Says Fitch (WSJ)
- Greek Bailout in Peril (WSJ)
- Swiss Currency Test Looms for SNB’s Jordan in Race to Replace Hildebrand (Bloomberg)
- Daley to Depart as Obama Shifts Strategy From Compromise to Confrontation (Bloomberg)
- BOE Stimulus Expansion May Not Be Enough to Revive U.K. Recovery, BCC Says (Bloomberg)
- Geithner in China to Discuss Yuan, Iran (Bloomberg)
- China Won’t See Hard Landing in 2012, Former PBOC Adviser Yu Yongding Says (Bloomberg)
- Measures to boost China financial markets (China Daily)
- Obama Panel to Watch Beijing (WSJ)
Psychopaths Caused the Financial Crisis … And They Will Do It Again and Again Unless They Are Removed From PowerSubmitted by George Washington on 01/03/2012 15:21 -0400
The Inmates Are Running the Asylum
First it was Goldman, now it is Barclays lamenting what is painfully obvious: what has gone up violently, will go down doubly so, once the market realizes that what the Fed and the global central banks have done is applying a band aid to a severed artery. Naturally, the disappointment will be substantial, and while Goldman is angry that its tentacles have to be retracted for a few more weeks before it can acquire the equity of some European competitors for a buck a share, Barclays is angry because it is very likely that it, together with fellow British bank RBS, will be on the receiving end of market fury. This explains the statement by Barclays' Paul Robinson who said that the "market updraft" was "exaggerated" and "it is not easy to make a case that the magnitude of the news quite justifies the magnitude of the global market reaction, in our view." That's ok - the short covering knows best... if only for a few days, because as Robinsons says, "Market participants seem as fearful of missing a market updraft as they are of getting caught in a downdraft" - in other words we are all momos now, chasing the leader and pushing the wild market swings into swings with ever greater amplitudes, until one day absolutely nobody will be able to trade the daily gyrations created by ever more frequent central bank intervention.
Today's ISDA settlement auction process for the Dynegy CDS credit event offers some perspective on the smartest of the smart of our dealer community. Bloomberg notes that RBS was forced to pay a $1.9mm penalty for massively missing the inside bid-offer at the initial auction. In our humble opinion, it would appear that the CDS trading desk got their math wrong and posted a discount (1-R) instead of the Price they were willing to trade the deliverable bonds at. Their 29.5/31.5 bid/offer would invert to a much more reasonable 68.5/70.5 perfectly straddling the $69.5 initial midpoint of the auction. We suspect the RBS pink slips were flying rather fast on this mathematical error... Although since the BLS also works on a 1-R basis, this means that initial jobless claims will be one less for the week.
Earlier today we received the following email from a reader: "RBS systems are down today - ALL of them. I asked whether they knew that HSBC was down yesterday - replied yes - I suggested that they might do well to make an announcement to stop people from getting the right idea 8). The reason for the outage was given as "an update which did not go as expected" Some update - took out ALL their systems I was told. Pongs worse than the old Billingsgate fish market." We now have confirmation this is the case. From BBC: "RBS and NatWest customers have been unable to check accounts online because of problems caused by maintenance work, the Royal Bank of Scotland has said. Problems arose after the maintenance work went wrong and meant account balances were not updated overnight. Some accounts have not been credited when they should have been and there have been problems for some customers making withdrawals from cash machines. In a statement, the bank apologised for "any inconvenience caused". The Royal Bank of Scotland hopes to resolve the issue within hours." We find it odd how not only one but two banks are down on a Saturday, the same day that is incidentally Bank Transfer Day. So: who will be doing "maintenance work" next?
First it was Citi's turn, when earlier, via Willem Buiter, it explained in granular detail, how the EFSF's latest incarnation as a 20% first loss insurance fund, will be not a bazooka but a "peashooter." Now it is the turn of RBS' Harvinder Sian (yes, yes, the same guy who in February 2010 accused Zero Hedge of falsely concluding Greek banks are insolvent... ahem) to mock and ridicule the Guardian's blatant attempt to lift the EURUSD just so momos and piggybackers provided a convenient receptacle for assets that French banks were offloading beginning at 3pm courtesy of this bogus plant, since refuted by Dow Jones. Seeing how Harvinder works for RBS (and was protecting his bank's Greek bond exposure last year...how did that work out), don't expect much original thought. After all, the specter of no Christmas Party must put what few employees the bank has in a perpetually ill mood. That said he does provide a convenient echo chamber for those who have already said the original things ahead of him.His conclusion is sufficient: "If this is delivered alongside more detail on a harder Greek PSI and an early ESM adoption, then expect the crisis to get more elevated and seriously engulf the early-stage stressed Belgian and French markets. In the meantime, such news headlines will make for choppy price action and destroy low conviction trading positions." Hear that momos? This Bud's for you.
Cost-cutting days are here again. With the year grinding to a close, and with various banks around the world and in the US once again the target of popular adoration, management teams are wondering whether or not to cancel their "elves" parties come Christmas-time. The first bank to vote Nay on free booze, finger food and cheesy music is UK's nationalized RBS: "Royal Bank of Scotland Group Plc (RBS) is canceling Christmas for its investment bankers this year as the government-owned lender tries to reduce costs." It gets worse: the first person to laugh or joke gets the sack: "The bank will stop subsidizing holiday parties and has banned staff entertainment for the rest of the year, Chris Kyle, chief financial officer of RBS’s investment bank, wrote in an e- mail to employees obtained by Bloomberg News. A spokesman for the lender confirmed the contents of the memo." The latest development marks a new low for the bankrupt bank, which previously had the generous allowance of $16 per person for holiday spending: "RBS reduced its spending on holiday parties to 10 pounds ($16) a head, enough to buy two pints of lager and a packet of potato chips, in 2008 after receiving the biggest banking bailout in the world in the financial crisis. The lender announced 2,000 job cuts at the securities unit in August." Certainly this aggression will not stand: we expect white collar riots, powerpoints of mass demonstrations, and multiple scenario IRR excel models for the pros and cons of banker unionization, all organized via Blackberry-blasted calendar events, in which Wall Street will finally #OccupyMainStreet.
