Friday, January 13, 2017

This Week in Bank Failures

The Singapore manager of the former Falcon Private Bank branch was sentenced to 28 weeks in jail for crimes uncovered during the 1MDB investigation. The bank decided not to report suspicious transactions that were used to funnel criminal proceeds between banks. The branch was closed in October after regulators discovered the scale of money laundering there. More banker trials will follow in the 1MDB case, in Singapore and elsewhere.

The ghost account scandal that came to light last year has reduced Wells Fargo’s earnings, revenue, and customer base shrinking, and the bank is far from putting the scandal behind it. The bank is not doing itself by delaying its internal investigation, retaining the directors and executives who oversaw the theft of customers’ money and identifies, and having executives talk about the bank’s efforts to distance itself from its past crimes as if nothing had happened.

One last bank failure to report: New Jersey state regulators closed Harvest Community Bank, which had $124 million in deposits, down 40 percent in the last five years, at four branches in Salem County, in the Delaware River lowlands of the southwestern corner of the state. North Carolina-based First-Citizens Bank & Trust Company, which has acquired more than its share of failed banks in recent years, is taking over the deposits and purchasing the assets.

Thank you for reading. It was a wave of real estate speculation and poorly conceived derivatives between 2003 and 2008 that destabilized the global financial system for the six or seven years that followed, causing a wave of bank failures and giving rise to This Week in Bank Failures. The systemic risk from that episode is over, and all but a few of the banks that will fail from the excesses of that period have failed by now. We have entered a new era in which excessive reliance on finance, faltering national governments, low interest rates, poorly secured technology, and a corporate sector moving ever closer to the edge represent the key systemic risks to the global banking sector. Few in banking are aware of the risks ahead, and fewer still are preparing. However, just the scale of the financial sector in its current form is reason for pessimism. It has doubled since 2003 in a vexing example of not learning from history. Scale alone makes a spectacular future collapse all but inevitable even if the shape of events will not be seen far in advance.

At the same time, the stunning advance of fascism in global and U.S. politics makes it more likely that risk factors will be kept hidden until it is too late for anyone to do anything to save the major institutions involved. In a practical sense, it could already be too late, and we would have no way of knowing.

Though it has been a privilege to chronicle bank risks, misdeeds, and failures these last nine years, the read-and-react dynamic that This Week in Bank Failures was based on no longer serves. The premise seems almost quaint when set against the known risks ahead, not to mention the unknown ones. While I admire those who will carry on the work of identifying and reducing the risks to be found in the political, financial, and corporate spheres, all three have grown in scale beyond any meaningful participation by the ordinary person. For a period of at least several years ahead, most of us will need to narrow our efforts to work on things that are more knowable. This is a shift that is already well underway and easy to see if you want to look for it, and I will have more to say about it in the near future.

Based on that change in the world’s focus, I want to close by repeating the most important advice that This Week in Bank Failures has had to offer over the years. Don’t put all your money, if you have very much of it, in one bank. Know your country’s deposit insurance limits and work within them. Always have some food and some cash on hand. Don’t rely on only one provider to process your transactions. Don’t try to optimize your financial arrangements, now that that strategy has shown itself to be so easily exploited. Don’t lean more heavily than you have to on a financial system that might vanish one night while you are sleeping. Do anything you can to maintain your ability to work. When you see the early signs of a collapse, don’t just assume that powerful men will fix it and nothing will happen to you, but don’t panic either; instead, during a crisis, take simple actions to make your arrangements more sturdy. Good luck!

Saturday, January 7, 2017

The Limited Closing Immediately

Apparel has been a tough business for a couple of years, tougher still for stores in malls, and now The Limited is closing up shop. The retailer says on its web site that all its stores are closed. Separately it has said that stores are closing no later than tomorrow, January 8. Reports from some locations say that stores there have closed already. The clearance sale will be held online, though even at liquidation prices only diehard fans are likely to buy clothing online after seeing the phrase “all sales final.” At its peak, The Limited had 750 stores across the United States, though only 250 remained as of the start of the year. At The Washington Post:

The retailer says its web store will remain, but of course, it would say that. There is nothing on the web site now but the final clearance sale, and customers will have to wait and see what kind of relaunch, if any, follows in the spring season.

After two years of gloomy news, I am almost surprised at how few stores in this segment have actually closed. I expect more retreat, but especially from the more pricey young and formerly-young specialty apparel chains.

Friday, January 6, 2017

This Week in Bank Failures

A U.S. private equity firm may be the purchaser of Portugal’s Novo Banco, created by the central bank to carry on the operations of the failed Banco Espírito Santo. Key details still need to be worked out.

The former Banco Espírito Santo subsidiary in Miami, then known as Espírito Santo Bank but since rebranded as Brickell Bank, faces an uncertain future because of the financial crisis in Venezuela. A banking family in Venezuela had applied to buy the bank, but that offer expired on December 31. The deal had valued the bank at $10 million. Bank officers say it is possible the sale could still go through, but they will also be looking for another potential buyer.

Deutsche Bank settled a tax case with the United States. The bank is paying $95 million in income taxes, much of it originally due in 2000.

How loose is bank regulation in China? Mengxin Village Economic Information Professional Co-Operative operated and advertised a fake bank and took money from hundreds of would-be depositors for more than a year before being caught. Two executives have now been convicted of taking $60 million from customers.

The U.S. Christmas shopping season was down slightly from the year before, shocking a sector that was banking on a 3 percent increase. Profit margins were also down with deep discounting especially in the last 6 days before Christmas. As a result, thousands of mall stores could close in 2017. Early announcements have come from Macy’s, Sears, and Kmart, closing a combined 218 stores. Similar announcements are expected from other retailers in the coming weeks. A mall that loses an anchor store and a couple of other well-known stores might lose so much traffic that the whole mall closes. Banks will likely have to write down billions of dollars in real estate loans to affected malls. One analyst has projected $1.88 billion in losses to lenders from the Macy’s closings alone.

Thursday, January 5, 2017

More Retail

Besides Macy’s, disappointing retail results have come in from Sears, Kmart, Kohl’s, American Eagle Outfitters, and Victoria’s Secret. Across the sector, electronics and apparel spending seemed particularly weak. So far among major retailers, only Amazon is reporting its biggest Christmas ever.

Wednesday, January 4, 2017

Macy’s Warning Shot

Word from Macy’s that holiday-season sales results had disappointed is a greater concern than if this news had come from any other retailer. Macy’s was the one major retail chain that had reason to brag about its Thanksgiving-weekend results. If a strong peak weekend for Macy’s translated into a weak season total leading to 10,000 job cuts and a page of store closings, it stands to reason that there are other retailers that fared worse by the time the season was over.