This Bank Is Much Worse Than the Rest and the (Guaranteed?) Bust Will Probably Be Funded Right Out of Your Bank Account!

Reggie Middleton's picture

BoomBustBlog subscribers,
I call you to attention. I have found a bank that literally has more
derivatives risk than Citibank, Goldman, Morgan and JP Morgan -
COMBINED! That's right, and on top of that if you peek under the covers
(and not just follow the fodder in the annual reports) it apparently has
the greatest mortgage risk in the industry. In addition to that...
Okay, I'm getting ahead of myself. Let's start from the beginning or
skip down to the RT Capital Account video if you're the impatient type.

are some quick updates before I move on to the latest subscription
research (and boy, is this one a doozy!, subscribers download it here - Haircuts, Derivative Risks and Valuation).
If you thought that Goldman, Bear, Lehman, BNP & Apple were good
contrarian calls, you're going to wet your pants over this one - and
thus far I haven't heard a peep about this company from ANYONE. I'm sure
that will change forthwith as it shows signs of blowing up on both
sides of the Atlantic - opps, I gave a hint. Well, here's some more...

ZeroHedge reports Italian Bonds Plunging: ECB Intervention Imminent: But if Italian bonds are tanking again, doesn't that put France at risk? See French Banks Can Set Off Contagion That'll Make Central Bankers Long For The Good 'Ole Lehman Collapse Days. Hold on, if France is suspect what does that portend for its largest bank? "BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) I started releasing snippets and tidbits of the proprietary research that led to the BNP short, namely Bank Run Liquidity Candidate Forensic Opinion -
A full forensic note for professional and institutional subscribers.
Even if we were to disregard BNP's most serious liquidity and ALM
mismatch issues, we still need to address the topic of sovereign debt.
Now, if you were to employ the free BNP bank run models that I made
available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber)
you would know that the odds are that BNP's bond portfolio would
probably take a much bigger hit than that conservatively quoted in the
media.  Here I demonstrated what numbers would look like in said



Okay, so if Italy and Greece cause France to go BOOM and the French banks
will get caught in the blast (or vice versa, who can keep up these
days), then doesn't that mean that those US banks leveraged into France
and Italy will get hit? Oh yeah!!! Just As I Predicted Last Quarter, The World's First FDIC Insured Hedge Fund Takes A Fat Trading Loss


let's get to this big derivatives thing going around the web where
Bloomberg blew the Bank of Lynch America Countrywide and JP Morgan spot
by reporting they moved over $50 trillion notion of derivative exposure
to their FDIC ensured banking arm to placate investors. What does this

If Bank of America
did it, and JP Morgan did, you can be rest assured most other big banks
did it as well. What you ask? Hide the hot sausage, in a place that will
burn... Really bad! As has been reported throughout the MSM and the
blogosphere, the US banks have been caught playing hide the hot sausage,
the problem is they're hiding it in mom and pop's bank accounts.
Needless to say, this is going to burn the average tax payer and savings
account holder where the sun don't shine...

Of course, you know I'm going to say "I told you so!" Reference So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't? and then Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored? You see, in said piece, ZeroHedge dutifully reported that Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure- a very interesting refresh of what I called out two years ago through "The Next Step in the Bank Implosion Cycle???":

amount of bubbliciousness, overvaluation and risk in the market is
outrageous, particularly considering the fact that we haven't even come
close to deflating the bubble from earlier this year and last year! Even
more alarming is some of the largest banks in the world, and some of
the most respected (and disrespected) banks are heavily leveraged into
this trade one way or the other. The alleged swap hedges that these guys
allegedly have will be put to the test, and put to the test relatively
soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ),
you cannot truly hedge multi-billion risks in a closed circle of only 4
counterparties, all of whom are in the same businesses taking the same

Click to expand!


This concept was further illustrated in An Independent Look into JP Morgan...

