Friday, 30 September 2016

Europe’s Banking Crisis, Terminal?

Baltic Dry Index. 888 -24    Brent Crude 48.88

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

"We shouldn't pour cold water on everything.  We, the eight or nine players in global investment banking, have a very good future."

Deutsche Bank, CEO Josef Ackermann. Davos, January 2007.
Is Deutsche Bank the next Lehman? One way or another we are about to find out. Eight years of from the collapse of Bear Stearns, Lehman Brothers and AIG, nothing in Europe’s banking system has been fixed apparently, and the Great Nixonian Error of fiat money, communist money, is entering its next dysfunctional phase.
Below, the elephant in the room, that officially isn’t there.
“What me worry?”

Deutsche Bank with apologies to Mad Magazine.

Deutsche Bank crisis threatens to roil global markets

Published: Sept 29, 2016 4:46 p.m. ET

 Worries about European banks aren’t just trained on Deutsche Bank

Europe’s problems with some of its largest financial institutions could spill over into the rest of the global market.

Deutsche Bank’s shares tumbled on Thursday on a report that a group of hedge funds were reducing their exposure to the giant financial institution

Earlier in the week, one financial blogger, Wolf Richter, wrote that deep-seated concerns about Deutsche Bank’s ability to raise enough cash to give the market comfort that it is on a sound footing speaks to a larger problem that Europe’s embattled banking sector must combat. Richter, the editor of financial blog site Wolf Street, said “the banking crisis [in Europe] has the potential to transmogrify into a financial crisis.”

He went onto say: “All it takes is for one of the big [banks] to suddenly topple. The flow of credit would freeze up instantly. In an economic system that depends on credit, and whose lifeblood is credit, such an event is a financial crisis.”

Deutsche Bank’s U.S. listed shares DB, -6.67% sank 6.7% on Thursday, underscoring a brutal week of losses for the Frankfurt-based bank.

The bank, run by CEO John Cryan, has seen its cost of borrowing steadily ratchet higher as questions about its ability to pay a potential $14 billion fine from the U.S. Justice Department, according to a Sept. 16 report from The Wall Street Journal.

Against that backdrop, Deutsche Bank’s hardest hit debt securities are its so-called contingent convertible bonds, which have plunged in price as worries about its shrinking cushion have intensified. A U.S.-dollar denominated “CoCo” bond with a perpetual duration has been trading around 70 cents on the dollar, MarketWatch’s Joseph Adinolfi writes.

And it isn’t just Deutsche Bank swooning.

A combination of factors continue to dog European banks and Europe’s economy:
1). The emergence of negative interest rates, as central banks employ radical monetary policies to juice growth in Europe, has hampered eurozone banks’ ability to make money, by eroding profits between their short-term borrowing costs and what they can charge for long-term loans. The German 10-year government bond TMBMKDE-10Y, +0.00% known as the bund, was yielding negative 0.15% as of Wednesday. Bond yields fall as prices rise.
2). Also, many banks have been late to restructure in the wake of the 2008-09 financial crisis that roiled global markets.
3). Italian banks are saddled with billions of souring loans and are seen as a possible threat to the eurozone economy.
4). And many other banks, namely Deutsche Bank, are set to face sizable fines in the fallout from selling dicey mortgage-related securities, which could further tax their capital cushions.
In the following chart, Richter shows how eurozone financial institutions have performed since hitting recent 52-week highs.

