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Re: Bank Of America. Remember The Lessons From Cyprus

Tyler Durden's picture




 

Submitted by Simon Black of Sovereign Man blog,

And another one bites the dust. Now it’s Bank of America, one of the largest banks in the Land of the Free, that is inadequately capitalized.

Last month, Bank of America made a lot of noise about how they were going to buy back up to $5 billion worth of common shares.

As CEO Brian Moynihan stated, “We have simplified our company and we have more than adequate capital to support our strategic plans. We are well positioned to return excess capital to our shareholders.”

Needless to say, investors cheered the announcement, and BofA’s stock price rose nicely as a result.

Fast forward 45 days… and boy what a difference reality makes.

This morning Bank of America rather embarrassingly said it would suspend the stock buyback, stating that they had been ordered to do so by the Federal Reserve.

Moreover, the company must suspend its planned quarterly dividend increase.

All of this because of a supposed arithmetic error in how the bank calculates its regulatory capital. Apparently Bank of America is nowhere near the level of capitalization they thought they had… or had been telling everyone.

And given that the mistake is attributed to the Merril Lynch acquisition from 2009, the errors likely go back for YEARS.

In the words of the once future US Presidential candidate Rick Perry, “Oops…”

This is a big deal; capital is a bank’s lifeblood and a measure of its safety.

A bank with strong levels of capital (which can be thought of as equity, or its total assets minus liabilities) has a vast margin of safety and can withstand major financial shocks like market crashes and bank runs.

Banks with weak levels of capital will perish. Quickly.

Remember the lessons from Cyprus: last March, people went to bed on a Friday night thinking everything was just fine. The next morning they woke up to find that their entire banking system was insolvent and that the government had frozen their accounts.

This was all rather curious given that, literally just days before, they could log on to their bank’s website and check their balances.

It turns out, though, that there’s a huge difference between a number printed on a screen, and the bank actually HAVING the money.

Bottom line, just because they tell you the money’s there doesn’t mean the money’s there. Just because they tell you they’re well capitalized doesn’t mean they’re well capitalized.

And Bank of America is not. Neither is Citigroup (and many others), which recently failed Fed-mandated stress tests.

So in the Land of the Free, you now have inadequately capitalized banks backed by the inadequately capitalized FDIC insurance fund, which is backed by the highly insolvent US federal government, all of which is supported by the nearly insolvent Federal Reserve.

This is hardly a consequence-free environment. Do you have your seatbelt on?

 

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Mon, 04/28/2014 - 19:50 | 4705822 Xibalba
Xibalba's picture

The former Bank of Italy is looking rather nasty here

Mon, 04/28/2014 - 19:54 | 4705835 fonestar
fonestar's picture

Bitcoin.  A whole new world, where you are well capitalized.

Mon, 04/28/2014 - 20:01 | 4705863 Winston Churchill
Winston Churchill's picture

Capitalized shitecoin. Oxymoron ,or u the moron.

Mon, 04/28/2014 - 20:40 | 4705964 knukles
knukles's picture

What this article says, comparing BoA to Cyprus, cannot happen here, today, because today is Monday and Cyprus happened over a weekend.

I am telling you, God sent me here to straighten this shit out.

Mon, 04/28/2014 - 20:15 | 4705896 DoChenRollingBearing
DoChenRollingBearing's picture

For holding alternative assets, some combination of gold, physical FIAT$ and BTC are better than having everything locked away in a bank.

I like BTC, but less than 1% of my assets are there (BTC gives you mobility, and if carefully executed, reasonably good anonymity).  

Much more of my assets are in gold.

Of course if BTC revalues up...  :)

Tue, 04/29/2014 - 08:42 | 4707162 Its_the_economy...
Its_the_economy_stupid's picture

tip-toe

Mon, 04/28/2014 - 21:44 | 4706157 just-my-opinion
just-my-opinion's picture

So you are looking forward to the NWO

Mon, 04/28/2014 - 22:07 | 4706248 just-my-opinion
just-my-opinion's picture

True def. of a troll...someone who doesn't mind gettin the shit beat out of them

Mon, 04/28/2014 - 19:50 | 4705823 i_call_you_my_base
i_call_you_my_base's picture

Mark to market and see what happens. Accounting at the banks is fiction and has been for decades.

