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Archive for the ‘Bank of America’ Category

Is It Time To Close Down Bank of America?

This is precisely the sort of arbitrage that ought to lead people straight to a nice date with Bubba:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

So let’s see what we have here.

Bank customer initiates a swap position with Bank.  In doing so they intentionally accept the credit risk of the institution they trade with.

Later they get antsy about perhaps not getting paid.  Bank then shifts that risk to a place where people who deposited their money and had no part of this transaction wind up backstopping it.

This effectively makes the depositor the “guarantor” of the swap ex-post-facto.

That the regulators are allowing this is an outrage.

If you’re a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.

Incidentally, the amount of exposure in question is unknown but Bank of America has some $53 trillion in total derivative exposure (out of $75 trillion in total between it and Merrill, which is also a subsidiary of the holding company.)

Of course we do not know how much was shifted and BAC won’t comment on the record — but this sort of movement of liabilities should be flatly prohibited as the counterparty in question accepted the risk of the entity they traded with originally when the transaction was first initiated.  That the firm’s ratings have deteriorated and thus it may be required to post additional capital against these positions by those counterparties does not justify shifting the risk to depositors simply so the bank can avoid posting collateral against a deteriorating credit picture, which for all intents and purposes shifts the risk to the taxpayer since the FDIC has a line of credit at Treasury.  Never mind that posting that collateral should not materially impair operations.

After all the firm does have an excellent capital ratio.  Why they said so just this morning!

I can think of a handful of rather bemusing (and some not-very-funny) possibilities along the line of “speck into a snowball” issues that may arise in time on this deal, but for now I’ll sit with a wry smile and see what develops since at this point I have nothing to go on other than conjecture.  Feel free to speculate yourself in the comment section if you’d like… after all that’s exactly what Bank of America openly invited when they refused to document exactly what was moved, in what amounts, what the actual net exposure is and why the step was taken.

We need to rename Bank of America DAFFY DUCK!

Karl Denninger

*************************************************************************

Adding to Karl’s analysis, from the Bloomberg article cited:

In 2009, the Fed granted Section 23A exemptions to the banking arms of Ally Financial Inc., HSBC Holdings Plc, Fifth Third Bancorp, ING Groep NV, General Electric Co., Northern Trust Corp., CIT Group Inc., Morgan Stanley and Goldman Sachs Group Inc., among others, according to letters posted on the Fed’s website.

Anyone remember those 23A Letter exemptions?  We wrote about those extensively back in 2008.  These letters basically allowed the banks to run two sets of books.  One set was on the record, meaning that was from where tier 1 capital ratios (among other things) were derived, and another set of books that no one got to see and were not counted in tier 1 capital.  Guess what’s on the hidden set of books?  If you guessed a bunch of defaulted or defaulting debt, you’d win the prize.  So, what is being run here is a massive accounting fraud; one that would make Arthur Andersen of Enron notoriety look like angels.

They’re using depositors’ money to backstop their bad loans and the government made it LEGAL for them to do so.   These aren’t just bad mortgages either, these are various and sundry toxic products with which BAC and other big Wall Street banks were playing hot-potato for nearly a decade.  Most homeowners have taken their loss; they’ve been foreclosed upon or will be in the near future, but where are the losses to the banks for their purposeful and intentional selling of mortgages to people who couldn’t pay?!  Those losses have all been shifted to the taxpayer and since that apparently, wasn’t adequate, they have now shifted it to THEIR DEPOSITORS!  One set of laws for them and another set for us.

Tell me again why Glass-Steagall was repealed?  Oh yeah, the banks didn’t want it; so, Congress obliged.  Why hasn’t anyone on EITHER side of the aisle proposed an immediate reinstatement of Glass-Steagall?  Same reason.  Banks don’t want it and they pay Congress to make sure they won’t get it.

So, to summarize for those in the cheap seats, Bank of America is essentially holding a gun to the heads of their depositors and daring anyone to screw with them.

Message to anyone still having money on deposit with Bank of America:  You’re being held hostage.

