Tag Archives: bank bailouts

“I Picked 7 Billion Out Of My Arse”: Audio Reveals Bankers Joking About Bailouts

26 Jun

Screen shot 2013-06-26 at 9.07.18 AM

This is the culture, the mind-set, the spirit which has now almost completely enslaved the world to the power of usury.

From Business Insider:

Once again, we have some more embarrassing conversations between bankers…

The Irish Independent, a Dublin-based newspaper, has uncovered tapes of an internal phone conversation from September 2008 between two executives at Anglo Irish Bank during its bailout deal and they sound pretty scandalous.   The Irish Independent points out that the recordings show they misled the Central Bank.

The executives from the recording have been identified as John Bowe (head of the bank’s capital markets) and Peter Fitzgerald (director of retail banking).

However, Bowe “categorically denied” that he misled the Central Bank and Fitzgerald, who wasn’t involved in discussions with regulators, said he was unaware of any intention to mislead, the report said.

Either way, the newly revealed recordings are still embarrassing.

Here are some partial excerpts (via the Irish Independent):

The two bankers begin their conversation jokingly comparing themselves to being able to walk on water and drink beer out of both hands.

John Bowe: “Hello”

Receptionist: “John I have Peter Fitz for you.”

Bowe: “Oh yeah, OK.”

Bowe: “As me granny used to say, you must be therapeutic…”

Peter Fitzgerald: “What does that mean? Can I work the computer is it? (Both laugh)

Bowe: “Therapeutic. Therapeutic…I was just ringing you.”

Fitzgerald: “I’m ambidextrous as well. It means I can walk on land and water.” (More laughter)

Bowe: “You can drink, you can drink beer out of both hands…” (laughter)

Then they get down to business.  Bowe tells Fitzgerald that they met with the Irish Financial Services Regulatory Authority (IFSRA) the previous day about getting €7 billion.  They laugh how they will never be able to pay it back.

Bowe:  ”So we went down..and we basically said. In Central, yeah. And I mean, to cut a long story short we sort of said. ‘Look, what we need is seven billion euros…and we’re going to give you and we’re going to give you, what we’re going to give you is our loan collateral so we’re not giving you ECB, we’re giving you the loan clause.

“We gave him a term sheet and we put a pro not facility together and we said that’s what we need. And that kind of sobered up everybody pretty quickly, you know.”

Fitzgerald: “Yeah.”

Fitzgerald: “And is that €7 billion a term?”

Bowe: “This is €7 billion bridging.”

Fitzgerald: “Yeah.”

Bowe: “So…so it is bridged until we can pay you back…which is never.” (Both laugh)

Then they joke how the regulators would need to change their underpants after hearing the terms of that deal.

Bowe: ”So under the terms that say repayment, we say; ‘No…’” (laughter)

Fitzgerald: (Laughing) “None…just none. Not applicable. OK and what did he say? ‘I need a change of underwear?’

Fitzgerald: “Jesus that’s a lot of dosh…Jesus f—–g hell and God…well do you know the Central Bank only has €14 billion of total investments so that would be going up 20…Gee..that would be seen.

Bowe: (Laughing) “There was a bit of that…there was a bit of that.  ’And how would we do that? We would need to give you…we need to…’Jesus you’re kind of asking us to play ducks and drakes with the regulations.’ And we said: ‘Yeah.’ We said: ‘Look what we are telling you is if we get into difficulties, we have 100,000 plus lump sum depositors in Ireland all of whom would be very vocal.’”

Fitzgerald asks Bowe how he came up with the 7 billion figure.  Bowe responds that like then-CEO David Drumm, he picked it out of his “arse.”

Fitzgerald: “Ah we are, yeah, yeah and, em, what, how did you arrive at the seven?

Bowe: “Just, as Drummer would say, ‘picked it out of my arse’, you know. Em…I mean, look, what we did was we basically said: ‘What is the amount we can securitize over the next six months?’ And basically say to them: ‘Look our problem is time, it’s not our ability to create the liquidity, the enemy is time here.’”

Fitzgerald: “Yeah.”