Commerzbank Plans to Cut Jobs, Suspend Dividend in Overhaul

September 29, 2016 — 8:05 AM BST Updated on September 29, 2016 — 10:30 AM BST
Commerzbank AG plans to reduce 9,600 jobs, or about a fifth of the workforce, and suspend dividends as Chief Executive Officer Martin Zielke seeks to shore up profitability at the German lender.
Under the draft plan, which was presented to the supervisory board, Commerzbank will merge its Mittelstandsbank, catering to small and medium-sized companies, with the corporates and markets unit and scale back securities trading operations, the Frankfurt-based bank said in a statement on Thursday. The management board on Friday will decide on the restructuring plan, which will cost about 1.1 billion euros ($1.2 billion).
Zielke, 53, has been under pressure to counter a slump in earnings that forced him to scale back full-year profit targets just months after taking the helm of Germany’s second-largest lender. Under his predecessor Martin Blessing, the bank eliminated 5,200 jobs to counter volatile markets and record-low interest rates as regulators demanded lenders hold higher capital buffers against risky activities.
“This looks like it could be the long-awaited broad overhaul and the targets that Zielke is setting even look realistic,” said Daniel Regli, an analyst at MainFirst.
The shares fell 0.5 percent to 5.97 euros at 11:27 a.m. in Frankfurt, paring earlier gains. The bank has lost about 38 percent of its market value this year.
----Goodwill and intangible assets of the two merged units will cause a writedown of about 700 million euros in the third quarter, in a move that’s seen sparking a loss in that period. In the full year, the lender expects a “small net profit,” when targeting revenue of between 9.8 billion euros and 10.3 billion euros by 2020 as part of Zielke’s plan.
The lender earlier this year paid a dividend of 20 cents per share for 2015, its first payout since 2007. It was expected to pay a dividend of 30 cents per share for this year, according to the Bloomberg Dividend Forecast.

If Merkel Wants to Help Deutsche Bank, She Has Few Options: Q&A

September 29, 2016 — 12:01 AM BST
Investors in Deutsche Bank AG are looking to Berlin for an indication of what, if anything, German Chancellor Angela Merkel will do to shore up the lender whose shares have plummeted more than 50 percent this year.

The prospect of bailing out Deutsche Bank is politically noxious for Merkel, who’s deciding whether to seek a fourth term in an election next year. After a magazine article stirred speculation, Merkel’s spokesman said the government sees “no grounds” for talk of state funding for the bank as the U.S. seeks a multibillion-dollar fine.

That hasn’t quelled expectations of a bailout. Andreas Utermann, chief investment officer of Allianz Global Investors AG, said for example that the German government would have to step in if Deutsche Bank “was really in trouble.”

John Cryan, Deutsche Bank’s chief executive officer, told the Bild newspaper that raising capital “is currently not an issue,” and accepting government support is “out of the question for us.”

Under European Union laws that Merkel championed to keep taxpayers off the hook in a crisis, it’s now much more difficult for governments to prop up banks. For starters, the Bank Recovery and Resolution Directive, the cornerstone of Europe’s efforts to tackle too-big-to-fail banks, assumes that the need for “extraordinary public financial support” indicates that a firm is “failing or likely to fail,” triggering resolution.

State support for viable banks is tightly restricted, so if Merkel intervenes on Deutsche Bank’s behalf, she’ll be choosing from a small pool of options.

Lawmakers from Merkel’s governing coalition said they expect the government to step in if Deutsche Bank were at risk of collapse due to a capital shortfall. At that point, the need for some kind of state intervention would outweigh calculations about the political fallout, according to four lawmakers from coalition parties who asked not to be identified discussing a scenario the government wants to avoid.

Some lawmakers in Berlin want Cryan to do more. Two of the legislators said the bank needs to restructure its business to make it less risky; one pointed to planned job cuts at Commerzbank AG as a possible model.

Fines, Withdrawals, Job Cuts. It Was an Ugly Day for Global Banks

September 29, 2016 — 10:50 PM BS
Even before the opening bell in New York, Thursday looked like a grim day for some of the giants of global banking.

But few expected the barrage of bad news that soon hit on both sides of the Atlantic -- a rat-a-tat-tat of job cuts, scandal and financial worry that sent bank shares tumbling and left many investors wondering just where or when the pain would end.

It began in Germany, where long-struggling Commerzbank AG unveiled yet another plan to regain its footing, this time by cutting one in five of its employees. In Washington, came still more blistering attacks on John Stumpf, whose grip atop embattled Wells Fargo & Co., the largest U.S. mortgage lender, remains tenuous amid the uproar over a scandal involving unauthorized accounts.

And then, back in Germany, came the bombshell: revelations that some hedge funds were moving to reduce their financial exposure to Deutsche Bank, now the biggest worry in global finance. Before Stumpf left the U.S. House chambers after more than four hours of grilling, news broke his bank would be hit with more penalties after improperly repossessing cars owned by U.S. soldiers.

