Commodity Trade Mantra

Don’t Cheat – Banks do not like Competition

Don’t Cheat – Banks do not like Competition

Don’t Cheat – Banks do not like Competition

Material differences in the way Banks define their risky assets is blinding investors’ ability to make informed choices about where to put their money, a top regulator said on Thursday. Stefan Ingves, chairman of the Basel Committee, said a report to be published shortly will confirm suspicions among key policymakers and top bankers that the methods used – generally in-house – across the world for measuring risky assets is not working well enough, reported Reuters. If risks are not measured correctly a bank would not be holding enough capital to cover losses, leaving taxpayers on the hook. The committee, made up of regulators from nearly 30 countries, looked at trading books using data from 15 top banks and found that risks were not being properly reflected. Ingves said meaningful and comparable bank capital figures give shareholders, bank depositors, counterparties and supervisors confidence in a lender. Jamie Dimon, Chief Executive of JPMorgan has complained that some rivals — widely seen as referring to lenders in Europe — were gaming the system by attaching “aggressively” low risk weights to their assets. The risk weightings are added up using models to determine the overall amount of capital needed to meet regulatory requirements. Ingves said the Basel Committee has found “material variation” in risk weights for assets held on trading books, after adjusting for accounting and portfolio differences. This “generally insufficient” public disclosure by banks left investors in the dark, added Ingves, who is also governor of Sweden’s central bank. On Thursday, credit ratings agency Moody’s said banks in Spain, Italy, Ireland and Britain may need to set aside much more money to cover potentially bad loans.

Banks are seen Cutting Assets:

The 13 largest investment banks have announced plans to cut $1.03 trillion in risk-weighted assets, consulting firm McKinsey & Co. said in a Jan. 23 report. Inventory holdings of corporate bonds by top dealers have dropped about 40% from two years ago and are less than a quarter of their 2007 peak, according to data compiled by Bloomberg. “A lot of the banks have a new plan of de-risking their balance sheets, getting their risk-weighted assets down to try to improve their equity ratios,” Cohn said. “And I’m not sure that that capital can come back into the market quick enough” if there’s a sell-off, he said.

Bank of England unhappy with some of the biggest banks:

The Bank of England’s Financial Policy Committee is unhappy about relying on in-house models used by the biggest banks. The bank’s director of financial stability, Andrew Haldane, said on Monday regulators were instead slapping extra capital charges on some types of assets held by banks, such as riskier commercial real estate. There could also be “floors” set for capital levels irrespective of what the models show as the right amount. Fitch Ratings agency, meanwhile, backed Haldane’s view on Thursday, when it said British banks could be underestimating the riskiness of their property loans and may need more capital to correct this. Haldane and others sayBasel’s rules are too complicated and want a simpler system for determining capital requirements that does not rely on a bank’s own arithmetic. The Basel Committee is looking at possible solutions such as improving public disclosure, curbing a bank’s choice of model and more consistent supervision by regulators. Ingves said more work will be done on how risk weights are used in a bank’s trading and banking books.

The committee will publish a paper looking at the trade-offs that need to be made if the risk weighting system is simplified but Ingves said it was “naive” to believe that big banks can be supervised using simple rules, even with penal settings. The committee is already looking at so-called effectively requiring the use of standardized models for adding up risk weights, raising fears among big banks that the days of their bespoke versions are numbered.

Banks & Financial Job Losses in Europe at 4 Year High:

