The Fed Responds To Zero Hedge

The Fed Responds To Zero Hedge: Here Are Some Follow Up Questions

http://www.zerohedge.com/news/2016-01-18/fed-responds-zero-hedge-here-are-some-follow-questions

Over the weekend, we gave the Dallas Fed a chance to respond to a Zero Hedge story corroborated by at least two independent sources, in which we reported that Federal Reserve members had met with bank lenders with distressed loan exposure to the US oil and gas sector and, after parsing through the complete bank books, had advised banks to i) not urge creditor counterparties into default, ii) urge asset sales instead, and iii) ultimately suspend mark to market in various instances.

Moments ago the Dallas Fed, whose president since September 2015 is Robert Steven Kaplan, a former Goldman Sachs career banker who after 22 years at the bank rose to the rank of vice chairman of its investment bank group – an odd background for a regional Fed president – took the time away from its holiday schedule to respond to Zero Hedge.

This is what it said.

We thank the Dallas Fad for their prompt attention to this important matter. After all, as one of our sources commented, “If revolvers are not being marked anymore, then it’s basically early days of subprime when mbs payback schedules started to fall behind.” Surely there is nothing that can grab the public’s attention more than a rerun of the mortgage crisis, especially if confirmed by the highest institution.

As such we understand the Dallas Fed’s desire to avoid a public reaction and preserve semantic neutrality by refuting “such guidance.”

That said, we fully stand by our story, and now that we have engaged the Dallas Fed we would like to ask several very important follow up questions, to probe deeper into a matter that is of significant public interest as well as to clear up any potential confusion as to just what “guidance” the Fed is referring to.

  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, met with U.S. bank and other lender management teams in recent weeks/months and if so what was the purpose of such meetings?
  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, requested that banks and other lenders present their internal energy loan books and loan marks for Fed inspection in recent weeks/months?
  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, discussed options facing financial lenders, and other creditors, who have distressed credit exposure including but not limited to:
    • avoiding defaults on distressed debtor counterparties?
    • encouraging asset sales for distressed debtor counterparties?
    • advising banks to avoid the proper marking of loan exposure to market?
    • advising banks to mark loan exposure to a model framework, one created either by the creditors themselves or one presented by members of the Federal Reserve network?
    • avoiding the presentation of public filings with loan exposure marked to market values of counterparty debt?
  • Was the Dallas Fed, or any other members and individuals of the Federal Reserve System, consulted before the January 15, 2016 Citigroup Q4 earnings call during which the bank refused to disclose to the public the full extent of its reserves related to its oil and gas loan exposure, as quoted from CFO John Gerspach:
    “while we are taking what we believe to be the appropriate reserves for that, I’m just not prepared to give you a specific number right now as far as the amount of reserves that we have on that particular book of business. That’s just not something that we’ve traditionally done in the past.”
  • Furthermore, if the Dallas Fed, or any other members and individuals of the Federal Reserve system, were not consulted when Citigroup made the decision to withhold such relevant information on potential energy loan losses, does the Federal Reserve System believe that Citigroup is in compliance with its public disclosure requirements by withholding such information from its shareholders and the public?
  • If the Dallas Fed does not issue “such” guidance to banks, then what precisely guidance does the Dallas Fed issue to banks?

Since the Fed is an entity tasked with serving the public, and since it took the opportunity to reply in broad terms to our previous article, we are confident that Mr. Kaplan and his subordinates will promptly address these follow up concerns.

Finally, in light of this official refutation by the Dallas Fed, we are confident that disclosing the Fed’s internal meeting schedules is something the Fed will not object to, and we hereby request that Mr. Kaplan disclose all of his personal meetings with members of the U.S. and international financial system since coming to office, both through this article, and through a FOIA request we are submitting concurrently.

Citigroup to pay $7B Fine

 Citigroup to pay $7B fine – Subprime mortgages

http://www.news.com.au/finance/business/citigroup-to-pay-7b-in-subprime-mortgages/story-e6frfkur-1226990377859

CITIGROUP has agreed to pay $7 billion to settle a federal investigation into its handling of risky subprime mortgages, admitting to a pattern of deception that Attorney General Eric Holder said “shattered lives” and contributed to the worst financial crisis in decades, the Justice Department said Monday.

THE settlement represents a moment of reckoning for one of the country’s biggest and most significant banks, which is now accountable for providing some financial support to Americans whose lives were dismantled by the largest economic meltdown since the Great Depression.

