Why the coming nervous week is not so reassuring:...

• Non-performing loans of banks are high or under-estimated in China, India, and Europe.
• Bank profitability will be consequentially affected.
• Losses and provision requirements would make holes in bank capital.
• Banks have to be further  capitalized as per regulatory norms.
• To facilitate stronger balance sheets, capital induction has to ensue.
• New investors will hold off in crashing equity markets and if Governments have to support as in the case of India, Government funding will hit Government's fiscal position; neutralizing moves towards fiscal  balancing.
• Bank businesses will improve but quite slowly even as banks struggle to redraft (clean up) balance sheets. Business growth, consequentially, will be halting, gradual and slow. There will be significant impacting on business and there will be differential impacting with many small businesses affected. Uncertainties will accelerate the market turmoil.
• The Chinese and Indian economic expansion represent how there is a debt overhang.   The strong asset price growth seems to wind up to a bubble. There has been apparent overinvestment in sectors like real estate. As growth decelerates, all these further credit excesses will expose banks anew and the business failures will accelerate the economies' downward moves. Leveraging will enhance risks. There will be adverse selection too as banks struggle to regain profitability.  
• Political risks will accentuate in Turkey and the Middle East. Commodity prices affect Gulf Cooperation countries, Australia, South Africa, Indonesia and Russia. Brazil and other Latam countries too look vulnerable.  
• Thus,  there is expectation of volatility global markets, in equities , foreign exchange and commodity prices. There should be widening in risk spreads as bank , corporate and emerging markets  are downgraded by rating agencies.   

 Volatility is the spice of a trader's losses.

This blog recommends no investment. All views expressed are without any risk or responsibility.
 

Deutsche Bank leaves no continent out...

Japanese regulations and regulatory regime's recommendation  for punitive actions against the Deutsche  Bank indicate perhaps  a universal nature of Deutsche Bank's permissive culture in pursuit of profits or results. They (Japanese regulators) had earlier  warned Deutsche on suspect transaction and now have decided to come down on Deutsche for what appears to be akin to insider trading.   After Americas, Europe, Middle  East can the Far East be far away?
Cold passion to perform in circumvention of regulation?
There are no bad workers, there are only bad managers. We hope Frankfurt am Main has credits  rather than debits.



This blog makes no recommend for investment or disinvestment.  Views expressed here are without any risk or responsibility.  

The Bank's : Passion to Perform Illegally. A 146 year old bank ...

As spreads thin and shareholder expectations are high, membrane between what is right and what is wrong perhaps thins out.

1. Deutsche Bank AG (DB) increased its litigation reserves by 1.21 billion euros ($1.3 billion) in the third quarter.

2. DB  said admitted that it found violations of internal policies and identified weaknesses in its oversight regime during its probe into the so-called mirror trades.

3. It stated it may have allowed Deutsche Bank’s Russian clients to move funds out of the country without properly alerting authorities.

4. DB was a pass through mechanism for $6 billion in transactions that were part of a possible money-laundering scheme.

5. German management systems are too 'snoopervising' for the bank's senior officials not to know of wrong doings in the regions. They are all seasoned and suspicious bankers who behind the veneer of  supportiveness rule DB with a  strong hand.   So the excuse that IT systems and/ or subordinates did it all  might be just about passing on accountability.  

6. In April, 2015,  the bank was fined a record $2.5 billion by regulators from the UK and US for manipulating market key rates including Libor, the benchmark for interest rates on trillions of dollars of financial contracts.

7. It has also yet to settle with U.S. authorities over alleged sanctions-related violations, for moving funds through the U.S. financial system for countries such as which were under sanctions. 

8. DB has been named as a defendant in several alleged class action lawsuits in the U.S. for manipulating U.S. government bond market.

9. DB is  on investigation radar for manipulating currency markets, lawsuits relating to U.S. mortgage-backed securities and a probe into whether the company broke U.S. trade sanctions against countries like Sudan and Iran who had sanctions.  

10. DB was fined $600 million by the DFS, part of fines totalling $2.5 billion by US and British authorities for rigging Libor interest rates, used to peg millions of contracts around the world, in a multi-bank conspiracy. 