Bowe: “So we can rebuild, in other words, we can rebuild the liquidity off our loan book, but what we can’t do, we can’t do it now and the balance sheet’s leaking now.”

Bowe tells Fitzgerald that they actually need more money than the 7 billion figure.

Bowe: Yeah and that number is seven, but the reality is that actually we need more than that. But the strategy here is you pull them in, you get them to write a big [check] and they have to keep, they have to support their money, you know.”

Fitzgerald: “Yeah, yeah, yeah, yeah, yeah. They’ve got skin in the game and that’s the key.”

Bowe: “They have and they have invested a lot. If they saw, if they saw, the enormity of it up front, they might decide, they might decide they have a choice. You know what I mean? They might say the cost to the taxpayer is too high. But…em…if it doesn’t look too big at the outset…if it looks big, big enough to be important, but not too big that it kind of spoils everything,

Fitzgerald: “Yeah, Yeah.”

….

The actual audio recording is available at the link.

UPDATE:

Good to see the mainstream media picking up this story. From The Australian:

IRISH government ministers have been accused of turning a blind eye to the country’s financial collapse after tapes emerged of top bankers joking about bailouts.

In a set of phone calls recorded five years ago, executives at the toxic Anglo Irish Bank laugh about abusing a blanket bank guarantee to beef up the books at the expense of the UK and Germany.

One conversation – taped two days after the fateful September 30 2008 bank guarantee, and published by the Irish Independent – features former chief executive David Drumm giggling while his colleague John Bowe recites lines from Deutschland Uber Alles.

Drumm, who has since fled to the US, and Bowe are heard laughing about concerns that the guarantee would drive a wedge between Ireland and its EU partners.

The former said he would give “two fingers” to UK concerns…

Drumm and Bowe laugh about damage being done to Ireland’s reputation and concerns of flight of deposits out of Britain.

“So f***in’ what. Just take it anyway… stick the fingers up,” Drumm said about cash flowing in from Europe.

The bankers, recorded in January 2009, sound delighted with the temporary financial windfall, saying it was “fantastic” that if Anglo was nationalised they would keep their jobs and become civil servants.

Ah yes, a common dream of parasites everywhere.

To be a highly-paid, job-guaranteed, Big Government “employee”. A “public servant”.

Like politicians.

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Aussie Banks’ $14.2Trillion “Time Bomb”

16 Aug

With all the recent turmoil in Europe, and grave questions being asked over the solvency of the European banking system, perhaps it’s time to again ask the question – How safe are our Aussie banks?

Back on March 4th (“Aussie Banks Not So Safe“), we saw that Aussie banks were holding $13 Trillion .. yes, TRILLION .. in Off-Balance Sheet “business”.  By comparison, they were holding only $2.59 Trillion in on-balance sheet assets.

The latest RBA statistics show an interesting change.

Our banks’ Off-Balance Sheet “business” has blown out by a whopping $1.2 Trillion.  It now stands at $14.2 Trillion (RBA spreadsheet here).  That growth alone – in just months – is equivalent to the entire Australian economy.

By comparison, their on-balance sheet assets have only grown by $26.6 Billion, to  $2.62 Trillion (RBA spreadsheet here).

The chart below shows our banks’ assets in blue, with Off-Balance sheet business added on top in burgundy (click to enlarge):

$14.2T in derivatives vs $2.6T in assets = MEGA-RISK

The vast bulk ($13.1 Trillion) of that $14.2 Trillion in “Off-Balance Sheet” business, is in the form of OTC derivatives.  Specifically, it is in the form of Interest Rate and Foreign Exchange “swaps” and “forwards”.

What are derivatives?

Derivatives are the exotic financial instruments at the very heart of the GFC.

Back in 2003, the world’s most famous investor, Warren Buffet, famously called derivatives “a mega-catastrophic risk”, “financial weapons of mass destruction“, and a “time bomb”.

Our “safe as houses” Aussie banks are buried up to their eyeballs in the things.

UPDATE:

Alarmingly, it seems Australians are increasingly inclined to trust their savings with the banks.