-----Eight years after the financial crisis, the global banking industry is groping for a way forward. Global regulators have sought to make banks look more like boring utilities, but that road has proven steep. Emboldened by an international populist groundswell, they continue to dole out fines and penalties, and firms are scrambling for ways to make money as trading volumes decline and capital requirements become more stringent. 

The 38-company Bloomberg Europe Banks and Financial Services Index has tumbled 24 percent this year, while the KBW Bank Index of 24 U.S. lenders has slid 4.6 percent, led by Wells Fargo’s 18 percent decline.
"We finished the year, and we reported that we had $17 billion of cash sitting at the bank's parent company as a liquidity cushion. As the year has gone on, that liquidity cushion has been virtually unchanged."
Alan Schwartz, CEO Bear Stearns, March 12, 2008. Bust March 16, 2008.
At the Comex silver depositories Thursday final figures were: Registered 30.42 Moz, Eligible 142.72 Moz, Total 173.14 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Below, more on “God’s work,” at Goldie.
In a time of universal deceit, telling the truth is a revolutionary act.

George Orwell.

Hot Mess: How Goldman Sachs Lost $1.2 Billion of Libya’s Money

When Wall Street’s most aggressive bank took on the world’s most incendiary client, someone was going to make a killing.
By Matthew Campbell and Kit Chellel | September 29, 2016
Moammar Qaddafi’s Libya was a miserable place for a business trip.
In 2008, a few years after renouncing its nuclear and chemical weapons program, the desert nation remained a menacing and ugly place, with cratered highways, awful restaurants with no booze, and Qaddafi’s leathery visage everywhere, staring balefully down from billboards. The dreary capital, Tripoli, sat at the edge of the Sahara, in the least barren sliver of a country defined in the West by dictatorship, terrorism, and billions of dollars’ worth of oil.
Goldman Sachs’s Youssef Kabbaj was one of the few that enjoyed the commute. A securities salesman based out of the bank’s London headquarters, Kabbaj found that Libya reminded him of his native Morocco, and he considered the ruins in Tripoli’s old quarter enchanting. The city had a single decent hotel, the Corinthia, a crescent hulk the color of sand, and that year Kabbaj was such a frequent guest that he stored a rack of pressed suits there at all times. With slick black hair, round cheeks, and a mischievous smile, he was fluent in English, French, Arabic, and the language of international finance.
Qaddafi’s peaceful turn had reopened Libya to Western banking for the first time in two decades. Its $60 billion in oil wealth, no longer dammed up by international sanctions, was ready to flood into the market, as directed by the Libyan Investment Authority, Qaddafi’s brand-new sovereign wealth fund. With his North African pedigree, Kabbaj had been one of the first at Goldman to spot the opportunity. The LIA had become his biggest client, transforming him in a year from rookie salesman into possibly the No. 1 rainmaker at the world’s most profitable investment bank. He was 31 years old.
On July 23, 2008, Kabbaj was in his room at the Corinthia, waiting anxiously for his mobile phone to ring. It finally did around 9 a.m., and he grabbed a pen and paper to take notes. On the line was Michael Daffey, a senior Goldman executive in London. Daffey praised Kabbaj’s work in Libya and said that after some negotiation, the bank was willing to guarantee him $9 million in pay. It was an astonishing sum, even at Goldman.
Kabbaj immediately asked for more. He knew he’d been instrumental in extracting an unusual amount of money from a highly unusual client. Who else on the planet could sell a billion dollars of derivatives to a regime whose theatrical despot slept in a tent under an all-female warrior guard?
----Zarti again interrupted. “Youssef,” he said, “I’m asking you.” Before Kabbaj could say much more, Zarti exploded. Screaming in a mix of English and Arabic, he accused Kabbaj of deceiving the LIA into deals it didn’t understand. He called Goldman “a bank of Mafiosi” and said that he could behave like a Mafioso, too. He stormed out of the room, leaving Kabbaj, Pentreath, and a clutch of LIA staffers in a Marlboro haze.
Shaken, Kabbaj asked Zarti’s aides what had just happened. None had an answer. After a few minutes, Zarti burst back in, angrier than ever. Catherine McDougall, an Australian lawyer who was in the office that day, later recalled Zarti’s words as along the lines of “F--- your mother, f--- you, and get out of my country.” Kabbaj and Pentreath packed up their things.
Zarti followed them into the corridor. If Kabbaj didn’t make amends, he shouted, “we will go after your own family in Morocco!” The Al-Fateh Tower elevators were agonizingly slow to arrive. “What are you still doing here? Get out of my building!” Zarti screamed. He told Pentreath that if he didn’t get in the lift soon, he’d throw him out the window.
Kabbaj was white with shock. Zarti had saved his most chilling remark for him. “You are only a Moroccan here in Libya,” he said. “I can make you disappear, and nobody will ever hear back from you.”
The story of Goldman’s seduction of Libya—based on court evidence, testimony from witnesses, and interviews with people who were involved in the transactions—is as brief as it was costly. Barely 12 months elapsed between Zarti’s first tour of the bank and his threat to murder its brightest young star, and Libya wound up losing $1.2 billion. Goldman enjoyed its payday, the exact size of which it has never disclosed. But whatever the level, the matter is now before a London judge, and the Libyans have a chance to extract an even more damaging toll.
----The reemergence of Libya, and its vast oil wealth, coincided with an era of nearly unbridled avarice on Wall Street—and nowhere more so than at Goldman Sachs. The same year that Qaddafi established the LIA, Goldman posted the largest profit in Wall Street history. The bank paid employees an average of $622,000, with many times that amount available for bankers who nailed down the biggest deals. A stupendously wealthy petro state desperate to buy into a bull market was a dream client—the kind of “elephant,” in Goldman argot, that could make careers.