Mon, 04/28/2014 - 20:00 | 4705857 TheSecondLaw
TheSecondLaw's picture

Mark to market valuations of assets only applies to the little guys, who live in the real world.

Mon, 04/28/2014 - 20:59 | 4706009 Redneck Hippy
Redneck Hippy's picture

Isn't counting money something that banks are supposed to be GOOD at?  Of course they are, when it goes in management's pocket, but they're even better at creating fictional money to show off to investors.

Tue, 04/29/2014 - 01:22 | 4706653 Bernoulli
Bernoulli's picture

I'm not an accountant, but IMHO:

Mark to market upwards (increasing an assets value) is root of all this evil. That's how everything started and that's why everything is so fucked up now. It allows creating money on paper which should not exist. Hijacking somebody elses transaction or gimmicking around with no transaction at all. Cooking your books basically.

There should be only obligatory mark to market downwards (decreasing an assets value) or otherwise the original transaction price of the asset should be in the books. Like with former German HGB regulation. "NIEDERSTWERTPRINZIP" (="principle of the lowest value"). Staying prudent in accounting. But that would mean the balance sheets of all companies would be like 10 times smaller. Then this means you need protectionism to stop companies with larger balance sheets "eating up" the prudent ones. This means reverse globalization. Hmmm :-/

Probably, we wont get this toothpaste back into the tube.

Mon, 04/28/2014 - 19:50 | 4705824 dirtyfiles
dirtyfiles's picture

but there is that FDIC insurance right?

Mon, 04/28/2014 - 19:52 | 4705829 i_call_you_my_base
i_call_you_my_base's picture

That few billion dollars should go far.

Tue, 04/29/2014 - 00:21 | 4706554 El Vaquero
El Vaquero's picture

Especially if BofA's $38 trillion in derivatives blows up in their face.  Err, I mean our faces.  Because they have them lodged in one of their deposit taking, FDIC insured subsidiaries.  They gamble and we're on the hook.

Mon, 04/28/2014 - 19:57 | 4705848 Winston Churchill
Winston Churchill's picture

Glad that FDIC in the same lockbox as the social security funds.
Oh wait.................

Mon, 04/28/2014 - 21:49 | 4706174 just-my-opinion
just-my-opinion's picture

Thats right....my dad says there is a fund to pay him till he dies

I tell him....It was all in the same box and it fell off a boat a long time ago

Mon, 04/28/2014 - 19:54 | 4705836 james.connolly
james.connolly's picture

Simon Black, the shit is deep in this OP.

Cypress was out&out theft of RUSSIAN money,

Is Simon black telling us that the Oligarch's of Russia keep their money in BofA? I don't think so,

No fucking compare, ... move along, ... nothing here,

Also since when in the fuck would a BANK rob depositors to pay off stock holders?

Rob depositors to ENRICH politicans and bank ELITE yes, but the premise that a bank would rob depositors to ENRICH stock holders is fucking UNICORN-ISM at its worst, me think that simon-Black must be a principal owner/controller of ZH.

ZH is 99% Mushroom Econ 101, feed them shit, and keep them in the DARK.

Mon, 04/28/2014 - 20:00 | 4705859 nuclearsquid
nuclearsquid's picture

This article feels like it was aimed at my widow granny, not the ZH readership at large.

Mon, 04/28/2014 - 21:58 | 4706211 just-my-opinion
just-my-opinion's picture

I think It was "aimed" at anyone who has a bank account

But I like your humor

 

Mon, 04/28/2014 - 20:57 | 4705997 David449420
David449420's picture

james.connolly member for 4 &1/2 weeks

Let me correct or respond to a few (most) of your strawman arguments.

