Friday, August 19, 2016

This Week in Bank Failures

I had planned to take the month off, but I’m taking a few minutes to provide an update on the occasion of a bank failure tonight.

The failed bank is The Woodbury Banking Company in Woodbury, Georgia, with only one banking location and $20 million in deposits. All deposits have been transferred to United Bank along with most of the assets. The failed bank got in trouble with state regulators last year when a director who was also a loan officer made loans that exceeded legal limits. The officer was banned from banking in Georgia and barred from voting the shares he held in the bank.

It has been a quiet month, and that is nothing unusual in August, but there has been some movement in banking in the last three weeks.

Credit Suisse and Deutsche Bank were dropped from the STOXX 50 index. Both banks’ stocks are down 60 percent from a year ago.

Australia’s three largest banks want to launch an iPhone payment app together and are seeking court approval to act as a bloc for that purpose.

Arrested: The longtime CEO of Veneto Banca, the 10th largest bank in Italy; charged with market manipulation and making false statements.

Under investigation: Monte dei Paschi, the 3rd largest bank in Italy, along with one current and one former executive; accused of misleading the banks’ investors in connection with derivatives trades made by the bank between 2011 and 2014.

Tuesday, August 2, 2016

Choosing Peace Over Olympics and TV

Four years ago I found that when I was to avoid coverage of the Summer Olympics, it was good for my peace of mind. The Olympics story has taken on more than its share of negative vibes over the years, with endemic corruption, drugs, and the exploitation of thousands of unpaid athletes. At the center of it all there is a “village” that anywhere else would be described as condirions of poverty. It all heppens for the sake of an event that, seen through a financial lens, is the biggest American reality TV special of all time. This year one can add repression, a crisis of democracy, and a dangerous epidemic to the TV lens’s sordid backdrop. And so this time I plan to go farther to isolate myself from the Olympics. Since Olympics coverage forms a sort of media flood in the United States, I plan to largely avoid both news and social media during the hours when the competition and TV broadcasts may be occurring — and yes, I do realize that is about 19 hours per day. I will catch up on events, and this blog, in September.

While I am on the subject I would like to take a moment to offer a suggestion to anyone in the United States who has been waiting for an opportune time to cancel their TV subscriptions. There couldn’t be a better time to unplug the TV than right now. Not only will you be spared the worst of the Olympics coverage, but as a bonus you will miss much of the even more sordid political season that follows. Meanwhile, the roughly $1.50 per month that you have been contributing to the Republican political machine by way of your TV subscription and the Fox News channel can be put to better use just at the moment when America’s political future may depend on it. You might think you will miss TV, but you won’t; I had the same trepidation 10 years and 1 month ago when I shut off my cable subscription, but I would never go back.

Saturday, July 30, 2016

No Mass Shootings, No Mass Arrests

People including myself are relieved that the political conventions are over. Two weeks of calculated and scripted hyperbole will leave any sensible person fatigued, even if one ultimately agreed with most of the sentiments being expressed. But there is more to it this time when you look back at what our worries were going into the respective conventions. Dozens of delegates said they were going to Cleveland carrying arms and ammunition. Meanwhile, the event was surrounded by a city where effectively everyone was a victim of the same repressive policies that would be advocated inside the walls. It was a recipe for disaster — but there were no mass shootings. Similarly, in a party that had become synonymous with throwing people out on the street, might a VIP or party official be injured while being ejected? In fact, more than a few journalists were removed from the hall at points, but without injury or spectacle. The worrisome news of a disease outbreak at the convention added an unexpected angle of disaster, with the potential for a dangerous contagion to go national, yet with quick action on a quarantine, the disease was nearly contained within the California delegation. The next week Philadelphia hosted the largest number of demonstrators ever at a formal political event in U.S. history, yet with astute planning, there were no mass arrests. This is a good moment to remember the incredible sums of money put forward by national billionaire donors to buy the last Philadelphia mayoral election. This week might have turned out quite differently had that effort succeeded.

The sigh of relief is in part about the absence of the several disasters that so easily could have occurred. There is some dismay in saying this. Are our expectations of the American political process so lowered that merely not seeing a mass shooting by one of the gun nut delegates is cause for celebration? And yet in reality we did avoid each of these potential disasters. These was not just good luck. A combined and cumulative effort involving thousands of people also had a part in the two relatively peaceful weeks. There is reason to hope that with a continued effort this relative peace could hold right on through November. Yes, the current state of U.S. politics is unexplainable and inexcusable by the standards of just 15 years in the future. In fact, a significant fraction of voters have already made that leap and are trying to explain to us how broken the system is. From their point of view, looking at the events of the past two weeks is agonizing. And they’re right to see it that way. But let’s not lose sight of what just happened.

Friday, July 29, 2016

This Week in Bank Failures

EU stress tests were released tonight. The tests estimated how well a bank’s capital would stand up to a one-dimensional economic shock in 2018. The modeled stress is more substantial than a run-of-the-mill recession, but not by much. There were few surprises in the results. However:

  • Monte dei Paschi, the third largest bank in Italy and the only bank in Europe likely to be wiped out by the moderate economic shock modeled in the tests, announced a rescue package in which it will sell €9 billion in bad business loans while adding new capital. The small size of the rescue plan suggests that the bank may need a new rescue next year.
  • Italy, Spain, and Ireland were the only countries that fared poorly in the tests. The top two banks in Ireland did well enough that they can continue to repay past bailout funds.
  • Banco Popular, the sixth largest bank in Spain, fired its top executive before the test results were released to the public.
  • RBS, with the most problematic result in Britain, said its test results showed progress on its rebuilding plan.

Sentenced: Three former executives in Ireland, two at Anglo Irish Bank and the other at Irish Life and Permanent, were sentenced for a scheme to create €7.2 billion in phantom deposits on the bank’s balance sheet. Each was sentenced to between 2 and 3.5 years. The purpose of the scheme was to make the bank appear financially sound when in fact it was on the edge of insolvency.

Saturday, July 23, 2016

Crackdown in Turkey Is an Economic Blow

The predictions of a prolonged recession in the U.K. after word of its exit from the EU were, at least, greatly exaggerated. On the far corner of Europe, though, Turkey really is heading into a recession. The military coup attempt did more damage than the world knew at the time, and the political crackdown now underway has already come perilously close to shutting down the economy. Roughly 100,000 workers have been fired or arrested or have had their licenses to work revoked. So many education workers were removed that schools and universities are effectively not operating. The state of emergency and general turmoil will keep most foreign tourists out of the country for months or years. A weakened military will probably no longer be able to protect the most volatile border zones. Banks and large businesses may not be able to issue bonds for several years. These are not trivial adjustments in an economic sense. Fortunately, the political crackdown has spared agriculture and public utilities. With food and water, there is an opening for the country to survive the tough times ahead and eventually start on the way back to normal.