Big Banks Bucketed

When your best friend turns – an enemy is in the making.

Standard and Poors Rating Services (S&P) has downgraded a significant number of banks worldwide – as listed on their website (1) and included in these Banks are US heavyweights – shareholders no doubt of the Fed.

In addition a raft of other Banks including all Saudi Banks and fair swathe of European financial institutions.

The US firms affected include JPMorgan (NYSE:JPM), BofA (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), BNY Mellon (NYSE:BK) and State Street (NYSE.STT).

S&P stated “We now consider the likelihood that the U.S. government would provide extraordinary support to its banking system to be uncertain,”

This comment is no doubt in line with the G20 decision on November 11th (2) whereby the Global regulators set out their “final tools” for ending the phenomenon of “too big to fail” banks, amongst these includes a winding down program.

No longer can they ‘expect’ unconditional support from the State.

As Reuters then advised, Mark Carney, chairman of the Financial Stability Board (FSB) that coordinates regulation across the Group of 20 economies (G20) to plug gaps highlighted by the 2007-09 financial crisis, said many of the key reforms have been implemented decisively and promptly.

What utter tripe – ‘decisively and promptly’ – since 2009 it has taken them this long to finalize the report and reforms. Yes – the FSB was tasked in 2009 with introducing a welter of reforms from increasing bank capital requirements to shining a light on derivatives markets and curbing bankers’ bonuses.

 

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So what took S&P this long – in view of the Fed’s comments back on October 30th that US Banks are under capitalized by $120 billion? (3)

Me thinks it had something to do with a request for the US Banks to get their house in order – all US (and overseas Banks for that matter) are subject to ‘defaults’ on billions of dollars worth of exposure on collateral demands.

All of the collateral demands could be triggered by a downgrade – and in saying this – the Banks own 10-K filings at the SEC quite openly state that “US Government support ‘inferred by the ratings agencies’ is a vulnerability and it should be removed.”

So the next extension to this is – that the downgrades themselves impose ‘a greater lending risk’ and therefore interest rates for borrowings will have to be increased.

Here we have an initial report of deficiencies in Banks capital at the end of October and a mid November 2015 report by the G20.

Why did not S&P act sooner?

Yes a ‘day’ in itself is a long time when deals are being written and leverage and then settled – and it would take a few weeks to warn creditors of the downgrade to the Banks by the Banks themselves – with a comment to the creditors “that not to worry, we have everything covered” – or words to that effect.

And by the by – where are the other credit ratings reports on these Banks?

One would have thought that the Credit Ratings agencies would be trying to establish their own reputation more promptly in light of the 2007-2008 reports they issued on Collateral Debt Obligations (CDO’s)

The spotlight on all Banks should be increased – in particular Deutsche Bank – a prime candidate for worst Bank of the century. Horribly under capitalized – as reported by Reuters some 5 months ago. (4)

We shall wait and see – nice timing in view of the situation developing around the globe.

 

Postscript:

I have been away for a fair few days. Catching up.

1. https://www.standardandpoors.com/en_US/web/guest/ratings/press-releases

2. http://www.reuters.com/article/2015/11/09/us-g20-regulations-carney-idUSKCN0SY0PL20151109

3. http://www.bloomberg.com/news/articles/2015-10-30/u-s-banks-to-face-120-billion-shortfall-under-fed-crisis-plan

4. http://www.reuters.com/article/2013/06/14/us-financial-regulation-deutsche-idUSBRE95D0X620130614

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8 thoughts on “Big Banks Bucketed

  1. Very interesting and thank you; timely.

    I feel that something is happening – something bad but I don’t know what but I am sure that this has something to do with it.

    I am going back to KL for 2 months ( this is the Plan) on the 23rd.

    great insight,

    peter

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    1. If one noticed the S&P downgrade – as notification in the mainstream media was on that day that a shooting occurred in California. So guess what made the news headlines?

