Close scrutiny of Europe’s banks may turn up unexpected shortfalls … THE ink on the agreements that will hand supervision of the euro area’s biggest banks to the European Central Bank (ECB) is barely dry. Yet the ECB is already enmeshed in squabbles with national banking supervisors over the extent of its powers and the rigour with which it will undertake its first big task, a warts-and-all review of the balance-sheets of the banks it will take charge of in a year’s time. … Details over how the ECB will conduct this asset-quality review (AQR) will probably be released in the second half of October, but the outlines are already beginning to emerge.
Investors are wary that the tranquility in eurozone bond markets could breed complacency ... Whether this new phase in the eurozone crisis is sustainable or simply the calm before the next storm will help determine the eurozone’s future. The stability reflects market confidence in the eurozone’s prospects – and the fact that fickle international investors fled at an early stage of the crisis. But overreliance on domestic investors has thrown Europe’s economic integration into reverse and may prove dangerous. While the calm may provide breathing space – lower bond yields cut financing costs – it could breed complacency. ... arguably a much bigger reason for the recent stability in eurozone bond markets across much of the rest of the region is that foreign investors have retreated. So far this year, domestic investors have accounted for almost 100 per cent of the net issuance of Italian and Spanish government debt, according to calculations by BNP Paribas. Of outstanding Spanish bonds, almost 70 per cent is currently held domestically. For Italy, the figure is almost 60 per cent. ... Japan has illustrated how a country, with strong domestic ownership, can operate with a level of public sector debt equivalent to more than 200 per cent of national output and still keep official borrowing costs down. Yields on 10-year Japanese government bonds are just 0.6 per cent. ... Yet the stability created by “re-domestication” of eurozone bond markets could prove fragile. A mounting concern of eurozone policy makers is the increased mutual dependence between banks and governments in the eurozone periphery, which could quickly exacerbate financial instability if a fresh crisis erupted somewhere in the financial system. ... The links between banks and sovereigns “basically changes the nature of the eurozone. Banks are acting as the arms of the central bank to help governments avoid default” ... Without outside investment, the struggling periphery economies could find it even harder to escape recession and produce the growth needed to reduce public-sector debt mountains.
The ranks of China’s wealthy continue to surge. As their economy shows signs of weakness at home, they’re sending money overseas at unprecedented levels to seek safer investments — often in violation of currency controls meant to keep money inside China. ... The methods include China’s underground banks, transfers using Hong Kong money changers, carrying cash over borders and pooling the quotas of family and friends — a practice known as “smurfing.” The transfers exist in a gray area of cross-border legality: What’s perfectly legitimate in another country can contravene the law in China. ... In Hong Kong, more than 1,200 currency-exchange shops have seemingly little daily activity. These brightly lit storefronts specialize in helping wealthy Chinese transfer their money overseas. The premium isn’t high — only about 1,000 yuan ($160) per HK$1 million ($130,000) more than bank exchange rates would be if they could do the transaction. ... It works like this: Chinese come to Hong Kong and open a bank account. Then they go to a money-change shop, which provides a mainland bank account number for the customer to make a domestic transfer from his or her account inside China. As soon as that transaction is confirmed, typically in just two hours, the Hong Kong money changer then transfers the equivalent in Hong Kong or U.S. dollars or any other foreign currency into the client’s Hong Kong account. Technically, no money crosses the border -- both transactions are completed by domestic transfers. ... While the first exchange has to be set up face-to-face, customers can place future orders via instant-messaging services such as WhatsApp or WeChat, and money changers set no limit on how much money they can move.
