The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘SCAP

“We’ve already blown past the worst-case scenario on unemployment” | repeat stress tests


As banks rush to repay TARP money, driven by the desire to remove government control rather than any reflection of improved financial standing, here is a sobering statement from Elizabeth Warren.  Just as GM didn’t ‘get it’ in terms of the world will look like on the other side of this recession, many banks appear to have similar blinders.  Instead of arguing that they are not in bad shape and that they are secure, why not make changes now that display the recognition that the future is not going to be anything like the past.  I say again, and blame the politicians for the use of the word recovery – recovery does not mean a return to 2007.

Repeat stress tests right now | MSNBC

The Congressionally-appointed panel overseeing the Troubled Asset Relief Program (TARP) recommends running again the stress tests on US banks, as economic conditions have worsened, its chair, Harvard University professor Elizabeth Warren, told CNBC Tuesday.

“We actually make recommendations to do it all over again right now,” Warren told “Squawk Box.”

“We’ve already blown past the worst-case scenario on unemployment,” she added.

Yahoo Japan notes the expected repayment of $68 Bn from 10 banks.

金融不安後退 大手10社公的資金返済へ

6月10日1時53分配信 産経新聞
【ワシントン=渡辺浩生】米財務省は9日、大手金融機関10社の公的資金返済を認めると発表した。返済額は680億ドル(約6兆6600億円)に上る。昨秋に金融システムの崩壊を阻止するために一斉注入された大手金融機関による返済は初めて。金融危機が最悪期を脱し、当面の金融不安は沈静化したと判断した。

Reported by Nobuyo Henderson

Written by Colin Henderson

June 9, 2009 at 12:24

Posted in Profitability

Tagged with , , ,

As predicted the consequence of government ownership is significant


A US regulator on Friday predicted that chief executives and directors of some of the banks that underwent the stress tests could lose their jobs,

Regulator expects bank chiefs to lose jobs | FT

By Francesco Guerrera and Nicole Bullock in New York

Published: May 16 2009 00:10 | Last updated: May 16 2009

A US regulator on Friday predicted that chief executives and directors of some of the banks that underwent the stress tests could lose their jobs, in another sign of the government’s desire to have a say in the running of bailed-out companies.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said the authorities could replace management and boards at some of the 10 banks that were ordered to add fresh capital after the tests.

“Management needs to be evaluated,” she told Bloomberg television. “Is this the right skill set? Have they been doing a good job? Are there people who can do a better job?”

Asked whether some chief executives and directors would be replaced when banks present their capital-raising plans in the next few weeks, she said: “Yeah, I think there will be an evaluation process. We’re requesting it as part of the capital plan.”

Written by Colin Henderson

May 16, 2009 at 22:19

Posted in Uncategorized

Tagged with , ,

Bank of America Needs $33.9 Billion | NYT


As predicted yesterday, the amount of capital the banks need is far in excess of the amounts they were negotiating.

This news just in from the NYT confirms what had to be the case.  If we do the math based on project bad debts, it had to be in the $20bn + range for the big banks.  Similar results will apply to Wells, Citi,  PNC and others in the group of 19.  Watch out for the stock market tomorrow.  Reality bites.

Bank of America Needs $33.9 Billion, U.S. Determines

The government has determined that Bank of America will need
$33.9 billion in capital, according to an executive at the
bank.

Written by Colin Henderson

May 5, 2009 at 22:32

Where are the bank visionaries when we need them?


As we watch for bank stress test results in the US and other countries efforts to deal with Banks’ asset valuation and capital levels, its useful to keep a track on the economic back drop, and assess the bank’s efforts to address their real problem, which is over-valued assets.

The US stress tests specifically address the impact on banks under certain sets of future assumptions for economic growth and stability.

Spring forecasts 2009-2010 | European commission

The Commission forecasts a sharp contraction of the EU economy by 4% in 2009 (relative to a positive growth of 0.8% in 2008). Almost all EU countries are severely hit by the worsening of the financial crisis, the sharp global downturn and ongoing housing market corrections in some economies. However, with the impact of fiscal and monetary stimulus measures kicking in, growth is expected to regain some momentum in the course of 2010 (annual growth forecast for 2010 stands at -0.1%). Figures are essentially the same for the euro area as for the EU as a whole. These figures represent a significant downward revision compared to the autumn forecast and the interim forecast of January 2009.

spring-forecast-2009-publication15048_en [pdf]

So far the news is not good.  We have US, Japan, and now EU all noting significant downward adjustments to their forecast for 2009.  Magically, they all seem to agree 2010 will be just fine.  2010 aside, the consensus for the big three are 2009 GDP drops in the 4 % – 6+ % range.

Here is an extract of the baseline forecasts used by the Stress tests, contained in their methodology document for SCAP (Supervisory Capital Assessment Progam).

SCAP Economic Assumptions

The short view is that the assumptions for GDP growth in 2009 are approximately 1/3 of the latest forecasts.  Put another way 2009 is going to be 3 times worse than the forecast used in SCAP.   This is only May, so one can only assume that on a probability scale the opportunity for additional downward revisions are as possible as any other prediction at this stage.

The debate amongst BofA, Citi and the government on whether they ought to raise $5Bn in capital is ridiculous, and counterproductive.  As the economic forecasts show, the amounts required are not going to be debated in the $1 Bn range – this needs vision that produces 10’s or 100’s of billion in improvement such that the organisation can leap ahead of the economic crisis and look out 10 years, not 1 month, which seems to me to be the current landscape for banks.

Incidentally, to place $5Bn in perspective, Merrill Lynch paid out $3.6 bn in bonuses at the end of 2008.  Geithner should not even take a phone call from any bank who wishes to discuss anything thats less than $20 bn.  A debate over $5bn is ludicrous.

All this to say, that banks are stuck in a classic rat hole and surrounded.  Which bank and which leader will step up with vision for the future that carries banks on beyond 2011?

Relevance to Bankwatch:

Banks need to take a leaf out of Sergio Marchionne, Fiat chief executive’s book.  He is in Germany this morning proposing a deal that will take advantage of the current climate, and look to take advantage of infrastructure provided by Vauxhall, Chrysler, Opel and Fiat to structure an effective platform around car types that consumers actually want and need, ie smaller, cheaper and more efficient.  Already he is getting positive reaction to his plan, and these meetings only took place today (Monday).

He hopes to complete the transaction by the end of May, and list shares of the new company, tentatively called Fiat/Opel, by the end of the summer.

Mr Marchionne said Fiat and Opel would reap synergies of €1bn a year by merging their small B and midsize C segment car platforms, and absorbing Fiat’s ultra-small A platform and Opel’s upper-middle D platform.

Note the timing – he is going to do this in one month. This new conglomorate will involve hard decisions and layoffs.  This is the hard reality of the adjustment required for the new economy.  Getting through the crisis is not a return to 2007.  It is a fundamental shift to a smaller and different economy.

Where are the bank visionaries now?  Are they becoming so bogged down worrying about beaurocratic discussions with their new government masters and defending bonuses and perks that they have lost sight of the real goal?

Written by Colin Henderson

May 4, 2009 at 09:09

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