New Stress Tests Expanded to 31 Banks: Many Likely to Fail

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EDITOR’S NOTE: OK the last round of stress tests was a PR stunt to assure the world that the US finance system was not falling apart when in fact it was and did fall apart and we are dealing with the cover-up phase now. But there is a new round of stress tests that makes some real assumptions and makes real demands upon the Banks to fess up on their true financial condition. That is bad news for the major Banks, especially Citi and BOA, whose assets largely don’t exist.

Frankly I don’t expect BOA to last to the end of this year in its present form and by end of 2012, I don’t believe it will exist at all. Same for Citi. Both were given far too much leeway — in part because of the intransigence and insubordination of Geithner who ignored a direct order from the President to take over Citi long ago. Part related back to the Bush administration where some rough and tumble negotiations resulted in quick takeovers by BOA of Countrywide and Merrill Lynch, neither of which were anything better that a contagious disease.

So the claim that the regulators made them do it is not without merit. But that takes nothing away from the fact that the Banks, as they are currently constituted, are too big to manage, have too little capital to cover the heavy losses that are projected over the next few  years, and really don’t have much going for them in terms of conventional banking activity. Breaking them up into smaller pieces and dividing up the remains into bite size pieces for smaller regional banks with a resolution authority to handle the assets that are claimed to exist, is really the only way to handle this, stop the housing crisis, stop the foreclosure crisis and bring economic recovery back through the return of lending to the average Joe who wants to start or expand his business.

More Vigorous Stress Test for Banks

By ANTONY CURRIE and EDWARD HADAS

FROM THE NEW YORK TIMES

There’s good and bad news in the Federal Reserve’s decision to expand the scope of its annual stress test of the nation’s top banks. Given the deteriorating economic picture, submitting the 31 largest lenders to even more scrutiny than in the previous two years makes sense. So does putting the European exposures of the top six banks under the microscope. But the Fed’s latest move will leave many on both sides of the Atlantic unhappy.

Start with the United States angle. The Fed is expanding its stress test beyond the 19 largest banks to include another 12 with $50 billion of assets or more, including Discover Financial as well as the United States subsidiaries of several foreign banks like HSBC. Considering that several midsize banks landed in trouble in the last crisis, bringing them into the fold is overdue.

The Fed is making all 31 banks run some pretty depressing numbers through their models: an 8 percent contraction in the gross domestic product, the Dow Jones industrial average collapsing to 5,700 points by the middle of next year, and an unemployment rate rising above 13 percent by 2013. The six largest banks must demonstrate they can also withstand a euro zone crash that whacks European governments and financial institutions.

The test probably means few, if any, banks will be allowed to raise dividends or buy back more stock next year. Instead, they will have to hang onto their capital. And the test ought to make it much harder to cast aspersions on the creditworthiness of any bank that passes.

But the process will take time. Banks have until January to file their results and, based on this year’s exercise, results aren’t likely to be known until April. By that time, the United States and European crises that the Fed imagines could be under way. Pity the bank that is told to raise capital in such an environment.

Meanwhile, Europe looks set to suffer even more. American banks are already reining in their exposure to the euro zone. But the mere fact that the Fed is increasing scrutiny of their exposures could accelerate the withdrawal. That increases the risk that the stress possibilities become reality.

A Troubled Haven

By the standards of the euro zone, Germany is still a haven. But as the overall area keeps looking less safe, investors are starting to notice that, for all its strengths, Germany does lie within it.

On Wednesday, a German government bond offering was badly undersubscribed; bids were accepted for only 61 percent of the 6 billion euro issue. The norm is more like 90 percent.

The bonds that were sold yielded 1.98 percent, still comfortably low as far the government is concerned. But that was 0.1 of a percentage point more than the day’s low, and yields climbed another 0.09 percentage points later. By afternoon, the German paper, or bunds as they are known, yielded 0.24 percentage points more than comparable United States debt. Just a week ago, the gap was similar but in the opposite direction.

This is far from a sign of total panic. Even so, the trend is hard to deny and easy to explain. Investors are taking money out of the euro zone. The European Central Bank reported that non-euro area investors were net sellers of 52 billion euros of member government bonds in the third quarter, having bought 130 billion euros’ worth in the second. German bunds may be the safest European holdings, but as fear mounts they too begin to look unnecessarily risky.

The objective of shunning everything euro related is to stay out of the way of a possible euro collapse. Never mind that the exodus makes that collapse more likely: when investors want out, they run first and ask questions later. And Germany would suffer from a splintering of the euro. While the country would eventually be an economic success with its own currency, a disorderly euro breakup would trash both the financial system and the export business of the zone’s leading creditor and exporter.

