Europe Issues New Bank Guidelines
zyakaira notes: These common rules specify stress tests for the 30 that have received state aid. Also they emphasize the fact that this aid must stay on the books to be of any value and not immediately used to save falling/defaulted bonds. All in all, it looks good on paper and barring any unforeseen bickering by the nation states individually as BoE and maybe a few others may prefer, these would set a nice denominator. From my side I would recommend that the best and worst case be not used to skew results and be used in a fair range, which should be eminently possible in 6 months
To even out different requirements imposed on banks that have received government aid, the European Commission has set forth common rules
The European Commission laid out new guidelines for banks receiving government support on Thursday (23 July) in order to avoid distortions of competition within the sector.
Since the fall of Lehman Brothers last September, roughly 30 banks within the EU have received state aid to keep them afloat on condition that a restructuring plan be submitted within six months.
But banks will have five years to implement their plans, an indication that the commission still considers the current climate extremely difficult.
Philip Lowe, the commission’s director-general for competition, said the guidelines were “the ultimate stage in restoring health to the banking sector…which is done by returning individual institutions to viability without state aid.”
He cautioned that state aid could not be provided so that banks could continue with a “failed business model.”
Instead, the restructuring plans must take account of “the present state of and future prospects of financial markets, reflecting best-case and worst-case assumptions,” say the guidelines, which will remain in place until 31 December 2010.
zyakaira notes: Citi reported $4.3 billion, BofA $3.2 billion on $33 billion, $JPM $2.7 billion on $27.7 billion, with TARP repayments costing $0.10 to the EPS and $GS reported $1.8 billion (WAMU and MER seem to have paid off!)
Citi and BofA woula have made losses without the one time stake sales while JP Morgan has absorbed the bullets and GS never got shod in the shooting gallery for all practical purposes.
Unfortunately, $DB and the European banks are still sinking! Citi beat the analysts to hell! One more shot for the next quarters acquisition boom. If you note, all profit is from underwriting and fees while morts and Fixed Income has stopped bleeding at these 4 and hopefully $WFC
NOW LET’s GET TO REPAIRING THE ROAD AND THE POWER PROBLEMS, as Mamaa would say..
But behind the figures was a sober reality: Those happy results were driven by billions of dollars in one-time gains — in the case of Bank of America, by a profit from the sale of a stake in a big Chinese bank and, in the case of Citigroup, by a bonanza from a new joint venture for its Smith Barney division.
Without those one-offs, the banks, despite two taxpayer-financed bailout dollars apiece, would have lost billions.
Like Goldman Sachs and JPMorgan Chase, which stunned Wall Street earlier this week with robust earnings reports, Bank of America and Citigroup got big increases from their trading operations.
But the pain being felt by hard-pressed American consumers hurt these giants even more. Both banks set aside billions of dollars to cover looming losses on consumer loans and warned that, given the tough economy, the road ahead could be rocky.
Still, the results exceeded analysts’ expectations. Bank of America announced earnings of 33 cents a share, and Citigroup reported earnings of 49 cents a share. The results at Citigroup far outstripped the loss of 18 cents a share that analysts had predicted.
But both banks — the last of the big lenders that have yet to pay back their emergency bailout money from the federal government — sold significant assets during the quarter, cushioning their bottom lines. Bank of America’s results were enhanced by the $5.3 billion pretax gain from the sale of shares in the China Construction Bank. Citigroup formed a joint venture with Morgan Stanley for Smith Barney, resulting in an $11.1 billion pretax gain.
While the results provided another sign that American banking industry is stabilizing somewhat faster than many had expected, they nonetheless underscored how the sagging consumer economy is hurting banks big and small. For the moment, trading and other traditional Wall Street businesses, such as securities underwriting, are generating profit at many big institutions.
At Bank of America, a record trading profit of $6.7 billion and a pickup in investment banking fees lifted net revenue to $33.1 billion, up from $20.7 billion a year ago.
