Documents Reveal How Paulson Forced Banks To Take TARP Cash
Remember the infamous meeting when then Treasury Secretary Hank Paulson had the heads of 9 major banks come down to Washington? It was then that he made them the offer they couldn't refuse. Take TARP cash, or else!
Now Judicial Watch -- the conservative watchdog organization which was famous for giving the Clinton administration fits -- has uncovered secret documents from that meeting via the Freedom of Information Act. A few of them are really quite stunning.
The first 1-pager is Paulson's talking points for the bank. It basically confirms that he put a gun to all their heads. It says they must agree to take their cash, and that if they protested, then each bank's regulator would force them to take it anyway.
See Actual Documents Here
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Thursday, May 14, 2009
UBS suggests gold has potential US$2,500/oz upside
GOLD EQUITIES UNDERPERFORMANCE TO CONTINUE
Despite the worst global recession in 70 years, UBS has upgraded commodities from underweight to a small overweight, especially in precious metals.
UBS Investment Research has moved gold to overweight from neutral, citing the "broad uncertainties in the current macroclimate."
In their Q-Series: Gold research, analysts Daniel Brebner and James Luke, strategist John Reade and economist Larry Hatheway said they have determined that "future returns on gold are likely to be positively asymmetric, with potential upside US$2,500/oz."
The team also suggested that the current environment as "having a ‘low margin of error' for central bankers."
"We would characterize the prospects for deflation/inflation as becoming more extreme, and have illustrated this concept as a wider than usual probability cone for inflationary outcomes. The higher potential for policy error is generating considerable interest in certain assets that are perceived as ‘stores of values', including gold," they said.
In their analysis, UBS forecast downside risks up until the year 2015 being limited to a probability cone of caUS$500/oz (down ca50% from current levels) vs. upside risks of a probability cone of caUS$2,5000/oz (ca160%).
The "opportunity cost" that investors experience in holding gold bullion is declining, UBS asserts, which is generating some capital inflows into the commodity; "furthermore, given the current deflationary pressures it is possible that this cost could continue to decline over the near term."
UBS also suggests that central banks are not likely to sell much gold. "With the cost of fixing the global financial system likely to run into the multi-trillions of dollars, the utility of gold fixing this gaping hole needs to be seriously questioned, at least in the sense that selling reserves would not bring sufficient revenues to make a difference."
Furthermore, the analysts advise, "if a central bank were to sell gold in large quantities there would potentially be the risk that, despite the recognition that its currency was not backed by gold, confidence could deteriorate further."
"Even more dangerous for a central bank being a large seller would be the appearance of a large buyer," they added. "If, for instance, an Asian or Middle Eastern central bank were to bid for a large tonnage of gold, the implications would potentially be: (1) highly supportive for the gold price; and (2) a potential political powder keg for the seller."
Meanwhile, although there is a possibility the IMF could sell gold to fund economic bailouts, UBS asserts "a potential sale is likely to be well flagged to the market, thus not significantly impacting the gold impart."
Although investors question if a new gold standard will be adopted to support flagging currencies, UBS analysts also do not believe that proponents of a return to the gold standard have made much headway due to institutional, economic, and political reasons.
By Dorothy Kosich
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Despite the worst global recession in 70 years, UBS has upgraded commodities from underweight to a small overweight, especially in precious metals.
UBS Investment Research has moved gold to overweight from neutral, citing the "broad uncertainties in the current macroclimate."
In their Q-Series: Gold research, analysts Daniel Brebner and James Luke, strategist John Reade and economist Larry Hatheway said they have determined that "future returns on gold are likely to be positively asymmetric, with potential upside US$2,500/oz."
The team also suggested that the current environment as "having a ‘low margin of error' for central bankers."
"We would characterize the prospects for deflation/inflation as becoming more extreme, and have illustrated this concept as a wider than usual probability cone for inflationary outcomes. The higher potential for policy error is generating considerable interest in certain assets that are perceived as ‘stores of values', including gold," they said.
In their analysis, UBS forecast downside risks up until the year 2015 being limited to a probability cone of caUS$500/oz (down ca50% from current levels) vs. upside risks of a probability cone of caUS$2,5000/oz (ca160%).
The "opportunity cost" that investors experience in holding gold bullion is declining, UBS asserts, which is generating some capital inflows into the commodity; "furthermore, given the current deflationary pressures it is possible that this cost could continue to decline over the near term."
UBS also suggests that central banks are not likely to sell much gold. "With the cost of fixing the global financial system likely to run into the multi-trillions of dollars, the utility of gold fixing this gaping hole needs to be seriously questioned, at least in the sense that selling reserves would not bring sufficient revenues to make a difference."