European authorities have already missed many opportunities to calm investors down with relatively mild measures. One remaining possible move, resisted so far by Berlin, is for the euro zone to guarantee bonds issued by member nations. Even that would, in theory, dilute Germany’s strong credit a bit. But a disintegration of the euro zone would be far worse. The weak bund auction is a signal for the region’s politicians and central bankers to stop squabbling.

For more independent financial commentary and analysis, visit http://www.breakingviews.com.

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33 Responses

  1. If the people of Iceland can do it, so can America! Just say no to servicing the debt accounts and the banks will go away. Either way, Americans will see austerity after 2012 elections and the eventual 50% haricut on the federal reserve notes. We may as well take a couple of them with us this time.

    The fact that the Federal Reserve Bank cam up with that new entry for their balance sheet, “Negative Liability” establishes that we are past the point of no return.

    – Somewhere directly on the middle of the economic scale of balance between corporate needs and consumer needs lies capitalism. If either side becomes “To big too fail”, capitalism fails. –

  2. Want to impress me – take the stress test with 2008 “Mark Rules”.

  3. jen, you can get a modification – just submit a complete package. go to a free website by treasury and Check MyNpv.com to see if you qualify using the net present value test. It is free and in NY you can fight foreclosure for 3 years now. Try to get the mod first and than hire a licensed NY Attorney if need be.

    I know the properties are doing well in Saratoga because Intel came to town. Prepare yourself and fight til the end. at the very least you can screw them out of three years interest and if enough folks were not so frightened we could win this battle.

  4. You mightthink about contacting the trustee bank and ask who their records show as servicer.

    You might think about asking the servicer-front listed in OCC website phone number and telling them the servicer and the loan number and the collection acct number and see if theat “independent” reviwer will verify that your info is correct or are you chasing red herrings.

    If you get the connection to servicer verified—then you might want to think about relief from the servicer reviwer that your note be extinguished–and your credit cleansed —offhand—and im not offering advice–id be very nervous if i had given my house away to somebody without getting the note back –or determining who has it

    that seems to be the reason for standing–to make sure thatr somebody will not pop up in a couple years and levy on other propewrty using the note—whether there is a deficiency or not

    basically the credit bureau reporting has displaced the US, state and local govt record systems——its not important anymore what the govts say–its what the bank records say that affects whether you eat–whether you can rent a house —whether you can buy a car—–and if you defaulted you have committed a CARDINAL SIN in the banks’ book—and do not deserve to eat or breath—so you just need to see if they will take you off of the list of the walking dead

    or whatever——

  5. Can someone answer a question for me. We refinanced our house through a mortgage broker. He sent us the paperwork to sign and sent we them back to him. We never got signed copies of what we signed, no title report and no copy of the appraisal. I have to say that I was suspicous of the mortgage broker and things his said to me, but I had no idea why. Now after what has happened things make sense. (Have already been foreclosed on and house sold for a little background info). My question pertains to an earlier post by neidermeyer to Jen to go to the closing title company to get the complete file. In my case where the papers were sent to us, do I go to the mortgage broker who sent the paperwork to us or the title comany that was listed at the trustee? And would it be hard to get that info after a has happened almost 2 years ago? Also we did not get the note back (not sure how it works). Who would I go to about the note and its location? I am in a non-judicial state. Thanks.

  6. Basically, the stress tests at even a portion of the stringency will have one answer: the bonuses are a fraud on shareholers AND CREDITORS. It is well known that the banks which now have near ZERO cost of funds are giving away between 50% and 95% of their revenue as compensation—to keep the people on staff that put them under water??

    In any other industry the companies wouldv escorted them to the front door more than a year ago–as soon as their antics had been ascertained and quantified. But no–they bid em up–or at least assert thats why the record bonuses were paid out last year and the year before.

    These entities would have negative net income if the acctg rules did not allow them to report as income the write down of their own debt. It is an old-fashioned fraud on both shareholders and creditors. The management are “looting” these banks using the debt write down gimmick–when they pay out ANY BONUSES. They are doing very much the same thing as “Don” Corzini did to MF Global the couple weeks before its collapse—sending out $1.2 billion to his buddies who were supposedly counterparties to his bad bets on euro-sovereign debt-bonds. Why did he feel compelled to unwind these particular trades using client assets? Despite it being a theft from the clients into the corporate coffers followed by a fraud on the corporate creditors.

    This is incredible actually–it takes ones breath away—it goes against basic corporate law, bankruptcy law–all law. There is no law if Don Corzini is allowed to walk around after that. This is basically Don Vito Corleone type stuff.

