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Are Japanese Banks On The Verge Of Insolvency?
We have long discussed the problem that the Japanese government faces if interest rates in the troubled nation rise (cost of debt financing will swamp revenues in a vicious circle); but now it seems there is another - just as vicious - problem (that the BoJ is set to discuss according to Nikkei). The inability of the BoJ to 'control' Japanese interest rates (JGB rates spiking unprecedentedly day after day) has put the banking system in a lot of trouble. As we explained recently the banks appeared to initially 'hedge' their huge JGB positions but now appear to recognize that first out wins and are reducing exposure overall (YTD -3.7% according to local data). The reason - simple - as the IMF explains via the BoJ - according to BOJ estimates (footnote 4), a 100bp (parallel) rise in market yields would lead to mark-to-market (MTM) losses of 20% of Tier-1 capital for regional banks and 10% for the major banks. He who sells first wins...
We said previously:
This is what is going on in JGBs... JGBs were able to rally since smart money was hedging significantly (and not selling) but once the initial clusterfuck exploded after the BoJ meeting (and protection costs soared), it seems clear that JGBs just became far too expensive to hold given their risk and so protection was unwound and positions were reduced... which is why we are now seeing JGB yields jumping...
and as the IMF explains:
JGB market exposures represent one of the central macrofinancial risk factors. This risk reflects the possible impact on public debt sustainability of changes in yields and related effects on investor confidence; the increased role of the private financial sector in covering government borrowing needs; the prospect that ongoing demographic shifts will reduce private saving; and growing household interest in investing abroad.
Interest rate risk sensitivity is especially prevalent in regional banks and insurance companies (JGBs representing about 70 percent of life insurers' securities holdings and 90 percent of insurance cooperatives’ securities holdings). In addition, the main public pension scheme, as well as Japan Post and Norinchukin bank, also have large JGB exposures.
4According to BOJ estimates, a 100 basis point (parallel) rise in market yields would lead to mark-to-market (MTM) losses of 20 percent of Tier-1 capital for regional banks (not taking into account net unrealized gains on securities), against 10 percent for the major banks.
Surely all this has been provisioned for somehow. Or not?
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Weebles wobble but they do not fall down.......until they do.
Coming next to US banks near you.
ruh-roh !!
All banks that operate in USD are insolvent. They just dont know it yet.
um.. how can anything become insolvent in a world of telephone/Email rate rigging, unlimited liquidity and artificial balance sheets?
Does anyone knoa anything about the French system TRICP?
Apparently banks there can pledge not just securities, but also loans on their balance sheet as collatteral with the central bank for liquidity
I heard Germany has a similar system
By definition, aren't all fractional reserve banks on the verge of insolvency? Faith in the system. It's all that holds it together at any point.
The end will come over a weekend. Rumors will float Friday afternoon. The markets will act funny and then close. Over the weekend accounts will empty and funds moved offshore. Come Sunday afternoon ZH will be on fire with rumor and fact. Come Sunday evening Asian markets will open and the futures will be liimit down.... Finito.
They absolutely know it. It's a trade secret that's been slipping out. They are insolvent, almost by definition. Bank is defined on Webster's as:
They're not on the verge, they've been insolvant for years.
Yes, Japan's banks have been insolvent for 30+ years. So is it going to be, Japan, then the PIIGS, then America OR Japan then America then the PIIGS? Tick tock...
The USA will be last unless the BRICS announce a new gold backed currency this year.
The USD looks like it will keep rising until the final swan dive.Which means there will
be even better chances to buy PM's over the next year.Past that,it gets very interesting.
Of course,WWIII might well screw us anytime at the present rate of stupidity..
On a long enough timeline.......
My thoughts as well. Sit tight, be productive and wait for the idiots to self-identify. None of the current fiat will be around too much longer, would be great if the dollar is the last to die.
Land of the Rising Junk !
Control-P.
Probrem sorved.
Contror-P?
Funny how you have no problem making rude jokes about Asians but break out the negro jokes and you start whining like Phil Donahue. Typical.