" Cypress was out & out theft. "  Period.  It isn't relevant what nationality you ascribe it to. Banksters will steal from whoever they can.

" Is Simon black telling us that the Oligarch's of Russia keep their money in BofA? " Actually he did not say that at all. You did, premising it on your first strawman argument.

" Also since when would a BANK rob depositors to pay off stock holders? " Well I suspect probably from about the second day that the bank was in operation.  But that is an aside. Black did not say that, YOU DID.

Globally insulting all the readers of this blog displays your hubris & sociopathology.  Bought & paid for shills usually don't take long to expose themselves, but you rank up close to top in incompetance.

Don't go away mad.  Just go away. 

 

 

Mon, 04/28/2014 - 21:32 | 4706119 0b1knob
0b1knob's picture

Cypress????????????  Is that between YouCrane and UrAnus?

Mon, 04/28/2014 - 22:02 | 4706225 bonin006
bonin006's picture

It was an attempt to steal Russian money, but many articles posted here make it look like the Russians outsmarted the thieves.

Mon, 04/28/2014 - 19:55 | 4705841 nmewn
nmewn's picture

The best accountants & regulators money can buy ;-)

Mon, 04/28/2014 - 20:17 | 4705846 Dr. Engali
Dr. Engali's picture

I'll let you in on a secret Simon..... Ready? There is NO money in the whole debt based fractional reserved fiat currency system. It's all a freaking Ponzi scheme and the last trace of real money was cut out in 1971. There is an old axiom, control the language control the debate. Stop calling the BernankenYellan's funny paper money. Call it what it is; a freaking IOU from a broke dick mother fucking country that enslaves the nation, it's present and future labor, to handful of oligarchs.

Tue, 04/29/2014 - 02:29 | 4706737 Strat-O-Sphere
Strat-O-Sphere's picture

Absolutely. I am suprised anyone even takes that bit of paper from me for actual goods and services. The only question that remains is when will this fiat ponzi collapse, because most people out there are still under the false impression that a printed bank note IS money. My theory is that they can keep the fiat bailout/bail in buy government treasuries loop going almost indefinetely, whilst freezing the real economy. That will eventually cause enough poverty, uneployment and misery that the majority of the population will revolt. I simply don't see how else can this fake debt economy collapse onto itself, unless someone triggers it like they did in 2008.

Mon, 04/28/2014 - 19:57 | 4705850 fed_depression
fed_depression's picture

I remember on CNBC the Lehman CFO saying how well capitalized they were right after the common stock offering. It only took a few months after that to go BK.

Mon, 04/28/2014 - 20:02 | 4705864 ebworthen
ebworthen's picture

The Banks, like the FED and the Treasury and .gov; are not just financially insolvent but ethically and morally as well.

Mon, 04/28/2014 - 23:40 | 4706476 spekulatn
spekulatn's picture

Kyle Bass  often says US banks recapped after the 2008 crisis. (I say bullshit)

European banks did not. (Agreed)

BofA is only the beginning.

Mon, 04/28/2014 - 20:02 | 4705866 Seasmoke
Seasmoke's picture

Better raise that FDIC to $500,000.

Mon, 04/28/2014 - 20:02 | 4705867 kchrisc
kchrisc's picture

It's all just one big bank in the end; The BIS.

 

When the music stops gold and lead will be the only two chairs that they won't own.

 

“My guillotine will have a chair too.”

Mon, 04/28/2014 - 20:04 | 4705877 Racer
Racer's picture

Put your money in a bank = severe risk of a bank robbing it

Mon, 04/28/2014 - 20:15 | 4705900 Edward1290
Edward1290's picture

Correct. Banks are borrowers, not lenders....

Mon, 04/28/2014 - 20:06 | 4705880 Bunga Bunga
Bunga Bunga's picture

Get over it, it's a full blown shell game since 1933/34.

Mon, 04/28/2014 - 20:25 | 4705931 Dr. Engali
Dr. Engali's picture

Go back a little further to 1913 and you would be right.

