Friday, March 22, 2013 – And the Award Goes to…
And the Award Goes to…
by Sinclair Noe
DOW + 90 = 14,512
SPX + 11 = 1556
NAS + 22 = 3245
10 YR YLD – .02 = 1.91%
OIL + 1.35 = 93.80
GOLD – 5.60 = 1610.20
SILV – .42 = 28.86
SPX + 11 = 1556
NAS + 22 = 3245
10 YR YLD – .02 = 1.91%
OIL + 1.35 = 93.80
GOLD – 5.60 = 1610.20
SILV – .42 = 28.86
For the second time this year, the S&P 500 was down on the week, slipping 0.2% over the past five trading sessions. The Dow and the Nasdaq Comp also ended just a smidge lower for the week.
Cyprus has been a big concern this week. It is a tiny little island in the Mediterranean, and it is just a blip on the overall Euro-economy, but it could have big implications for the Euro-zone; which is something like the Hotel California; you can check in any time you please, but you can never leave. If Cyprus does leave, or get kicked out of the Euro, others may follow suit. If Spain or Italy leaves the Euro, there is no more Euro.
It has also not helped confidence in the euro that the Cypriot crisis has erupted at a time when other troubling problems are now raising their ugly heads in Europe. Less than a month ago, the electorate in Italy, the euro area’s third largest economy and a country with around 2 trillion-euro in public debt, voted overwhelmingly against austerity and structural reform. Imposing fiscal austerity on the periphery in those circumstances only seems to drive the periphery ever deeper into economic recession. Actually, depression may be more descriptive. In Greece and Spain, unemployment is about 25% and youth unemployment is running at about 50%; that’s the stuff of depressions and long, tense summers.
And then to put salt on a wound, the Euro technocrats impose a tax on bank deposits. But it’s not really a tax. It’s just stealing. This isn’t supposed to happen in a democracy. And if it happens to one sovereign European Union nation, there is nothing to prevent it from happening to another. The cure is worse than the disease. There is no reason Cyprus should have any significant impact on the global economy, and it probably won’t.., probably; but if it does, it is because of the stupidity of the Euro technocrats.
The Cyprus Parliament, the elected officials today rejected the bank confiscation scheme. Instead they have approved a “National solidarity fund; they will pool together state held assets for an emergency bond issue. The Cyprus President meets with the Euro technocrats tomorrow in Brussels, (technically that’s the Troika, or the EU, the ECB and the IMF). German officials are leaking news to the press, saying that Cyprus cannot expect any more help from Berlin, or Brussels, than what has already been offered. A Greek bank said it would offer to take over local units of Cypriot banks. This would safeguard all the deposits of Greek citizens in Cypriot banks. So, the only place in Europe willing to lend a helping hand is Greece. How bizarre.
The European Central Bank has given Cyprus until Monday to find a solution, or it says it will stop transferring money to its under-capitalized banks. Banks on the island have been closed since Monday and many businesses are only taking payment in cash. There were protests outside parliament again today.
Last week I talked extensively about the Senate investigation into the London Whale trading losses at JPMorgan. The 300-plus page report details multiple irregularities and plain and simple, criminal activity; ongoing criminal activity.
One of the interesting revelations deals with disclosure. In April 2012, just about a week after the London Whale trading losses first became public knowledge. Douglas Braustein, then Chief Financial Officer for JPMorgan said that regulators were fully aware of the London based chief investment office and what that trading unit had been doing. This was before JPMorgan’s acknowledgement in May that it had a serious problem, which eventually added up to more than $6 billion in trading losses.
At JPMorgan’s quarterly earnings conference call in April of 2012, Braustein was quoted as saying: “We are very comfortable with our positions as they are held today, and I would add that all of those positions are fully transparent to the regulators. They review them, have access to them at any point in time” and “get the information on those positions on a regular and recurring basis as part of our normalized reporting.”
Last week at the Senate hearings, Senator Carl Levin asked Scott Waterhouse, the OCC examiner-in-charge for JPMorgan, if Braunstein’s statement was true. “That is not true,” Waterhouse said. Levin asked if it was true that regulators got “the information on those positions on a regular basis.” Waterhouse answered: “No, we didn’t.”
And so, Braunstein changed his story last week. He told the Senate investigators that the statement he made in April 2012 was not true, but he covered his but, saying: “I believed it to be accurate based on the information that I had received.” Of course we still don’t know what information he had a year ago that would make him think the regulators were getting accurate information.
What we learned is that the OCC is spineless. The testimony revealed that the OCC knew that Braunstein had made the claim that he was keeping the OCC informed with normalized reporting, and the OCC knew that was a lie, and they knew it one year ago, and they did nothing. Was it an act of omission or commission?