In addition to a $4 billion civil penalty being paid to the federal government, the bank will also pay $2.5 billion in consumer relief to help borrowers who lost their homes to foreclosure and about $500 million to settle claims from state attorneys general and the Federal Deposit Insurance Corporation.

The agreement does not preclude the possibility of criminal prosecutions for the bank or individual employees in the future, Holder said.

The $7 billion settlement, which represents about half of Citigroup’s $13.7 billion profit last year, is the latest substantial penalty sought for a bank or mortgage company at the epicentre of the housing crisis. The Justice Department, criticised for not being aggressive enough in targeting financial misconduct, has in the last year reached a $13 billion deal with JPMorgan Chase & Co, the nation’s largest bank, and also sued Bank of America Corp for misleading investors in its sale of mortgage-linked securities.

Yet the settlement packages pale in size compared to the broader damages caused by the Great Recession. The unemployment rate spiked to 10 per cent as millions lost their jobs and their homes, causing losses that totalled in the trillions of dollars. Public advocacy groups criticised the settlement as a sweetheart deal.

“In the context of the damage done, the damage even described by the attorney general, we’re not even in the same ballpark,” said Bartlett Naylor, a financial policy advocate for Public Citizen, which represents consumer interests.

The settlement stems from the sale of toxic securities made up of subprime mortgages, which led to both the housing boom and bust that triggered the Great Recession at the end of 2007. Banks, including Citigroup, minimised the risks of subprime mortgages when packaging and selling them to mutual funds, investment trusts and pensions, as well as other banks and investors.

The securities contained residential mortgages from borrowers who were unlikely to be able to repay their loans, yet were publicly promoted as relatively safe investments until the housing market collapsed in 2006 and 2007 and investors suffered billions of dollars in losses. Those losses triggered a financial crisis that pushed the economy into the worst recession since the 1930s.

One Citigroup trader wrote in an internal email that he “would not be surprised if half of these loans went down” and said it was “amazing that some of these loans were closed at all,” the Justice Department said. Meanwhile, the bank increased its profits and share of the market.

“They did so at the expense of millions of ordinary Americans and investors of all types – including other financial institutions, universities and pension funds, cities and towns, and even hospitals and religious charities,” Holder said at a news conference.

Justice Department officials called the $4 billion component the largest civil penalty of its kind. It will not be tax-deductible.

The $2.5 billion in consumer relief is directed at underwater homeowners and borrowers in areas of the country with high numbers of distressed properties and foreclosures. The sum includes refinancing for homeowners struggling with high interest rates on their mortgages, closing cost help for borrowers who lost homes to foreclosure, donations to community development funds and financing for construction and affordable rental housing.

The deal and others like it will probably benefit hundreds of thousands of Americans, said Associate Attorney General Tony West, though Holder also acknowledged that many people would not be adequately compensated.

Citigroup should have the capital needed to absorb the $7 billion settlement, said Gerard Cassidy, a managing director and analyst at RBC Capital Markets. In fact, investors were relieved that the issue was no longer confronting the bank and pushed up Citigroup’s stock price on Monday. CEO Michael Corbat said the settlement ends all pending civil investigations related to mortgage-backed securities.

 

Meet Your Newest Legislator – Citigroup

http://wallstreetonparade.com/2014/12/meet-your-newest-legislator-citigroup/

By Pam Martens: December 16, 2014

Citigroup is the Wall Street mega bank that forced the repeal of the Glass-Steagall Act in 1999; blew itself up as a result of the repeal in 2008; was propped back up with the largest taxpayer bailout in the history of the world even though it was insolvent and didn’t qualify for a bailout; has now written its own legislation to de-regulate itself; got the President of the United States to lobby for its passage; and received an up vote from both houses of Congress in less than a week.

And there is one more thing you should know at the outset about Citigroup: it didn’t just have a hand in bringing the country to its knees in 2008; it was a key participant in the 1929 collapse under the moniker National City Bank. Both the U.S. Senate’s investigation of the collapse of the financial system in 1929 and the Financial Crisis Inquiry Commission (FCIC) that investigated the 2008 collapse cited this bank as a key culprit.

The FCIC wrote:

“…we do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it. To give just three examples: the Securities and Exchange Commission could have required more capital and halted risky practices at the big investment banks. It did not. The Federal Reserve Bank of New York and other regulators could have clamped down on Citigroup’s excesses in the run-up to the crisis. They did not. Policy makers and regulators could have stopped the runaway mortgage securitization train. They did not…Too often, they lacked the political will – in a political and ideological environment that constrained it – as well as the fortitude to critically challenge the institutions and the entire system they were entrusted to oversee.”

