Barclays, Credit Suisse, Deutsche Bank Ratings Cut by S&P

Barclays, Deutsche Bank and Credit Suisse Group AG had their credit ratings lowered by Standard & Poor’s as new rules and “uncertain market conditions” threaten their business.

Long-term counterparty credit ratings for the three banks were cut to A from A+, S&P said yesterday in a statement. The company also affirmed its A long-term rating and A-1 short-term rating on UBS AG, according to the statement. The outlook for all four companies is stable.

Banks are still in recovery from the 2008 financial crisis, which drove some economies into recession and spawned new regulations and legal probes. The four European lenders are among the most exposed to proposed rules that could reduce revenue from trading and investment banking operations, the ratings firm said.

“We consider that these banks’ debtholders face heightened credit risk owing to the industry’s tighter regulation, fragile global markets, stagnant European economies and rising litigation risk stemming from the financial crisis,” S&P said. “A large number of global regulatory initiatives are increasingly demanding for capital market operations.” Read more >>

New Home Sales Collapse 8.4%

New home sales declined 8.4 percent sequentially in June, missing expectations and falling to the lowest level since January. Sales fell to an annual rate of 350,000, according to new data from the U.S. Census Bureau.

Economists polled by Bloomberg had forecast a 0.7 percent increase, to 372,000 units. Median home prices also declined during the month, falling roughly $5,000 to $232,600. Deutsche Bank's Joe LaVorgna noted that part of the problem stems from the drop in housing starts since the financial crisis began in 2007.

"The lack of building means it is doubtful we can see a sustained rise in home sales even toward the higher end of their range," he says. "However, based on the National Association of Homebuilders’ housing market index, we expect this situation to change over the next couple of years." Read more >>

Banks face billions more in Libor losses

Banks implicated in the Libor-fixing scandal will likely take billions more in losses as a result of pending litigation and regulatory penalties, according to industry analysts at Morgan Stanley. The analysis -- which the authors admit is crude -- is based in part on the experience of Barclays, the British bank which admitted that its staffers attempted to manipulate the London Interbank Offered Rate.

Many of the world's major banks, including Deutsche Bank (DB), Royal Bank of Scotland (RBS), Credit Suisse (CS), Citigroup (C, Fortune 500), UBS (UBS) and JPMorgan Chase (JPM, Fortune 500) have disclosed that they are being investigated.

Barclays has agreed to pay $453 million to U.S. and U.K. regulators, a settlement which provided the basis for Morgan Stanley's calculation that at least ten additional banks could be fined between $420 and $651 million by regulators. Other banks implicated in the scandal -- but not included in the Morgan Stanley analysis -- could also face penalties.

Banks that have not yet settled with regulators will likely pay a premium, as Barclays received preferential treatment from regulators because it was cooperative and settled quickly. The other banks, according to the analysis, should expect to pay 30% more. Under another scenario, the banks could face even higher fines after the U.K. Serious Fraud Office completes its investigation. Read more >>

Dismal year-to-date performance of some of the major global banking stocks

Here's a little overview of the year-to-date performance of some of the major global banking stocks on December 29, 2011, before the opening bell:

BofA: -60.38%
Citi: -44.76%
Goldman Sachs: -46.41%
JPMorgan: -23.03%
Morgan Stanley: -45.24%
RBS: -50%
Barclays: -34.32%
Lloyds: -63.02%
UBS: -29.33%
Deutsche Bank: -28,55%
Crédit Agricole: -56.04%
BNP Paribas: -37.67%
Société Générale: -59.57%

These are just some of the Too Big To Fail institutions. And while your governments have enough faith in them - or so they want you to believe - to prop them up with trillions of dollars of your money, investors are fleeing them, even if they can expect them to be propped up further.

That doesn't just say something about confidence in the individual banks, it shouts loud and clear from the rooftops on confidence in the banking system as a whole, and indeed on governments' ability to continue bailing them out. In other words: bailouts don’t build confidence, they are taken as a sign that trouble's on the way. More...

