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SaintJay

Credit Crisis: Banks Have Deluded Us, Says Top Fund Manager

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http://www.cimaglobal.com/cps/rde/xchg/liv...054137_4201.htm

Neptune slams banks' financial reports and says expect ‘three more layers of pain’. By Tim Cooper, editor e-magazines, CIMA.

A top UK fund manager has been sharply critical of financial reports from the banking industry. Robin Geffen, managing director of Neptune, claimed that UK banks have not yet reported several key negative factors in their businesses.

At a conference he said: 'We aren’t even a third of the way through the writeoffs in the UK. The UK was very late to buy into subprime, but there is still credit card debt with escalating delinquencies, auto loans and student loans. We have heard about SIVs and monolines. But the next three legs on the table haven't begun to be talked about. They will be very painful.'

Geffen said responsible banks should halve their dividends. 'What they should not do is go out and sell the jewels in the crown because that will wreck their balance sheets and reduce their potential for turnaround,' he said. 'Any bank that doesn't halve its dividend at the next reporting season - I suggest you sell it. When they appear six to 12 months later asking for a rights issue, I suggest we replace the management of those companies.'

Let the blames begin...

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Interesting article by Anthony Hilton yesterday.. a lot of creative accounting going on.

Be that as it may, the story on Friday was that one investment bank - which libel laws will not allow me to name - was touting around a package of $3 billion (£1.5 billion) of loans and securities that it wants to trade on a bedand-breakfast deal - so they will not be on its books when the auditors come to call. It wants someone to buy them at an inflated price so the bank does not have to recognise a loss on its balance sheet. It will then repurchase the package at that price plus a suitable fee to the counter-party in a week or two.

http://www.thisislondon.co.uk/standard/art...king/article.do

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Interesting article by Anthony Hilton yesterday.. a lot of creative accounting going on.

http://www.thisislondon.co.uk/standard/art...king/article.do

Wow --- hard hitting stuff.....

Look back to see what lurks ahead in banking

Anthony Hilton

Finance is human nature, someone once said, which is why things never change. Each generation gets up to the same old tricks, makes the same old mistakes, and is always surprised when things don't turn out as planned.

So if you want to know what is likely to happen next, simply take a look at what happened last time round. The last UK example of huge leverage being used to push structured products to ludicrous highs, only to see them become worthless as the system unwound, was the split-capital investment trust crisis.

And the last throw of those in the thick of the split-capital problem was to try to get "friendly" rivals to take stock off their books at an inflated price just before they had to sign off on their annual accounts. There was, of course, an under-the-counter deal that the original owners would buy the toxic stuff back again after the year-end had passed and the auditors had signed off the books favourably.

Word on the street is that some of the investment banks are contemplating something similar. The collapse at the end of last week of Peloton, a wellregarded hedge fund, is particularly unfortunate for the investment banks because as well as wiping out a fair chunk of its investors' money, the losses have apparently also spread back up the chain to the prime brokers - who are, of course, the investment banks.

It is also worth noting the words of one of Peloton's founders on why his business has failed. It is apparently nothing to do with the management, taking on too much risk, gearing up too dangerously and thinking they were skilful when in fact their past success had just been luck. The disaster is apparently entirely down to external factors - namely the "unprecedented market movements" and the unfairness of lenders in taking no account of the firm's good credit history in deciding not to lend it so much in future.

Be that as it may, the story on Friday was that one investment bank - which libel laws will not allow me to name - was touting around a package of $3 billion (£1.5 billion) of loans and securities that it wants to trade on a bedand-breakfast deal - so they will not be on its books when the auditors come to call. It wants someone to buy them at an inflated price so the bank does not have to recognise a loss on its balance sheet. It will then repurchase the package at that price plus a suitable fee to the counter-party in a week or two.

It is no surprise if this is happening. It is the same kind of window dressing they tried to do with the splits crisis, and indeed in the fringe banking crisis of the 1970s. It happens because banks are still in denial about the disaster they have unleashed on their world.

Today's other big rumour is that another flagship investment bank will be forced into a profits warning towards the middle of this month. Again, we should not really be surprised - though the markets might not see it like that.

A straw poll of banking activity for the month just ended showed that European Equity capital markets activity was down 70% on 12 months ago, global equity capital markets is down 50%, and leveraged finance in its various forms is down about 25%. On top of that are the prime brokerage losses just mentioned, losses in-house from proprietary trading, and a loss of income from hedge funds as they retrench. Given that firms have barely begun to tackle their cost bases, the plunge in net income in some houses is said to be frightening.

Parallel with this are the lawsuits. Barclays Capital is suing Bear Sterns over the way it ran a hedge fund in New York and UBS, one of the banks most troubled by subprime, picked up an ugly-looking writ in Germany last week. There will be many more, and two things are likely to happen.