Click graph to enlarge (there is a typo in the graphic - billion should trillion)


graphic above, eh? There is plenty of this in the public preview. When
considering the staggering level of derivatives employed by JPM, it is
frightening to even consider the fact that the quality of JPM's
derivative exposure is even worse than Bear Stearns and Lehman‘s
derivative portfolio just prior to their fall.
Total net
derivative exposure rated below BBB and below for JP Morgan currently
stands at 35.4% while the same stood at 17.0% for Bear Stearns (February
2008) and 9.2% for Lehman (May 2008). We all know what happened to Bear
Stearns and Lehman Brothers, don't we??? I warned all about Bear
Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?":
On February 20th, 2008) months before their collapse by taking a close,
unbiased look at their balance sheet. Both of these companies were
rated investment grade at the time, just like "you know who". Now, I am
not saying JPM is about to collapse, since it is one of the anointed
ones chosen by the government and guaranteed not to fail - unlike Bear
Stearns and Lehman Brothers, and it is (after all) investment grade
rated. Who would you put your faith in, the big ratings agencies or your
favorite blogger? Then again, if it acts like a duck, walks like a
duck, and quacks like a duck, is it a chicken??? I'll leave the rest up
for my readers to decide.

I then posted the following series,
which eventually led to me finally breaking down and performing a full
forensic analysis of JP Morgan, instead of piece-mealing it with
anecdotal analysis.

  1. The Fed Believes Secrecy is in Our Best Interests. Here are Some of the Secrets
  2. Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?
  3. As the markets climb on top of one big, incestuous pool of concentrated risk...
  4. Any objective review shows that the big banks are simply too big for the safety of this country
  5. Why hasn't anybody questioned those rosy stress test results now that the facts have played out?

can download the public preview here. If you find it to be of interest
or insightful, feel free to distribute it (intact) as you wish.

JPM Public Excerpt of Forensic Analysis Subscription JPM Public Excerpt of Forensic Analysis Subscription 2009-09-18 00:56:22 488.64 Kb

Reggie Middleton on CNBC's Squawk on the Street - 10/19/2010, discusses JP Morgan and concentrated derivative bank risk.

If you think that's scary (and you really should) check out Is Goldmans Sachs Derivative Exposure the Squid in the Coal Mine?

The notional amount of derivatives held by insured U.S. commercial banks have increased at a CAGR of 22% since 2005, which naturally begs the question
“Has the value or the economic quantity of the underlying increased at a
similar pace, and if not does this indicate that everyone on the street
has doubled and tripled up their ‘bets’ on the SAME HORSE?”

Think about what happens if (or more aptly put, "when") that horse loses! Would there be anybody around to pay up?

Sequentially, the derivatives have increased every quarter since Q1-05 except for Q4-07, Q3-08 (Lehman crisis) and Q4-10 while on a YoY basis the growth has been positive throughout recorded history.  In Q2-2011, the notional value of derivative contracts increased 2% sequentially to $249 trillion. The notional value of derivatives was 12% higher than a year ago.
The notional amount of a derivative contract is a reference amount from
which contractual payments will be derived, but it is generally not an
amount at risk. However, the changes in notional volumes can provide
insight into potential revenue, and operational issues and potentially
the contagion risk that banks and financial institutions poses to the
wider economy – particularly in the form of counterparty risk delta. The
top four banks with the most derivatives activity hold 94% of all
derivatives, while the largest 25 banks account for nearly 100% of all
.  Overall, the US banks derivative exposure is $249 trillion and is more than four folds of World’s GDP at $58 trillion.

absolute terms, JPM leads this list with total notional value of
derivative contracts at $78 trillion, or 1.3x times the Wolds GDP.
However, in relative terms, Goldman Sachs leads the list with
total value of notional derivatives at 537 times is total assets
compared with 44x for JPM, 46x for Citi and 23x for US Banks (average).

what does this mean? Well, it should be assumed that Goldman is well
hedged for its exposure, at least on academic basis. The problem is its
academic. AIG has taught as that bilateral netting is tantamount to
bullshit at this level without government bailout intervention. If there
is any entity at risk of counterparty default or who is at the behest
of a government bailout if the proverbial feces hits the fan blades…
Ladies and gentlemen, that entity would be known as Goldman Sachs.

As excerpted from Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?, pages 2 and 3...


is much more highly leveraged into the derivatives trade than ANY and
ALL of its peers as to actually be difficult to chart. That stalk
representing Goldman's risk relative to EVERY OTHER banks is damn near
phallic in stature!