AIG’s mysterious Schedule A finally revealed

reuters.com
The heavily-redacted regulatory filing that spells out the details of the New York Federal Reserve’s controversial bailout of American International Group is a secret no more.

Reuters has obtained a copy of the five-page document the giant insurer and the New York Fed had asked the Securities and Exchange Commission to keep confidential. The effort by the New York Fed to keep the document under wraps has sparked a furor on Capitol Hill and was the subject of a hearing on Wednesday by House Committee on Oversight and Government Reform.

The unredacted version of the “Schedule A – List of Derivative Transactions” fills out some of the missing pieces in the AIG bailout, in which an entity set-up by the New York Fed effectively funneled tens of millions of dollars to 16 big U.S. and Europeans banks that had bought credit default swaps from the insurer.

The unredacted version of the Schedule A enables some to identify all of the 178 mortgage-related securities, or collateralized debt obligations, that AIG wrote insurance-like protection on.

It’s been known for months that Goldman Sachs and Societe Generale were the two banks who recieved the most money in the dea because they had insured the most CDOs with AIG. But the new information enables traders, investors and the general public to see just which deals the banks had purchased insurance on.

The new information also reveals that of the 178 tranches of CDOs that AIG insured, some 14% were on deals issued after 2005. That’s critical because in December 2007, former AIG Financial Products head Joseph Cassano had said AIG largely got out of the CDS business by the end of 2005.

The newly disclosed information also reveals that Goldman not only bought a lot of CDS from AIG to protect itself; the Wall Street firm also originated a good number of the CDOs that were in SocGen’s portfolio. Some of the Goldman deals in SocGen’s portfolio that AIG had insured includes CDOs with names like Adirondack 2005, Putnam Structured Product CDO 2002 and Davis Square Funding IV.

Janet Tavakoli, a derivatives consultant who has called the AIG bailout a gift to the Wall Street banks, said the issue isn’t just what deals AIG insured, but the underlying assets in those deals. She noted that a goodly number of the CDOs held by the banks also held pieces of other CDOs.

Goldman Sachs, Societe Generale, Deutsche Bank, Merrill Lynch and other banks sold their ailing collateralized debt obligations to the New York Fed-sponsored entity, Maiden Lane III. AIG then canceled out the CDS contracts it had sold as default insurance on those 178 CDOs.

“If all of this had come out in the public domain in late 2008, Goldman Sachs and Merrill would have been deeply embarassed and the Federal Reserve woudl have been questioned,” said Tavakoli.

In the process, the banks were made whole and AIG no longer had to pay out billions of dollars in cash collateral to the banks everytime the CDOs dropped in value.

China's 2010 Gold Rush

Adrian Ash, Editor, Bullion Vault

Owning gold is more often an end-in-itself than as an investment vehicle...the aim of accumulation, not the means...

THE COLLAPSE in India's gold demand during 2007-09 might seem good reason to question the fundamental strength of gold buying worldwide.

After all, if the world's No.1 gold buyers can't keep up with record-high gold prices, who can...?

But the plain fact, as BullionVault first forecast in spring 2009, is that China has overtaken India as the number one private gold buyer this year. The typical Chinese New Year gold rush has already begun (thanks in part to 3% discounts at major retailers), and robust demand looks likely to continue through 2010 if not beyond.

Full-year 2009 private demand in mainland China could outstrip India, the former No.1 buyer, by one quarter if not one third. Short of a (very unlikely) collapse in Q4 demand, full-year private gold buying – including jewelry and retail investment – is set to have grown 10% from 2008's record in volume terms, rising 26% by value to equal $13.5 billion or more.

On recent trends, that would equate to more than 2.0% of China's famously massive household savings (up from 1.0% ten years ago) and account for almost one ounce in every eight sold worldwide.




Basis the GFMS consultancy's data (published by the World Gold Council), physical gold purchases by mainland Chinese households in 2009 was already running 19% ahead of India's private demand for Q1-Q3.