Byron Trott has long been a trusted advisor to clients with names like Buffett, Walton, and Pritzker. Now the ultra-discreet financier is raising his profile by investing alongside them. ... “Not a lot usually shakes me, but I was scared to death when I walked in,” says Trott, who prepared for the meeting by reading all of Berkshire Hathaway’s annual reports. The two hit it off, and the get-to-know-each-other session, scheduled for an hour, ran to three. Before it was over, Trott had a fee-generating assignment from Buffett, who is notoriously stingy about paying investment bankers. “I did what I do with most clients for the first time,” says Trott. “I say, ‘Give me your toughest problem. What have you not been able to accomplish?’ ” ... “Let us understand you, your company, your long-term objectives, and let us help you by being a true solutions-based adviser on your side of the table, not the kind of idea-of-the-day, dialing-for-dollars banker,” he says, summarizing his approach. ... What sets Trott apart, along with his unique clientele, is his ability to sit on every side of the table. By stressing discretion, confidentiality, and patience, Trott and his colleagues repeatedly do what few other bankers can: They advise multiple parties to the same transaction—and then invest capital in some of the deals they’ve just brokered. In this fashion BDT has raised two funds, worth $8 billion, in five years and acquired stakes in companies that include Tory Burch, Peet’s Coffee, and the Pilot Flying J truck stop business. The capital comes largely from BDT’s own employees and the families in its network, who essentially are providing patient investment dollars to one another.
In a 52-story office tower overlooking the leafy streets of this city's embassy district, some 400 deal makers at Citic Trust Co. arrange financing for property developers, steel mills and other businesses starved for cash and shunned by China's traditional banks. ... The lenders at Citic and other institutions that make up China's "shadow banks" have created the closest thing China has to the culture of Wall Street. They take risks that traditional banks won't, going so far as to create investment funds for assets like top-shelf liquor and mahogany furniture. Their top executives drive luxury cars and frequent expensive clubs. ... Now, China's shadow banks—a mélange of trust companies, insurance firms, leasing companies, pawnbrokers and other informal lenders subject to limited oversight ... Between 2010 and 2012—a period during which traditional banks scaled back lending—shadow lenders doubled their outstanding loans to 36 trillion yuan ($5.8 trillion), or about 69% of China's gross domestic product ... At so-called trust companies, a pillar of the shadow sector, assets under management have almost tripled to 8.7 trillion yuan, making the trust industry the second-largest financial-services sector in China, after banks. ... "The future of the industry is now entirely up to the central bank's policy stance," says a senior executive at trust company Ping An.
Nothing is more ordinary than a Monday morning at a Swedish bank. ... People go about their business quietly, with Scandinavian efficiency. The weather outside is, more likely than not, cold and gray. But on April 22, 2013, the scene at Stockholm’s Östermalmstorg branch of Skandinaviska Enskilda Banken got a jolt of color. At 10:30 am, a man in a black cap burst into the building. “This is a robbery!” he announced, using one arm to point a gun at the bankers and the other to hold out a cloth bag. “I want cash!” ... If the staff was alarmed, no one much showed it. Instead, the employees calmly informed the stranger that his demands could not be met. The bank, they explained, had no cash on the premises. None in the vaults, none at the tellers’ windows, none at all. When the robber looked confused, he was directed to a poster on the wall that proclaimed this a “cash-free” location. “It’s true,” the manager told him. “Sorry.” Crestfallen, the would-be thief lowered his gun and prepared to leave. Just before he stepped out, he turned to one of the tellers. “Where else can I go?” he asked. ... His options, in fact, were fairly limited. What this man had somehow failed to notice was that his country is at the forefront of a global economic shift.
A mathematical prodigy, he worked out how to “beat the dealer” at blackjack while a postdoctoral student at MIT. After he published a book in 1962 revealing how to count cards, he became so famous that casinos banned him from playing — he says one even resorted to drugging him. Many changed their rules to thwart people using his counting system. ... Next came an attempt to beat roulette, using a contraption tied to his foot that is now described as the world’s first wearable computer; after that, an expedition into Wall Street that netted hundreds of millions of dollars. ... Thorp’s then revolutionary use of mathematics, options-pricing and computers gave him a huge advantage. ... “Adam Smith’s market is a whole lot different from our markets. He imagined a market with lots of buyers and sellers of things, nobody had market dominance or could impose things on the market, and there was a lot of competition. The market we have now is nothing like that. The players are so big that they control the levers of financial policy.” ... “One of the things that’s served me very well in life is having an extraordinary bullsh*t detector.”