“Call it the Goldman Sachs test. If this is something Goldman would do to its clients, don't do it."

Felix Salmon.

Solar  & Related Update.

With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards? DC? A quantum computer next?

Mass producing graphene using microwaves

Date: September 27, 2016

Source: Ulsan National Institute of Science and Technology (UNIST)

Summary: A simple new method for producing large quantities of the promising nanomaterial graphene has been discovered by an international team of researchers.
Dr. Jieun Yang, an alumna of UNIST is part of an international team that has discovered a simple new method for producing large quantities of the promising nanomaterial graphene.
Graphene, a material that could usher in the next generation of electronic and energy devices, could be closer than ever to mass production, thanks to microwaves.
A new study by an international team of researchers from UNIST and Rutgers University has proved that it is now possible to produce high quality graphene, using a microwave oven. The team reports that this new technique may have solved some of graphene's difficult manufacturing problems. The findings of the research have been published in the September issue of the journal Science.
This study was jointly conducted by Dr. Jieun Yang, an alumna of UNIST, Prof. Hyeon Suk Shin (School of Natural Science) of UNIST, Prof. Hu Young Jeon (School of Natural Science) of UNIST, Prof. Manish Chhowalla of Rutgers University, and five other researchers from Rutgers University, New Brunswick, NJ, United States.
Graphene comes from a base material of graphite, the cheap material in the 'lead' of pencils. The structure of graphite consists of many flat layers of graphene sheets. One of the most promising ways to achieve large quantities of graphene is to exfoliate graphite into individual graphene sheets by using chemicals. However, the oxygen exposure during the process may cause some inevitable side reactions, as it can ultimately be very damaging to the individual graphene layers.
Indeed, oxygen distorts the pristine atomic structure of graphene and degrades its properties. Therefore, removing oxygen from graphene oxide to obtain high-quality graphene has been a significant challenge over the past two decades for the scientific community working on graphene.
Dr. Yang and her research team have discovered that baking the exfoliated graphene oxide for just 1-to-2 second pulses of microwaves, can eliminate virtually all of the oxygen from graphene oxides.
"The partially reduced graphene oxides absorb microwave energy, produced inside a microwave oven ," says Dr. Yang, the lead author of the study. She adds, "This not only efficiently eliminates oxygen functional groups from graphene oxides, but is also capable of rearranging defective graphene films."

The monthly Coppock Indicators finished August.

DJIA: 18401  +18 Up NASDAQ:  5213 +16 Up. SP500: 2171 +18 Up.

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