The Japanese don't have an "L" sound within the phonetics of their language.
When they speak English the L sounds like an R.
Rude Jokes?
Even the Japanese themselves makes jokes about it.
Are you a ronery riberar? I think so.
Because …I don’t know… well try and make fun of someone for being white – it doesn’t work. Use this IQ map of the world to see if there is a direct correlation to the funniness of a particular joke.
I'm white,I work in Silicon Valley and I'm a minority where I work.I make jokes of myself being white and the other people do think it's funny.
I constantly refer to the Japanese as "the white people of Asia".
It cracks some up and the others take it as a compliment.
I demand equal time for Negro jokes ....
On the verge of?!?! LMFAO!!
Its all good!...EU banks stress tests delayed until 2014!
..because theyre doing soooo well this time, Im sure
UST yields down, but JGB yields up!? Man is the US delusional!
My prediction: JGBs will implode before Fall.
Bold call, what do Japan's liabilities look like by comparison to the U.S.? If the JGBs go, the USTs can't be too far behind.
I don't even think they have that long. It could happen tomorrow.
JGBD FTMFWBBQ!!!!!!!!!!!!!!!!!!!!
hope this performs as much as i want it too. "~"
Kyle Bass trade is finally paying out.
yup cha-ching !
He was being very generous with his 2 yr time frame.
He's probably still under water. IIRC, he put the trade on too early and got pounded last year.
Since when has the insolvency of the financial instiutions of a nation mattered lately?
Funny... I don't remember a spike in interest rate being part of these BS bank stress test in the US..... "But, but they have more than enough capital for a massive downturn!"..... Suuuuurrrrrre.
Are they insolvent? The Japanese banks have been insolvent for 25 years now.
Japan has had zombie banks. The US is different, we just throw printed dollars at the problem.
Credit expanasion has to stall at some point.
BAN ALL SELLING!
One US bank already fell down on a weekday, instead of a Friday.
FDIC Seizes Failed Bank in AZ on a WEDNESDAY.
May 15, 2013 19:00
http://johngaltfla.com/wordpress/2013/05/15/breaking-news-holy-smokes-fdic-seizes-failed-bank-in-az-on-a-wednesday/
The FDIC wanted a weekend off for a change.
Yes. The two biggest banks in Austria are too.
"Mark-to-market"? What is that?
Is that some Japanese thing?
why were MET, PRU so anxious to get itno the Japanese Insurance market. AFLACCCCCCCCCCCCCCCCCCCC
"Surely all this has been provisioned for somehow. Or not?"
Of course it has. Its in the bag. Nothing to see here, move along. You see, the banks of Japan own the government of Japan and the government of Japan will ensure its banks remain liquid - until the yen is worth a half-cent and nobody will sell food or energy to Japan. Then something bad would happen.
Trilllions in QE have no consequences - The Wit and Wisdom of Bernanke.
Reality has a different opinion. Hope the Japanese banks had enough Japanese stocks to offset their loses in bonds.
When Japanese banks fail, they will take down the entire global banking system. Bernanke better print and save the Japanese bond market. It will be another trillion or so only.
Well I can tell you straight up here folks that the English banks have been bust since the one eyed scotch fucking cunt Brown bailed them out some five years ago.
Never mind Japan, we have been giving these low down dirty fuckers public money for five years and its funny this, but more un-payable debt just doesnt seen to be the answer to un-payable debt,
Call me a thick cunt, and many have, but I cant see a way out of this jazz unless we hang the fucking idiot clowns running the banks and politics, and then hang their families and friends just to be sure we resolved an unsolveable problem.
Cunts, each and every last one of them.
Print actual bits of paper. Devalue the currency 10:1. Get serious about inflating our way out of debt.
Fractionally reserved banks are inherently unstable organisations. Been that way since the year dot... And politicians always do the expedient thing.
No need to hang them. Just tattoo "Banker" on their foreheads.