In 2005, after his triumphant return to Morgan Stanley – the bank he had left four years before after losing a power struggle – John Mack got a call from the Tokyo office.
The senior banker on the other end of the line urged the new chief executive to strike a joint venture with one of the large Japanese banks to take advantage of their large deposit base and unparalleled corporate connections.
Four years and a devastating financial crisis later, the Tokyo office has had its way.
Morgan Stanley and Mitsubishi UFJ Financial Group (MUFG), one of the world’s largest banks by assets, on Tuesday announced a new $100bn-plus alliance to boost lending to American companies.
The circumstances that led to the partnership, which is part of a wider strategic tie-up between the two companies, are not what Mr Mack might have envisaged in 2005.
MUFG and Morgan Stanley found each in the midst of the most virulent financial storm in decades.
In October, as panicky investors targeted Morgan Stanley’s shares amid fears its business model was doomed and the bank might soon follow Bear Stearns and Lehman Brothers on the industry’s scrapheap, MUFG came to the rescue.
The Japanese’s investment in $9bn of preferred shares, which convert into a stake of about 20 per cent, helped steady the market’s nerves and offered Mr Mack a chance to tap into MUFG’s vast resources.
Tuesday’s lending joint venture, which will pool the two companies’ loans to US companies, is an admission by Morgan Stanley that having a strong balance sheet – and a willingness to use it – is crucial to winning business in the post-crisis world.
(Goldman Sachs has a similar balance-sheet sharing alliance with SMFG)
(PTI – NDTV.Com)
The wealth of world’s rich people dropped nearly 20 per cent to $32.8 trillion, while India saw the second largest decline in the number of High Net Worth Individuals at the end of 2008, says a report.
The population of HNWIs shrank by about 15 per cent to 8.6 million and in India, the numbers came down by 31.6 per cent to 84,000, says the World Wealth Report from Merrill Lynch and Capgemini.
HNWIs are referred to those who have at least $one million in investable assets, excluding primary residence, collectibles, consumables, and consumer durables.
“At the end of 2008, the worlds population of HNWIs was down 14.9 per cent from the year before to 8.6 million, and their wealth had dropped 19.5 per cent to $32.8 trillion.
The declines were unprecedented, and wiped out two robust years of growth in 2006 and 2007,” the report said.
Interestingly, the wealth of such individuals grew about 7.2 per cent from 2005 to 2007 while their wealth rose 10.4 per cent during the same period.
“India’s HNWI population shrank 31.6 per cent to 84,000, the second largest decline in the world, after posting the fastest rate of growth (up 22.7 per cent) in 2007.
“India, still an emerging economy, suffered declining global demand for its goods and services and a hefty drop in market capitalisation (64.1 per cent) in 2008,” the report said.
American Airlines, struggling with slumping demand in the recession, asked lenders to ease the terms of its $435 million loan, people familiar with the request told Bloomberg News.
American sought the waiver of its fixed-charge covenant during a June 22 conference call overseen by Citigroup, the lender managing the amendment process, these people said. AMR, the carrier’s parent, asked creditors to commit to the change by June 25, the news service reported.
The move reflects the strain on U.S. airlines from a collapse in business travel and a 40 percent surge in jet-fuel prices since March 1.
Office Depot said Tuesday that the private equity firm BC Partners has made a $350 million investment through a preferred stock purchase, giving it a stake in the office supplies chain of approximately 20 percent.
BC bought about $275 million of the company’s Series A convertible perpetual preferred stock and approximately $75 million of its Series B conditional convertible perpetual preferred shares. Office Depot, previously announced that it would close approximately 9 percent of its North American stores
JPMorgan Chase leads a list of the world’s strongest banks, while the Royal Bank of Scotland reported the biggest loss of any lender last year, according to new industry rankings by the British magazine The Banker.