As opined earlier through the links "The Next Step in the Bank Implosion Cycle???"and As the markets climb on top of one big, incestuous pool of concentrated risk... ,
this is not a new phenomenon. Quite to the contrary, it has been a
constant trend through the bubble, and amazingly enough even through the
crash as banks have actually ratcheted up risk and assets in a blind
race to become TBTF (to big to fail), under the auspices of the
regulatory capture (see Lehman Dies While Getting Away With Murder: Introducing Regulatory Capture).
So, what is the logical conclusion? More phallic looking charts of
blatant, unbridled, and from a realistic perspective, unhedged RISK
starring none other than Goldman Sachs...

And to think, many
thought that JPM exposure vs World GDP chart was provocative. I query
thee, exactly how will GS put a real workable hedge, a counterparty risk
mitigating prophylactic if you will, over that big green stalk that is
representative of Total Credit Exposure to Risk Based Capital? Short
answer, Goldman may very well be to big for a counterparty condom. If
that's truly the case, all of you pretty, brand name Goldman counterparties
out there (and yes, there are a lot of y'all - GS really gets around),
expect to get burned at the culmination of that French banking party
I've been talking about for the last few quarters. Oh yeah, that
perpetually printing clinic also known as the Federal Reserve just might
be running a little low on that cheap liquidity antibiotic... Just
giving y'all a heads up ahead of time...



you read exactly how precarios the situation is in France (and Belgium,
through Dexia, et. al.) keep in mind that although this is definitely
not good news for Goldman's numbers, historically since the beginning of
this crisis, GS has actually correlated more with coke laced, red bull
juice powered mo-mo trader patterns than actual book value - reference
The Squid Is A Federally (Tax Payer) Insured Hedge Fund Paying Fat
Bonuses That Can't Trade In Volatile Markets? Who's Gonna Tell The
Shareholders and Tax Payer???
from just last reporting period...

I'd like to announce to the release of a blockbuster document
describing the true nature of Goldman Sachs, a description that you will
find no where else. It's chocked full of many interesting tidbits, and
for those who found "The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely" to be an iteresting read, you're gonna just love this! Subscribers can access the document here:

As is customary, I am including free samples for those who don't subscribe, so you can get a taste of the forensic flavor.

Interested parties should click here to subscribe,
cause next up we walk through several other American banks to see who's
up for re-enacting 2008-9 put parade - and historically we have usually
if not always been ahead of the curve, particularly when compared to Wall Street and the sells side - see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

in case you have yet to hear anything new (which could be the case if
you're a BoomBustblog regular), try this on for size - taken off of the
very first page of today's BoomBustBlog subscriber update - Banks Haircuts, Derivative Risks and Valuation.

Colossal Derivative exposure

to the latest quarterly report from the Office Of the Currency
Comptroller the top 4 banks in the US now account for a massively
disproportionate amount of the derivative risk in the financial system.
Although the [subject bank] with the xth largest derivative exposure
stands a significant distance behind JPM, Citi, Bank of America and
Goldman Sachs (the four largest players); the exposure quoted in OCC
report is only for the US entity. Overall, [subject bank]’s group
derivative exposure in its balance sheet is 220% of its tangible equity,
far higher in both absolute and relative terms when compared to its peers. [Subject
bank]’s on balance sheet derivative exposure is higher than the
combined share of Goldman Sachs ($74bn, or 115% of TEC), JP Morgan
($78bn, or 62% of TEC) and Morgan Stanley ($46bn, or 114% of TEC).  
is more worrying is the quality of these derivative assets. Of the
total notional value of credit derivatives (over half trillion $US bn),
nearly 60% are non-investment grade. [Subject bank] has the highest
proportion of non-investment grade credit derivatives followed by Citi
Group (55%), GS (52%), Bank of America (37%) and JP Morgan (32%). The
tables below as well as on the following page compare [subject bank]’s
on-balance sheet derivative exposure...