Furthermore, the analysts advise, "if a central bank were to sell gold in large quantities there would potentially be the risk that, despite the recognition that its currency was not backed by gold, confidence could deteriorate further."
"Even more dangerous for a central bank being a large seller would be the appearance of a large buyer," they added. "If, for instance, an Asian or Middle Eastern central bank were to bid for a large tonnage of gold, the implications would potentially be: (1) highly supportive for the gold price; and (2) a potential political powder keg for the seller."
Meanwhile, although there is a possibility the IMF could sell gold to fund economic bailouts, UBS asserts "a potential sale is likely to be well flagged to the market, thus not significantly impacting the gold impart."
Although investors question if a new gold standard will be adopted to support flagging currencies, UBS analysts also do not believe that proponents of a return to the gold standard have made much headway due to institutional, economic, and political reasons.
By Dorothy Kosich
Read Entire Article
Wednesday, May 13, 2009
Japan 'Would Avoid Dollar Bonds'
Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.
The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.
Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits.
But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds.
"If it's [in] yen, it's going to be all right," Mr Nakagawa said in an interview with the BBC World Service.
"We propose that we would buy [the US bonds], but it's yen, not dollar."
However observers say that, while the move would be a remarkable policy shift, it was unlikely that Mr Nakagawa's party will win the forthcoming election, due before mid-September, despite the unpopularity of the ruling Liberal party.
Risk
Such yen-denominated bonds would mean that America, rather than Japan, would be exposed to the risk of future falls in the value of the US currency.
Mr Nakagawa's demand echoes doubts about the future of the dollar expressed earlier this year by the Chinese Premier and the governor of China's central bank.
Both China and Japan have run large trade surpluses with the US for many years and have tended to invest the dollar surpluses in safe US Treasury bonds.
But both countries are worried that the value of these foreign exchange holdings could be jeopardised by a fall in the dollar.
Beijing, for example, has said it will issue its own bonds to fund any further lending to the International Monetary Fund and is believed to be diversifying out of dollars and into euros.
Read Entire Article
The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.
Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits.
But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds.
"If it's [in] yen, it's going to be all right," Mr Nakagawa said in an interview with the BBC World Service.
"We propose that we would buy [the US bonds], but it's yen, not dollar."
However observers say that, while the move would be a remarkable policy shift, it was unlikely that Mr Nakagawa's party will win the forthcoming election, due before mid-September, despite the unpopularity of the ruling Liberal party.
Risk
Such yen-denominated bonds would mean that America, rather than Japan, would be exposed to the risk of future falls in the value of the US currency.
Mr Nakagawa's demand echoes doubts about the future of the dollar expressed earlier this year by the Chinese Premier and the governor of China's central bank.
Both China and Japan have run large trade surpluses with the US for many years and have tended to invest the dollar surpluses in safe US Treasury bonds.
But both countries are worried that the value of these foreign exchange holdings could be jeopardised by a fall in the dollar.
Beijing, for example, has said it will issue its own bonds to fund any further lending to the International Monetary Fund and is believed to be diversifying out of dollars and into euros.
Read Entire Article
Dollar Index Goes Negative - Time to Buy Gold
US Dollar Index Enters Downtrend
After failing to take out its March highs on its most recent rally, the US Dollar index has since broken below its recent lows and entered into a new downtrend. The Dollar index also recently broke below its 200-day moving average, which is another negative technical sign.
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Tuesday, May 12, 2009
Dollar's Purchasing Power Annihilated
This is the chart they don't want you to see: the purchasing power of the dollar over the past 76 years has declined by 94%. And based on current monetary and fiscal policy, we have at least another 94% to go. The only question is whether this will be achieved in 76 months this time. (Click chart to enlarge.)
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U.S. Bank Shares: Pump Almost Over, Get Ready for the Dump
Seeking Alpha
For the past couple of weeks, bank shares have grown in share price faster than a steroid-induced bicep. There has not been much reported by the media in terms of negative news about the U.S. financial industry from Ben Bernanke, bank CEOs, or even the Federal Reserve, even though the bank stress tests resembled a public relations campaign much more than a stress test. Despite the rosy picture painted by the financial media of the U.S. banking industry and the consensus that “the worst is behind us now” by financial executives, the 3-ring circus that is the U.S. Federal Reserve, the U.S. financial industry, and the U.S. Treasury still can’t seem to get their stories straight.
