Category Archives: Bank Stocks
S.E.C. Sues Goldman Over Housing Market Deal – NYTimes.com
Shorts? SEC doesn’t like any structures right now
Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.
The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.
The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market.
Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.
While I can still defend greed as it forms a basis of capitalist society, Citibank and AIG (Financial Products’) Teams have really shown how deals must not be done in the Financial world. While seemingly simple statements from Tom Mahera (Ft.com/City AM) who himself left ‘Invetsment Bankign’ for just a more intensive ‘Bond Trading’ in his career never bothered to assess his portfolio, the entire market has been surviving these last two years on quick assessments on spreadsheets by the same dozen analysts used in each bailout from the first one s with FDIC and Sheila Bair at Lehman ( which just dropped off the chart while others got the dole) , AIG, Morgan Stanley, AIG, GE, GMAC which borrowed again in 2009 and the FDIC candidates thru Wachovia, WaMu and Citi itself.
Chuck may be all apologetic and Vikram Pandit may be surviving on $1, but it does not change the fact that the entire top team at citi than and even now has made it a habit of living life under a cloud, trying brinksmanship and cat and mouse games to cover financial knowledge.While AIG seemingly victimised by GS esp from the NY Times team of CDO and Insurance analysts (lol!) never seemed to have any idea of what it had in the bank, it seems Citi’s bond Traders and Hedge Fund Principals never bothered why CDO markets were falling apart . CDOs hapen to be sure fire indicators and much nearer the calamity date, so picking them up at the wrong time in end 2006 is like picking up your meat sandwich when it is already assured of a free knuckle sandwich side dish…
Robert Litterman, chairman of Goldman Sachs Group Inc.’s quantitative hedge-fund group, will step down at the end of this month, a move planned before President Barack Obama’s call yesterday to limit proprietary trading at banks, according to people familiar with the situation.
Litterman, a 24-year Goldman Sachs veteran, advised a unit that ran Global Equities Opportunities, a quantitative hedge fund that required a $3 billion cash infusion in 2007. The fund, which used mathematical models to trade securities, closed last month after its assets fell to $200 million from as much as $7.5 billion, according to two people familiar with the situation.
Litterman’s departure was not connected to the fund’s closure, the people said. Global Equities and Goldman Sachs’s Global Alpha fund lost value in August 2007 when many quantitative managers raced to exit trades simultaneously. In June 2008, Litterman said the hedge funds suffered because they were too large for a “de-leveraging explosion.”
Huffington Post broke us this one, Thanks James, Adrinana! Huff!
Add someone in Hongkong who writes a default swap for them ( insurance, in case of default, maybe the local Nankiang units can diversify :) ) and you have another perfect crisis, for the Chinese to fund this time. And they’ve defaulted on quite a few contracts themselves! ( commodities, October 2009)
Citi taught us to use Off Balance sheet financing
Banks are moving loans off their balance sheets in order to dress up their accounts for worried regulators.Only this time it isnt Citigroup C or State Street SST thats involved, but Chinas big banks.In November Chinas banks packaged and then sold $18.6 billion in loans to Chinese trust companies, removing those loans from the banks balance sheets, Shanghai Benefit Investment Consulting has told the Wall Street Journal. Thats a huge 54% of all the new loans banks made in the month according to government figures. For the year the total of loans packaged and sold by banks comes to almost $90 billion.The repackaging and sales come as Beijings bank regulators have started to worry that the countrys banks dont have enough capital to back all the loans theyve made in 2009. So far in 2009 Chinas banks have made more than $1 trillion in new loans, according to government figures. Regulators have begun to press banks to raise more capital to buttress their balance sheets.By selling the loans to trust companies, banks take them off their balance sheets. That has the effect of reducing the amount of loans that the banks look like they have made. That in turn reduces the amount of capital it looks like they need to raise to support these loans via James Jubak: Chinas Banks Copy Citigroup in Hiding Bad Loans Off Their Balance Sheets.
Wells Fargo used 2009 as a good time to review its national footprint and with Wachovia in its belt used the time to grow its retail presence and cement a leadership position that now threatens BofA directly
Also a couple of tricks of the trade, kept it more profitable than most in its competitor set, using the now derogatoy ‘Proprietary Trading’ desks to hedge with mortgage securities
In investor-speak, that means Wells Fargo, which has 6,600 branches in 39 states, purchased investments that pay off when short-term rates fall–which is exactly the action central bankers have taken to keep credit flowing during the financial crisis.