The words above from the FCIC also perfectly describe what just happened in Congress and the Oval Office. Citigroup snuck its deregulation legislation into the $1.1 trillion Cromnibus spending bill that will keep the government running through next September. (It’s called Cromnibus because it’s part Continuing Resolution or CR and part omnibus spending bill.) Just as the FCIC wrote about the reasons for the financial collapse, Citigroup was able to pass this outrageous deregulation legislation because the majority of Congress and the President “lacked the political will” and the “fortitude to critically challenge the institutions and the entire system they were entrusted to oversee.”

What Citigroup has now done with the willing participation of Congress and the President is to set the country up for the next financial collapse in which it appears destined to play another starring role, seeing that the Fed gave it a failing grade on its stress test this year. The legislation that was just passed by Congress allows Citigroup and other Wall Street banks to keep their riskiest assets – interest rate swaps and other derivatives – in the banking unit that is backstopped with FDIC deposit insurance, which is, in turn, backstopped by the U.S. taxpayer, thus ensuring another bailout of Citigroup if it blows itself up once again from soured derivative bets.

According to Bloomberg data, over the past five years – when Dodd-Frank financial reform was supposed to be making these mega banks safer – Citigroup has increased the notional amount of derivatives on its books by 69 percent. As of this past June, according to Bloomberg, “Citigroup had $62 trillion of open contracts, up from $37 trillion in June 2009.” That’s trillion with a “t.”

How much might Citigroup need from the taxpayer if it blows up again? According to the General Accountability Office, Citigroup received more bailout assistance than any other bank in the last collapse. On October 28, 2008, Citigroup received $25 billion in Troubled Asset Relief Program (TARP) funds. Less than a month later it was back with hat in hand and received another $20 billion. But its finances were so shaky that it simultaneously needed another $306 billion in government asset guarantees. And on top of all that, the New York Fed was secretly funneling it over $2 trillion in emergency loans at interest rates frequently below 1 percent.

This is how we described Citigroup’s 2008 meltdown in an article on November 24, 2008:

“Citigroup’s five-day death spiral last week was surreal. I know 20-something  newlyweds who have better financial backup plans than this global banking giant.  On Monday came the Town Hall meeting with employees to announce the sacking of 52,000 workers.  (Aren’t Town Hall meetings supposed to instill confidence?)  On Tuesday came the announcement of Citigroup losing 53 per cent of an internal hedge fund’s money in a month and bringing $17 billion of assets that had been hiding out in the Cayman Islands back onto its balance sheet.  Wednesday brought the cheery news that a law firm was alleging that Citigroup peddled something called the MAT Five Fund as ‘safe’ and ‘secure’ only to watch it lose 80 per cent of its value. On Thursday, Saudi Prince Walid bin Talal, from that visionary country that won’t let women drive cars, stepped forward to reassure us that Citigroup is ‘undervalued’ and he was buying more shares. Not having any Princes of our own, we tend to associate them with fairytales. The next day the stock dropped another 20 percent with 1.02 billion shares changing hands. It closed at $3.77.

“Altogether, the stock lost 60 per cent last week and 87 percent this year.  The company’s market value has now fallen from more than $250 billion in 2006 to $20.5 billion on Friday, November 21, 2008.  That’s $4.5 billion less than Citigroup owes taxpayers from the U.S. Treasury’s bailout program.”

Not everyone has caved under political pressure from Wall Street. Senator Elizabeth Warren delivered three impassioned speeches on the Senate floor last week, culminatingin a Friday speech that many are calling an historic battle cry to a complacent nation. Warren explained how Citigroup pulled off its coup, stating:

“Mr. President, I’m back on the floor to talk about a dangerous provision that was slipped into a must-pass spending bill at the last minute to benefit Wall Street. This provision would repeal a rule called, and I’m quoting the title of the rule, “Prohibition Against Federal Government Bailouts of Swaps Entities.”…

“Mr. President, in recent years, many Wall Street institutions have exerted extraordinary influence in Washington’s corridors of power, but Citigroup has risen above the others. Its grip over economic policymaking in the executive branch is unprecedented. Consider a few examples:

“Three of the last four Treasury Secretaries under Democratic presidents have had close Citigroup ties. The fourth was offered the CEO position at Citigroup, but turned it down.

