October 31, 2009

Financial Giants Using Taxpayer Money to Buy Up Other U.S. Lenders

Related Cos.' Ross and Partners May Seek $1 Billion for Bank

SJB National Bank, owned by a private equity firm of financial elites, won approval by the FDIC to bid on failing banks, and is working with Deutsche Bank to raise $1 billion for a new bank that may acquire seized U.S. lenders

October 30, 2009

Related Cos. founder Stephen Ross and partners Jeff Blau and Bruce Beal Jr. are trying to raise about $1 billion for their new bank that may acquire a seized U.S. lender, people familiar with the plan said.

SJB National Bank, owned by the executives, is working with advisers including Deutsche Bank AG to raise capital in a private placement, according to the people, who declined to be identified because the plans are private.

SJB won approval to bid on failing institutions from the FDIC, according to an Oct. 26 letter from the regulator obtained by Bloomberg News. The FDIC had 416 companies on its list of “problem” lenders as of June 30, and 106 U.S. banks have failed so far this year, the most since 1992.

The executives at New York-based Related received preliminary approval as individuals to establish SJB earlier this year,
according to a notice on the U.S. Office of the Comptroller of the Currency’s Web site. Related, the closely held developer of New York’s Time Warner Center, won’t have any stake.
“That would be a nice war chest for them to have,” said Chip MacDonald, a partner with Jones Day in Atlanta who specializes in deals among lenders. “With the approval from the FDIC they could make some really meaningful acquisitions.”
Representatives of Deutsche Bank, SJB and Related declined to comment.

IndyMac, BankUnited

In March, California-based IndyMac Federal Bank, which failed in July 2008, was sold to investors led by Steven Mnuchin, an ex-Goldman Sachs Group Inc. investment banker, and including buyout firm J.C. Flowers & Co. Florida’s BankUnited Financial Corp. was sold in May to firms including Blackstone Group LP and WL Ross & Co.

Related has more than $15 billion of assets including 11 million square feet of commercial property and 17,500 apartment units, according to its Web site.

Ross, 69, completed a purchase of the Miami Dolphins from Wayne Huizenga in January, paying about $1 billion for the National Football League team, its stadium and other properties. He sold stakes to singers Marc Anthony and Gloria Estefan, and her husband, producer Emilio Estefan. The University of Michigan’s business school was named after Ross, following a gift in 2004.

TARP Chief: Banks Possibly 'in More Danger Now'

October 21, 2009

The banking system today may be in a more precarious position than it was a year ago, the man charged with overseeing a $700 billion bailout program said Wednesday.

Neil Barofsky, the special inspector general managing the Troubled Asset Relief Program, told CNN's Wolf Blitzer on Wednesday that the government's decision to support bank mergers over the past year may have put the U.S. economy more at risk.
"These banks that were too big to fail are now bigger," Barofsky said. "Government has sponsored and supported several mergers that made them larger and that guarantee, that implicit guarantee of moral hazard, the idea that the government is not going to let these banks fail, which was implicit a year ago, is now explicit, we've said it. So if anything, not only have there not been any meaningful regulatory reform to make it less likely, in a lot of ways, the government has made such problems more likely.

"Potentially we could be in more danger now than we were a year ago," he added.
Earlier in the day, Barofsky issued a scathing report criticizing the Treasury Department for not being transparent enough about how bailout money was being spent. He warned that this could have lasting effects.
"I think this cynicism, this anger, this distrust of government that's born in part from a lack of transparency could have far-reaching ramifications, whether there's a next crisis or when anytime the government is going to call on the American people, the taxpayer, to support necessary programs," Barofsky said.

JP Morgan the New Lehman Brothers: Why Make Money Through Commercial Banking When You Can Become a Taxpayer-Backed Investment Bank (How JP Morgan Really Made the $3.6 Billion in Q3 Profits)

October 18, 2009

Toxic mortgages and credit card losses through defaults are rising at a rapid pace. This was also apparent in the earnings report from JP Morgan that reported positive earnings because of non-retail banking activities. Yet the media for whatever reason isn’t highlighting more carefully where the gains are coming from. For example, JP Morgan which swallowed up Washington Mutual and Bear Stearns, posted losses on credit cards and home mortgages yet doubled its earnings from last year in its investment banking division.