BACK in 1990 the London Borough of Hammersmith and Fulham escaped the consequences of multi-million pound losses in the derivatives markets when a London court ruled that these were ultra vires - meaning the authority had no legal right to be buying those kind of investments. This in effect means they had been mis-sold and the losses reverted to the investment banks which had done the selling. We must expect many variants on that theme in the coming months - given that many investors nursing horrendous losses were assured they were buying triple-A products.

The other big issue will be the attitude of the insurance companies and whether they will be willing to pay up when the banks lose in court. The banks would be unwise to take that for granted - for the again long-established reason that if the insurers feel a bank brought some of these losses on itself by the way it behaved, they will show a marked unwillingness to cough up.

Thus we move inexorably to the next stage of the great unravelling.

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BACK in 1990 the London Borough of Hammersmith and Fulham escaped the consequences of multi-million pound losses in the derivatives markets when a London court ruled that these were ultra vires - meaning the authority had no legal right to be buying those kind of investments. This in effect means they had been mis-sold and the losses reverted to the investment banks which had done the selling. We must expect many variants on that theme in the coming months - given that many investors nursing horrendous losses were assured they were buying triple-A products.

That could be extremely interesting!

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This is very significant. Geffen has been managing the hugely successful Russia funds for years and is hughly respected. Great post. It is insights like this which are key indicators of the real situation, as opposed to a lot of VI wool and Journalistic bias which we on this site all have to wade through with flamethrowers every morning.

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This is very significant. Geffen has been managing the hugely successful Russia funds for years and is hughly respected. Great post. It is insights like this which are key indicators of the real situation, as opposed to a lot of VI wool and Journalistic bias which we on this site all have to wade through with flamethrowers every morning.

And let's not forget that in most cases the Fund Managers are the biggest, if not the majority shareholders in a lot of these companies.

They actually DO have the power to oust the board, and as I mentioned in another post, you can lie to the public but you cannot lie to the shareholders.

That Hilton article is top stuff as well.

I was in danger of being fooled by the banks coming out with good results, but you should never forget the fundamentals, should you. ;)

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I’m not impressed by a bank that pays an 8% yield, weakens its balance sheet and comes under pressure from Basel II.
I think that the expectations employed in commercial rate setting, will begin to include in addition, a term for the likely dilution of an institution's own capital base, as a result of the relation between central rates, and any expansion or contraction of wider liquidity resulting from their change. I think that investors, shareholders, owners, capitalists - will demand this.

Hmmmmmmm.

Edited by ParticleMan

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I'm a financial nobody - maybe not totally financially unwashed due to personal research driven by curiosity - but definitely only of the brothel-bath variety - and even I found it difficult to believe the latest round of bank reported profits and marvelled at increased dividends. I can only assume that most people believe that they are fictitious but as in the Emperor's new clothes, prefer not to say, or that there really are enough investors/idiots out there who believe the latest round of reporting sufficiently to prevent a wholesale decimation of bank shares.

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I can only assume that most people believe that they are fictitious but as in the Emperor's new clothes, prefer not to say, or that there really are enough investors/idiots out there who believe the latest round of reporting sufficiently to prevent a wholesale decimation of bank shares.

The questions I moved on to next were - what's the likely outcome, once the fog lifts (and investors realise the paucity of their position)? Revulsion, anger, calls for change... - and, what would trigger this?

Edited by ParticleMan

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I'm a financial nobody - maybe not totally financially unwashed due to personal research driven by curiosity - but definitely only of the brothel-bath variety - and even I found it difficult to believe the latest round of bank reported profits and marvelled at increased dividends. I can only assume that most people believe that they are fictitious but as in the Emperor's new clothes, prefer not to say, or that there really are enough investors/idiots out there who believe the latest round of reporting sufficiently to prevent a wholesale decimation of bank shares.
The reported numbers are largely lies.

I'm a chartered accountant that currently works in practice and formerly I was an audit manager with a big 4 firm so I know a bit about what I say. Banking results are very easy for companies to manipulate due to the large amount of fair value accounting.

The audit teams that work in the banking and capital markets divisions largely consist of people with 1-3 years experience who frankly don't understand what they are doing for the most part. The managers and partners that supervise and oversee the work are generally far less intelligent that their equivalents at the client and don't normally do an effective job of actually getting clients to change their reported numbers in the minority of occassions where they do realise things have not been done correctly.

Have a look at the Barclays results, particularly the segmental ones for Barclays capital. I know a few individuals involved in this audit and the £2.4billion of profit they reported this year is apparently a fantasy and there is so much crap included within the £800 billion of assets in the B Cap balance sheet that if it were taken out and valued properly the whole bank would be very far in net liabilities (rather than the £32b of net assets they report).