Shit man, you guys shouldn't have cut down all youyr trees, you're going to need them !!!
Labours final manifesto pledge Hulk was that for every tree they cut down, they would build two lamposts on the publics coin.
These fuckers knew what was coming down the pike, and the back benchers passed it as law.
It wont be long before every street in this hugely over-populated land is swinging with councilors, aparatchicks, and politicians. Never mind the bankers. Having said that like, the carion crows are dwindling in population numbers, so this can only be a good thing.
Of course. :-)
It is a nice vision: but in reality, I just dont see the level of ANGER required for even a bit of civil disobedience, let alone good old medieval retribution. RE, the lamp posts - down my way they are mostly bristling with cameras, I expect the technology to link them with Camerons new drone fleet already exists. Of course a determined crew could clense a town of them pronto - but I just dont see the anger. A very slow awakening and dot joining by a tiny minoriy perhaps, but fingers crossed you are right. In fact you have been right about a few things already - the deep rooted institutional epidemic of peodophillia in this country is genuinely a suprise to me, but it is out in the open now and you were calling it for some time. Lets not forget those revolting creatures when the time comes, and all those who turned a blind eye.
Thanks for that reload.
I have been right for a few reasons, not namely people I know and work with. It aint as bad as you may think as people are not that fucking stupid. We have to work together and come together as no man is good on his own. Work the situation to your advantage and keep on learning as much as you can. Click on my name and I'll give you my E-mail mate, if you want it.
At some point we have to stand up and say 'No', we are better than this, and I have read a lot of your posts, you are a lot like me but dont swear as much. The time for talking is over, the three incidents mr 'O' is part of should tell you that, and whatever we do the Americans do likewise, or vice-versa.
This is the endgame mate. Take care, and prepare as you can. I mean it.
I hope that the profanity and calls for political violence are cathartic. One can be angry, and still realize that when you resort to violence, you are playing the state's game.
Oh that road to hell is paved with good intentions.
Jason, not sure if the biggest wealth transfer from the middle class to the rich and poor is necessarily a "good" intention.
are any banks solvent anymore?
The first one out wins....that is so true...it will happen on a weekend where we the sheeple will not be able to do anything...but the GS and their like can and will sell and get out...insider info for sure....
They've been insolvent for two decades.
You really think Bernanke is going to just sit there and watch the third largest economy in the world collapse, one of the major holders of US Treasury Securities? He'll do something, along with the other central banks. It will be futile, but it might buy some more time - that's the name of the game now.
Every central bank intervention and attempt to jigger markets and capital is like another spinning plate on a stick in a plate balancing act at the Circus.
How many plates do they have going now? A dozen? More?
How about plates on tables you fucking PhD geniuses?
Are the printing presses insolvent?
...I mean, they can sustain a cost of printing a trillion dollar bill all the way down to $0.04 each and still be in the black?
We live in a World run by morons.
I'm not sure I recall when they ever were solvent
Is this a trick question?
I think cracking the bond market is the only way Abenomics can be successful. Japanese financial institutions will be swamped, and the central bank will be forced to recapitalize by printing money. Japan has the biggest deflation problem, and they have voted to address it. If Japan can do this it will lead the way out of the crisis. Rocky road though, and stomach turning for Japanese financials.
seriously? sounds too textbook to me. Hyper inflation and currency destruction will lead to total demand destruction within their domestic economy. The cost of imported energy and raw materials will leave their exporters without margin.
When rates are so close to zero the value of a 10 y bond has big moves with a tiny change in rates. This sounds like the kind of instability one gets from division by zero or something approaching it.
What is the solution? The BOJ has to drive 10y rates nominal negative by at least -1%. This will eliminate the instabilities that come from being close to zero.
The end is near.
I'm sure another "please do not worry" statement by the BoJ this time to domestic holders will do. Central Planners have it all sorted out. Nothing can ever go worng.
Old japanese people will go out and spend like crazies... inflation is a bank's wet dream.
