Germany and Spain’s biggest banks report stunning losses
FRANKFURT, Germany (AP) — Reducing the value of assets and lawsuit expenses pushed Deutsche Bank into a big and unexpected fourth quarter loss of €2.15 billion ($2.91 billion).
The net loss for the October-December period compared to a €186 million profit a year ago. Analysts surveyed by FactSet expected a bare profit of €62 million.
Deutsche Bank is reshaping its business to meet new regulatory requirements for banks to keep larger financial buffers against losses in the wake of the 2007 financial crisis.
Spanish bank Santander, the biggest in the eurozone by market value, said its net profit plunged in 2012 as it wrote off nearly 19 billion euros ($26 billion) on bad loans and property assets in Spain.
The charges slashed net profit last year by nearly 60 percent but left Santander’s balance sheet looking more secure.
The group said it made 12.7 billion euros in provisions for non-performing loans in Spain and another 6.1 billion euros for Spanish real estate exposure — 18.8 billion euros in total.
The Chinese banking system is insolvent. Of course, the entire global banking system is insolvent, but today’s spotlight is on China. Please consider China averts local government defaults.
Chinese banks have rolled over at least three-quarters of all loans to local governments that were due to mature by the end of 2012, an indication of the immense challenge facing China in working down its debt load.
Local governments borrowed heavily from banks to fuel China’s stimulus programme during the global financial crisis and are now struggling to generate the revenue to pay them back, a shortfall that could cast a shadow over Chinese economic growth.
Banks extended at least Rmb 3tn ($482bn) – and perhaps more – of the roughly Rmb 4tn in loans plus interest that local governments were to have paid them by the end of last year, according to Financial Times calculations based on official data.
Extend-and-Pretend Chinese Style
Since details on refinancing and interest rates are lacking, the reported $482 billion is undoubtedly on the low side.
The key point is that massive rollovers were needed to stave off defaults….
China’s massive bank financed stimulus was intended to keep the economy moving. It may instead lead to economic disaster.
Financial collapses may have different immediate triggers, but they all originate from the same cause: an explosion of credit. This iron law of financial calamity should make us very worried about the consequences of easy credit in China in recent years. From the beginning of 2009 to the end of June this year, Chinese banks have issued roughly 35 trillion yuan ($5.4 trillion) in new loans, equal to 73 percent of China’s GDP in 2011. About two-thirds of these loans were made in 2009 and 2010, as part of Beijing’s stimulus package. Unlike deficit-financed stimulus packages in the West, China’s colossal stimulus package of 2009 was funded mainly by bank credit (at least 60 percent, to be exact), not government borrowing.
US Federal Reserve is reporting a major deposit withdrawal from the nation’s bank accounts. The financial system has not seen such a massive fund outflow since 9/11 attacks.
The first week of January 2013 has seen $114 billion withdrawn from 25 of the US’ biggest banks, pushing deposits down to $5.37 trillion, according to the US Fed. Financial analysts suggest it could be down to the Transaction Account Guarantee insurance program coming to an end on December 31 last year and clients moving their money that is no longer insured by the government.
The program was introduced in the wake of the 2008 crisis in order to support the banking system. It provided insurance for around $1.5 trillion in non-interest-bearing accounts with a limit of $250,000. It was aimed at medium and small banks as the creators of the program believed bigger banks would cope with the crisis themselves.
Listen closely from @3:00 to 3:30… this explains a great deal.
Bill Gross the PIMCO fund manager known as the “Bond King,” is out with his February investment letter, titled “Credit Supernova!”
This month, Gross tackles the relationship between credit expansion and real growth. He channels the late economist Hyman Minsky, saying the economy is now in Minsky’s “Ponzi finance” phase, “when additional credit would be required just to cover increasingly burdensome interest payments, with accelerating inflation the end result.”
Gross writes that new credit is providing diminishing returns: “Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four dollars of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result.”
The reason, Gross says, is because more and more of that credit is being channeled into market speculation, driving a wedge between markets and the real economy. “Investment banking, which only a decade ago promoted small business development and transition to public markets, now is dominated by leveraged speculation and the Ponzi finance Minsky once warned against,” he writes.
Below is an excerpt from the letter (emphasis his):
So our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.
REPEAT: THE COUNTDOWN BEGINS WHEN INVESTABLE ASSETS
POSE TOO MUCH RISK FOR TOO LITTLE RETURN.
Bill Gross – “Credit Supernova!” hey say that time is money.* What they don’t say is that money may be running out of time.
First Seth Klarman, then Paul Singer, and now Bill Gross: the respected voices speaking up against the lunatics in the Marriner Eccles asylum is getting louder and louder.
Peter Schiff Economic Collapse IMMINENT!!! – Video
IN YOUR FACE!!! Iceland Wins Major Case Over Failed Bank “We rescued our people, instead of the banks” !!!
January 28, 2013, 8:50 am
In a judgment issued in Luxembourg, the court of the European Free Trade Association, or EFTA, cleared Iceland of complaints that it violated rules governing the protection of depositors drawn up by the European Union. While Iceland is not a member of the Union, it is bound by most of its rules, as a member of EFTA.
Monday’s court ruling in Luxembourg marks a significant victory for Iceland. Unlike Ireland, Iceland declined to use taxpayer money to bail out foreign bondholders and depositors. This triggered a bitter dispute with Britain, which used anti-terrorism rules to take control of assets held in Britain by Icesave’s parent, Landsbanki.