From http://www.housepricecrash.co.uk/forum/ind...mp;#entry990121

Peter.

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And yet ...

And still ...

The gormless half-wits that write things like the money section in the Saturday Telegraph are now writing stories with headlines like ....

"Is NOW the time to get back into financials

Shares have lost half their values, dividend yields are in double figures, could now be the time to buy bank shares again"

And they write in such an authoritative manner. 'We really do know an awful lot more than you, dear reader, so you just listen to our advice and everything will be terrific ... nanny knows best.'

The way the banks have behaved in the last few years, I'll never buy a bank share again. The biggest bunch of crooks, half-wits and gamblers on the face of the earth.

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The questions I moved on to next were - what's the likely outcome, once the fog lifts (and investors realise the paucity of their position)? Revulsion, anger, calls for change... - and, what would trigger this?

It's difficult to say, especially when it seems that all markets are being kept afloat either by pure speculation (i.e. betting) and/or hot air/rumour. Fundamental value seems to have got left behind when derivatives and SIVs that could be hidden off-balance sheet became the bankers' newest toy.

Either an awful lot of bankers will have to puff hot air ever harder or the whole mirage will disintegrate. I cannot even imagine, let alone propose, a feasible rescue plan. I think there'll be a wild issuance of loans by CBs to banks against ever more worthless collateral, alongside a continued blast of hot air that insists inflation is not a problem and deflation is not a possibility with such fine minds at work, but I can't see that working for more than a few months. Collapse, meltdown, that's all I can see. Beyond that, a rescue plan that will enslave us all.

Edited for a missing apostrophe.

Edited by Methinkshe

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Collapse, meltdown, that's all I can see.

Glass half full day (some days are better than others). This is a staring-down competition, a battle of wills between net longs and net shorts both trading worldwide GDP on massive leverage. It'll be socio-political reorganisation and not apocalyptic holocaust that sees us through. Think organisation, pressure groups, folk working every tier of every (human) system in concert, motivated mostly by self preservation. Might push today's borrowers and lenders a little nearer their extinction though. Might surprise a few of today's power brokers, too - those who assume that riots are led from the front, those who assume that rules outlast societal fabrics which form them.

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Collapse, meltdown, that's all I can see. Beyond that, a rescue plan that will enslave us all.

Edited for a missing apostrophe.

What marvellous juxtaposition: collapse, meltdown, end of the world...but it's still worth going back and adding a missing apostrophe. Perhaps it's that sort of attitude which will save us ;)

Peter.

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What marvellous juxtaposition: collapse, meltdown, end of the world...but it's still worth going back and adding a missing apostrophe. Perhaps it's that sort of attitude which will save us ;)

Peter.

Will I still be able to get my shredded wheat the morning after the juxtaposition ? I can't start the day without them.

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What marvellous juxtaposition: collapse, meltdown, end of the world...but it's still worth going back and adding a missing apostrophe. Perhaps it's that sort of attitude which will save us ;)

Peter.

Well, somebody has to uphold standards!

He who is faithful in small things........

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Glass half full day (some days are better than others). This is a staring-down competition, a battle of wills between net longs and net shorts both trading worldwide GDP on massive leverage. It'll be socio-political reorganisation and not apocalyptic holocaust that sees us through. Think organisation, pressure groups, folk working every tier of every (human) system in concert, motivated mostly by self preservation. Might push today's borrowers and lenders a little nearer their extinction though. Might surprise a few of today's power brokers, too - those who assume that riots are led from the front, those who assume that rules outlast societal fabrics which form them.

I wish I had as much faith in today's specimens of humanity as you appear to have. Twenty years ago I would have agreed with you. Now, I'm not so sure. As a nation we are plumbing the depths of hedonism and few are capable of thinking, never mind thinking beyond the next pleasuarable activity - be it binge drinking or hair-suited jogging - the point is, self, and self-pleasuring is about all that most people know or care about. Most people wouldn't know about self-preservation beyond maxing out a credit card. Then what? The only pressure groups that appear these days are to do with exacting licence at the expense of liberty. I have little faith.

Edited for typos.

Edited by Methinkshe

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The questions I moved on to next were - what's the likely outcome, once the fog lifts (and investors realise the paucity of their position)? Revulsion, anger, calls for change... - and, what would trigger this?

The next move should be prison for some of these charlatans,just as it would be for you or I if we committed a fraud! Chances of that happening 0% IMO.

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Will I still be able to get my shredded wheat the morning after the juxtaposition ? I can't start the day without them.

Its the same with me. They are also low on sugar and salt apart from being yummy.

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Guest Bart of Darkness
Taste like matchsticks!

I tried 'em once. Only really became edible after prolonged soaking in milk. And by edible I mean I could force them down without barfing. Those plastic pan soureres must be about as tasty.

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  • 294 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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