In Stunning Decision, EU Orders Germany To Start Onboarding "Bad Debt" To Sovereign Balance Sheet: RBS, Fannie, Freddie Next?Submitted by Tyler Durden on 08/11/2010 12:57 -0400
In what could be the most important news of the day, German Die Zeit reports that, in a stunning move, the EU has ordered Germany to count the holdings of WestLB and Hypo Real Estate (the latter of which failed the stress farce from last month which nobody cares about or remembers anymore) as government debt! As Bloomberg notes, "That could raise Germany’s debt to 90 percent of gross domestic product, Die Zeit said." Of course the implications of this decision are massive, as it takes out all the guess work of whether insolvent institutions are or are not on the government's balance sheet. The net result, for Germany alone, is that just the addition of Hypo's debt would push German debt/GDP from 79% to 90%, both of which are well above the Maastricht limit of 60% (not like anyone cares that is - everyone is now aware the EU is a failed experiment). The next question: what happens to nationalized RBS and it $168 billion in debt? Total UK debt is $1.2 trillion meaning a comparable action in the UK would rise UK debt by 15%! And then there is a whole slew of other banks in the pipeline in Europe that are full of trillions in toxic debt: will the sovereign hosts be able to onboard this debt? Most importantly, what happens to our administration's adamant claims that Fannie and Freddie's $6+ trillion in debt should not be counted as part of total Federal debt. America already has its hand full with $13.3 trillion in debt. What will happen when it moves to $20 trillion (140% of GDP) overnight. We are confident that unless this decision by the EU's statistics office is overturned, it will likely set off the next leg in the sovereign debt crisis as suddenly European Debt to GDP ratios will increase by about 15-20%.
While the punditry debates whether the SEC settlement was or was not a win for Goldman (As Bloomberg's Jonathan Weil summarizes it best: "Here’s the real beauty of the SEC’s settlement agreement yesterday with Goldman Sachs. The next time Goldman Chief Executive Officer Lloyd Blankfein goes on television and is asked by some reporter if Goldman committed securities fraud, as the SEC alleged, he won’t be allowed to say no.") those wronged by Goldman are only just starting to flex their legal muscles. Reuters reports that one of the "big" winners from the settlement, UK's biggest nationalized bank RBS, is about to beg for more handouts (allegedly to cover its ongoing losses on sovereign debt holdings): "Royal Bank of Scotland may pursue Goldman Sachs for hundreds of millions of dollars to add to $100 million it got as part of a settlement over the marketing of a subprime mortgage product. RBS said on Friday it would "carefully consider all of its options" after Goldman agreed on Thursday to pay it $100 million as part of a $550 million settlement of civil fraud charges over how it marketed the subprime mortgage product. RBS's options include taking Goldman to court as
Securities and Exchange Commission said the penalty left the
door open for future civil suits." At this point the response by RBS, which is 83% state owned will likely depend on US treatment of BP, considering that "Former UK Prime Minister
Gordon Brown said in April that Goldman would have to pay back
"hundreds of millions of dollars" if the charges against it were
proven." The only question left is to define "does not admit or deny guilt."
One of the world's last few remaining permaskeptics, Bob Janjuah, has severed ties with the UK's most bailed out and nationalized bank, RBS, reports Bloomberg. And just as the departure of David Rosenberg from Merrill in early 2009 marked the start of a period of complete market schizophrenia, we hope that the purging of negativists from the Royal Bank of Scotland is not indicative of just such another period, at least on the other side of the Atlantic. However, unlike last March when the several trillion in global stimulus funds was only just entering the economy, this time around not even the ritualistic sacrifice of bears will do much to stop the slide. And just to confirm that this is likely a localized issue to RBS, the Chief Markets Econoist Kevin Gaynor has also left the firm.
Unconfirmed: RBS back up now. No idea what caused the black out, but likely a liquidity run.
Sorry, we just can't resist. It's just too easy when dealing with the best and most erudite, if only just massively nationalized, bank in the world. Ever. Yet what is much more relevant, this story explains just why the US is taking the capital flight control measures we discussed recently. Too bad Greece did not have the foresight to institute comparable controls when it had the chance.
A month ago Zero Hedge was ridiculed by RBS' Head of European Rates Harvinder Singh for daring to suggest that Greece was experiencing a bank run. Surely, RBS, with its stash of Greek bonds that it desperately needed to offload, did not need any additional bad news spooking the more timid elements. After all someone would need to buy the endless toxic assets that RBS had managed to accumulate over the years before it needed to be bailed out by its government. Alas, as so often happens when banks gets involved (we would say big, but RBS is a third tier toxic asset repository at best) and refute Zero Hedge, things don't quite work out their way, and yesterday none other than Greek newspaper Eletherotypiha confirmed that "there had been a rush to
withdraw funds from banks." Oops.
We were pleasantly surprised earlier today when we discovered that the "head of European rates" at RBS, or as it is better known in the US as CRT LLC (see here, here and here), Harvinder Sian, not only sends out mollifying notes to clients with extended references to "excitable" blogs such as Zero Hedge, but that apparently cost-cutting measures have forced RBS to cancel their over-budget Dow Jones wire service.