European Banks are eliminating employees at a faster pace than most of their U.S. counterparts amid the sovereign- debt crisis. The region is grappling with a weakened euro-area economy, increased policing of banker compensation and regulatory pressure on firms to shrink quickly. Banks & Financial-services firms are on track to cut the most jobs in January since the start of 2009 as Europe struggles to emerge from the debt crisis and regulators impose tougher capital rules. The 16,040 announced and expected reductions in the past three weeks are just short of the 16,389 cuts made in the industry during January 2009 after Lehman Brothers Holdings Inc. collapsed, according to data compiled by Bloomberg. Bankers and consultants expect the cuts to accelerate in coming months even as financial stocks gained 26% last year. “We’re moving into a phase of radical restructuring,” Chris Harvey, global head of financial services at Deloitte LLP, said. “If you take the scenario the universal bank model is gone, then you have to go down the restructuring route and with that come job cuts. We’re about halfway through.” Commerzbank, Germany’s second-largest lender, is planning to eliminate 4,000 to 6,000 jobs over the next four years to meet its profit goals, according to a memo seen by Bloomberg News on Jan 24. London-based HSBC Holdings Plc, Europe’s biggest bank, is working through its plan to cut 30,000 jobs announced in 2011, which they aim to complete by year-end. UBS, based in Zurich, said in October it will turn back from capital-intensive trading businesses at the investment bank and cut about 10,000 jobs to increase profitability. In the U.S., Morgan Stanley is eliminating 1,700 jobs from its investment-banking division and support staff after reducing the number of employees by about 4,500 in 2012. It’s also deferring all bonuses for top earners, which will curb compensation costs recognized in 2012. American Express Co. said in January it will eliminate 5,400 jobs this year, mostly in travel services, as consumers and businesses rely more on digital technology for bookings. This month’s financial-services cuts compare with about 10,000 in January 2012, 2,730 in 2011 and 3,921 in January 2010, the data show.

Banks are still too big for the current environment, and cost cutting is at the forefront of every senior management. Managements are struggling to see their way out of this. All they are doing is cutting costs. There is no investment in future businesses anymore. “Regulators have clearly made up their minds that banks are too big,” UBS Chairman Axel Weber said at a panel discussion in Davos this week. “The future for banks will be quite different.”

Say goodbye to more bank branches:

Banks are killing off branches by the thousands – CNN Money. Overall, banks closed 2,267 branches last year and opened only 1,149, according to research firm SNL Financial. That resulted in a total loss of 1,118 branches nationwide — the highest level since 2005, when the firm began tracking closures. Looking to cut costs, many banks are aggressively shuttering branches they deem unnecessary and encouraging customers to shift to online and mobile banking instead, said Nancy Bush, a bank analyst and contributing editor at SNL. “All the costs of regulation are pressing on banking as a whole, and with a low interest rate environment it’s harder and harder to make money,” Bush said. “They have to look for a way to offset that.” Plus, a growing number of customers are becoming so comfortable with going online or mobile banking that they have no desire to visit branches, so weeding out branches in low-growth areas is a natural step. Bank of America has been the most aggressive in closing branches, shuttering 256 and opening only 12 last year, according to SNL. A spokeswoman said the bank is always updating its network to meet customer needs, and this includes consolidating some branches, selling others and buying “where there is a high growth opportunity.” Capital One, Wells Fargo, Citi and BB&T also closed more branches than they opened last year.

Are banks still ‘too big to fail’?

“You’re just not going to have a branch on every corner anymore from here on out,” Bush said. To encourage customers to shift from branch banking to online and mobile banking, many banks are using pricing incentives like lower fees on online checking accounts. They’re also adding more advanced features to ATMs, like bank statements and mobile deposit capabilities and improving their online and mobile platforms. There will always be some customers who won’t want to convert to online banking, however. And if their local branch closes, they may dump that bank altogether and head to a community bank instead, Bush said. But branches aren’t going to disappear entirely. While the downsizing is likely to continue for the next couple years, banks will leave many branches in big cities and areas with large populations and lots of money. Some banks are even opening more branches than they’re shutting to try to capitalize on high-growth parts of the country, where they have yet to establish a big presence. Chase, for example, opened 166 branches last year — 66 of which were in California, which is considered an attractive market. But it closed 77 branches in less desirable markets. “We will never have a branch-free banking industry, it’s just that they’re going to be more concentrated and less present in non-urban markets,” Bush said.

Biggest bank closers


Branches closed

Branches opened

Net decrease

Bank ofAmerica








Royal Bank ofScotland








M&T Bank




Capital One




Source: SNL Financial

Credit Bubble Seen in Davos as Cohn Warns of Repricing – Bloomberg

Fed Pushes into ‘Uncharted Territory’ With Record Assets – Bloomberg

Deutsche Bank Debt Salesmen Said to Go Amid Pay Overhaul – Bloomberg

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