11. Regulators said DB was  “repeatedly misleading” the regulator.   ( in case of Libor  rigging ) enquiries .

12. The Dubai Financial Services Authority imposed the biggest fine in its 10-year history on Deutsche Bank. The US$8.4 million fine was for breaches of the DFSA’s rules regarding the bank’s private banking business in Dubai. The fine came at end of a long-running dispute between the DFSA and Deutsche relating to events beginning in 2011. The regulator said the fine had been imposed for “serious contraventions” relating  to:

• misleading the DFSA,
• failures in D B’s internal governance and systems and controls
• in its client take-on and
• anti-money laundering   

The DFSA said its action followed an investigation into Deutsche’s DIFC operation which focused on its activities from January 2011 to January 2014.

13. Court proceedings have opened in Germany against five German bank managers, including former DB  co-CEO Jürgen Fitschen, former board members Rolf Breuer and Josef Ackermann, and other executive members, charged with fraudulent collaboration, 

14. These relate to the bankruptcy of media entrepreneur Leo Kirch. The prosecution accuses them of having tried to deceive the court with lies and illegal collusion in a civil case last year. That trial had led to an extrajudicial payment of €925 million.

 Tailpiece!!!

The bank has been “advised that it’s not our job to try and find out where the money comes from or where it goes to,” Cryan told reporters in Frankfurt on Thursday. The audacity of power!!!

Whatever happened to DB's  booklet on money laundering?

  Comments:
Fears why it took so long for Deutsche to come clean: there are reports the suspect trades were executed over several  years. This blog's fear is that the bank may have helped several pass throughs since 1990s  when it was Europe's foremost bank for several years..Politically it suited a German bank  perhaps to be an alternative to US and UK banks  and to appeal to the high client  net worth clients who desired to holiday among  the German  Castles  and deposit in the dark vaults of Tanusanlage. (No credits only Debits !!!)

Deutsche Bank commenced business on 9 April, 1870, in Berlin. The Bank's first premises – a two-storey rented building at Französische Strasse 21 in Berlin

Rigging Currency Markets: Are fines enough?

There are reports that 5 major banks (JP Morgan, Barclays, Citigroup, Royal Bank of Scotland and UBS) are likely to pay $ 5 billion as fines for rigging forex markets to USA and UK authorities.
Individual accountability should also be fixed as this is tantamount to deception of individual investors.
Owing to this rigging, some one has suffered a loss. Forex is a zero sum game. One man's loss is another man's gain. So profiteering through cheating and deception has a criminal intent.

Can big banks escape merely because they are  too big and powerful enough to negotiate and to arrive at settlements? Justice has to be fair to the small and the large. There is the principle of equity. There is also the principle of accountability for misdemanour by the players both individually and as an institution. There is the doctrine of indoor management  which expects that  the bank is responsible for the action of its individual employees to its customers unless there is collusion between the customer and the bank.

There has been financial misconduct and impropriety. Even provided that there are no individual complaints against the banks, regulators and supervisors have to proceed on public interest against these banks and any other institutions involved. As these banks had large, voluminous share in the markets, they swayed the markets unfairly to the detriment of the individual consumer. This calls for accountability of the dealers, the chief dealers, the back offices risk managers and the foreign exchange managers. There has to be top management owning up managerial moral accountability. As risk limits are set by the Top management, they should have monitored.

The investor would expect that fines can only be part of the proceedings. All those who bought and sold forex during the days of the rigging have a say and are an aggrieved party. It cannot be that if you are a big bank you can pay off fines from earnings and be let off the hook. Justice must travel its course.

Do bankers remain eternally money motivated?

Does Money alone Matter?

1. Dictionary.com says  that contentment is a the state of being contented (it is about) satisfaction; ease of mind. Wikipedia says that contentment is the acknowledgement and satisfaction of reaching  capacity.

Contentment emanates from people, objects and situations in the world. Contentment is a state where the mind does not want anything else from the world. This state appears ephemeral;  contentment seems to be triggered by something that is temporary and finite at least in the case of bankers.  