Wells Fargo reported a profit of $2.82 billion or 8 cents a share for the 4th Quarter up 92 cents a share from the year ago results. The bank reported revenues of $88.7 billion for 2009, producing $12.7 billion in income and the 4th quarter results were well ahead of expectations
In the fourth quarter, Wells Fargo originated $94 billion in mortgages while Bank of America originated $84 billion, up sharply from the volume of mortgages they made in the fourth quarter of 2008 at the depths of the financial crisis. According to trade publication National Mortgage News, the two banks accounted for 40% of new mortgages in the third quarter of 2008, the latest period for which information is available. They have similarly dominant positions in the servicing of mortgages.
After this, the war is now heavily tilted in favour of the west coast headquartered Wells Fargo, with Citi struggling to keep up with both. Wells Fargo was never under the pay czar’s administration and despite a 47 cent loss from a $25 b repayment in the fourth quarter, did not tailspin like the other two
Paul Volcker has new risk limits
After the treasury induced reforms that were more a laundry list of all measures, with existing internal controls at banks pushed into the open, in the next round against criminal misuse of the monetary and fiscal basis, Obama leaned towards Paul Volcker to introduce risk based limits for the Treasuries at commercial and investment banks. Goldman Sachs has already brought leverage down to 4.42 times net worth during the upheavl of 2009.
In an interview with ABC on Wednesday Mr Obama characterised the move by saying that the administration was about to get into a “big fight with the banks.”
“We’ve got a financial regulatory system that is completely inadequate to control the excessive risks and irresponsible behaviour of financial players all around the world,” he said.
“People are angry and they’re frustrated. From their perspective, the only thing that happens is that we bail out the banks… We’re about to get in a big fight with the banks.”
An administration official on Wednesday said the plan – in discussion for the last couple of months – was born out of a need to “cut down on excessive risk taking”.
The announcement is likely to stop short of the return to a forced separation between riskier investment banking and the utility functions of retail and commercial banking that was enshrined in the Glass-Steagall Act.
Goldman Sachs – which runs a large proprietary trading business and which reported stronger than expected fourth-quarter profits on Thursday – will be watching the details closely, but the measures are more likely to threaten institutions whose operations are large and span commercial and retail operations as well as trading for their own benefit.
“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama at the White House.
“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary,” Obama added.
The proposal aims to deter commercial banks from becoming so large that they put the broader economy at risk and distort normal competitive forces
BofA is doing well if for the fact that it has already returned all government monies and has provisioned another $1.6 billion for Credit Losses
As a new habit, we will continue to use the NY Times summary ( No it’s not Scott :) )
Even as the nation’s largest financial institutions report whopping profits from their investment banking units, those with major consumer lending portfolios continue to bleed money as unemployment and a weak housing market hamper people’s ability to repay their debts.
On Wednesday, those losses posed a fresh threat to Bank of America, which reported a fourth-quarter net loss of $5.2 billion, or 60 cents a share, compared with a net loss of $2.4 billion, a year earlier. Analysts surveyed by Bloomberg had expected a loss of 52 cents a share.
For the year, the bank lost $2.2 billion or 29 cents a share compared with a profit of $2.6 billion or 54 cents in 2008.
The bank, which acquired Merrill Lynch in 2008 at the height of the crisis, said its total assets soared to $2.4 trillion at the end of 2009 from $1.9 trillion a year earlier.
via BofA losses
The rise in 2009 total assets is good, the fourth quarter loss is just $194 million after TARP payback but overall the card portfolio ( yes, MBNA as we knew it) is by itself $4.9 billion and total write downs have risen to a huge $33 billion from less than half the amount for 2008. Also, BofA and Wells Fargo tomorrow will not have the luxury of international business anymore. However, Wells Fargo is competitive and profit-making. Without HHI, Moynihan would probably continue in a state of suspended thinking and BofA must suffer in 2010 as a result. the ML acquisition is not bringing in ny benefits with top executives walking out and global results affected by well Merrill Lynch.
Bank of America is good at retail banking and even traditional Commercial Banking however, and its trained , much prized employees could still show Wells Fargo a thing or too.