Given China's continued economic growth (certain to hit Beijing's 8% target according to the Chinese Academy of Social Sciences) – let alone the surge in money-supply and credit growth over and above GDP (put at 23 and 27 percentage points respectively by Deutsche Bank) – private gold consumption in Q4 most likely remained very robust. Whereas India's private gold off-take during Oct-Dec. continued to shrink in the face of record-high prices. Indian bank and wholesale dealers have reported below-market bids from their clients throughout the autumn. Comments from the Bombay Bullion Association put Q4 imports 54% lower from 2008's already disastrous finish.

Fourth-quarter Chinese consumption should be in the range of 116 tonnes (if it adds 37% to Q1-Q3 volume, as per the 5-year average) to 128 tonnes or more (if Q4 tops Q3 by volume, as it has each year since 2004). Running total to end-Sept. was 315 tonnes. Likely to finish full-year at 431-443 tonnes.

India's private demand, in contrast, ran 45% below 2008 levels during the first 9 months of the year, most notably depressed during Q1 (down 83% from Q1 08, with Indian investors becoming physical dis-hoarders on GFMS's data; overall, India was a net exporter of gold for the first time since the Depression according to market historian Timothy Green). Applying the 5-year average ratio of Q4 demand to Q1-Q3 figures (27% added to 264 tonnes), full-year private off-take would come in at 336 tonnes, the lowest total since at least 1991 on GFMS's data.

India's full-year imports (it has virtually no domestic mining output) are forecast at 370-380 tonnes says the Bombay Bullion Association. They have not been below 400 tonnes per year since at least 1997 according to the Indian Bullion Market Association.

It is impossible to predict the outlook for gold-buying in mainland China next year, but this decade's drivers for Western gold investment – credit excess and miserable returns to cash – also apply in China, with bells on.

The People's Bank cut its benchmark rate from 7.5% to 5.3% in Dec. 2008, and has left it there since. Inflation in the cost of living was officially reported at minus 1.1% across the first 3 quarters, but real rates were negative in H2 2004 and again in at the turn of 2007-8. Some analysts are forecasting 4.0% inflation for 2010, and either way, commercial rates have been so attractive this year that new credit growth was CNY295 billion in Nov., equal to $43 billion. That was down from 2009's monthly average of $130bn, but took full-year credit growth to the equivalent of $1.35 trillion, equal to 27% of GDP.

Pitched against this rampant credit excess, gold's quasi-religious and auspicious appeal in Chinese culture – as a solid, tangible, intrinsically valuable store of wealth – will only have grown. Most significantly, and in sharp contrast to Indian demand, private Chinese buying has grown as the price has risen (gold has than tripled against the Yuan since retail price controls were lifted in 2001).

That might suggest gold is just another bull-market asset for China's increasingly wealthy and capital-rich middle classes. But owning the metal is most often viewed more as an end-in-itself than as an investment vehicle; it's the aim of accumulation, not the means.

Given this last decade's average 15% annual gains for US-Dollar investors – plus the outlook for sub-zero real interest rates, struggling equity dividends, and the danger of sharply higher bond yields (i.e. falling bond prices) as the Treasury attempts to finance a new record deficit – might the Chinese approach to gold investment start to take hold in the West...?

Goldman Sachs and Others Investigated for Betting Against Securities They Created

Image via CrunchBase

Noel Brinkerhoff
Betting against their own securities has prompted numerous investigations of Goldman Sachs and other Wall Street institutions. Prior to the financial collapse, Goldman and others figured out a way to package risky securities, such as subprime mortgages, and sell them to investors who were told they were buying sound investments. Little did the investors know that the firms selling the synthetic collateralized debt obligations (or CDOs) turned around and bet that the CDOs would fail—costing pension funds and insurance companies billions of dollars.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, told The New York Times. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

In addition to Goldman, CDOs were sold and bet against by Deutsche Bank, Morgan Stanley and Tricadia Inc.—an investment company whose parent firm’s CDO management committee was overseen by Lee Sachs. Sachs is now a special counselor to Treasury Secretary Timothy Geithner. The schemes are now being investigated by Congress, the Securities and Exchange Commission and Wall Street’s Financial Industry Regulatory Authority.