Here is one of the key examples of why removing Glass-Steagall Act is such a major problem. The recent meteoric rise in stock prices merely reflects hot money trying to find ground. If we look at actual loan losses they are still on the rise (see chart).

And banks are not lending more as they stated initially with the request for bailout funds. The premise was that trillions were needed or lending would completely dry up. Lending has dried up. Take the mortgage market for example. Loans that are FHA insured now make up the bulk of the market. For non-FHA loans, banks seek to have loans backed by Fannie Mae, Freddie Mac, or Ginnie Mae. In other words, banks are unwilling to lend their own money and will only lend funds backed by the government (aka the American taxpayer).

This behavior is most pronounced with credit cards. With rising defaults companies are using bailout funds to plug up additional losses. Yet they are also combining the easy money to play their hand on Wall Street. The mix of retail and commercial banking is still occurring even after our economy nearly tanked and we are still in recession nearly 2 years later.

I had an experience with the credit card companies recently that shows what is occurring. One of my cards had a line of $10,000 but I rarely use it. If I did use it, I would pay it off every month. Credit card companies look at people that pay off their balance every month as deadbeats. So last month, I receive a letter stating my balance was lowered to $3,000 simply because my lack of use. Keep in mind that this line had been open for 7 years. So I call up the bank and they tell me I can either stay with the new terms or close my account. This is how banks are playing the system and stealing money from taxpayers.

Don’t be fooled, they are pulling credit back (see chart)...

Bailed-Out Banks Pile On Profit

October 17, 2009

The largest U.S. banks with federal bailout funds to prop them up piled on profits in the third quarter in a sluggish economy, quarterly reports show.

Some banks have paid back the billions in emergency government aid, but remain indirect or direct beneficiaries of more than $1 trillion in federal investments in the financial markets or the $787 billion economic stimulus package.

It could be said, the remaining firms on Wall Street are also benefiting from the "survivor effect" of having less competition by making it through the financial meltdown while the likes of Bear Stearns, Lehman Brothers, Merrill Lynch, Wachovia and Washington Mutual were plowed under in the financial crisis, The Washington Post reported Friday.

In the third quarter, Goldman Sachs posted earnings of $3.19 billion or $5.25 per share, compared to $1.81 per share for the third quarter of 2008.

Profits still mean big bonuses at banks and Goldman has set aside $5.35 billion for bonus pay this year, 84 percent more than a year ago. JPMorgan Chase said this week it set aside $2.78 billion for commission checks, 28 percent more than a year ago.

Baer-ING Deal Kicks Off Private Banks' M&A Season

October 7, 2009

Julius Baer's (BAER1.VX) purchase of ING's (ING.AS) Swiss private banking assets marks the start of a consolidation wave in the wealth management industry, insiders told the Reuters Global Wealth Management summit.

Baer will buy the ING's assets for 520 million Swiss francs ($505 million) -- the biggest acquisition in the European wealth management industry -- with Baer paying about 2.3 percent of assets under management (AUM) excluding surplus capital.

Before the financial crisis began, similar deals attracted prices above 6 percent of AUM. With valuations now low, buys are attractive as banks' liquidity worries recede and the capital market turmoil calms.
"There are some opportunities now that didn't exist two years ago," HSBC's (HSBA.L) global CEO for private banking Chris Meares said in Singapore. "There is no doubt with the industry profits coming down, valuations have got a little better, become more interesting at least for a buyer."
But if markets continue to firm, this situation may not last for long, prompting consolidators to move in on targets quickly before valuations recover.
"There is a lot of hope that if the market continues to go up, then the valuations must go up," said Justin Ong, head of PricewaterhouseCoopers' Asia Pacific wealth management practice.
This could happen at either end of the private banking spectrum, with small firms being netted by slightly larger companies looking to bulk up and the really big players sniffing out weaknesses in rivals for possible mega-deals.

Barclays Wealth (BARC.L) Vice Chairman Gerard Aquilina said her group would be prepared to acquire an entity the size of Julius Baer or bigger to reach its ambitious growth targets.
"There could be a major transformational buy for us," he said in Geneva.
Spiraling regulatory requirements and costs springing from clients demands for improved transparency means banks could be forced to take on entirely new support teams and develop new technology, private bankers said.