Andrew Sorkin at NYtimes’ Dealbook just updated below
Update | 1:12 p.m. MetLife has emerged as the lead bidder for the American International Group’s Alico life insurance unit, people briefed on the matter told DealBook, as A.I.G. seeks to sell off the unit to help repay its $182 billion in government aid. The February offer was a good 25% lower at $11 billion
[picapp align=”left” wrap=”true” link=”term=aig+building&iid=4269881″ src=”8/4/c/3/PicImg_AIG_gives_company_2d16.JPG?adImageId=9298971&imageId=4269881″ width=”234″ height=”156″ /]Under the terms being discussed, MetLife would pay about $14 billion to $15 billion for the A.I.G. business, these people said. A.I.G. has said that in a disposition of Alico, about $9 billion of the proceeds would go toward repaying the government’s lifeline.
A deal for Alico is still two to three weeks away, these people said, cautioning that negotiations are ongoing and may still fall apart. MetLife and A.I.G. held talks about a potential sale of the unit before, only to fall apart over price.
Alico services 19 million customers in 54 countries with a government interest of $9 billion , while the IPO candidate AIA based in Asia is the other new Life insurance entity with a $16 billion Govt interest i.e. a $20b equity capital base. Reuters story here
The Alico and AIA book together make up the $600b in investment assets with AIG and a $14 billion price tag should turn in a neat book profit and cash for returning the govt liabilities of $180 billion. The AIA IPO will be a further $8 billion and has waited for Benmoshe and/or Greenberg to complete the Alico deal.
P.S. We are not mentioning the ink on N Y Times to Alico that still links to an Alco inc. in Agribusinesses, but really the way people disrespect paper and newspaper, it’s funny, rofl..
Also, in the mean time, Bernanke has stepped in to try and clear his name:
Bernanke, Hoping to Quiet Critics, Seeks Review of Fed’s A.I.G. Bailout By THE ASSOCIATED PRESS
[picapp align=”right” wrap=”true” link=”term=AIG&iid=6809696″ src=”0/f/f/7/Neil_Barofsky_testifies_ccc9.JPG?adImageId=9298931&imageId=6809696″ width=”234″ height=”156″ /]The $182 billion rescue has sparked public outrage and demands in Congress for more information about the lifelines, beginning in 2008, provided to the company.
Repayment week came a cropper as Citibank found a lukewarm market waiting for its sale to raise the $20 billion to repay. It seems Vikram Pandit’s team failed to do the required homework before declaring its ambitious calendar and lacked the skills to judge the market conditions right for its sale. All the meetings Vikram Pandit had been having with the Treasury came a cropper on a day that mysteriously coincided with Obama’s call to the bankers.
The market does nt ignore such folly. All insider trading and information based decisioning apart, the market first and foremost reads market information and that information now puts Citi and AIG in the same league. Both will now be assessed with a lack of direction and difficulty in reading its stakeholders because of a simple public fracas. I mince no words when I say that they could now be treated worse than an Accenture cuddling Tiger woods a week after the man destroyed his marriage.
This is a setback for the entire recovery mechanism and a symptom of the misreading that afflicts the Geithers, Benmoshes and the Pandits
Even a Hongkong market could raise over $50 billion but you came out with an offer no one wanted for Citi. Sounds like, Citi is no better than one of the 133 banks that have failed in the US this year. This cannot be compared to the Mortgage meltdown or made a part of it. It needs a new chapter by itself. We all suffer for such fools though the gimmer of hope is that now no one cares when an AIG or Citi breaks the buck and the markets go on with better picks. It’s a shop like any other..In fact in pstate Des Moines in Iowa, the schools and the lake planes are all fine. The Ski resorts are doing big business too. And Dubai is back. Azerbaijan has a sovereign wealth fund. What about the new oil and mineral deposits south of Brazil and in the dense African safari..
It’s no fluke in the pan either. Spokane (WA), Phoenix (AZ) and Boise(ID) have been consistent scorers, because you can get the same quality of life for much less than a crushing load on your pockets. And your favorite banks and ATMs have not been taken down either. Your favourite super retailers are there right till Nordstrom, I’d say do it now. Figure out where you want to live in that new pay cap, and your office will do it for you. Come to Iowa, Come to Nebraska. Come in your own plane. That is why your bonus is in the best stock you could own, your employer. Try it!
We all know the fable of the tortoise ultimately winning his painstakingly measured race against the hare.
Apply that to today’s economy and it’s relatively easy to come up with a winner for MarketWatch’s third survey of the best U.S. cities for business. This year’s victor is the subdued terrapin of regional economies: Des Moines, Iowa — population 556,230.