“The Vice Chair of the Federal Reserve system is a Citigroup alum.

“The Undersecretary for International Affairs at Treasury is a Citigroup alum.

“The U.S. Trade Representative and the person nominated to be his deputy – who is currently an assistant secretary at Treasury – are Citigroup alums.

“A recent chairman of the National Economic Council at the White House was a Citigroup alum.

“Another recent Chairman of the Office of Management and Budget went to Citigroup immediately after leaving the White House.

“Another recent Chairman of the Office of Management and Budget is also a Citi alum — but I’m double counting here because now he’s the Secretary of the Treasury.

“That’s a lot of powerful people, all from one bank. But they aren’t Citigroup’s only source of power.  Over the years, the company has spent millions of dollars on lobbying Congress and funding the political campaigns of its friends in the House and the Senate.

“Citigroup has also spent millions trying to influence the political process in ways that are far more subtle — and hidden from public view. Last year, I wrote Citigroup and other big banks a letter asking them to disclose the amount of shareholder money they have been diverting to think tanks to influence public policy.  Citigroup’s response to my letter? Stonewalling. A year has gone by, and Citigroup didn’t even acknowledge receiving the letter…”

Anticipating public outrage and potential voter backlash in 2016, incoming Majority Leader Mitch McConnell inserted another provision into the Cromnibus that allows individuals to give almost 10 times as much money to political party committees as allowed under current law – ensuring that only the super rich continue to run Washington.

Senator Bernie Sanders of Vermont was outraged, issuing a press release that stated: “Instead of cracking down on Wall Street CEOs whose greed and illegal behavior plunged the country into a terrible recession, this bill allows too-big-to-fail banks to make the same risky bets on derivatives that led to the largest taxpayer bailout in history and nearly destroyed the economy. Instead of cutting back on the ability of billionaires to buy elections, this bill outrageously gives the wealthy even more power over the political process.”

If all of this is not enough to propel Americans into the streets in mass protests, perhaps the history of how the coddled Citigroup handles the money of its investors and shareholders will stir the pot. Below is just a sampling:

December 11, 2008: SEC forces Citigroup and UBS to buy back $30 billion in auction rate securities that were improperly sold to investors through misleading information.

February 11, 2009: Citigroup agrees to settle lawsuit brought by WorldCom investors for $2.65 billion.

July 29, 2010: SEC settles with Citigroup for $75 million over its misleading statements to investors that it had reduced its exposure to subprime mortgages to $13 billion when in fact the exposure was over $50 billion.

October 19, 2011: SEC agrees to settle with Citigroup for $285 million over claims it misled investors in a $1 billion financial product.  Citigroup had selected approximately half the assets and was betting they would decline in value.

February 9, 2012: Citigroup agrees to pay $2.2 billion as its portion of the nationwide settlement of bank foreclosure fraud.

August 29, 2012: Citigroup agrees to settle a class action lawsuit for $590 million over claims it withheld from shareholders’ knowledge that it had far greater exposure to subprime debt than it was reporting.

July 1, 2013: Citigroup agrees to pay Fannie Mae $968 million for selling it toxic mortgage loans.

September 25, 2013: Citigroup agrees to pay Freddie Mac $395 million to settle claims it sold it toxic mortgages.

December 4, 2013: Citigroup admits to participating in the Yen Libor financial derivatives cartel to the European Commission and accepts a fine of $95 million.

July 14, 2014: The U.S. Department of Justice announces a $7 billion settlement with Citigroup for selling toxic mortgages to investors. Attorney General Eric Holder called the bank’s conduct “egregious,” adding, “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”

 

US Treasury Quietly Ordering “Survival Kits” For US Bankers

Why Is The US Treasury Quietly Ordering “Surival Kits” For US Bankers?

The Department of Treasury is spending $200,000 on survival kits for all of its employees who oversee the federal banking system, according to a new solicitation. As FreeBeacon reportssurvival kits will be delivered to every major bank in the United States and includes a solar blanket, food bar, water-purification tablets, and dust mask (among other things). The question, obviously, is just what do they know that the rest of us don’t?

As Free Beacon reports,

 The Department of Treasury is seeking to order survival kits for all of its employees who oversee the federal banking system, according to a new solicitation.

The emergency supplies would be for every employee at the Office of the Comptroller of the Currency (OCC), which conducts on-site reviews of banks throughout the country. The survival kit includes everything from water purification tablets to solar blankets.

The government is willing to spend up to $200,000 on the kits, according to the solicitation released on Dec. 4.