Mon, 04/28/2014 - 20:08 | 4705884 Spungo
Spungo's picture

A bank that doesn't know how to count money? That's like being a politician who can't suck a dick to save his life.

Mon, 04/28/2014 - 20:20 | 4705913 thewayitis
thewayitis's picture

 

  If it's NOT in our hand.....You DON"T own it .....

 

Mon, 04/28/2014 - 20:20 | 4705914 Herdee
Herdee's picture

Canada plans to issue a new series of Bonds.Guess how long the duration?Try 50 years.

Mon, 04/28/2014 - 20:32 | 4705951 STG5IVE
STG5IVE's picture

Why not "Eternity Bonds"?

Mon, 04/28/2014 - 20:24 | 4705927 Irving Phelps
Irving Phelps's picture

Yeah right. How many of the fucking B of A rats sold out of their stock during the 45 day pump and dump?! Hang the assholes!

Tue, 04/29/2014 - 04:05 | 4706814 SoDamnMad
SoDamnMad's picture

Look at all the Puts bought in the last 10 days by the GFs of the management of BofA.

Mon, 04/28/2014 - 21:16 | 4706068 fzrkid
fzrkid's picture

Nothing will happen until it all crashes down. Thats will not happen for a couple more years.. Auntie Yellen will continue to print 'n print 'n print

Mon, 04/28/2014 - 21:53 | 4706194 boooyaaaah
boooyaaaah's picture

try BBT

Mon, 04/28/2014 - 22:21 | 4706293 Thomas the Crane
Thomas the Crane's picture

Kind of like the Delusion of Representative Democracy: "Just because the stated purpose or intention of the Representative Democracy is to represent the wants, needs and desires of the majority of the people, doesn't make it “materially” so for the majority of the people." 

Tue, 04/29/2014 - 01:09 | 4706628 Barrack Chavez
Barrack Chavez's picture

Rather important correction is needed here:

BofA did not "acquire" Merrill Lynch.  The criminal Henry Paulson, acting as Treasury Secretary / Goldman goon, essentially forced BofA to take on the Merrill mess.

How quickly people forget Paulson's crime!

Tue, 04/29/2014 - 01:41 | 4706681 disabledvet
disabledvet's picture

Yeah, well... A little talk on Countrywide and "liar loans" by Simon de Bolivar Black here wouldn't hurt either.

This guy is limousine liberal masquerading as a conservative in drag.

Give it up Simon Says.

Using Banks as an extension of State Policy has put the State itself at risk. The "theory" that equities can soar the economy has been put to the test and found to be more than just wanting.

It's prima facie ridiculous...and Simon Black knows it...he's just too Full Retard to come clean about what a friggin moron his bullshit is...so rather than look at the data he looks in the mirror...and lo and behold "he sees Simon Black."

A trillion dollars?

Fer real?

Again..."you can print the debt but you can't print the growth."

Maybe if equities were headed to 25,000 on the Dow.

What if they're heading to 10,000 instead?

Tue, 04/29/2014 - 06:42 | 4706927 AdvancingTime
AdvancingTime's picture

In Cyprus it was refered to as a "bail-in" or a haircut. A bad haircut, in this case means you have been robbed. That may be the case if the government reaches in over a long weekend and steals money from your bank account.

This is a horrible precedent to set, and the worst part may be how some people are letting it slip out that it would be fair, or in some way justifiable if it is only on the larger accounts. It is fine if it only impacts the savings of someone else, the savings of what they see as "the wealthy", the problem is someday they may come for you. I shudder to think what kind of world our children will live in.

http://brucewilds.blogspot.com/2013/03/a-bad-haircut-seizing-bank-accoun...

Tue, 04/29/2014 - 14:24 | 4708813 torak
torak's picture

“We have simplified our company and we have more than adequate capital to support our strategic plans. We are well positioned to return excess capital to our shareholders.”

Ahhhh...B.S.  What debt did they take on to do that?  They'll be rooting nose-first into the TARP trough as soon as the current bubble implodes, right after they clean out their depositors.

Long bacon and pork products

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