Part of the conclusions drawn from the Senate report: “The ability of C.I.O. personnel to hide hundreds of millions of dollars of additional losses over the span of three months, and yet survive internal valuation reviews, shows how imprecise, undisciplined and open to manipulation the current process is for valuing credit derivatives. This weak valuation process is all the more troubling given the high-risk nature of synthetic credit derivatives, the lack of any underlying tangible assets to stem losses, and the speed with which substantial losses can accumulate and threaten a bank’s profitability.”
Pretty harsh criticism, but not entirely accurate; the Senate report mentions the” lack of underlying tangible assets to stem losses”. While, the London Whale was gambling with derivatives which are nothing more than bets on side bets of side bets, there were tangible assets. Specifically, there were FDIC insured deposits.
And there is absolutely no evidence that gambling in shadowy and complicated derivatives markets has helped banks do the job that justifies giving them the benefit of deposit insurance. When you make a deposit in the bank, you are not turning over your hard earned money to a gambling addict. Well, actually you are doing that, but it probably isn’t your intent.
Last week, the Federal Reserve released the results of its stress test on the big banks. Ally Financial did not pass. JPMorgan and Goldman Sachs passed but there were problems. The Fed is making them go back to submit new capital plans by the end of the third quarter of this year to “address weaknesses in their capital planning processes.”
The Senate investigation has laid out multiple instances of criminal activity. Now we sit back and see if the Department of Justice has the cajones to enforce the rule of law. Attorney General Eric Holder has stated that some banks were so large that he feared it would “have a negative impact on the national economy, perhaps even the world economy,” if criminal charges were filed against the bank.
Perhaps the Fed needs to change the terms of the stress test; if they economy can’t stand them being prosecuted, they fail the test. At the very least somebody needs to stop them from gambling with FDIC insured money. We don’t need a stress test to let us know that always gamblers eventually lose.
The Senate probe of JPMorgan did more than conclude that the bank hid the full damage of last year’s trading losses from investors and regulators. It delivered 900 pages of evidence that could help the Securities and Exchange Commission make the case that bank executives broke the law.
Maybe we are starting to see a change among the regulators. Remember Standard Chartered, the British bank? US regulators found that Standard Chartered back between 2001 and 2007, had laundered $24 million of transactions processed on behalf of Iranian parties and a total of $109million to Burma, Sudan and Libya also appeared to be in violation of sanction laws. Last year regulators fined Standard Chartered a little over $500 million and reached deferred prosecution agreements with the bank to avoid further sanctions.
Normally when this type of settlement is reached the banksters get to claim that there is no admission of guilt or innocence, but not in the case of Standard Chartered. Standard Chartered Bank signed a deferred prosecution agreement which, among other things, requires it to take responsibility for its previously illegal sanction-busting actions. When a bank gets caught laundering money to terrorists, they don’t always get to claim innocence.
And so we fast forward to March 5 2013, and what did Sir john Peace, Chairman of Standard Chartered do? He claimed innocence. During a conference to announce the banks annual earnings, he said the bank’s breaches were “not willful acts” and he described the multi-year money laundering operation on behalf of Iran as nothing more than a “clerical error”.
Well, the US regulators heard about that and they told Sir John Peace that he needed to revisit those remarks. In an unusual step, the bank was forced to issue a formal stock market announcement yesterday by US regulators. In a signed letter by Peace, the chairman said that during the press conference: “I made certain statements that I very much regret and that were at best inaccurate.”
The formal apology went on to say: “My statement that Standard Chartered ‘had no willful act to avoid sanctions’ was wrong, and directly contradicts Standard Chartered’s acceptance of responsibility in the deferred prosecution agreement and accompanying factual statement. To be clear, Standard Chartered Bank unequivocally acknowledges and accepts responsibility, on behalf of the bank and its employees, for past knowing and willful criminal conduct in violating US economic sanctions laws and regulations, and related New York criminal laws, as set out in the deferred prosecution agreement.”
So, very clearly, Sir John Peace lied, and with regard to the legal side of things, he made deliberate misrepresentations about securities. He also violated Standard Chartered’s deferred prosecution agreement with US regulators. Standard Chartered – in the person of Sir John – has deceived prosecutors, regulators, and the investing public. This is outrageous executive behavior and it cannot be tolerated in a company that holds a US banking license.
The sad reality is that money laundering should have been enough to pull their banking license; violation of the deferred prosecution agreement should be enough to pull the license. We have senators asking just what is the level of criminality required to bring a bankster to trial; and the regulators they’re afraid to prosecute. And so, Sir John was forced to read a letter which clearly states he is a liar.
And then he collected his bonus.