    So they do these stress tests just in time to announce that the payouts for EOY 2011 were outrageous–illegal —but too late to claw them back. How can anyone at this point in time perceive that the bank net worth as the deterioration rolls through the system now–that the net worth is anything but negative? And it has been but for the gimmickry. The BIG ACCTG FIRMS must not only do the net worth calcs but also take into account all other factors @ EOY 2011 to assume that the entities should have an unqualified opinion—they foregoing article posted here can be summed in one way: the big banks are not “going concerns”—absent the distortion of the debt write down–their debt not their receivables—and that other assets on their books should already be discounted heavily to reflect the fact that today the Greek govt is demanding a full 75% write down of sovereign debt. That Ireland is now demanding discounts–20%, 50%??? Some sizable writedowns–to reflect the disintegrating economy etc. That Portugal and then Italy will not be far behind. and it will not matter if the ECB steps in and prints a few hundred billion more—–the loss is in the multiple trillions cumulatively. The devaluation of the Euro necessary to reduce the FMV of these debts in the face of global economic falling GDP is so large that the prices of all things must rise by 25%-45% to make the math sort of work.

    the investment bankers have destroyed civilization as we know it. This is not a surprise to those of us that have experienced 1st hand their complete and utter disregard of all the rules of law in context of mortgages: UCC, real estate law, agency law, judicial process, Due Process. If the banks’ approach to mortgages were analogized to gunlaw—–it would be as if the ATF were systematically busting in the front door of every home in the US and seizing every gun and knife with a blade longer than a butter-knife. This is the effect of the banks’ disregard of fundamental Due Process of law—–the vaste majority of people have no conception how far these entities have gone down this path–even the OWLs have no conception how far gone the Constitution is. I suppose the reast will wake up when they do go to seize the guns.

  7. George Carlin on getting rid on bankers.

  8. @Simon,

    There you go. That was going to be my advice to both Joann and Jen: to consult an attorney a.s.a.p. who specializes in foreclosure defense. Max Garner is a good place to start.

    Understand that many of them don’t cost an arm and a leg and actually do pro-bono and/or contingency work. But you need to check out whoever you’ll decide to retain first and ask the tough questions.

  9. Find an atty who has graduated Max Gardner’s bootcamp…
    http://www.maxbankruptcybootcamp.com/find-graduates

  10. @Enraged

    “Contact us so that we can guide you to someone able to help you a.s.a.p.”

    How do you contact “us”? Thanks for all your great posts. Central Coast CA. Recorded NOD is for a few months late payments not whole loan amount. No mod – do not believe pretender or anyone can mod. or refinance or sell or foreclose…. Title now further clouded by fraudulent assignment from servicer bank (who is not a lender or a beneficiary) to successor trustee bank for named trust closed years ago.

  11. @neidermeyer

    “If you haven’t yet received a Notice of Default you need to immediately find a lawyer and get the bank on defense ,, file a Quiet Title suit if you can find a basis for one… It’s better for you to be on offense..”

    Can you still go on the offense after a NOD? Can you still file declaratory relief to quiet title?

    I am in California -Ventura, Santa Barbara, San Luis Obispo counties all close – Central Coast CA. Could not get attorney to pay attention while I was still current.

    NOD was recorded 27 days ago. No MERS.

    Was working on declaratory relief to quiet title complaint…..and the NOD has now changed the picture.

    Have recorded docs – have copy of original note sent by servicer – have all billing statements – have entire title co files obtained a year ago from title co – have sec trust files – loan is on fwp “loantape” – no MLPS – “intentionally left blank” .

    NOD is original trustee naming original defunt “lender” as beneficiary.

    ADOT recorded simultaneously is successor servicer (lender pretender – loan was sold to trust in 2006) to defunct “lender” assigning “For Value Received” to successsor trustee bank for named trust that closed in 2006.

    VP for servicer pretender lender who is signing the ADOT is a low level robo signing employee of trustee on deed of trust – company owned by servicer. Same VP also signs as VP for MERS.

  12. I dont completely understand all ths morgage stuff,I have been reading you guys and girls posts now for weeks you all are so nice I am glad to know that there are still nice kind caring people in the country

  13. Hi everyone thank you for the info, I am in NY saratoga county.I had a friend who knows morgage documents and he asked me to go over my margage to make sure it was wall good because I did by this house in 2006.We have sent them 4 letters requesting in feb 2011 we sent a RESPA request letter asking for copys of all assignment of morgage for the last 4 yrs,A full accounting of payments made and credits for the last 4 yrs who own my morgage/note. they did respond but not with the right stuff,then another letter was sent in april pretty much the same. Then another in aug i Dispute of dept letter was sent. we did a forensic audit.there are many issues within the morgage.oh and by the way they havent bothered me since the first letter now alll of a sudden they say im in default.