Well, there you go. If
things were to kick off and the bovine excrement hits the fan blades,
look for [subject bank] to stink worse than most! This is exactly how we
isolated Bear and Lehman back in 2008! More importantly, just imagine
[subject bank] stuffing all of those high quality, leveraged, about to
implode liabilities into your Aunt Gertrude's CD and retirement savings!
Yep, if Bank of American and JP Morgan did it, is anybody truly naive
enough to believe that nobody else is doing it as well? As my Aunt Eva
used to tell me, there is never just one roach!

I can be reached via the following channels, or directly via email:

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will be releasing the date (probably this week), location and time of
the NYC meet and greet within the next 24 hours or so, so we can chat,
drink, debate, argue and fraternize with pretty woman together in a
trendy spot in the Meat Packing District or the Bowery (I apologize in
advance to all of my female readers/subscribers). Those who are
interested in attending should email customer support.
There has been strong interest in the London meeting, enough to warrant
the venue - I simply need to get the travel and venue organized due to a
change of plans.
For those that are new to the blog, these are pics of previous meet and greets...






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Boxed Merlot's picture

representing Goldman's risk relative to EVERY OTHER banks is damn near
phallic in stature!...

Are you saying "Baal worship?"...

PaperBear's picture

"damn near phallic in stature!" - easy now.

orgonor's picture

deutsche bank baby...

A Man without Qualities's picture

That woman on the RT clip is astonishingly stupid...

PaperBear's picture

Journalists lik her know jack shit.

PY-129-20's picture

I would not go that far, but I found her annoying. Still, if you take the time to visit the original Youtube video, you will find out that about 95 % of the people there talk about her looks and how they would love to see her naked and do a little roll in the hay... The rest is actually thinking about what Reggie said.

Reggie - just thank you for everything. Greetings from Germany. You have done a great job.

catch edge ghost's picture

Dear successful finance/blogger guy on a boat with good looking wealthy people that also dine well in large groups,

Regarding the title, I have some idea what Probably means, but I have a question. What the hell does (Guaranteed?) mean? 



catch edge ghost 

OutLookingIn's picture

Remember Feruary 2010.

Acting under the radar, 'The Clearing Warehouse' responsible for passing through and administering OTC CDS and OCC made an application to the Federal Reserve to become a subsidiary of that institution.

Guess what? Of course the Fed said yes! So, not only are Mom and Pop going to take a big hit in their savings accounts, the remainder of the bail out will come from the Fed (compliments of the taxpayer) to make the TBTF's whole.

After all, the name of the game is to keep the 0.9%er's rich and the 99%er's poorer! Let the game carry on! 

CompassionateFascist's picture

Ah, no. With this much garbage piled on top of other garbage, this time the bail-out will not stick. There isn't enough real wealth out there to prop up all the crap paper. Also, from the viewpoint of collective psychology (panic) this economic implosion is going to happen in the context of a worsening political crisis (2012 election) and a War with Iran. Perfect Storm.

electronpaul's picture

The Federal Reserve can "print" at will. The Federal Reserve is owned by the banks. Unless Ron Paul gets a full audit of the Fed, they will just print and hide it. Of course, in order to do this, FR will demand (and get) untold enslavement from the populations of the governments in question.

Welcome to a Brave New World, 1984.


Sudden Debt's picture

Oké, were fucked...

I'd better start digging my hideouts for my PM's.


CompassionateFascist's picture

The "squid in the coal mine"!!!!!!!!!!!!!!!!!!!!Unforgettable. Reggie and Banzai need to do something w this.

I think I need to buy a gun's picture

its all set up i believe we will have a new monetary system, looks like they will make europe the bad guy and start the gold rush there, they are eliminating some etfs this weekend I wonder what the status of GLD is? Is there any gold? Gold tax starts 1-1-12

Notice how all the republicans have platforms for a new tax system? I guess we will need one after we get a new moneytary system. So 2012 we will have a "national discussion" on things....Ben Bernankes words "national discussion.

I see the whacked Kahdafi today, so there is no talking of the last 40 years

Ruffcut's picture

HBC has large ratio exposure, but who knows what they exposed to. CDS= criminal destruction systems

Because most of the credit derivatives are level III assets, difficult or impossible to price, and many of them are crashing in value, looking at the credit derivative exposure gives you a good idea of a bank's derivative risks.