Consider the following highlights (or lowlights depending on your viewpoint) from a story released by Bloomberg on May 11th:
“Bank of New York Mellon Corp., Capital One Financial Corp., U.S. Bancorp and BB&T Corp. will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession. BNY Mellon, the world’s largest custody bank, said today it will sell $1 billion of stock in a public offering and may use the funds to repurchase preferred shares sold to the U.S. Treasury under the Troubled Asset Relief Program. Capital One said it would sell 56 million shares of common stock to raise as much as $1.55 billion, U.S. Bancorp said its sale would total about $2.5 billion and BB&T began a public offering of $1.5 billion of stock while reducing its dividend.”
“Regulators examining the 19 largest U.S. lenders last week said the four firms wouldn’t need more capital to survive a deeper, longer recession. U.S. Bancorp Chief Executive Officer Richard Davis and BB&T CEO Kelly King had both said they wanted to repay their $6.6 billion and $3.1 billion in TARP funds as quickly as possible. BNY Mellon got $3 billion from TARP.”
“This was something that was really hanging over the group, so a lot of peoples’ viewpoint on it is that, ‘Hey, the worst-case scenario got taken out, this group’s going to still be around,’” said Kevin Fitzsimmons, a Sandler O’Neill & Partners LP analyst. “
“Capital One, the McLean, Virginia-based credit-card lender that received $3.56 billion from TARP, said in a statement it would sell shares at $27.75 each, an 11 percent discount to the bank’s $31.34 closing price on May 8. The shares dropped $4.24, or 14 percent, to $27.10 at 4:03 p.m. in New York Stock Exchange composite trading.”
“KeyCorp, which the government deemed needed an additional $1.8 billion in capital after the stress test, today registered to sell as much as $750 million in common shares. The bank said it expects to raise about $739.4 million from the offering after expenses and commissions.”
“Cleveland-based KeyCorp, which last month slashed its dividend to 1 cent, said that because of the economic and regulatory environment the company didn’t expect to increase the quarterly dividend “for the foreseeable future and could further reduce or eliminate our common shares dividend.”
“We firmly believe this action is in the long-term best interests of our shareholders and our company because of the risk and uncertainty associated with being a TARP participant,” BB&T’s CEO Kelly King said in a statement. King said the decision to cut the dividend was “the worst day in my 37-year career.”
“Banks that accepted TARP money are subject to government oversight and restrictions on compensation that that they say put them at a disadvantage to competitors. Banks that want to repay the funds must get approval from the government and show they can sell debt in the public market without federal backing.”
“U.S. Bancorp also plans to sell $1 billion of five-year notes without a government guarantee as soon as today, according to a person familiar with the offering who declined to be identified because terms aren’t set.”
“Wells Fargo & Co., which the government said needed $13.7 billion in additional capital, raised $8.6 billion selling shares last week, more than planned. Goldman Sachs Group Inc. in April, before stress test results were released, said it would raise $5 billion to repay federal rescue funds. Principal Financial Group Inc., the Des Moines, Iowa-based life insurer, today said it would offer 42.3 million shares to raise funds for “general corporate purposes.”
“Morgan Stanley last week raised $8 billion by selling stock and debt. The stress tests found that New York-based Morgan Stanley needed $1.8 billion in additional common equity as a buffer against potential losses.”
So let’s analyze the most pertinent points from above:
Bank of New York Mellon Corp. (BK), Capital One Financial Corp. (COF), U.S. Bancorp (USB) and BB&T Corp. (BBT) will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession. If there is a better example of an oxymoron, I don’t know one. So if these four financial institutions don’t need any more capital whatsoever, why do they need to execute significant secondary offerings that will inevitably massively dilute shareholder value. If they are so well capitalized as the stress test results indicated, why can’t they repay the TARP money from operational earnings?
Banks that accepted TARP money are subject to government oversight and restrictions on compensation. BB&T’s CEO Kelly King stated that he was cutting dividends and diluting shareholder value by offering another $1.5 billion of stock to help payback TARP money more quickly because it was in the best interests of shareholders. US Bancorp is conducting a secondary offering of $2.5 billion of new shares as well as an additional $1 billion offering of corporate debt and Capital One is offering $1.5billion of more shares.
Since when is slashing dividends and diluting shareholder stock in the best interests of shareholders, unless the shareholders are the executives that have used this pump and dump scheme to dump stock at artificially high prices and now can begin the process of paying back TARP money so they can start raising their compensation levels to obscene, exorbitant amounts again?
By - J.S. Kim
Read Entire Article
For the past couple of weeks, bank shares have grown in share price faster than a steroid-induced bicep. There has not been much reported by the media in terms of negative news about the U.S. financial industry from Ben Bernanke, bank CEOs, or even the Federal Reserve, even though the bank stress tests resembled a public relations campaign much more than a stress test. Despite the rosy picture painted by the financial media of the U.S. banking industry and the consensus that “the worst is behind us now” by financial executives, the 3-ring circus that is the U.S. Federal Reserve, the U.S. financial industry, and the U.S. Treasury still can’t seem to get their stories straight.