  14. @Possibly. We, the 99%, need to shut BofA down by stopping ALL payments of “morgages” to them and closing our accounts. Once we have the hang of it with one bank, shutting down the rest will be easy and quick.

    @Jen,

    You have 3 different people here who told you the exact same thing: foreclosure is lurking and you’re running out of time.

    1) Which state are you in? Judicial? Non judicial? Important as it impacts on how you will proceed.
    2) What documents do you have? Do you have all the recording from your county on who the different servicers are? Depending on the state you’re in, you may be able to access all that by internet.
    3) Are you currently trying to obtain a mod? If yes, be aware that new regulations are supposed to prevent foreclosure while you’re in a mod.
    4) If you’re not in a mod, don’t bother. Put your file together. Get your mortgage agreement and note. get the entire file from the county recorder. Gather all your statements if you have kept them, all your mail from/to your servicer(s), all your bank statements showing payments.

    5) Contact us so that we can guide you to someone able to help you a.s.a.p.

  15. enraged ,

    Buffet is Obama’s stooge/lackey … you can bet that his “preferred” shares were bought at Obama’s insistance and that he has a guarantee that if BAC fails that the preferred share owners (a class of 1) will be taken care of.

  16. Jen ,

    Post the state and county or city you are in and someone here might have a recommendation for you.

    If you haven’t yet received a Notice of Default you need to immediately find a lawyer and get the bank on defense ,, file a Quiet Title suit if you can find a basis for one… It’s better for you to be on offense.. If you can find no basis for a QT ,, then start gathering documents to make a foreclosure defense easier for your attorney … get copies of everything at the courthouse regarding the property and your note/mortgage , go to the title company that handled the closing and get the complete file , it has lots of good stuff that wasn’t in the copy you got at the closing. put all your records in order.

    DO IT FIRST THING MONDAY.

    I don’t know how long our monetary system will last … a waiting game may get you as good a result as an outright win.

  17. @A Man,

    Your comment intrigued me enough to go look for info on BofA and Warren Buffett.

    Well, he did invest the 5 billions he was planning to. I hadn’t followed that so I really didn’t know one way or the other.

    Apparently, it was a deliberate investor’s move and Buffett was counting on BofA coming out of its hole. Buffett is no dummy. Timing means a lot. There is a very precise calculation behind his moves.

    8/25: Buffett anounces it is going to invest 5 Billions.
    9/11: BofA decides to increase fees. OWS starts.
    10/11 – 11/11: people leave BofA in droves. Bank resumes foreclosures at a rapid pace to make up for loss of revenue.
    11/11: media bombards us with news that BofA in really, really bad shape. Meanwhile, Buffett begs Congress to increase his taxes as well as those of every wealthy individual. Reeks of PR to incite people into following his lead, buying into BofA and throwing at us a few crumbs (by playing the moral card) to keep us quiet.

    There are only 2 possibilities: either Buffett knew something none of us knows and his calculation is working. BofA stocks are so low that he counts on investors to snatch a maximum of shares so as to artificially reinflate BofA as fast as possible… Or:

    He made a very poor calculation, didn’t expect OWS, hoped for Congress to understand the severity of the situation and tried to sway it by begging for more taxes, in the hope of saving his investment.

    Here is the thing, though: the ultimate outcome is in out camp, we the 99%. We can let BofA crumble (as we should) by doing nothing, knowing that no one in the rest of the world has any intention to invest in it. Buffett is out of 5 billions. It took a chance and he appears to have lost. probably not the first time around. The problem I have with Buffett is that NO ONE ever gets as rich as he has by playing by the rules and being completely ethical.

    Let’s get them both out of their misery. It’s time to move on and rebuild this country.

  18. accelleration means a foreclosure is coming. I would recommend NOT giving a “Deed in Lieu” of foreclosure, as then they have your deed and you cannot negotiate nor defend the foreclosure. This is not legal advice.

  19. Enraged;

    The attorney is a liar…okay maybe incompetent, to handle the case. I have never heard that.

    Having said that; I had an attorney for a Chapter 13, never ended up going that way, but he never filed all the schedules. I originally filed myself and under the advice of the court trustee, hired this guy. The collective point: when I did the BK myself, I was able to file all the necessary paperwork/schedules, as 1 person, he had a staff of 10 (ten). Motto: never get one opinion, this is far to important, a life changing event. You cannot trust anything, unless you have information to validate it.