So people who served with fairly good pay packets and are policy makers retire. At retirement they appear contented with their long and arduous jobs. They leave desks happy: until the next tempting offer from a private finance company / hedge fund / bank comes.

Senior  retirees who joined or are likely to join big investment firms ostensibly for  attractive monetary compensation reportedly confirm that contentment is only over the short term. (Alan Greenspan- Paulson & Company, PIMCO and Deutsche Bank; Paul Volcker-Wolfensohn & Co.; Jeremy Stein- BlueMountain Capital; Timothy Geithner, - Warburg Pincus; Ben Bernanke  -Citadel?.)

2. Instances where there bankers have  let the customers and regulators down :

Case 1) London Inter-Bank Offered Rate (LIBOR) was a yardstick which was developed by the regulators and the Bank of England. The Libor priced the loans made to mortgages and commercial loans. Normally around midday every day the bank tried  to set a fair assessment of the interest rates by obtaining quotes from some big banks, some medium-sized banks and some small banks. This was under the approval of the Bank of England. The bankers then added up the numbers and divided by the number of participants (ranging from 7 to 14) and that was Libor. The Libor rate is the benchmark for loans, mortgages and products in the financial world which run into trillions of dollars. Barclays fixed these rates at various centres, in various deals and through a host of traders.  Barclays managers lied.

(Case 2) HSBC paid a $ 1.9 billion to US authorities for not adhering to regulations on money laundering. HSBC violated sanctions in bank with violating sanctions laws by doing business with customers in Iran, Libya, Sudan, Burma and Cuba. HSBC   has reportedly been helping customers avoid taxes.

(Case 3) Lloyds Bank sold insurance products to people who did not need them or would be ineligible for them.

(Case 4) Deutsche Bank's former CEOs are reportedly accused of lying and attempted fraud and lied in testimony to German judicial authorities.

(Case 5) Bank of England has invited investigations by Serious Fraud Office in regard to liquidity auctions it made in 2007 - 2008.

(Case 6) Commonwealth Bank of Australia's   two senior IT executives were involved in bribery and fraud. These men, allegedly amassed at least $US1.5 million in kickbacks in return for awarding   technology contracts to a   cloud services company.

 Without any risk or responsibility

Europe's leaders need to read the Chinese parable of listening.

Kings have to listen.

Great Salesmen know that the customer has to be heard.  The European leaders  just failed to listen to each other. Posturing cost the markets billions of dollars as they kept on delaying a final decision.

Europe showed a lack of leadership skills when they walked out without discussing  the compromise proposal of European Commission President Jean Claude Juncker. . The current assistance program expires at the end of February.

It is then the  funding risks imposed on the Greek banks that should worry. There is a natural flight to quality from these Greek banks and estimates of deposit withdrawals are that it could be $ 2 billion per week.

Volatility in markets do not help markets. Europe's financial markets are fragmented. Private investment in euro area has fallen from 20 % of GDP in 2008 to 16 % in 2013; in Greece, Portugal and Spain, it has declined between 6 to 9 percent (Bank of Greece estimates)

Greek authorities   planned a renegotiated restructuring of the country's debt, most of which was owed to official sector institutions. Greece has not indicated that it would leave the euro area. Europe is yet  to be a great team. In the meantime, them banks!

Without any risk or responsibility. 

HSBC: Ths Glocal Bank : Thinking Small, Acting Illegal? TBTF?

HSBC - Regulators and Supervisors who failed?

It is not that HSBC has just been charged with abetting tax evasion. It has faced specific charges of laundering in more than one jurisdiction. HSBC has wrongly sold payment protection insurance; it has been charged with having given terrorists, drug cartels, and criminals access to the US financial system. It was involved in LIBOR fixing.

With such intensive and extensive misdemeanors, how could the home country and host country regulators have overlooked the manipulations and machinations of HSBC? Where were the Colleges of regulators? 