Consider the following highlights (or lowlights depending on your viewpoint) from a story released by Bloomberg on May 11th:
“Bank of New York Mellon Corp., Capital One Financial Corp., U.S. Bancorp and BB&T Corp. will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession. BNY Mellon, the world’s largest custody bank, said today it will sell $1 billion of stock in a public offering and may use the funds to repurchase preferred shares sold to the U.S. Treasury under the Troubled Asset Relief Program. Capital One said it would sell 56 million shares of common stock to raise as much as $1.55 billion, U.S. Bancorp said its sale would total about $2.5 billion and BB&T began a public offering of $1.5 billion of stock while reducing its dividend.”
“Regulators examining the 19 largest U.S. lenders last week said the four firms wouldn’t need more capital to survive a deeper, longer recession. U.S. Bancorp Chief Executive Officer Richard Davis and BB&T CEO Kelly King had both said they wanted to repay their $6.6 billion and $3.1 billion in TARP funds as quickly as possible. BNY Mellon got $3 billion from TARP.”
“This was something that was really hanging over the group, so a lot of peoples’ viewpoint on it is that, ‘Hey, the worst-case scenario got taken out, this group’s going to still be around,’” said Kevin Fitzsimmons, a Sandler O’Neill & Partners LP analyst. “
“Capital One, the McLean, Virginia-based credit-card lender that received $3.56 billion from TARP, said in a statement it would sell shares at $27.75 each, an 11 percent discount to the bank’s $31.34 closing price on May 8. The shares dropped $4.24, or 14 percent, to $27.10 at 4:03 p.m. in New York Stock Exchange composite trading.”
“KeyCorp, which the government deemed needed an additional $1.8 billion in capital after the stress test, today registered to sell as much as $750 million in common shares. The bank said it expects to raise about $739.4 million from the offering after expenses and commissions.”
“Cleveland-based KeyCorp, which last month slashed its dividend to 1 cent, said that because of the economic and regulatory environment the company didn’t expect to increase the quarterly dividend “for the foreseeable future and could further reduce or eliminate our common shares dividend.”
“We firmly believe this action is in the long-term best interests of our shareholders and our company because of the risk and uncertainty associated with being a TARP participant,” BB&T’s CEO Kelly King said in a statement. King said the decision to cut the dividend was “the worst day in my 37-year career.”
“Banks that accepted TARP money are subject to government oversight and restrictions on compensation that that they say put them at a disadvantage to competitors. Banks that want to repay the funds must get approval from the government and show they can sell debt in the public market without federal backing.”
“U.S. Bancorp also plans to sell $1 billion of five-year notes without a government guarantee as soon as today, according to a person familiar with the offering who declined to be identified because terms aren’t set.”
“Wells Fargo & Co., which the government said needed $13.7 billion in additional capital, raised $8.6 billion selling shares last week, more than planned. Goldman Sachs Group Inc. in April, before stress test results were released, said it would raise $5 billion to repay federal rescue funds. Principal Financial Group Inc., the Des Moines, Iowa-based life insurer, today said it would offer 42.3 million shares to raise funds for “general corporate purposes.”
“Morgan Stanley last week raised $8 billion by selling stock and debt. The stress tests found that New York-based Morgan Stanley needed $1.8 billion in additional common equity as a buffer against potential losses.”
So let’s analyze the most pertinent points from above:
Bank of New York Mellon Corp. (BK), Capital One Financial Corp. (COF), U.S. Bancorp (USB) and BB&T Corp. (BBT) will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession. If there is a better example of an oxymoron, I don’t know one. So if these four financial institutions don’t need any more capital whatsoever, why do they need to execute significant secondary offerings that will inevitably massively dilute shareholder value. If they are so well capitalized as the stress test results indicated, why can’t they repay the TARP money from operational earnings?
Banks that accepted TARP money are subject to government oversight and restrictions on compensation. BB&T’s CEO Kelly King stated that he was cutting dividends and diluting shareholder value by offering another $1.5 billion of stock to help payback TARP money more quickly because it was in the best interests of shareholders. US Bancorp is conducting a secondary offering of $2.5 billion of new shares as well as an additional $1 billion offering of corporate debt and Capital One is offering $1.5billion of more shares.
Since when is slashing dividends and diluting shareholder stock in the best interests of shareholders, unless the shareholders are the executives that have used this pump and dump scheme to dump stock at artificially high prices and now can begin the process of paying back TARP money so they can start raising their compensation levels to obscene, exorbitant amounts again?
