Tag Archives: Financial services

Another Stress Test – Another Media Circus

Hmm…must be that time of year, or something..  Anyway – European bankers are gearing up for another stress test. Yes, their third. But, hey! This time they promise to get it right.  The ECB has even hired the best external stress tester in the business to do the job.  US-based financial consultancy firm Oliver Wyman, a company who has a proven track record for coming up with the right numbers. However, not always the most accurate ones.

“This is the last opportunity to reestablish confidence in the European banking system.”

Jörg Asmussen

SLOVAKIA-ECB-DRAGHI

Stress testing of European banks is actually one of the most entertaining parts of the financial crisis. It’s almost hilariously funny to watch the troubled bankers desperately trying to cork a swiss cheese with a soft gun – the holes just multiply and keeps getting bigger.

sterss 1For every “the worst is over” statement, the laughter grows… We’ve gone from booing to cheering…

And the preparations for stress test #3 are also promising.

strress 4

Last week the ECB announced that it had hired the US-based consultancy firm, Oliver Wyman, to conduct the test.   These guys are no strangers to the European stress testing.

  • In 2006, it famously said the Anglo-Irish Bank was the best bank in the world. Three years later, the bank had to be nationalised and almost bankrupted the Irish state, which then needed a euro zone bailout.
  • In 2012, during the Spanish bank bailout, Oliver Wyman provided the euro zone decision-makers with the numbers they expected and which were politically acceptable – around €60 billion instead of a much larger gap that the banks actually had.
  • Also 2012, Oliver Wyman did consultancy work in the Portuguese bailout, according to the central bank of Portugal.

The EU observer writes:

“The worry in euro zone central banks, according to one insider, is that if banks are reviewed too thoroughly and their problems exposed, they will stop lending and revive the financial crisis.”

stress 2Thanks for carving it out, but I think we kinda guessed that already.

But there’s another factor in play this time.

You see, the ECB is planning to step up to the role as EU’s chief supervisor next year and I believe they want to know what they’re supposed to supervise.

stress 5The ECB plans to put 130 major European banks to the test before it assumes regulatory supervision of the institutions in the fall of 2014.

“This test is not a threat,” says Jörg Asmussen, former state secretary in the German Finance Ministry, now  a member of the executive board of the European Central Bank (ECB).

“But after two failed stress tests, this is the last opportunity to reestablish confidence in the European banking system.”

stress 3I’m sorry, but I think that ship sailed the moment you signed the deal with  Oliver Wyman, Mr. Asmussen.

Additionally, many substantial estimates have already been made over the potential magnitude of the gaps the test will uncover.

stress 7SPIEGEL Online reports that Deutsche Bank estimates that Europe’s banks will need €16 billion in additional capital. Depending on which criteria the ECB applies in its tests, the gap could be much bigger.

The Bundesbank, Germany’s central bank, has just estimated that the seven largest German banks alone need an additional €43 billion in capital to satisfy the new international capital requirements.

stress 8I don’t think any stress test dares to go higher than that!

A comparison with the United States gives indications on how bad shape the Europeans really are in.

US financial groups are reporting record profits, while banks in the euro zone have lost more than €80 billion ($108 billion) in the last two years. In the United States, 10 times as many ailing banks were closed and balance sheets were more consistently relieved of bad debt than in the euro zone.

stress 6

The European leaders seem to have  failed to adequately address their banking crisis.

But they won’t give up!

So, what can we expect in the next 8 to 10 months?

stress 10My guess is – for what it’s worth – is that we will see a slow, dramatic build-up. with ECB’ers and politicians lining up to give their pledges about the truth and nothing but the truth, followed by a series of suspicious leaks, causing some market turmoil and a little bit of liquidity squeeze, and by this time next year the ECB will take on the European banking supervision with a huge off-balance sheet and the uncertainty of the euro zone bank sector will be unchanged.

stress 11

And finally we start all over again with stress test #4.

We can party for ever!

 

Full history of European bank stress testing:

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Clerk Drained €224 Million From Bank by Momentarily Fell Asleep

This is another one of those stories that leaves you hanging, not knowing quite what to make of it because some crucial information is missing. But falling asleep and make a transfer of 224 million, without knowing anything about it, is indeed rather strange.But  the fact that the claim of one person examining 603 payments in 1,4 seconds is considered completely normal, is undoubtedly disturbing.