Discussion (registration required to post)

This story from Bloomberg just hit the wires this morning.  Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

This means that the investment bank’s European derivatives exposure is now backstopped by U.S. taxpayers.  Bank of America didn’t get regulatory approval to do this, they just did it at the request of frightened counterparties.  Now the Fed and the FDIC are fighting as to whether this was sound.  The Fed wants to “give relief” to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input.  You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan.  Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

This is a recipe for Armageddon.  Bernanke is absolutely insane.  No wonder Geithner has been hopping all over Europe begging and cajoling leaders to put together a massive bailout of troubled banks.  His worst nightmare is Eurozone bank defaults leading to the collapse of the large U.S. banks who have been happily selling default insurance on European banks since the crisis began.

—

Bloomberg

Excerpt:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC- insured bank accounts from risks generated by investment-banking operations. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.

“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.”

Moody’s Downgrade

The Moody’s downgrade spurred some of Merrill’s partners to ask that contracts be moved to the retail unit, which has a higher credit rating, according to people familiar with the transactions. Transferring derivatives also can help the parent company minimize the collateral it must post on contracts and the potential costs to terminate trades after Moody’s decision, said a person familiar with the matter.

Keeping such deals separate from FDIC-insured savings has been a cornerstone of U.S. regulation for decades, including last year’s Dodd-Frank overhaul of Wall Street regulation.

U.S. Bailouts

Bank of America benefited from two injections of U.S. bailout funds during the financial crisis. The first, in 2008, included $15 billion for the bank and $10 billion for Merrill, which the bank had agreed to buy. The second round of $20 billion came in January 2009 after Merrill’s losses in its final quarter as an independent firm surpassed $15 billion, raising doubts about the bank’s stability if the takeover proceeded. The U.S. also offered to guarantee $118 billion of assets held by the combined company, mostly at Merrill.

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

Moving derivatives contracts between units of a bank holding company is limited under Section 23A of the Federal Reserve Act, which is designed to prevent a lender’s affiliates from benefiting from its federal subsidy and to protect the bank from excessive risk originating at the non-bank affiliate, said Saule T. Omarova, a law professor at the University of North Carolina at Chapel Hill School of Law.

“Congress doesn’t want a bank’s FDIC insurance and access to the Fed discount window to somehow benefit an affiliate, so they created a firewall,” Omarova said. The discount window has been open to banks as the lender of last resort since 1914.

Continue reading at Bloomberg…

 The Daily Bail

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You want to know why everyone in this country hates you and wants you dead, you big stupid f*%’ing bank?

Here’s why, pay attention:

(Reuters) – Bank of America Corp will pay $11 million to ousted executives Joe Price and Sallie Krawcheck, a large payout at a time when banks face protests over pay but smaller than the eight-figure packages some executives received before the financial crisis.

Krawcheck — a former Citigroup Inc executive who came to Bank of America in 2009 and was one of the top-ranking women on Wall Street — will receive a one-time payment of $5.15 million, according to separation agreements filed by the bank on Friday.

Price, a Bank of America veteran, gets $4.15 million. Each will also receive $850,000 over a one-year period.

Price was head of consumer banking and Krawcheck led wealth and investment operations.

Elevenmilliondollars?  What the hell world are you inhabiting?  Eleven million dollars for two departing executives because things didn’t work out?  I’m sorry, but were these two executives of Derek Jeter and Alex Rodriguez-level importance for your organization?  Is that why there are severance deals like this in place?  Or are you just completely psychotic?

It’s not that this isn’t your prerogative as a private company – it is.  But seriously, numbers like these at a time when you’re instituting added fees on customer accounts just sound farcical, almost like you’re making these payments to get a reaction out people.

You look completely ridiculous with news like this at a time when thousands of people are massing in every major city in the country to make the case that you don’t deserve to exist.  At a time when you’re being investigated for employing robo-signers just to maintain a certain level of foreclosures processed per month. At a time when you’re laying off rank-and-file employees not by the hundreds, not by the thousands – but in the tens of thousands.  At a time when retired seniors, desperately seeking income, have been pushed into annuities, life settlements, commodities and junk bonds because of the zero percent interest rate policy that was meant to nurse you and your balance sheet back to health – and this is what you do with the money?  With OUR money?

Are you crazy?