By - J.S. Kim
Read Entire Article
Markets Losing Steam
Stock prices fell yesterday. We would not be surprised to see them fall some more – not simply because the stock market has just achieved its biggest two-month advance since the 1930s, but also because the economy remains just as ill as it was on March 9th, when the stock market rally first started.
The only thing about the economy that has changed during the last two months is the way folks TALK about it. Back in early March, when the Dow was making 12-year lows, the news media carried continuous stories of doom and gloom. A second Great Depression was all but certain.
But now that the Blue Chip index has jumped a whopping 2,000 points, most members of the financial press have recanted their faith in doom and gloom. “The economy is recovering,” they say. “The macro- economic data are showing signs of ‘improvement’ and ‘stabilization.’” Judgment Day has come and gone, they believe. Only the land of milk and honey and TARP fund re-payments awaits.
“While the [economic] numbers are still bad, they’re less bad,” beamed one typical professional investor last Friday.
And so what?
Falling more slowly is still falling…and it will never be rising.
So let’s take a dispassionate look at some of the recent economic reports…and then decide whether these data show signs of “improvement” and “stabilization.”
Last Friday, the Labor Department announced that 539,000 workers lost their jobs during the month of April. Jubilant investors cheered the job losses as “less than expected.” But the Labor Department simultaneously revised the job losses for February and March to totals that were 66,000 more than originally reported.
In other words, if you add the revised losses from February and March to the April total, you get 605,000 jobs lost in April, not 539,000. But even if we take the Labor Department’s numbers at face value, we wind up with 1,238,000 lost jobs since the stock market rally began in early March. What other signs of “stabilization” have surfaced since the rally began? Here’s a short list:
• Industrial production fell for the sixth straight month – hitting the lowest level since 1998.
• The ISM Index of business activity dropped for the seventh straight month.
• Factory utilization fell to it lowest level since recording- keeping for this data series began in 1967.
• The S&P/Case-Shiller Index of home prices fell for the 25th straight month.
• An additional 600,000 families lost their homes to foreclosure.
• The number of homeowners who fell 60 days behind on their mortgage payments grew to more than 5 million.
• The number of homeowners who owe more on their mortgages than their houses are worth grew to more than 8 million.
Obviously, investors do not collude with one another to ignore ominous economic data. It just happens. Happy delusions are infectious. We humans sometimes see what we want to see…and fail to see what we don’t want to see.
By Eric Fry
Read Entire Article
The only thing about the economy that has changed during the last two months is the way folks TALK about it. Back in early March, when the Dow was making 12-year lows, the news media carried continuous stories of doom and gloom. A second Great Depression was all but certain.
But now that the Blue Chip index has jumped a whopping 2,000 points, most members of the financial press have recanted their faith in doom and gloom. “The economy is recovering,” they say. “The macro- economic data are showing signs of ‘improvement’ and ‘stabilization.’” Judgment Day has come and gone, they believe. Only the land of milk and honey and TARP fund re-payments awaits.
“While the [economic] numbers are still bad, they’re less bad,” beamed one typical professional investor last Friday.
And so what?
Falling more slowly is still falling…and it will never be rising.
So let’s take a dispassionate look at some of the recent economic reports…and then decide whether these data show signs of “improvement” and “stabilization.”
Last Friday, the Labor Department announced that 539,000 workers lost their jobs during the month of April. Jubilant investors cheered the job losses as “less than expected.” But the Labor Department simultaneously revised the job losses for February and March to totals that were 66,000 more than originally reported.
In other words, if you add the revised losses from February and March to the April total, you get 605,000 jobs lost in April, not 539,000. But even if we take the Labor Department’s numbers at face value, we wind up with 1,238,000 lost jobs since the stock market rally began in early March. What other signs of “stabilization” have surfaced since the rally began? Here’s a short list:
• Industrial production fell for the sixth straight month – hitting the lowest level since 1998.
• The ISM Index of business activity dropped for the seventh straight month.
• Factory utilization fell to it lowest level since recording- keeping for this data series began in 1967.
• The S&P/Case-Shiller Index of home prices fell for the 25th straight month.
• An additional 600,000 families lost their homes to foreclosure.
• The number of homeowners who fell 60 days behind on their mortgage payments grew to more than 5 million.
• The number of homeowners who owe more on their mortgages than their houses are worth grew to more than 8 million.
Obviously, investors do not collude with one another to ignore ominous economic data. It just happens. Happy delusions are infectious. We humans sometimes see what we want to see…and fail to see what we don’t want to see.
By Eric Fry
Read Entire Article