Soon Paul Krugman will get Japanese Citizenship. The Platinum coin will be deposited and money for all again!!!
A PROPOSAL:
THE MUTUAL DEBT
CANCELLATION PARTY
http://www.youtube.com/watch?v=rkZ2_nKo7II
FIRST, READ THIS AND WEEP.
http://pages.citebite.com/g1k6u2j8v2udb
Japan's Emergence From
Deep Recession Till The
Lead-Up To The American
Financial Crisis Beginning
in 2008 Was, I Believe,
Siphoned From By Investors
Smitten By The Mortgage
Bubble In The U.S. And Europe.
Now, They Face The
Repurcussions Of A Fibrillating
Export Market; And, They're
Suffering From The Ongoing
Contamination From The
Fukushima Accident, With
The Medical And Emotional
Toll From The Radiation Adding
To Their Burden And Further
Challenging Their Ability
To Recover.
Have You Ever Had An Idea
That Seemed A Little Too
Far Out To Put Forth, But
A Month Later You Thought It
Might Have Been Useful To
Have Not Been So Timid?
It May Be Possible To Identify
Concentrations Of Sovereign
Debt Owed Specific Banks
Going In Each Direction:
From The U.S. To A Japanese
Bank; From Japan To A U.S.
Bank.
If The Fed's Toxic Asset
Purchases And Free Reserve
I.V. Drip In Fact Runs To The
Subject U.S. Bank, Then That
Bank Can Be Nationalized
Temporarily And Run Until Its
Rehabilitation. The Same Can
Be Done On The Japanese Side.
Then, Tokyo's And Washington's
Bank Custodians Can Cross-
Forgive Each Other's
Sovereign Debts On An Equal
Market Value Basis. Notice, That's
Also U.S. Sovereign Debt Getting
Cancelled.
Why Is There A Benefit To The
U.S. If Debt Owed From Japan
Is Cancelled?
That's Because The Debt Owed
From Japan Would Have Run
To A U.S.-Nationalized Bank.
As To Custodianship For
A Nationalized Bank,
Frankly, Grounds For Annulling
Some Debt, Or Perhaps
Inventing A New Class Of
Bankruptcy That Leaves The
Depositors Protected, While
The Subject Bank Is
Rehabilitated, Or Some Such
Process Can Be Used.
As I Like Saying, I Don't Even
Consider Selling Ever More
Risk Protection For Ever
Greater Liabilities For Ever
Less Premiums For Ever
Greater Bonuses A
Legitimate Business.
And Actually, This Process
Would Resemble What China
Went Through When It
De-Nationalized Severely
Indebted Banks.
However, That's Not To Be
Confused With Third World
Bank Debt Relief.
That's Essentially More
Risk Filtering, With Sovereigns
Surrendering Credits While
Affording Private Banks
Stronger Positions.
I For One Would Still Support
Third World Debt Relief
Even Though The U.S.
Taxpayer Pays While The
U.S. Bank Benefits, But I
Wouldn't Want The Upshot
Being A Corrupt Partnership
Between A U.S. Firm And
An African Capital.
The Only Losers In This
Scheme Are The Owners Of
The Subject Bank Holding
Companies, Plus Those
Additional Bank Holding Co.
Owners Whose Own Taxpayer-
Backstopped Lending To
The U.S. And Japan Would Be
Slowed.
I only needed to read the headline to come up with my response
Are Japanese Banks On The Verge Of Insolvency?
Does a bear shit in the woods?
Didn't they get a copy of the new rulebook?
You can't be insolvent, when you get too wobbly, you get a bailout.
So you keep on, keepin' on.
350bps since March 5... bullish for bankrupt Japanese banks.
how would that be possible? The banks would and will be bailed out right away.
If you look at the debt load the Japanese government runs, and its servicing costs v. tax revenue, you'll find Japan is dangerously close to not being able to bail out the banks, or itself for that matter.