You pay fired executives more in severance than the average American worker will earn in a lifetime. For most people on the outside looking in, this seems like it’s from outer space, another world entirely. These numbers just do not exist to regular human beings, they cannot be fathomed. The ordinary American is not a class warrior or a woe-is-me whiner coveting the rewards of others – the ordinary American simply believes that extraordinary rewards should go to those who do extraordinary things, not to paper-pushing failures at parasite banks.

So let me give you a hint that will save you countless hours and millions of dollars spent on consultants and the public relations morons you keep on staff:  This is why they hate you.  This very type of thing, while just a single example, epitomizes the piggish mentality that has set you apart from everyone else.  This is why they’re marching against you and calling for boycotts and writing their politicians.  And this is why your whole model and way of life is on its way to being dead.  Forever.

You want to roll your eyes and make snide remarks about “dumb college kids” and “socialists”?  Go ahead but you’re be missing the point.  Because it is the small business owner who’s really been wronged here, not the fringe elements you mockingly dismiss.  The business owner whose losses are not socialized like yours, the business owner without the government in his pocket, the business owner who is forced to play by the rules that you have paid to have written.  He’s not a hippie, he’s not a Marxist…but he’s waking up, dummy.

You blew the second chance you got with TARP to re-enter society as a productive component of commerce.  You went back to bonus-swilling, full-retard mode as though nothing ever happened and 13 million people weren’t sitting around in their post credit-bubble joblessness for three years now.  Your tone-deafness and utter disconnection from the rest of the country has produced something extraordinary – You’ve managed to awaken one of the most indolent, lethargic and apathetic populaces in the history of the world.  You’ve now stirred a slumbering nation of 300 million from it’s Entennman’s and Zoloft-induced stupor.  America is awake now and it’s pissed.

Good luck with that.

 Joshua M. Brown – The Reformed Broker

REALLY?!  HOW MUCH MORE CRIMINAL DO THESE BANKS HAVE TO GET BEFORE PEOPLE WAKE UP AND REALIZE WE ARE RULED BY THESE TOO-BIG-TO-FAIL BANKS?!!  HOW LONG ARE YOU GOING TO STAND FOR THIS AMERICA?!

STOP THE LOOTING & START PROSECUTING!

Bank of America has taken “proactive” measures to manage traffic following a bad decision to hike fees on debit cards.

The bank has been swamped with traffic and instead of increasing servers, has taken measures in the bank’s words “could result in some customers experiencing slowness or temporarily having access issues.”

Lovely.

Please consider BofA website malfunctioning again

Bank of America’s website, plagued by problems Friday and Saturday but supposedly fixed on Sunday, wasn’t working again Monday.

Many users trying to access bankofamerica.com get a message saying the home page is temporarily unavailable. But spokeswoman Tara Burke said customers who experience slowness or can’t get into their accounts should keep trying.

Burke said the access problems are a result of the bank managing traffic volume during peak use.

“We’ve simply taken some proactive measures to manage customer traffic during peak hours during the day,” she said. “That could result in some customers experiencing slowness or temporarily having access issues.”

She declined to say whether volume has surged in recent days.

The problems began Friday, a day after the bank said it would start charging a $5 monthly fee for customers using debit cards. Burke insisted there’s no connection. The delays and the home page message persisted Saturday, but Burke said Sunday that things were fine.

Bank of America (BAC) Plunges Below $6

click on chart for sharper image

Shared of Bank of America have solidly taken out the “Buffett is Buying” low reached in August. The spike to $8.79 was a good time to unload if you were still holding this turkey in any size.

Warren Buffett did not buy Bank of America shares,  he got a sweet deal to buy debt that came with a free option to buy shares. The move was an obvious ploy by Bank of America to put a floor on the share price. It did not work.

Time to Switch Banks

My recommendation is that if you are at any bank that raises debit card  fees, switch banks. That Bank of America’s servers are flooded is a  welcome sign that customers have had enough.

Adding insult to injury, the “proactive” way Bank of America handled this maneuver suggests blatant incompetence.

Addendum:

“PT” who lives in Seattle writes …

Is  this blatant incompetence and/or an effort to slow customer transfers?  It’s time for BofA customers, such as myself, to take some of our own  proactive measures and move our accounts to a bank which is capable of  handling “peak traffic”.

