La Casa de Corbat may have had an inkling about the problems that led to its $400 million Mexican nightmare. Or it may not have read all of those long, boring missives that the New York Fed insisted on sending year after year. Read more »
New York Fed
This and other conclusions were reached by a not-so-top-secret report commissioned by his successor at the New York Fed. Other conclusions: the regulator could stand to start speaking up, having useful ideas, not being afraid of Goldman Sachs. Read more »
One way to characterize US regulators’ new leverage ratio rules is that they require big banks to raise some $80-odd billion of capital, but that’s perhaps more alarmist than necessary. The banks don’t have to raise that money in the sense of going out and selling $80bn of stock or whatever. They make money every year, and all they have to do is hang on to a little of it (and not lose money!). DealBook quotes Goldman bank analyst Richard Ramsden saying “I am surprised by the [meh-to-positive] market reaction. It’s a fairly demanding proposal,” but Ramsden’s note today1 says:
While we estimate up to a $66bn capital shortfall today, this is mitigated by 1) prospects for changes in asset calculations in the final rule, 2) potential asset optimization strategies by the banks if not, and 3) a phase-in period through 2018 (with ~$80bn of aggregate annual net earnings).
Even ignoring the potential rule changes and “asset optimization,” $80bn of annual earnings over 5 years = $400bn, of which $66bn, give or take, or 17%, needs to go to increasing capital. You can pay out the rest. It’s not that demanding. We’re not savages here: nobody’s gonna make you raise equity. It’s just a question of how fast you can return equity to shareholders.
Coincidentally today the New York Fed has a blog post about banks’ share repurchases during the financial crisis. The point here is basically that while, yes, banks were embarrassingly continuing their dividends throughout 2008 while also requiring bailouts, more or less funneling money directly from TARP to shareholders,2 they dramatically reduced their share buybacks starting in late 2007, so at least they were funneling less money to shareholders, so yay: Read more »
Stephen Friedman, who preceded Corzine as Goldman CEO and whose tenure as New York Fed chairman was prematurely ended by the somewhat unsettling sight of said New York Fed pouring bailout money into Goldman’s maw as he worked for both, has reached mandatory retirement age. Read more »
A New York Fed underling helped save AIG. Now, he’s going to help it win $10 billion from Bank of America. Read more »