Add this to clients' demands for more contact time to explain what advisers are doing with their hard-earned money, and cost pressures could become too great for some banks, forcing them to seek the infrastructure of larger rivals by selling up.
"Competition is tougher, regulation is another important factor. You need to have an infrastructure to allow you to participate in today's environment," said Felipe Godard, JP Morgan Private Bank (JPM.N) managing director and head of European International Markets.
"My guess is that smaller players will be the first ones to look for consolidation to create critical mass," he said.
Large players at the Reuters Wealth Management Summit suggested private banks needed a critical mass of about $10 billion in assets to be competitive.

"Probably if you are below 10 billion, either you buy another bank or you sell," said Guillaume Lejoindre, managing director of SG Private Banking (Suisse) SA.

Reyl & Cies Chief Executive Francois Reyl said the threshold depended on the specific kind of business of a private bank, but added that his Swiss private bank was in several discussions for possible acquisitions and aimed to double its size from 2.5 billion Swiss francs in assets under management by 2012. This would only require a 10 percent increase in the bank's current staff of around 90, Reyl said, suggesting economies of scale were a factor in the bank's drive for acquisitions.
"We're conscious of our size, but yes, we're a consolidator in the middle," he said. "Small banks managing sub-500 million Swiss francs -- which clearly lack the scale -- these are good acquisition targets for us."

HSBC, Others Resume Talks for RBS Asia Units

October 8, 2009

HSBC has resumed talks with Royal Bank of Scotland over the purchase of the remaining retail and commercial units that bailed-out RBS owns in Asia, sources said on Thursday.

HSBC's re-started talks over the RBS units comes as Asia-focused HSBC is also involved in the sale of ING's private banking assets in Asia.

HSBC declined to comment.

HSBC and other banks have approached RBS and its advisers about the RBS auction after Standard Chartered's exclusive negotiations with RBS expired recently, the sources said.

RBS is selling its remaining retail and commercial banking divisions in China, India and Malaysia, worth "a few hundred million" dollars, according to a source familiar with the matter. Previous reports put the value of those assets at $200 million.

Sources said talks with potential buyers were in early stages, since StanChart's exclusivity only ended within the past week or so.

The retail and commercial units in Asia were identified as non-core assets back in February, prompting an auction that has seen several starts and stops.

In August, Australia and New Zealand Banking Group Ltd said it agreed to buy some Asian units from RBS for about $550 million. ANZ, Australia's fourth-largest lender, said it would buy RBS' retail, wealth and commercial businesses in Taiwan, Singapore, Indonesia and Hong Kong. ANZ will also buy RBS' institutional businesses in Taiwan, Philippines and Vietnam.

RBS could sell the remaining Asia retail and commercial units separately in each country, another source said.
"RBS is in ongoing discussions with bidders for the remaining assets it has decided to sell in Asia and will make further announcements, as appropriate, in due course," said RBS spokeswoman Yuk Min Hui.
The bank is retaining the wholesale and investment banking business, as well as its international wealth management group.

StanChart declined to comment. Morgan Stanley, RBS's adviser on the Asia sale, also declined to comment.

China's Minsheng Eyes Control of U.S. Bank UCBH

October 6, 2009

Minsheng Bank, China's first listed non-state lender, is looking to increase its stake in San Francisco-based UCBH Holdings Inc, in order to bolster the U.S. bank's capital, Bloomberg said, citing two people briefed on the matter.

Minsheng is planning to approach U.S. regulators for approval to boost its stake in UCBH to at least 50 percent from the present 9.6 percent, the people told the news agency.

Minsheng has an option to increase its stake to about 20 percent, according to the news agency.

UCBH, which is operating under an enforcement order from the Federal Deposit Insurance Corp and the California Department of Financial Institutions, said last month two top executives resigned after a board audit panel raised concerns about the actions of several current and former officers.

Minsheng and UCBH could not be immediately reached for comment by Reuters.

Banking Superpowers

Note that JP Morgan Chase (which acquired Washington Mutual on September 25, 2008), Wells Fargo (which acquired Wachovia on October 12, 2008), and Bank of America (which acquired an additional 8.4 percent state in China Construction Corp. on November 18, 2008), are amoung the nine banks that were partially "nationalized" in October 2008. Note also that ICBC is majority-owned by the Chinese Government.

US: Watchdog Says Treasury Misled Public About Cost of Bank Bailout

October 6, 2009

Neil Barofsky, a top overseer of the US bank bailout program, published an audit Monday in which he asserted that Bush administration Treasury officials misled the public about the financial condition of firms receiving bailout funds. The revelations amount to an admission by an agency of the federal government that top government officials lied to the public about potential losses in order to push through the bailout program.

Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), noted that in selling the bailout to the American people, Bush administration officials repeatedly insisted that the banking system was sound and claimed that the public stood to retrieve the $700 billion in taxpayer money allocated under TARP, perhaps with a profit.
Barofsky’s report cited Treasury Secretary Henry Paulson, who stated on October 14, 2008: “These are healthy institutions, and they have taken this step for the good of the US economy.”

The same day, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation said in a joint statement: “These healthy institutions are taking these steps to strengthen their own positions and to enhance the overall performance of the US economy.”
These statements came the day after Paulson met privately with the heads of the nine largest US banks and obtained their agreement to accept a combined total of $125 billion in public funds, at interest rates highly favorable to the banks.

According to Barofsky, however, “Contemporaneous reports and officials' statements to SIGTARP (Special Inspector General for TARP) during this audit indicate that there were concerns about the health of several of the nine institutions at that time.”

Barofsky took care to couch his exposure in non-accusatory terms. The conclusion he drew was not that Paulson and other top Bush officials should be indicted and prosecuted for fraud and conspiracy. Rather, he advised that “federal officials should take more care in publicly characterizing the nature and objectives of their initiatives,” so as to maintain the credibility of their program to bail out Wall Street.

Nevertheless, his report sheds light on the existence of a conspiracy between the major banks, the Bush administration and the Democratic-controlled Congress to carry out the greatest diversion of public resources to the financial aristocracy in history—a process that has been accelerated by the Obama administration.

Barofsky was somewhat less reserved in an interview Monday on CNN, in which he said:
“Secretary of Treasury Hank Paulson came out to repeatedly emphasize how healthy these institutions were, and as a result, that this infusion of capital would get them lending again, and as we disclose in our audit, this just wasn’t an accurate statement.” He added, “The Treasury and the Federal Reserve had serious concerns about the health of these institutions.”
Asked about the likelihood that the US government would recoup the money it spent bailing out the banks, Barofsky said:
“I think it’s extremely unlikely that we’re going to have a dollar-for-dollar return, and I don't think the program is designed to have a dollar-for-dollar return.”
Barofsky’s audit goes into some detail regarding last year’s takeover of Merrill Lynch by Bank of America. The report notes that while rivals Citigroup and JPMorgan Chase each received $25 billion in bailout money, Bank of America received not only its allocated $25 billion, but also the $10 billion slated for Merrill Lynch. Bank of America later received an additional $20 billion in emergency funds, as well as guarantees on hundreds of billions of dollars worth of assets, after Merrill revealed disastrous fourth-quarter losses amounting to $15.3 billion.

There is considerable evidence suggesting that Bank of America, under pressure from Paulson and Federal Reserve Chairman Ben Bernanke, concealed the real state of Merrill, as well as Merrill’s plans to award its executives millions of dollars in bonuses, from both Bank of America shareholders and the public in order to complete its takeover of the investment bank. Congressional hearings have been held on the deal and New York Attorney General Andrew Cuomo is reportedly considering issuing indictments in connection with the takeover.

This is not the first time an oversight body has issued criticisms of the bailout program. On July 20, Barofsky chided the Obama administration Treasury Department for failing to demand that the banks disclose what they were doing with the taxpayer money they had received, and warned that the bailout could end up costing the government up to $23 trillion. Earlier that month, the Congressional Oversight Panel, another oversight body for the TARP, found that the government was receiving just 60 cents on the dollar on many obligations owed to it by the banks.

These revelations have been simply ignored. The TARP oversight bodies have no real power, and neither the Obama administration nor the Democratic-controlled Congress has any intention of responding to their disclosures or acting on their recommendations for greater “transparency.”

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