Major Gold Melt Up Coming

Before It's News
A highly trustworthy bond trader friend in New York just sent this to me, regarding the recent up move in the gold markets and how he expects this trend to continue. (By the way, the term "Melt Up" was coined by my good friend Thom Calandra.):

the CFTC is about to regulate the position sizes of the major commercials in various commodities, gold included. Apparently, there are a bunch of bullion banks, JP Morgan, and DB who are short a boat load of contracts, and if there (sic) positions need to be cut back, then that could create a squeeze...

For those of us who don't speak Wall Street, the CFTC is the Commodity Futures Trading Commission, which is charged by the government with the regulation of the commodity futures markets. If Deutsche Bank (DB) and JP Morgan are short gold, that means they will have to go on the open market to acquire gold to pay off their end of futures contracts. The squeeze is created when people who owe on contracts have to go out to the open market to buy the gold they need to make good on their contractual obligations. This drives the price of gold much higher.

a story today how Russia came out and said they bt gold last month helped run the tables...

This is from a Reuters story reported at Mineweb and other outlets. Central banks are now accumulating gold and whatever overhang effect the IMF's threats to unload more of their gold stock pile had in the past are effectively gone, as we reported here at Before It's News. There just isn't enough gold for every one in the world to put all their money into it -- at $1170. There's plenty of gold to go around -- at a much higher price, say $8,000 per ounce or $16,000 per ounce.

hedge funds like einhorns greenlight capital says they have moved from the etf to physical gold...

I had heard this. They got out of the GLD ETF, installed their own vault in New Jersey and are accumulating a pile of gold there.

and john paulson is out there marketing a gold fund... real money is getting behind this trade... open interest still is rising... and the charts are starting to look near vertical

Things are starting to accelerate in the gold market. Once the hedge funds jump into gold as a momentum play, it will start to move even higher in a self fulfilling prophecy.

Chilling Truth Behind Govt Unemployment Lies

Since 2000 the government has used the Birth-Death Model to account for the birth and death of businesses which exaggerates the number of jobs being created each month, and alters the unemployment figures in the government's favor. Mish and others have pointed this out endlessly but it's worth repeating. Anthony Mirhaydari reminds us that "John Williams of Shadow Government Statistics specializes in removing these questionable tweaks to the government's statistical data to better align current numbers with the methodology used to gather historical data. After reviewing the data, Williams believes that 'the June jobs loss likely exceeded 700,000.' David Rosenberg of Gluskin Sheff notes that the fall in the number of hours worked in June (to a record low of 33 per week) is equivalent to a loss of more than 800,000 jobs.

"There are similar issues with the way the unemployment rate is measured. The headline rate only jumped from 9.4% to 9.5% because of a drop in the number of people in the workforce. The more inclusive "U-6" measure of unemployment, which includes discouraged workers, jumped from 16.4% to 16.5%. But even this doesn't adequately capture the situation on the ground: Back in the Clinton Administration, the definition of discouraged worker was changed to only include those that had given up looking for work because there were no jobs to be had within the last year. By adding these folks back in, William's SGS-Alternate Unemployment Measure rose to a jaw-dropping 20.6%.

"This brings us to another issue: expiring unemployment benefits. Continuing unemployment claims fell 53,000 to 6.7 million last week, but Deutsche Bank's chief U.S. economist Joseph LaVorgna wonders how much of this decline is due people exhausting their standard 26-week benefit. He says: "We are concerned about what will happen when a significant share of out-of-work individuals' benefits completely expire, because this could lead consumer spending to re-weaken, hence jeopardizing a fragile recovery. Unless the economy starts getting traction here in the third quarter, we could face a situation where people find that they have no job and no unemployment benefits. For these people, 2009 will feel an awful lot like 1932. As a result, spending cuts will be deep and dramatic."