The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘toxic assets

“Even though we were in and looking you still couldn’t see [where the bottom was]” | KKR

Listening to this interview is interesting and sobering for banks. The highlighted quote below tells all.

Henry Kravis and George Roberts (KKR) | FT Interview

FT: How do you see the opportunities that have been thrown up by this incredible dislocation? Is the government a good partner for KKR?

HK: We looked at quite a few of the banks over time and we turned them down because we couldn’t see what was in the banks. Even though we were in and looking you still couldn’t see [where the bottom was]. I think there may be some programmes where it will be appropriate for us to partner with the government. One area in particular that is a very big need and an area where we will have opportunities to participate in is infrastructure.

This goes to the core of what transparency means, and to the business model of banks. i have long maintained that one fundamental negative for many banks remains their lack of investment in effective IT over a sustained period to support their growth in product diversity and merger activity.

The result is that many banks to this day, rely in Excel spreadsheets or locally managed offline databases to analyse and interpret their customer information. And worse … the assessment of holistic customer information is jeapordised because customers can show up in multiple product systems with mutiple information designs making is impossible to fully determine how many products any one customer has with that financial institution.

Relevance to Bankwatch:

it is one thing for KKR to suggest that they are not sure “where the bottom is” in the context of an economy that may be worsening and that may impact on the value of the bank product portfolio. It is quite something else to have doubts based on the value of the information offerred by the banks, and I suspect that is largely what the above quote highlights.

Written by Colin Henderson

May 22, 2009 at 12:24

Toxic debts could reach $4 trillion, IMF to warn

In a much anticipated upward revision of earlier forcasts, the IMF is expected to increase its estimate of toxic assets, that is loans that should be written off, to $ 4 trillion. The new forecast is expected 21st April, and reported today by The Times.

The forecast apparently will cover primarily US-originated assets but this forecast introduces European-originated assets.

This represents the most ocnsequential statement of evidence yet, that this is a debt crisis which must be resolved before other elements of the banking system will return to any degree of normality.

It will also require changes at the top in those banks that are the worst culprits.

Written by Colin Henderson

April 7, 2009 at 01:06

Posted in Uncategorized

Tagged with , ,

“Too big has failed” | FRBKC

This extract from the introduction in this speech summarises the situation well, both in US and UK.  It is such a clear example of taking the wrong actions (injecting cash into banks) over and over, yet not succeeding in the objective of restoring confidence.  Bank stocks have now reached the point that they have no impact on the Dow Jones index.  This means confidence is not just down but eliminated.

Time to address the root problems:

  1. asset values and resulting insolvency
  2. management change

Too big has failed | [pdf] Federal Reserve of Kansas City – Thomas Hoenig

Over the past year, the Federal government and financial policy makers have enacted numerous programs and committed trillions of dollars of  public funds to address the crisis. And still the problems remain. We have yet to restore confidence and transparency to the financial markets, leaving lenders and investors wary of making new commitments.
The outcome so far, while disappointing, is perhaps not surprising.
We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions. We are slowly beginning to deal with the overhang of problem assets and management weaknesses in some of our largest firms that this crisis is revealing. We have been quick to provide liquidity and public capital, but we have not defined a consistent plan and not addressed basic shortcomings and, in some cases, the insolvent position of these institutions.
We understandably would prefer not to “nationalize” these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis.

Written by Colin Henderson

March 7, 2009 at 04:50

Posted in Uncategorized

Tagged with , ,

%d bloggers like this: