<![CDATA[Hedgehogs.net: '' related content]]> http://www.hedgehogs.net/tag/subprime+mortgage+crisis?view=rss http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11365684/financial-firms-target-usd34trn-held-by-us-retail-investors-in-cash-equivalents-at-banks Sun, 31 Aug 2014 06:40:26 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11365684/financial-firms-target-usd34trn-held-by-us-retail-investors-in-cash-equivalents-at-banks <![CDATA[Financial firms target USD3.4trn held by US retail investors in cash equivalents at banksâ¨]]> Financial firms are targeting USD3.4 trillion held by US retail investors in cash equivalents at banks, according to research by Cerulli Associates.


http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364577/goldman-sachs-close-to-settling-fhfa-lawsuit-for-more-than-1-billion Mon, 25 Aug 2014 21:32:15 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364577/goldman-sachs-close-to-settling-fhfa-lawsuit-for-more-than-1-billion <![CDATA[Goldman Sachs close to settling FHFA lawsuit for more than $1 billion]]> 11364577 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364576/exgoldman-banker-and-swimming-god-joins-noble Mon, 25 Aug 2014 21:32:13 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364576/exgoldman-banker-and-swimming-god-joins-noble <![CDATA[Ex-Goldman banker and 'swimming God' joins Noble]]> 11364576 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364566/deutsche-bank-strengthens-tech-and-ops-leadership Mon, 25 Aug 2014 21:31:54 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364566/deutsche-bank-strengthens-tech-and-ops-leadership <![CDATA[Deutsche Bank strengthens tech and ops leadership]]> 11364566 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364395/spotlight-on-european-bank-lending-capital-impairment-to-the-forefront Mon, 25 Aug 2014 17:12:48 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364395/spotlight-on-european-bank-lending-capital-impairment-to-the-forefront <![CDATA[Spotlight on European Bank Lending: Capital Impairment to the Forefront]]> German Two-Year Bonds Have Negative Yield, Demand High; Euro Bond Bubble Guaranteed to Burst, " Banks lend (provided they are not capital impaired), when credit-worthy borrowers want credit and banks perceive risks worth lending."

So which is it, lack of credit-worthy borrowers or capital impairment. The answer is likely both, but the spotlight goes on capital impairment, and Texas Ratios, a ratio of bad loans to equity.  

The New York Times DealBook explains Europe Fears Banks Lack Cash Cushion to Cover Bad Loans.
When the ratio of bad loans to equity and cash set aside exceeds 100 percent, it suggests that the bank is either ready to fail or is in desperate need of new capital — as was the case with Texas banks in the 1980s.

The E.C.B. will publish the results of its half-year investigation into Europe’s 128 largest banks on Oct. 17. But until then, with worries mounting that the central bank will come down hard on banks with particularly weak loan books, investors and analysts have been scrambling to determine which of these lenders are most at peril.

This spring, banking analysts for Nomura in London used the Texas ratio to highlight 11 banks in Southern Europe that were most exposed to nonperforming loans relative to cash they had on hand.

Of the 11 banks that exceeded the 100 percent threshold, three banks stood out with ratios of 150 percent and above: Piraeus Bank in Greece, Banco Popolare in Italy and Banco Popular Español in Spain.

Using the Texas ratio also underscores the ever-increasing gap that separates European banks from their American counterparts, highlighting as well the contrasting approaches taken by bank regulators here and in Europe.

According to the most recent data, the average ratio for all United States banks is 15 percent, with giants like JPMorgan Chase and Citigroup boasting very healthy metrics: 16 percent for JPMorgan and 13 percent for Citigroup.

By contrast, the largest banks in the eurozone that also pretend to have global ambitions have much higher ratios — and arguably would be considered to carry more risk. Santander and BBVA in Spain have ratios of about 70 percent; UniCredit in Italy comes in at 90 percent; BNP Paribas has a lower measure of 41 percent. Deutsche Bank in Germany has one of the lowest scores in Europe, at 14 percent, but that understates its risk because most of its assets comprise riskier traded securities like derivatives and bonds.
Problem Understated

DeelBook understates the problem, most likely by a huge amount. For starters, what about the risk or European banks being loaded up with their own sovereign bonds?

Bear in mind, eurozone sovereign bonds are all considered risk-free assets. From a capital-requirement perspective, bonds of Germany, Spain, Portugal, Italy, etc. are all treated alike.

Yet, as we found out with Greece, not all bonds are alike. That they do not yield the same is proof enough.

Via the LTRO, Draghi succeeded in suppressing yields of European government bonds, but at the expense of creating a bond bubble.

More Questions

  • Any banks fudging the definition of a performing loan? 
  • What about mark-to-market valuations of loans and assets on the balance sheets of banks? 
  • Are loan loss provisions high enough?

To date, every alleged "stress test" in Europe has been rigged. Some banks failed immediately after passing previous tests.

Texas Ratios are very useful, but banks can fail with low ratios. Why?

Look to the questions above for answers.

Whether or not banks pass stress tests, and whether or not reports say they are not capital impaired, one can look at actual lending and easily come to another conclusion.

Mike "Mish" Shedlock
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364279/all-hail-and-farewell-the-trophy-kids Mon, 25 Aug 2014 16:12:35 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11364279/all-hail-and-farewell-the-trophy-kids <![CDATA[All Hail and Farewell, the Trophy Kids]]> Not everybody can be VenusAdolphe-William Bouguereau, The Birth of Venus, 1879
Mildred: “That Ted Forrester’s nice-looking, isn’t he? Veda likes him.”
Monte: “Who wouldn’t? He has a million dollars.”

— Mildred Pierce

Wall Street has a problem.

Kevin Roose, who wrote the definitive bildungsroman/sob story of early-2010s twenty-somethings on Wall Street, nails it. Finance is no longer the first choice of ambitious, high-achieving college graduates. Technology is:
Hyperdriven, multitalented young people aren’t picking tech over finance because it pays more. They’re picking it because the lifestyle is better, because it’s just as competitive to get into (if not more so), and because being on Facebook’s mobile ad team allows them to feel better about themselves than making DCF models for Fortune 500 companies all day. In their eyes, going into tech is a way to remain among the cultural elite without selling your soul.
It’s not that Goldman Sachs, Morgan Stanley, and every other well-known firm aren’t attracting enough candidates, they’re just not attracting the “best” ones:
These firms are having no problems drawing applicants out of college, but what I’ve heard from senior Wall Street hiring managers is that they’re not the right kind of applicants. They’re second-stringers, as far as the banks are concerned. The students these firms want to attract — badly — are increasingly going to Google or Facebook instead of Goldman and J.P. Morgan. (Or, almost worse, going to Goldman and J.P. Morgan, working for a year or two, and then quitting to go to Google or Facebook.) And that kills the banks’ sense of supremacy.
I suppose it is a measure of our diminished times that Mr. Roose chooses to dub these careerist paragons of conventional wisdom “Renaissance Kids,” but I get that he needs to flatter his demographic that their uninspired and riskless choices denote some measure of intellectual breadth or reflected historical glamour. After all, he has trend pieces to write and books to sell. Personally, I cling to the outmoded notion that “renaissance man” (or woman) should mean something deeper than a Groton- and Harvard-educated 3.70 GPA history major/lacrosse player who read the Bhagavad Gita once in order to satisfy a distribution requirement. But I am stubborn that way.1

Instead, I prefer to label these special snowflakes Trophy Kids, since their entire young lives have been spent in pursuit of trophies and awards of all kinds, scrapping and scrambling to get into the best schools and the best clubs and the best jobs from the moment their hypercompetitive parents decided they should. Of course, “best” in this context means what everybody else thinks is best, so the trophies we are talking about are clear, unambiguous, and well recognized by everyone: top grades in school, passionate commitment to approved extracurriculars, conspicuous community service to high profile, photogenically needy causes, and the right employer out of college.

“Trophy Kids” is also apt because these socioeconomic poster children make themselves highly desirable as acquisitions by those institutions which aspire to have the best themselves, just like aging billionaires like to accumulate trophy wives and girlfriends. It is not too far to stretch a metaphor to observe that Trophy Kids’ relationships to high-prestige employers are fundamentally the same as trophy wives’ to their husbands: an often temporary marriage of convenience in which the former trades her looks, sex appeal, and other attractive qualities for the wealth, prestige, and social access her unpleasant toad of a spouse delivers her. A cynic might also point out the parallels between sweating 80 to 100 hours a week under fluorescent lights day in and day out for two years as a Financial Analyst to the occasional unpleasant duties of the marriage bed which a hot young sex bomb must endure with her aging Lothario. Everything has a price, children.

* * *

And this explains why investment banks like Goldman Sachs want to recruit the tippy top of the best and brightest to their sausage factories, O Dearly Beloved: they want trophy employees. They want them not because, as Kevin Roose correctly observes, they need such hyper-accomplished hothouse flowers to program their 50-page spreadsheets and 100-page PowerPoint presentations. I have banged on at length about this before: they don’t. Trophy Kids often make lousy investment bankers, at least over the long term, because my business is a client service business. In contrast, Trophy Kids have been raised from birth to want and expect to be the client.

No, investment banks seek out recruits like these because it makes current employees who interview them feel powerful, important, and validated when hundreds of eager young beavers with looks, accomplishments, and grades better than theirs grovel and squirm to get into their good graces. They want them because Human Resources Department employees—virtually none of whom even got accepted to the top schools they limit their recruiting to—want to create glossy brochures, college night PowerPoints, and website profiles which look like Benetton commercials on steroids: multicultural, multigendered, multicolored paeans to underprivileged Rhodes Scholars who rose from Detroit to Stanford on full merit scholarships and singlehandedly saved the economy of Botswana in their spare time sophomore year. They want them, pace Mr. Roose, not because any client ever bothers to read the junior analyst’s bio on page 97 of the pitch book (they don’t) or because Lloyd Blankfein likes to shoot the shit with 23-year-old Yale graduates about Kierkegaard’s conception of agape love in airline waiting lounges (I venture to say he doesn’t), but because both these audiences like to brag to their wives and Business Rountable buddies they have Ivy League valedictorians lining up dozens deep to carry their golf bags. Trophy Kid employees validate the social status of investment bank(er)s, too.

* * *

And Mr. Roose rightly points out this mutual attraction is fading. What he fails to note, however, is that Wall Street’s perch as the preeminent post-graduation employer of choice for high-achieving college graduates is a relatively recent phenomenon. Finance in the 1980s was a relatively sleepy backwater, as far as ambitious college graduates were concerned. It didn’t employ very many recent graduates, and its reputation was somewhat louche and recherché for conventionally ambitious folk: Liars’ Poker and Barbarians at the Gate, not In Search of Excellence. It accumulated prestige as the industry grew in the 1990s, but it took the tidal wave of money that drove the global financialization of economies in the early- and mid-2000s to really push it to the top of the heap of college seniors’ preferred employers. At that point, the leading banks were rich, familiar to everyone around the world, and hiring thousands of eager young tyros. What was a graduating Yalie not to like?

Individual firms evolved very different reputations over that period, too. I snorted out loud when I read Mr. Roose describe Goldman Sachs styling itself “the thinking man’s investment bank.” It wasn’t too many years ago when Goldman bankers were universally considered hardworking, relatively unimaginative schlubs, B players who sacrificed their health, their marriages, their relationships with their kids, and the chance to make more money almost anywhere on the altar of Mother Goldman in exchange for the brass ring of partnership after twenty years of toil. They weren’t the most brilliant bankers on Wall Street; they were just the most relentless and the best coordinated. Goldman’s effectiveness did not arise from its bankers’ individual intelligence. It came from their discipline and uncanny ability to act in sync like a colony organism. Goldman bankers didn’t need to be smart. They just needed not to be stupid, unlike most of their competitors. And they did a pretty good job.