From today’s The Australian:

Banks sit on record holdings as wary consumers save

The war for deposits has prompted Australians to save more than ever, driving the money on call at banks to record levels.

Australian households have lodged $461.8 billion with banks in June, up 8.4 per cent on the same time last year. It’s a trend underscoring the risk aversion that still exists among investors.

The major banks are the biggest beneficiaries of consumers’ flight to cash.

June data published yesterday by the Australian Prudential Regulatory Authority shows there is $1.266 trillion in deposits at all of the banks in Australia.

The amount is almost the size of the Australian economy, and a 3 per cent increase compared with June last year.

Most of the savings come from households…

Few Australians know that we had the beginnings of a bank run in late 2008.  At the height of fear in the GFC, Australians quietly withdrew $5.5 Billion in savings to stash away under the mattress.  A year later, only $1.5 Billion had been redeposited.

From The Australian:

The private banks keep reserves of cash distributed in 60 storerooms across the country with an average of about $35 million in each. They get topped up by the Reserve Bank before Christmas, when demand for cash typically rises by about 6 per cent, and at Easter, when there is a smaller increase.

But in early October, the Reserve Bank started getting calls from the cash centres for more, especially in denominations of $50 and $100.

The Reserve Bank has its own cash stash. It is coy about exactly how much it holds, but it is understood to be in the region of $4 billion to $5bn.

As the Armaguard vans worked overtime ferrying bundles of $10,000 out to the cash centres, the Reserve Bank’s strategic reserve holdings of $50 and $100 notes started to run low and the call went out to the printer for more. The Reserve Bank ordered another $4.6bn in $100s and another $6bn in $50s. It was the first time it was forced to do this since the Y2K computer bug scare in 1999.

Households pulled about $5.5bn out of their banks in the 10 weeks between US financial house Lehman Brothers going broke – the onset of the global financial crisis – and the beginning of December. That is roughly 80 tonnes of cash salted away in people’s homes. Mattress Bank is doing well, was the view at the Reserve. A year later, only $1.5bn had been put back.

Could it be that Aussies are now feeling a little safer about the GFC, and are starting to put their money back in our banks … at the very time the banks are loading up even more rapidly than ever on derivatives – those “financial weapons of mass destruction”?

UPDATE 2:

16 August 2010

Greg Hoffman of The Intelligent Investor explains the significance of Aussie banks’ derivatives exposure.

From the The Age:

Bank headlines you won’t want to see

‘Australian banks in half trillion dollar derivatives scare” is a headline no-one wants to read. And while it’s unlikely to ever appear, it is possible. So forewarned might be forearmed.

In Monday’s column I showed how Australia’s banks have far more in loans outstanding than they have in deposits.

Now it’s time to explore how that situation came to be and how the banks deal with the risks it presents.

The RBA’s figures show that as at March 2009 ”around 20 per cent of banks’ total liabilities were denominated in foreign currencies.”

This percentage has remained relatively stable over time, but the raw numbers involved ballooned through the credit boom, to the point where the banks’ net foreign currency exposure is more than $300 billion.

If the banks simply borrowed these foreign funds without doing anything else, then they’d have direct exposure to the notoriously fickle Australian dollar exchange rate. Their profits would be violently thrown around (soaring when the currency rises and plunging when the Australian dollar dives).

Yet the banks have produced a string of comparatively smooth profits, at least until the past couple of years. The RBA explains; ”Despite this apparent on-balance sheet currency mismatch, the long-standing practice of swapping the associated foreign currency risk back into local currency terms ensures that fluctuations in the Australian dollar have little effect on domestic banks’ balance sheets.”

Derivative trick

The trick involves the banks entering into hundreds of billions* of dollars worth of derivative contracts known as ”swaps”. These contracts represent an agreement to exchange interest rate and/or currency exposures for a set period of time.

* [Ed:  Mr Hoffman badly underestimates here.  The latest RBA spreadsheet B04hist.xls shows not mere “hundreds of billions”, but rather $6.7 Trillion in Interest Rate swaps, and $1.57 Trillion in Foreign Exchange swaps.  So that’s $8.3 Trillion of the total $14.2 Trillion in off-balance sheet business]

Using such contracts, Australia’s banks can arrange a schedule of payments with another party that match off against their foreign currency-denominated debt. In this way, the banks know their exposure from day one.