The survival kits must come in a fanny-pack or backpack that can fit all of the items, including a 33-piece personal first aid kit with “decongestant tablets,” a variety of bandages, and medicines.

The kits must also include a “reusable solar blanket” 52 by 84 inches long, a 2,400-calorie food bar, “50 water purification tablets,” a “dust mask,” “one-size fits all poncho with hood,” a rechargeable lantern with built-in radio, and an “Air-Aid emergency mask” for protection against airborne viruses.

Survival kits will be delivered to every major bank in the United States including Bank of America, American Express Bank, BMO Financial Corp., Capitol One Financial Corporation, Citigroup, Inc., JPMorgan Chase & Company, and Wells Fargo.

The agency has roughly 3,814 employees, each of which would receive a survival kit. The staff includes “bank examiners” who provide “sustained supervision” of major banks in the United States.

It is not clear why the Treasury Department is ordering the kits.

One can only imagine what the Treasury department is thinking will happen in the near-future… while it is indeed good to be prepared, the timing as domestic social unrest ramps up, the driver of the recovery is crashing, and the Fed has stepped away is ‘odd’ to say the least.

*  *  *

Full OCC RFP below:

Survival Kits RFP

 

 

Banks – General Updates

“Money Creation In The Modern Economy” - By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.
View full article here  Bank of England Quarterly Newsletter Q1

Introductory remarks:

  • This article explains how the majority of money in the modern economy is created by commercial banks making loans.
  • Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
  • The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.

From the Financial Times:

* Banks have shelled out $100 billion in U.S. legal settlements since the financial crisis, according to Financial Times research, reflecting a substantial shift in political attitudes towards the financial sector.

* Santander UK is to be slapped with a 12.5 million-pound fine by Britain’s Financial Conduct Authority on Wednesday for providing unsuitable investment advice to customers in its branches.

BBC News – Former UBS and Citigroup trader charged over Libor:

Former UBS and Citigroup trader Tom Hayes has been charged by the Serious Fraud Office (SFO) in connection with its investigation into the manipulation of Libor.

Mr Hayes, 33, has been charged with eight counts of conspiracy to defraud, and will appear before Westminster Magistrates’ Court on Thursday.

These are the SFO’s first criminal charges related to Libor.  http://www.bbc.com/news/world-22952843

The Volker Rule:  

To: Chief Executive Officers of All National Banks and Federal Savings Associations, Federal Branches and Agencies, Department and Division Heads, All Examining Personnel, and Other Interested Parties.

The final regulations

  • prohibit banks from engaging in short-term proprietary trading of certain securities, derivatives commodity futures, and options on these instruments for their own accounts.
  • impose limits on banks’ investments in, and other relationships with, hedge funds and private equity funds.
  • provide exemptions for certain activities, including market making-related activities, underwriting, risk-mitigating hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds and private equity funds.
  • clarify that certain activities are not prohibited, including acting as agent, broker, or custodian.
  • scale compliance requirements based on the size of the bank and the scope of the activities. Larger banks are required to establish detailed compliance programs and their chief executive officers must attest to the OCC that the bank’s programs are reasonably designed to achieve compliance with the final regulations. Smaller banks engaged in modest activities are subject to a simplified compliance program.

 Commentary:  If you were wondering why the Big Banks were fighting so hard against The Volcker Rule over the past 5 years you are about to find out. As of Tuesday, April 1, 2014, the rule goes into effect.

Nodes of term Fractional Reserve Banking: Zerohedge.com

Libor

Registered Business # CIK#: DUNS #:
Respondent T&C Ref: Other
Rothschild 36 Rothschild Bankers charged
US regulator sues 16 banks for alleged Libor rigging BBC News  A US regulator has sued 16 banks for allegedly manipulating the London interbank offered rate (Libor).
The Libor rate is used to set trillions of dollars of financial contracts, including mortgages and financial transactions around the world.
The regulator said the manipulation caused substantial losses to 38 US banks which were shut down during and after the 2008 financial crisis.
The sued banks include Barclays, HSBC, Citigroup and Royal Bank of Scotland.
Former UBS and Citigroup Trader charged over Libor BBC News

Former UBS and Citigroup trader Tom Hayes has been charged by the Serious Fraud Office (SFO) in connection with its investigation into the manipulation of Libor.

Mr Hayes, 33, has been charged with eight counts of conspiracy to defraud, and will appear before Westminster Magistrates’ Court on Thursday.