I bank with BofA in Washington, which  has a totally separate portal for accessing accounts. It has been  offline since 7:00 am Seattle time, when I first tried to access my  account, and that is hardly what I would call a “peak traffic” hour. An  electronic run on the bank prompted by customers fed up with their  incompetence and, most recently, their plan to impose a fee on debit  card usage.

Mike  “Mish”  Shedlock

Global Economic Analysis

So you think Morgan Stanley diving 8% today is bad eh?

Don’t look at Bank of America, down 8.5%.

Or Citibank, down 9.5% (and don’t forget they reverse-split, so this is really a stock price just over $2)

Yeah.

I hope you folks in Congress are happy with yourselves and the destruction you are about to wreak on the American economy.  Oh sure, the economy has been slowing, but I hope you realize that the “slowdown” is despite blowing 12% of GDP in borrowed funds – a pace of  borrowing that you cannot sustain.

No, the news is that a new credit lock-up is imminent.  One that you can’t respond to this time, as you spent your bullets with the continued enabling of fraud and lies.

LET’S PUT WHAT CONGRESS HAD BETTER PAY ATTENTION TO ON THE TABLE WHERE EVERYONE CAN SEE IT:

IF THIS CRAP DOESN’T STOP IN THE IMMEDIATE FUTURE GDP IS ABOUT TO CONTRACT BY 25% OR MORE AS GOVERNMENT DEFICIT SPENDING WILL BE FORCED TO STOP INTO A LOCKED-UP CREDIT MARKET.

Let’s go down a few bullet points, shall we?

• Brooksley Born was right.  She warned you a decade ago.  In fact, she told you that this exact act that is causing the problem again after it did in 2008 — fraudulently traded CDS where the seller had no money to pay — would cause a collapse.  You ignored her in favor of Greenspan and literally ran her out of town on a rail.  Nobody has apologized and worse you didn’t fix it after Lehman blew up! 
• CDS sold without the ability to pay are active frauds.  In the formal insurance business they’re called “side letters” — the company sells you “insurance” at a stupidly-cheap price with the written assurance that you will never actually claim on it, simply so you can say you’re covered.  Insurance companies have been caught doing this before and prosecuted for it. Banks, when they do it with a wink and a nod by trading these things knowing full well the counterparty has no money get a pass.  In fact there has been no demand that they prove cash margin capacity on a daily basis even though this was the centroid of the collapse in 2008.
• The market has had enough of the lies.  You got away with it in 2009 by making formally lying about current values of assets legal in the many-times-mentioned Kanjorski hearing.  But the actual value of these instruments doesn’t change predicated on what you claim.  The truth is what it is, and the truth is that the “assets” stink like dead fish.

Here’s the problem when you get down to it: Another credit lockup is imminent.  If it happens the government will not be able to respond to it as there’s nothing to do it with.  Transactions will go to “cash on delivery or with order, or no deal” and you will be forced to stop the deficit spending.  That will contract GDP by 12% all on its own, then add in the lockup and multiplier effects and 25% is probably a conservative estimate of the damage that is about to occur.

Are you ready?  No, not just Congress – everyone reading this.

I’ll tell you this with certainty — most Americans are not and a huge percentage certainly will not deal with the loss of government “cheese” at all.  Congress doesn’t give a damn and never has — they thought they could lie their way out of this after 2008.  I know this for a fact because Douchenozzle McCain’s own advisers were well-aware of exactly what sort of scams had been run and refused to counsel he speak against it, nor did he speak against it.  Ryan’s “plan” had embedded 5% or better GDP “growth” numbers as the core of the plan but were not discussed, never mind that we’ve not managed that at any time since the downturn nor can we substantiate it off growth numbers in the 2000s.  Worse, the success of such a plan presumes no debt growth in excess of that amount otherwise the hole just gets deeper and you get in more and more trouble, but in point of fact there was no time in the last 30 years when that has happened, and as such there’s no reason to believe it will happen now!

GOVERNMENT came in during the 2008 time frame and said “We won’t let the banks fail.”  Ok, but now GOVERNMENTS are on the edge of failure!  Who bails them out?  The answer is nobody.