COMPUTER KEYBOARD HAND

A German bank employee appeared before an industrial tribunal in the state of Hesse, recently,.as a witness in a case of being unfairly dismissed from work. The clerk had gotten of the “mistake” of transferring €224 million instead of €54 with a slap on the wrist, but the bank sacked his college instead – a 48-year-old woman who was responsible for the approval of all outgoing payments. 

While the mistake was eventually noticed and corrected, the on-duty supervisor originally approved the payment request, allowing the funds to go through.

So she sued tha bank, of course. And won. Arguing that when you have to examine more than 600 payments in 1,4 seconds. accidents happens.

The judges said she was not guilty of wilfully damaging the interests of the bank and that although she had made a “serious mistake” she should have been cautioned rather than sacked.

 17222The clerk momentarily fell asleep” on the job and accidentally held down the number 2 button on his keyboard for a little too long — think 222,222,222.22 — causing that much money to be transferred out of the bank was merely admonished by the court.

READ THE FULL FUNNY STORY @  The INDEPENDENT

Just one thing –  to where exactly  was the money transferred?

.

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Top 10 Financial Failures of 2011

It’s the financial service web site FierceFinance.com who have put together the list of the biggest blunders in the industry during the past year. Personally, I might have put a few other issues on the list, but when it comes to the final top position I think we have a winner:

“Led by CEO Jon Corzine, formerly of Goldman Sachs, MF Global was a trading powerhouse back in 2010. That all came crashing down in late 2011, as the bank filed for Chapter 11 bankruptcy and lost track of $600 million in capital.”

FierceFinance

Yeah, losing $600 million is probably harder than earning them, and quite an achievement…

FireceFinance writes:

“The MF Global failure was a total unraveling involving poor management and risky investment. For what it’s worth, Corzine said he will not be seeking to collect his $12 million Golden Parachute severance package. But reports surfaced in The Telegraph speculating that MF Global employees in the U.K. may have received Q3 corporate bonuses, even with the firm on the brink of failure.”

Read more: MF Global coverage.

Here’e the rest of the list:

2. Bank of America imposes debit card fee.

“The backlash against the bank was severe. But CEO Brian Moynihan defended the bank’s right to make a profit, saying in a statement that he had “an inherent duty as a CEO of a publicly owned company to get a return for my shareholders.”

3.  Frustration sparks Occupy Wall Street protests.

“What originated as peaceful has become violent, as reports surfaced of police using tear gas on protestors along with attempts to force them out of encampments.”

4. S&P downgrades US credit rating.

“Even though S&P went on to be criticized for its debt rating practices (the issue of credit rating agency credibility looms large), the move was significant at a time when budget showdowns in Washington and a stagnant economy were constantly in the headlines.”

5. Raj Rajaratnam slammed for insider trading.

“The convicted insider trader dominated the news in 2011 and in many ways is seen as the pinnacle of success for federal prosecutors, who have been cracking down on offenders.”

6. Citi stumbles after major data breach.

“Citi was reluctant to publicly announce the breach, finally doing so only after being pressed on the subject by the media. Citi offered a public explanation of the incident and tried reassuring customers that the stolen data was insufficient to commit fraud and that social security numbers, dates of birth and card security codes remained secure.”

7. Bank of America forecloses on couple.

“One of the more bizarre stories of 2011 was when Bank of America accidentally foreclosed on a Florida couple. Although the bank eventually backed down, the couple hired a lawyer to recoup attorney’s fees. Five months passed without payment–this coming after a judge ordered the bank to pay up. So the couple and its attorney showed up to foreclose on a local Bank of America branch, declaring their intent to remove furniture, cash and other property.”

8. RSA suffers cyber attack.

“RSA’s SecureID tokens are used by 30,000 organizations worldwide. RSA remained open about the attack, offering tips and posting details describing the anatomy of the breach. But even transparency didn’t reverse the fact that banks were forced to rethink security and look for new options.”

9. Typo costs Goldman Sachs $45 million.

“A tip for everyone who deals with contracts: Double check all calculations. Goldman Sachs learned that lesson the hard way back in June when it issued four warrants relating to Japan’s Nikkei index. Buried in the depths of financial jargon was a serious formulaic mistake: A multiplication sign was inserted where there should have been a divide by sign.”

10. John Paulson‘s Sino-Forest bust.

“In all likelihood, 2011 will not be a great year for hedge fund manager John Paulson. Among his failures was selling 35 million shares of the Chinese company Sino-Forest at an estimated loss of $500 million.”

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