  20. I want to know when someone is going to check the deliberate “insured default” on the loans. A servicer does not have an “insurable interest” in a policy; hence, the fraud of taking proceeds by misrepresenting ownership of the note should come into play here.

    Where are the insurance companies who lost billions? Litigation anyone?

  21. Simon says: “….isn’t the Fed part of the conspiracy too? That is, don’t they already know that the mortgage assets are vapor and these stress tests are merely window dressing to allay a nervous public?”

    Absolutely!

  22. Sorry litigator

  23. Can someone recommend an experience trial litigated in Texas.

  24. @A Man

    Funny that you mentioned it. We did read about Warren Buffett “planning” to invest into BofA but we never actually read about him having done so…

    I think the guy wised up when he started digging into BofA finances.
    After all, 5 billions represents substantial pocket change. I don’t think one becomes Warren Buffett by throwing money into losing propositions. Actually, I wouldn’t be overly surprised if Buffett was at the source of all the recent changes in terms of bank audits, OCC involvement, etc.

  25. @Jen,

    Yes. That means that they are planning to declare you in default of the whole balance which becomes due immediately. That allows them to start foreclosure proceedings.

    Which state are you in? Judicial? Non-judicial?

  26. Hi, does anyone know what t means when a servicing company sends you a letter saying if you dont pay this amount we may possibily accelerate your note.

  27. Anyone knows which banks are involved? 31 means quite a few and having the list would allow me to approach many on closing their accounts and speeding up the process of getting rid of them.

    Also, (and this isn’t for me), does anyone know anything about Ocwen, i.e., are they part of a bank or some stand-alone outfit? If they belong to a bank, which one? I seem to remember that they are tied with BofA but I am not completely sure.

    Lastly: a friend of mine consulted a BK atty for a possible Chapter 7. Apparently, the guy told her that if she was successful in discharging her mortgage on the grounds that it is “unsecured”, she would be forced to borrow against it to repay the rest of her creditors. it doesn’t make sense to me.

    Thanks everyone.

  28. Good riddance when BoA and Citi fail! Of course the stress tests are a PR stunt. The whole banking and finance system is a PR stunt designed to steal your money. Right, MF Global?

  29. Money Talks. look at BofA’s stock

    http://quotes.wsj.com/BAC

    Warren Buffet is gonna take a shelacking on this one. I am not worried about Warren Buffet.

    Good idea bytheway.

    NEVER AGAIN.

  30. IS this why BofA will not complete common sense Short Sales or Deed-in Lieus even at there best interest for the parties they are servicing…and they just keep borrowers in a cloud of haze of confusion and more forms and more forms…killing our time clock…so BofA can be in BK.

    Should we sue BofA before they collapse, so there is a claim in BK court against them.

  31. […] Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: bankruptcy, BOA, borrower, Citi, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, stress tests, TILA audit, trustee, WEISBAND Livinglies’s Weblog […]

  32. BAC recently dumped their derivative exposure into the same accrual pot as deposits, against FDIC wishes. The recent executive order by President Obama now allows banks servicing the Freddie and Fannie garbage to reduce interest rate exposure on mortgages and replaces it with LTV risk. BAC is being proactive before new FRC tests and lining up the garbage loans, which are still current, to be tossed in the abyss.

    Many of the loans be rewritten at lower rates are so far underwater and so poorly underwritten from inception it appears that this is another huge push for lending institutions to socialize losses through the former GSE’s. Just by clicking a button and given borrowers a lower rate on a “150 LTV loan” should not indemnify banks against these loans for put-backs due to the original underwriting failures.

    No recourse loans are an easy way for the banks to socialize another 500 billion in losses and have the US Taxpayer footing the bill until the dollar is re-pegged to a central currency that will be introduced during 2012. The schematics are complete and the weighting process is nearing an end. The next meeting at Bretton Woods should be exciting and should go something like this:

    Bring in your worthless federal reserve notes and we are now replacing them with these worthless federal reserve notes. You know, the ones we can no longer print at will to service our debt.

  33. If you are a bank that is bound to fail the stress tests, wouldn’t you simply lie on the report you have to submit by January? Or, isn’t the Fed part of the conspiracy too? That is, don’t they already know that the mortgage assets are vapor and these stress tests are merely window dressing to allay a nervous public?

    Seems to me that it is highly unlikely that a Timothy Geithner Treasury Dept would let the Fed take over a bank due to a failing stress test. Geithner was, after all, a former chair of the NY fed.

    Plus, what about Warren Buffett’s $5 billion infusion into BoA? How about BoA’s deposit growth which is strong? I just don’t know if the stress tests are anything new really. We seem to be shuffling the same deck chairs.

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