      This is a very prominent downgrade in light of the fact that the G20 has withdrawn the support for the TBTF banks – worldwide. This article should have had mainstream media support for the knock-on affect but received little damage.

      I feel that investors globally should have been made more aware of the situation but the Banks may have tried to reduce risks on their share price.

      As you say ‘Ke sera sera’ …

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  2. It is warming up, er should I say down? HOL

    http://www.zerohedge.com/news/2015-12-03/11-alarm-bells-show-global-economic-crisis-getting-deeper

    Will Yellen dare raise rates – not good timing, but then, the FedRes always appears to get it wrong these days – since Greenspan.

    I hear one can buy oil from ISIS (the USA MR Agent d’Affairs) from $25 per barrel – surely that is the market talking LOL

    from Roberts:

    Former US Secretary of Defense Joins PCR In Warning Of Nuclear Armageddon Risk

    i have been warning that the crazed neocons and their two-bit puppet, president obama, are leading, with the assistance of the presstitute media, the world back to the prospect of nuclear armageddon. A former Secretary of Defense agrees with me.

    Wake up! Constrain the insane US government, or life on earth is over.

    http://www.paulcraigroberts.org/2015/12/03/former-us-secretary-of-defense-joins-pcr-in-warning-of-nuclear-armageddon-risk/

    PS I posted yr Post on Twitter 🙂

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    1. Peter, could you post a link to your site.

      Your commentary would be appreciated by those who acknowledge cycle theory (yes I am lame).

      I personally think that Yellen missed the ability to earn brownie points in September. Her and Carney are one in the same – have both lost all credence as masters of their financial system.

      I do not care not what they do – as everything is happening anyway – the financial community are being assailed by credit ratings and cheaper monies short term only – that short term issue will be the biggest issue for countries (ZIRP) going forward. Noticed UK is now predominantly on 30 and 60 day notes for funding – they are rolling over longer fixed rate notes to gain cheaper variable interest cost on short term.

      Ke sera sera – no longer ‘match cost for funding’ and it will bite hard.

      Osborne may spend interest savings for now – but will default quickly when rollover required. Seen it all before with big corporates in 1987 and 1998. Remember Westpac 1987 was bailed out by Packer – same same.

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  3. It could be a propaganda stunt by S&P – I don´t think that the US-banks are in danger at the moment. Capital requirements of 100 billion USD are nothing compared to the trillions sloshing around wordlwide in search of a safe haven.

    The European banks are the real problem – they have to be downgraded within the months and years in order to reflect their poor assets. European banks hold government debt from all Eurozone-countries – a contagion within the Eurozone seems to be the real danger in the midterm, and the US-bankss might profit from capital that is fleeing from Europe.

    I would argue that S&P lowered the credit rating of the US-banks to avoid the accusation that they have a bias towards domestic banks and use the ratings as a weapon.

    G20 will do nothing until TSHTF. Business as usual and more lipstick on the pig until the house of cards crashes down. The western countries can only raise taxes and hunt down capital – these guys are crazy and I would doubt that they will come up with a viable solution after the worldwide currency system crashed. Probably it´s time to read Ayn Rand again 🙂

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    1. Tommy, in the scheme of things it is the ‘butterfly’ affect. All US Banks under capitalized – they cannot meet increased costs as they are making losses now – no demand for funding and margins are slim on what they are doing.

      This is the problem with zero interest rates – staff are being laid off as we speak. They are cutting internal costs in the vain effort to increase their profits.

      I agree on S&P tactics – but the timing issue speaks of collusion. – they knew what to do and whose arse to kiss to avoid any ramifications.

      Ann Rand is a good read – I am still trying to get my mind over the Orwellian function of government. Who would have thought?

      Like

  4. And?

    Peter – people have awoken from their slumber on Quantitive Easing – an exchange of Greek bonds for Euro bonds – what’s the difference.

    His bazooka is a limp dick and he has tripped on it ….implicitly investors have already transferred their trash – trade Deutsche bunds for Euro?

    Not on your Nellie!!!

    Like

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