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Halloween Surprise: How Will The US Banks Plug Their $120B Capital Shortfall? Trick Or Treat?
Source: searchglobalnews.wordpress.com
The Federal Reserve had a nasty surprise for the financial markets right before the Halloween weekend (the perfect timing to sweep something under the carpet and hoping the markets will have forgotten about it by Monday). At 8PM on Friday night (again, perfect timing, the Fed made sure all Bloomberg terminals were switched off and the average Wall Street trader was already spending his salary in a fancy Manhattan bar), a statement was issued, confirming the major banks in the USA would need an additional capital injection of $120B to secure the safety of the financial system and to get rid of the capital shortfall.
The governors of the Federal Reserve have confirmed and approved a draft version of the proposal, and it will now be made available for public comments. The remarkable part of the proposal is the fact the council of governors is proposing to fill the gap by raising additional debt, instead of issuing new shares to increase the equity level on the banks’ balance sheets.
Source: opengov.com
The six major banks will be hit by this new proposal, and it’s widely expected JP Morgan and Citigroup will have the hardest task to comply with the Fed’s requirements. So okay, if the $120B could be covered by new (probably subordinated) debt issues, the damage could be limited to the banks just paying a few billions in interest expenses per year. Nothing to lose your sleep over.
However, what’s really disturbing here is that these same banks, 6 years after the global financial crisis, are still facing shortcomings on the balance sheet front. Despite the government and the Federal Reserve claiming that the ‘crisis is over’ and the American economy is ‘healthy again’, apparently the banks would still have difficulties to deal with any decent-sized economic crisis.
But wait, that’s not all. On Friday, the European Central Bank also announced the results of a review of the situation of the Greek banks in the Euro-system. Apparently, there still is a huge hole in the Greek financial sector (surprise, surprise), and the Greek banks would need an additional capital injection of in excess of $15B , just to survive any adverse economic scenario in the country.
Source: politico.com
And this will very likely prove to be a much tougher challenge for these banks as the combined market capitalization of the four largest banks in Greece is less than $5B. Oops. Do you see the problem here?
It will be close to impossible to inject another $15B in those 4 Greek banks without a complete nationalization or at least absorption by a larger entity. And okay, yes, approximately $25B of Greece’s next rescue package is earmarked to be used to support the banks, but that’s only kicking the can further down the road.
Let it be clear. We are NOT out of the danger zone yet, and with a shortfall of $120B at the six largest banks in the USA and a $15B shortfall in Greece (roughly 3 times the market capitalization of the four largest Greek banks COMBINED), the situation actually looks pretty bad. There’s no way the Federal Reserve could maintain its position that ‘everything is going great in the USA’.
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Dat Common Core math sure do come in handy <Ebonics intentional.
The capital hole will just get worse as interest rates rise. On account of the duration mismatch going against the banks, instead of being helpful as it was over the past 30+ years of falling rates.
The only fix for the US banking system in the long run is substantial downsizing and liquidation. Return it to a utility function where employees mostly earn lower-middle-class salaries except for a few executives who earn a bit more than average compensation. I personally believe 'banks' will eventually return to their roots as being off-shoots of industrial companies, rather than being free-standing "Wall Street"-type entities. The future of banking belongs to corporations with excess capital to lend out, not the pretty boys who currently occupy the system.
more cocaine, prostitutes. and free hd porn for the sec., problem solved.
keep printing b.s. and sooner or later people may start to believe the truth that international bankers, that own the fed. also own these banks.
their tbtf for 8-10 $ trillion, I assume they'll come up with 150$ billion.
This is fucking ridiculous fuck these banks. Maybe its time to cut the bonuses back?
Already spent your 401. The only thing left is the accounting paper.
7 years, but who's counting?
QE to ?
You don't really believe that 120 billion will be enough do you?
Agreed, sooner or later we are gonna be talkin' bout some real money!
Real peculiar, isn’t it?… It’s gettin’ harder and harder and harder to borrow enough money to get wealthy and remain wealthy.
Dear Janet,
You may be a puppet, but you are the only one who can end this.
Cut your strings and tell the truth, or just get off the stage you wretched academic.
Everything is awesome........ the Cronies at the Fed and ECB keep saying time after time. So.......how come banks fail to their stresstests ?? Someone must be lying. ;)
And sure thing the banks Must borrow. By raising capital thru issuing new shares, eps will fall through the floor most probably.
At what point does equity get wiped out and reorganization occur?
After things blow up, after they steal our deposit money from bail ins and that doesn't work, then they get reorganized with more national taxpayer bailouts....again.
They may go after the 401k, that about $3-4 trillion there.
Less doubt than before. Keeping money in banks is taking on a huge counter-party risk as an unsecured creditor.
Capital infusions are needed to "secure the safety of the financial system"?
We've heard this language before, and it didn't turn out well. I'd say it's the first admission that the next financial crisis is upon us. The TBTF banks were never fixed. How could they be when all we did was reward them for blowing up their balance sheets in the first place? No one was prosecuted. No one was fired. Heck, they even got their bonuses!
So of course, they blew themselves up again and the Fed is admitting it.
Buckle your seatbelts, folks. This could get bumpy!
fatboy's stack of $ wont taist so good after OPEC wipes their ass with it
the banks will steal it from their customers of course!
Really no logic to use a bank. Have used credit union for 30 years whose members work for stable businesses like ATT, Exxonmobil, Total, teachers, etc. Low or no fees, friendly people that live in your neighbor hood. The banksters can vote me down and kiss my ass.
"...with a shortfall of $120B at the six largest banks in the USA..." What about banks 7 thru 99999999? Are they doing any better?
Strange that the way to improve their balance sheets is to borrow more money which of course needs to be paid back with interest.
I find it cute that anyone believes that thre will ever be any real payback.
FORWARD SOVIET DEADBEATS!
I find it cute that anyone believes that thre will ever be any real payback.
FORWARD SOVIET DEADBEATS!
Easy answer: The Fed will print more and the TBTE banks will buy more US Treasuries and MBS and lend less, which they were going to do in any case given the shrinking net interest margin and a growing dearth of creditworthy borrowers among households and small to mid-sized businesses but lots of demand for credit from Fortune 25-100 firms to buy back shares to shrink float and pad earnings, spot execs' stock option grants, and to pay dividends and interest.
That is brilliant! The Fed prints 120 billion dollars, the banks borrow the money and buy back their shares and buy UST and MBS. Thus, they can shore up their balance sheets in case the SHTF and the Exec's get their share options exercised. Plus the divi's are huge and everyone is happy. After all these year's I am finally understanding economics. I was under the delusion that companies had to make profits to pay dividends when all they have to do is borrow money. What could possibly go wrong? Thank's for explaining.
They just create more money out of thin air and lend it to each other, just as they have been doing for the last 102 years (at least). Whether it is between central banks or international banks, they all do the same thing.
There should be a law against it, but apparenlty if there is, it is completely ignored. The entire system is one big fraud designed to keep the unworthy psychopathic criminals in power.