This was the essence of Kyle Bass' play -- you look at the numbers and they're screwed, and soon. While the same is true for the US, we haven't reached the point where debt service exceeds (or potentially greatly exceeds, in the case of Japan with a rising interest rate) the ability to pay.
"Surely all this has been provisioned for somehow. Or not?"
Not
Unless Japanese banks, insurers and pensions have changed their stripes (or lapel pins), this is what they might have done/will do:
1) They will "cross" positions with themselves, that is, Bank A will sell its JGBs to itself. They will then be able to book any remaining "gains", and then just put the position back on the books at the new price, which they will not mark to market even if rates soar...in Japan only realized losses have to be run through the BS, and realized gains must be offset by any realized losses (so the incentive is to hold losers forever and book any gains as needed to look good). Unrealized never happened.
or
2) They will create a new subsidiary and "sell" their JGBs to the new sudsidiary (probably Cayman-based). So long as each newly created subsidiary does not represent more than 10% of assets, revenues or profits, it need not be consolidated on the parent balance sheet, according to Japanese accounting rules.
They all did this with equities, real estate and golf courses in the 1990s. Sometimes they just cross futures at market open or close, then between the trade and settlement, they put the "winning" side on the parent and the "losing side" in a subsidiary. They put the futures in particular into subsidiaries, because futures expire and thus have the potential to become a "realized" loss.
So you have long term underlying assets (actual bonds, actual equities) that only hit the balance sheet if the losers are sold, and non-perpetual assets like futures that, although they expire and create a realized loss, that losscan be booked into a non-consolidated subsidiary. (I'll bet even Kyle Bass doesn't know all this.)
To get some idea of the kind of "flexibility" allowed in Japanese accounting and practiced by its largest companies---and which would make the old leaders of Enron jealous---look at the story of the former foreign chief of Olympus.
Since 1989 Japan has been a Cassandra's Dream: it is always worse than it appears. The culture, however, allows everyone to agree to pretend that the face they present to the world is the real face. Note how they all went after the gaijin (at Olympus), who broke culture and called a spade a spade.
Re the above posts,isn't that what Iceland tried to do.
Problem was they were called out. Ask the Chinese when they will call us out. Ask India?
Ask yourself what will happen when the Chinese unpeg their currency from the dollar. When the dollar rises and the Euro and Yen fall nothing has actually changed as it is really the same currency.
The unpegging will come, the Chinese will not save us.
They realize that Japanese bonds are USA bonds are Euro bonds...all the same.
The Chinese are waiting and they are being given gold to wait.
In the end we will either default or split our gold with them and meet once and for all on a level playing field to decide about a reserve currency.
Being a Socialist I pray the governments survive but I doubt they will. Just too corrupt in the West.
The only hope for the West is to cut off the bankers and direct the cash to those in most need. This was done in the post war 1940's when rising wages and essentially free higher education was the reality for anyone in the workplace.
Prime was below 2%,
This is what drives the Bernak to print, he has it half right, problem is that the banks get the money, not the people, so no rising wages which is just another way to say inflation and less consumption. Corporate profit and wages are not in any lock step and employers have no fear of their workers.
This will change as soon as the Boomers workers are flushed out of the workforce and cheated out of their pensions and 401k value but it will be too late.
Without productiity the west will be unable to peg the dollar to the Yuan. Europe and the Euro may jump ship and go Chinese. The French have already started.
We better learn to grow rice and sell gasoline if the kids don't want to work in a steel mill. Pay foreign workers with petro dollars and free meals.
As for the bankers, as was suggested...off with their heads.
bill
This study conducted by Hayman Capital (several mnonth ago) pretty much tells you all you need to know:
"We conducted a study among 1,009 institutional investors in Japan. We asked them: “In the event that Japan would have a bond crisis (i.e. rates would move up 100 basis points) would be apt to invest more (because of a higher nominal yield) or would you be apt to go somewhere else with your money?” Only 8% said they would invest more, 83% said they would run (not walk).
http://nipponmarketblog.wordpress.com/2013/05/13/gpif-tremors-in-the-jgb...