The regulator closed almost 100 banks in 2016, and in a cleanup with few precedents, Nabiullina has shut almost 300 over the past three years. This may be only the beginning. There are about 600 banks left across the world’s largest country, but Fitch Ratings analyst Alexander Danilov, adjusting for population, calculates that as an emerging market Russia would be fine with about 1 in 10 of those. ... she runs what in Russia is called a “megaregulator.” When it comes to the economics behind Putin’s overarching goal of restoring Russia’s place in the world, there’s no one more influential. ... As central bank governor, she’s in charge of a banking system whose weak links are an economic burden, driving up the cost of financing so badly needed in the face of stagnant growth. She’s also the chief guardian of Russia’s foreign currency reserves. Those holdings are more than just a tool of monetary policy; according to several senior officials, Putin views them as a vital safeguard of the country’s sovereignty. ... The full picture only becomes clear when they’re shut down and regulators have to track the assets. In those cases, only about 40 percent of what the banks claimed was on their books actually existed
This first mode of money is public. We might call it ‘state money’. Indeed, we experience cash like a public utility that is ‘just there’. Like other public utilities, it might feel grungy and unsexy – with inefficiencies and avenues for corruption – but it is in principle open-access. It can be passed directly by the richest of society to the poorest of society, or vice versa. ... Alongside this, we have a separate system of digital fiat money, in which our money tokens take the form of ‘data objects’ recorded on a database by an authority – a bank – granted power to ‘keep score’ of them for us. ... This second mode of money is essentially private, running off an infrastructure collectively controlled by profit-seeking commercial banks and a host of private payment intermediaries – like Visa and Mastercard – that work with them. The data inscriptions in your bank account are not state money. Rather, your bank account records private promises issued to you by your bank, promising you access to state money should you wish. ... The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge.
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Betting that oil prices were about to crash was an audacious wager, one made all the more remarkable by the individuals behind the deal—civil servants with unassuming titles such as “director general of fiscal planning.” In the lucrative oil business, a profession known for its generous compensation, these government employees were probably the worst-paid stiffs around. Yet the men from Hacienda—so called still, even though women are sometimes in the room—proved prescient in predicting a crash. ... In December 2009 the four investment banks involved in the deal wired the proceeds of the wager back to Mexico. Official records tracking the money that landed in Account No. 420127 at state-owned Nacional Financiera bank show the tidy sum Mexico made: $5,084,873,500. ... Despite its size, impact, and huge fees, the deal is one that few people, even in the energy industry or on Wall Street, know much about. Painstakingly, the world’s 12th-largest oil producer and its bankers have cloaked the program in secrecy to prevent others—namely trading houses and hedge funds—from front-running Mexico’s orders.
That first year, the National Bank of Washington was swallowed up by Pacific National Bank of Seattle, which in 1981 was bought by Los Angeles-based First Interstate Bancorp, which in 1996 was bought by San Francisco-based Wells Fargo, which in 1999—as the consolidation frenzy was reaching its peak—merged with Norwest, a Minneapolis-based bank, in a $34 billion deal. ... Wells Fargo, which was founded in 1852 as a stagecoach express to carry valuable goods to and from the gold mines in the West, had a storied brand, so the new, combined company kept that name. But if Norwest’s name didn’t survive, its corporate culture did. ... In Kovacevich’s lingo, bank branches were “stores,” and bankers were “salespeople” whose job was to “cross-sell,” which meant getting “customers”—not “clients,” but “customers”—to buy as many products as possible. ... Achieving sales goals wasn’t easy. ... Wells Fargo’s own analysis found that between 2011 and 2015 its employees had opened more than 1.5 million deposit accounts and more than 565,000 credit-card accounts that may not have been authorized. Some customers were charged fees on accounts they didn’t know they had, and some customers had collection agencies calling them due to unpaid fees on accounts they didn’t know existed. Gaming was so widespread that it had even spawned related terms, such as “pinning,” which meant assigning customers personal-identification numbers, or PINs, without their knowledge in order to impersonate them on Wells Fargo computers and enroll them in various products without their knowledge. ... The quotas for the bankers at Guitron’s branch totaled 12,000 Daily Solutions each year, including almost 3,000 new checking accounts. Without fraud, the math didn’t work.