Any gains or losses that arise on the loan due to currency movements are offset by an opposite result on the swap contract. That’s how a financial hedge is supposed to function and these contracts have worked nicely for our banks over the years.

Yet one of the expensive lessons taught so savagely by the crisis to financial institutions around the world is that arrangements that have worked smoothly in the past may not always do so in the future.

That lesson brought the business models of lenders dependent on securitisation to a screaming halt in 2007, when previously deep and liquid markets simply seized up. And at some point in the future, it might just pay Australian bank shareholders to have spent a few minutes today considering the risks they’re exposed to as a result of our banks’ reliance on offshore borrowings.

What’s the risk?

I suspect that few people fully understand how dependent our banks are on foreign debt and the mechanism by which they mitigate their exposure (through a series of swap contracts designed to insulate against currency and interest rate movements). And that brings us to the key issue.

Should future convulsions in the global financial markets send any of the institutions on the other side of these contracts to the wall, our banks would become more exposed to the harsh winds of the international financial markets.

This is the nature of ”counterparty risk”, a concept former customers of HIH Insurance came face to face with when that institution couldn’t make good on its financial contracts.

And if the past few years are any indication, the Australian dollar tends to fall in times of uncertainty. So the very conditions which might bring about the failure of the banks’ counterparties would be highly likely to coincide with a plunging Australian dollar: thus blowing out the repayments of foreign currency-denominated debts in local terms.

This is the nightmare scenario…

Indeed.

At the height of the GFC, the Aussie Dollar plummeted from a high of 98c (vs the USD) to just 60c.  In fact, the RBA had to step in on multiple occasions and buy the Aussie Dollar on the open markets, just to defend its exchange rate value at the 60c level.

Given Mr Hoffman has so woefully underestimated our banks’ massive exposure to Interest Rate and Foreign Exchange derivatives, perhaps he should have opened his article as follows:

“Australian banks in 8 trillion dollar derivatives scare” is a headline no-one wants to read.

Europe’s Banks Brace For UK Debt Crisis

14 Mar

From the UK’s Telegraph:

UniCredit has alerted investors in a client note that Britain is at serious risk of a bond market and sterling debacle and faces even more intractable budget woes than Greece.

“I am becoming convinced that Great Britain is the next country that is going to be pummelled by investors,” said Kornelius Purps, Unicredit’s fixed income director and a leading analyst in Germany.

Mr Purps said the UK had been cushioned at first by low debt levels but the pace of deterioration has been so extreme that the country can no longer count on market tolerance.

Sound familiar?

Our economy too, was once cushioned by low debt levels. Not any more.

In my view, the only really fundamental difference between the UK’s dire economic situation and Australia’s, is this: as happens so often, with so much in Australia, we are simply running a couple of years behind on the major international trend.

The UK property bubble has already burst. Ours hasn’t … yet.  Only because the Government had cash in the bank to prop up our property bubble – and thus, our banking sector – by doubling the First Home Owners Boost.

When another wave of the GFC rolls in, we no longer have a “low debt” position to cushion the blow.

The only question seems to be, from which direction will the next wave come?  From Europe?  From the UK? From the USA? Or, from China?

China Facing ‘Massive’ Bank Bailouts

14 Mar

From Bloomberg:

China may be forced to bail out banks that made loans for local-government projects under the unprecedented stimulus program unleashed in 2008, according to Citigroup Inc. and Northwestern University’s Victor Shih.

In a “worst-case scenario,” the non-performing loans of local-government investment vehicles could climb to 2.4 trillion yuan ($350 billion) by 2011, Shen Minggao, Citigroup’s Hong Kong-based chief economist for greater China, said yesterday.

“The most likely case is that the Chinese government will engineer a massive financial bailout of the financial sector,” said Shih, a professor who spent months researching borrowing by about 8,000 local government entities.

More on the growing concerns about China’s property bubble and risks to its economy here, and here.

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