The Royal Bank of Scotland’s $59.3 billion loss last year eclipsed all rivals, includingCitigroup’s $53 billion loss and Wells Fargo’s $47.8 billion loss, The Banker reported.
Global bank profits slumped 85 percent last year to $115 billion, down from $781 billion, and return on equity plunged to 2.69 percent, from 20 percent, the magazine estimated, according to Reuters.
U.S. regulators are drawing up rules that would make it easier for private equity firms to acquire troubled banks, aiming to free up more funds to recapitalize lenders, the Financial Times reported, citing people close to the situation.
The plan, which has yet to be finalized, may require private equity companies to inject substantial capital into lenders and to agree not to sell them for at least two years, the newspaper reported.
Obama administration officials continue to stress concerns about ensuring sufficient capital in the financial system, even as several financial institutions have begun lining up to return funds borrowed under the governments $700 billion troubled asset relief program to cope with the financial crisis.
The paper cited analyst estimates that private equity firms could provide up to $50 billion to recapitalize banks.
The Federal Deposit Insurance Corporation, which is charged with taking over failed lenders, is leading the drafting of the new rules, the paper quoted people familiar with the situation as saying.
The FDIC board, which also includes representatives from other banking regulators, is expected to discuss the matter in the next few weeks, it said.
Buy-out funds wanting to buy a troubled bank would have to disclose performance measures and marketing materials to allay fears that they might use the banks to subsidize other companies in their portfolio, it added.
The Federal Reserve has limited private equity groups to bank stakes of less than 25 per cent, reflecting concerns over conflicts of interests, but the latest crisis has prompted regulators to take a softer stance, the paper said.
Highbridge Capital Management’s deal to sell the rest of itself to JPMorgan Chase may be one of many similar transactions to come, The Deal reports.
As smaller hedge funds have found themselves rocked by the financial crisis, industry watchers have predicted that consolidation may be on the way, particularly for hedge funds looking for the safety in the arms stronger private fund managers or larger institutions, The Deal said.
And such dealmaking has already begun heating up. Aside from the Highbridge deal, The Deal noted that Cheyne Capital Management’s acquisition of Altedge Capital and GLG Partners‘ deal to buy Société Générale Asset Management UK.
Furthermore, the publication said, bigger hedge fund firms such as Man Group and RAB Capital are looking for deals on the horizon.
As Detroit home prices in Detroit crash, sales are heating up. But with all of the plant closings and layoffs, whos buying? Investors — some of whom are snapping up five and 10 houses at a time.
“I have investors from all over the country and the world,” said Jeremy Burgess, co-founder of Urban Detroit Wholesalers, which buys undervalued homes to rehab and rent or to sell to other investors. “One Lithuanian woman just bought a second house.”
“Most of the local investors are out of money,” added Mike Shannon, who specializes in Detroit foreclosures and has clients from New Zealand, Australia, England and other places.
Recently a Californian purchased 178 properties, mostly one at a time, and most for under $10,000. Another has purchased six Detroit properties since September and hopes to begin buying five a month.
“The capital needed to get in the Detroit market is so low,” said Jason Imbruglio, a 29-year-old from Tacoma, Wash., who has bought three homes so far.
Two years ago, he paid $12,000 for a two-family house with two bedrooms and a bath in each unit. He spent $18,000 repairing it for a total cost of about $30,000. Imbruglio has kept tenants in both apartments most of the time and charges $1,100 a month. After taking into account the 10% he pays a management company, plus utilities, property taxes and maintenance costs, he says he is making double-digit profits.
zyakaira notes: such arbitrage has long been camouflaging itself in the middle as American Enterprise. Last time we saw, it had affected US approach in Healthcare, Polity and even Big business. Arizona has even larger numbers of foreclosures. Even the stimulus money like all government schemes is obviously not reaching anyone as such price points are unlikely otherwise. This can’t help anyone. It is organised real estate hat has to change its colors and show responsibility in finding fair valuations and not such distress sales