Bank Assets ($B) Credit derivs Ratio to assets Notes HSBC USA 188 1341 7.1 Very active in CDS JP Morgan 1408 8121 5.8 Very active in CDS Citigroup 1293 3351 2.6 Very active in CDS Bank of America 1355 3099 2.3 Very active in CDS Wachovia 666 454 0.7 Merrill Lynch Bank 63 9.2 0.1 Bank of New York 128 2 0.0 U.S. Bank 237 1.7 0.0 Owned by BRK Wells Fargo 487 2 0.0 Owned by BRK RBS Citizens 131 0.3 0.0

Couple observations:

  • HSBC is "going for broke", they have $1.3 trillion of credit derivatives and $188 billion of assets.
  • All the giant banks are playing games with credit default swaps of huge notional amounts
  • Look at the banks that Buffett owns ... no credit derivative exposure
  • Citizens Bank (RBS) which I just discovered also seems very conservative

Ruffcut's picture

HBC= Ho's Boom Comin?

So little capital and so many shitbags to buy puts on.

disabledvet's picture

So I thought the FDIC only insured the first 200,000?

xcehn's picture

The FDIC is so seriously underfunded, it's a JOKE.

donsluck's picture

If you remember, during the 2008 crises, the FDIC insurance increased from 100K to 250K per account,, and if you have benefitiaries, each one bumps up the coverage another 250k. So, they will probably back up the "banks" all...the...way!

falak pema's picture

looks like the bank dominoes are so screwed they'll bring down every body including q-daffy's now lonely camel. Its back to Noah's ark.

Apart from the FED I can only think of Deutsche as rogue bank, to match the squid as prize catch.

Don Smith's picture


jomama's picture

damn reg, you're lookin hella yoked these days!

(so you bangin lauren yet?)

steve from virginia's picture

So ...

Reggie's 'solution' is macro-options Ponzi scheme.

That gets pitched @ ING bankers' conference, bankers have no problem with that sort of business ...

I wonder how long its going to be before Reggie disappoints his mother ...



derek_vineyard's picture

Aren't the meet n greets to never be spoken of and of a much more savage nature?

chubbar's picture

If the banks put all of their derivatives into the position to be directly backstopped by the FED vis-a-vie the FDIC, wouldn't the netting out process then be resolved by the FED and stop any possible cascading cross defaults? If this is the case is it possible this is the FEDs answer to settling all the derivatives and finally disarming that bomb?

I know it is probably a dumb question as I don't pretend to understand the whole banking process but if the FED knows about this then it obviously approves or directed it. Just trying to figure out the end game.

Little John's picture

Somebody let me know when the shooting of the kleptocrats starts.

Irish66's picture

guess- Wells Fargo

Tramp Stamper's picture

There are no sovereign contries anymore just banks that control them and their populations.  Why was this allowed to happen?

Widowmaker's picture

Because record bonuses = national security.

You probably think i'm fucking joking.

Absalon's picture

You should consider trying to learn to write properly.

Money 4 Nothing's picture

I call it typing, but what's the diffey?

11b40's picture

Reggie's writing may leave a little to be desired, but who gives a shit?  His numbers are what keeps me reading his posts.  Like, who cares about the math professor's penmanship?

Seer's picture

The reason why everyone is ignoring the canary is because the MINE owns it, and long ago killed it.  But...

A canary isn't needed in order to understand what's going on.

Infinite growth on a finite planet = EVENTUAL COLLAPSE

How much more verbiage does one need in order to know what is going on?

deepsouthdoug's picture

Let me guess - Morgan Stanley.

Oracle of Kypseli's picture

It really doesn't matter the name of the bank. The collapse is inevitable. They are all coming down. You have been warned. Move money in the proverbial mattress, get physical PM's and arrange for a farm with a farmhouse along with others of same mind. 

xcehn's picture

The bank runs will soon be obvious.  Then it will be too late.  Time to build the ark.

deepsouthdoug's picture

I've got a farm - 240 acers of some of the best land in the world - zero debt. 

entropos's picture


Not going to the party.