HSBC Europe's largest bank had many home supervisors and regulators:

1. The Financial Services Act 2012 established an independent Financial Policy Committee (FPC) a new prudential regulator of the Bank of England.
2. Prudential Regulation Authority (PRA) authorizes and supervises HSBC for safety and soundness, ensuring adequacy capital.
3. Financial Conduct Authority (FCA) is responsible for making sure bank employees behave properly.
4. Serious Fraud Office (SFO)
5. British tax authority, HMRC (HMRC)
6. Competition and Markets Authority(CMA)

Worrying Doubts:

What is the on site/off site surveillance, monitoring mechanism of the Supervisors in England? 

Why was no action taken by the regulators / supervisors against HSBC?

What is the accountability of the regulators / supervisors?

Does that imply  that you can get away if  you are too big to fail? (TBTF) 

Have we double standards when it comes to big banks?

Where is post BCCI  supervisory coordination efforts? 

Views expressed Without any risk or responsibility

Good advice on credit card

Washington Post:

How to limit your chances of fraud during the holidays

http://www.washingtonpost.com/news/get-there/wp/2014/11/26/how-to-limit-your-chances-of-fraud-during-the-holidays/?Post+generic=%3Ftid%3Dsm_twitter_washingtonpost

Japan in recession and Chinese NPA...

Asia looks south with 2 alarm bells: Japan is in technical recession with declines in 2 successive quarters and then the Chinese banks have NPAs which are worrying. Both are not new stories as both economies have been under investor observation for quite some time now.

Yen gave way and possibly the uncertainty in Europe  saw a parking slot in the Aussie dollar.
Markets will be hesitant and worried investors will try to leave rather than flee. There is an orderly exit that may occur. Waiting for reassurances from policy makers.

Staying  on the sidelines, may be a good trading tactic. Not a day to enter,   Towards evening, when the  US markets open , as the US economy  is on  a strong wicket, Wall Street  may shrug off the data of the morning and may be Wall Street will stem the ebb.

Until then, it looks like number of sellers are more than buyers. 

Sentiments drive markets...Unreal economics?

IMF  and World Bank predictions drove markets down... German, China and LatAm concerns expressed by Washington's supra-nationals helped push the markets down...
In this fall, are the seeds of the rise. Consumer spending will increase as real incomes increase following drop in gasoline prices. China, India, USA and even Europeans will benefit.
The strengthening of the dollar will keep the prices of oil down for sometime.  Corporates will gain.
The problems of banking are however the main worry in the minds of Asian giants India and China. Loads of non-performing assets and recovery  worries haunt banks and regulators. If the Asians are able to smoothen those creases, Asia will pull the World recovery with USA. Cost heavy, close fenced Europe will continue to totter ... the question is not whether but when the cost heavy economies will decline and fall... If euro declines it reflects real economics...

Indian markets hesitant

For a second day, India had more sellers on its stock markets than buyers.
 Fear that metal prices may drift lower and anxiety on earnings results due. Investors seemed wary even as  the euro weakened.
On the international front, World Bank cautioned of a slower growth rate in China and East Asia.  There  is some anxiety on investors being impacted by China's local government finances, shadow banking, pollution etc.  The political impact of Hong Kong does not seem to worry market investors so much yet... So growth worries nag...
The good news for India is that lower commodity prices are good for input costs. Oil prices falling will give a push to India's industry and smother overall prices down... the forex deficit will be healthier and if the Government ensures less government as it has promised, there should be a reduction of fiscal deficit too.
Yet international investors are hesitant... it seems to be just a technical correction... there is no reason for a trend reversal...
 

Gold dims in glitter

As anticipated, gold is on its ebb. A further fall seems on the cards. Chinese markets open on Wednesday and that opening may be the day to watch. Even if the buyers (Chinese jewelers more likely than industrial demand) come in, with the buoyant dollar,  it is unlikely that precious metals will pick soon. With oil prices looking south, all in all it is good news for the Indian markets. Input costs should move down and strengthen company bottom lines.
The drop in oil prices will boost consumer spending.  The only issue is it is going to pressurize oil producers whose costs of production are high. If these suppliers cannot produce to profit, they are likely to curtail production which might move oil prices even higher.
However, that is over the medium term. And in the long run , as Keynes said, we are all dead. So market players, think of the shortest horizon and be positive on the Indian economy.