Recently of course—probably contemporaneously with its entire Executive Committee each earning over $60 million in one year and their former CEO parachuting into the padded chair of the Secretary of the Treasury—Goldman Sachs became the font of all munificence and socioeconomic status for a large class of strivers, including the products of elite higher education. But now the Financial Crisis and the ongoing secular shrinkage of the industry thereafter has taken the bloom off that rose, and the wealthier and more prestigious environs of Silicon Valley are what make the supremely ambitious college senior’s heart flutter. Sic transit gloria.

* * *

And this is okay, as I have written here before. Wall Street is shrinking, and we neither need nor deserve right of first refusal on all or even a majority of the talented, hardworking, untrained young cannon fodder issuing forth from the gates of academe each year. Let Facebook and Google have the trend-chasing social climbers who will do anything to get into whatever profession U.S. News & World Report anoints the best employer this year, so they can preen to their family and friends at Thanksgiving. Investment banks face a bigger threat from the private equity and hedge fund industries, who have gotten big and prestigious enough themselves that they now routinely siphon off a huge number of the most talented hardcore finance junkies who used to staff our engine rooms. Nevertheless, I suspect we will weather this challenge, too, along the way to reinventing ourselves as Investment Banking 6.0.

After all, Wall Street has always found a way to change and adapt. I am sure we will survive the absence of double Catalan-Poetry-and-Neuroscience majors from Princeton just fine, too.

Related reading:
Kevin Roose, Sorry, Wall Street. Paying Young Bankers More Won’t Make You Cool Again. (New York Magazine, August 22, 2014)
The Fish Stinks from the Head (July 30, 2009)
A Hard Rain’s Gonna Fall (September 30, 2011)
If the Phone Don’t Ring, You’ll Know It’s Me (October 1, 2011)
You Go First (July 7, 2014)

1 This is not to diminish such achievements, by the way, which demand real commitment, talent, and drive to accomplish, but let’s not kid ourselves Muffy or Bif (or Peeta, Carlos, or Fang) are the second coming of Leonardo da Vinci. It is also worth mentioning that a 3.70 GPA is not that hard to achieve nowadays at Harvard College, where the “median grade… is an A–, and the most frequently awarded mark is an A.” Investment bank recruiters take note.

© 2014 The Epicurean Dealmaker. All rights reserved.

http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11363850/us-existinghome-sales-up-24 Mon, 25 Aug 2014 14:53:46 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11363850/us-existinghome-sales-up-24 <![CDATA[U.S. Existing-Home Sales Up 2.4%]]> 11363850 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11363770/writeoffs-082214 Mon, 25 Aug 2014 14:52:17 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11363770/writeoffs-082214 <![CDATA[Write-Offs: 08.22.14]]> $$$ Goldman to Buy Mortgage Debt for $3.15 Billion to End FHFA Probe [Bloomberg] $$$ Whisky Hunter Makes 1,300% on Single Malt as Bordeaux Sours [Bloomberg] $$$ Fed’s Yellen Hawks a Foggier Rate Future [WSJ] $$$ Valeant and Pershing Square Said to Have Votes for Special Meeting of Botox Maker Allergan [Dealbook] $$$ German landlady…


http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11363203/update-2goldman-sachs-us-agency-in-mortgage-settlement-worth-12-bln Sun, 24 Aug 2014 04:00:19 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11363203/update-2goldman-sachs-us-agency-in-mortgage-settlement-worth-12-bln <![CDATA[UPDATE 2-Goldman Sachs, U.S. agency in mortgage settlement worth $1.2 bln]]>

http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11363198/goldman-sachs-to-resolve-fhfa-claims-for-315-bln Sun, 24 Aug 2014 04:00:12 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11363198/goldman-sachs-to-resolve-fhfa-claims-for-315-bln <![CDATA[Goldman Sachs to resolve FHFA claims for $3.15 bln]]>