Government’s actions, including ours, were fundamentally stupid.  There have been no apologies, no “I’m sorry’s”, no recantations and no solutions put forward by either political party, because solutions require recognition that what we did for the last 30 years was fundamentally dishonest and that means the people responsible have to admit running a scam on the public.  You can’t inflate out of it either because then those who earn in the lower 80% of the curve literally starve.  It would take a quite-literal $25 trillion in nakedly-emitted currency to “print out of the hole” and doing so would drive the value of the dollar down by eighty percent, instantly giving us $12+ gasoline, $15 gallons of milk and $6+ loaves of bread.  What are you going to do when fully half of the population shows up in Washington DC, having walked there as they can’t afford to drive, and burns the city to the ground with their last gallon of gasoline?  Don’t kid yourselves; this is exactly where the “solution” of “printing” out of this mess leads.

There’s been no demand for honesty among our financial institutions and there’s been no honesty coming from Congress either.  The claims that “everyone over 50 will have their Social Security and Medicare” ARE LIES.  The fact that our banks are sound is, as the market sees it, A LIE.  We have “benefited” in the markets to the extent we have thus far (and that’s not been by much!) simply because we’re the nation with crabs while everyone else has AIDS and is about to expire.

That doesn’t make us healthy – it just means we die last.

But die we shall unless we cut the crap and the time to do so has essentially expired.

The truth is that the leverage in the system — the debt — is unsustainable.  Congress must cut off all deficit spending right now.  We must force those institutions that are over-levered to take their lumps and whatever happens to their stock price happens.  If they’re insolvent then the bondholders must take their lumps, and if that bankrupts pensions then the PBGC has to step in to the extent it can.

If you made me Emperor I would do what the Dutch did after Tulip Mania with one small difference:

Every CDS and other derivative writer shall post cash margin nightly on a central exchange, without exception and without offset or “netting.”  If they are unable to then the contract they “wrote” would be deemed fraudulent in the inducement for want of ability to perform and declared void.  This would immediately expose all of the underlying “value” of these “assets” for good or bad, and those would then have to be marked to the market and reserved against with current dollars.  If you can’t do it then your doors are closed and it’s off to bankruptcy court for you.  No ifs, ands or buts.

Too much leverage is the problem and bankruptcy is the only solution as it clears both sides of the balance sheet.  Pretending everything is ok does nothing except make the problem worse.

We went from a necessary 25% contraction in the size of government to a forty-three percent one in three years by refusing to tell the truth.  We do not have time to fuck around with this any longer!

I fully understand that doing the right thing would result in a monstrous economic hit in the immediate term.  However, it’s the only way.  The long-term survival of our national financial and political system are at stake here.

THE LIES MUST STOP HERE AND NOW BECAUSE IF THEY DON’T THE CREDIT SYSTEM IS GOING TO LOCK UP AGAIN, AND THE “WE’LL LET YOU LIE AND CLAIM IT’S ALL OK” CARD HAS ALREADY BEEN PLAYED.  AS I SEND THIS THE MARKET IS LITERALLY COLLAPSING, WITH DOWN VOLUME NEAR 20:1.

Yeah, there will be bounces and there will be up days, but you can’t ignore the facts – the market is coming apart at the seams, the bond market and credit markets are telling you that credit is about to lock up again (look at “high yield”), base metals are telling you the economy is headed for a Depression (copper in particular), the European Union is on the verge of fracturing, China’s stock market is in freefall and what’s worse, firms that are reliant on credit markets with less-than-excellent credit ratings or otherwise are reliant on leverage are getting literally destroyed on a daily basis with 10% or greater stock price declines.

All of this says that a credit market lockup is imminent – either actions are taken to stop it now or you better hide under the desk.

You’re out of time and you’re out of scams Congress.  Either face the truth or watch as what will happen unfolds – and yes, it’s your responsibility.

All of this is yours and it belongs to every one of you personally.

Congress, you deserve what’s coming and the people should throw your asses — every one of you — into the street.  You’ve had four years to resolve this with 100% knowledge of what happened and have intentionally, willfully and with full knowledge screwed every American sequentially — not once, but now twice with your lies, scams and schemes intertwined with those of the Wall Street “mavens.”