Category Archives: Banking

Former Wells Fargo CEO and Seven Others Slapped With Fines for Scamming Customers

Nearly four years after Wells Fargo’s reputation was terminally crushed by the humiliating fake accounts fraud scandal, the punishment for Warren Buffett’s favorite bank and its (mostly former) employees is still being doled out, and moments ago the Office of the Comptroller of the Currency announced $59 million in civil charges and settlements with eight former Wells Fargo senior executives on Thursday, including the payment of a $17.5 million fine by John Stumpf, the bank’s former CEO, who also agreed to a lifetime industry ban. Carrie Tolstedt, who led Wells Fargo’s community bank for a decade, faces a penalty of as much as $25 million.

“The actions announced by the OCC today reinforce the agency’s expectations that management and employees of national banks and federal savings associations provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations,” Joseph Otting, who heads the OCC, said in a statement.

Wells Fargo unleashed unprecedented public and political ire in 2016 after its was revealed that bank employees opened millions of fake accounts to meet sales goals. That and a slew of retail-banking issues that subsequently came to light have led to regulatory fallout that’s in many cases unprecedented for a major bank, including a growth cap from the Federal Reserve. It also led to a historic Congressional grilling of the bank’s then CEO, John Stumpf, who resigned shortly after.

Regulatory actions against Wells Fargo have also included billions of dollars in fines and legal costs, and an order giving the OCC the right to remove some of the bank’s leaders. The Department of Justice and the Securities and Exchange Commission also have been investigating the lender’s issues.

Why did it take 4 years for some individual justice to finally emerge? Simple: regulatory capture – as Bloomberg adds, the OCC drew scrutiny of its own as the firm’s main regulator throughout the scandals, prompting an internal review at the agency.

The OCC and the Fed have both cited a wide-ranging pattern of abuses and lapses at Wells Fargo, yet despite the universal condemnation, the bank’s biggest shareholder, Warren Buffett, has refused to dispose of his stake.

Source: ZeroHedge

And Again: The Fed Monetizes $4.1 Billion In Debt Sold Just Days Earlier

Over the past week, when looking at the details of the Fed’s ongoing QE4, we showed out (here and here) that the New York Fed was now actively purchasing T-Bills that had been issued just days earlier by the US Treasury. As a reminder, the Fed is prohibited from directly purchasing Treasurys at auction, as that is considered “monetization” and directly funding the US deficit, not to mention is tantamount to “Helicopter Money” and is frowned upon by Congress and established economists. However, insert a brief, 3-days interval between issuance and purchase… and suddenly nobody minds. As we summarized:

“for those saying the US may soon unleash helicopter money, and/or MMT, we have some ‘news’: helicopter money is already here, and the Fed is now actively monetizing debt the Treasury sold just days earlier using Dealers as a conduit… a “conduit” which is generously rewarded by the Fed’s market desk with its marked up purchase price. In other words, the Fed is already conducting Helicopter Money (and MMT) in all but name. As shown above, the Fed monetized T-Bills that were issued just three days earlier – and just because it is circumventing the one hurdle that prevents it from directly purchasing securities sold outright by the Treasury, the Fed is providing the Dealers that made this legal debt circle-jerk possible with millions in profits, even as the outcome is identical if merely offset by a few days”

So, predictably, fast forward to today when the Fed conducted its latest T-Bill POMO in which, as has been the case since early October, the NY Fed’s market desk purchased the maximum allowed in Bills, some $7.5 billion, out of $25.3 billion in submissions. What was more notable were the actual CUSIPs that were accepted by the Fed for purchase. And here, once again, we find just one particular issue that stuck out: TY5 (due Dec 31, 2020) which was the most active CUSIP, with $4.136BN purchased by the Fed, and TU3 (due Dec 3, 2020) of which $905MM was accepted.

Why is the highlighted CUSIP notable? Because as we just showed on Friday, the Fed – together with the Primary Dealers – appears to have developed a knack for monetizing, pardon, purchasing in the open market, bonds that were just issued. And sure enough, TY5 was sold just one week ago, on Monday, Dec 30, with the issue settling on Jan 2, just days before today’s POMO, and Dealers taking down $17.8 billion of the total issue…

… and just a few days later turning around and flipping the Bill back to the Fed in exchange for an unknown markup. Incidentally, today the Fed also purchased $615MM of CUSIP UB3 (which we profiled last Friday), which was also sold on Dec 30, and which the Fed purchased $5.245BN of last Friday, bringing the total purchases of this just issued T-Bill to nearly $6 billion in just three business days.

In keeping with this trend, the rest of the Bills most actively purchased by the Fed, i.e., TP4, TN9, TJ8, all represent the most recently auctioned off 52-week bills

… confirming once again that the Fed is now in the business of purchasing any and all Bills that have been sold most recently by the Treasury, which is – for all intents and purposes – debt monetization.

As we have consistently shown over the past week, these are not isolated incidents as a clear pattern has emerged – the Fed is now monetizing debt that was issued just days or weeks earlier, and it was allowed to do this just because the debt was held – however briefly – by Dealers, who are effectively inert entities mandated to bid for debt for which there is no buyside demand, it is not considered direct monetization of Treasurys. Of course, in reality monetization is precisely what it is, although since the definition of the Fed directly funding the US deficit is negated by one small temporal footnote, it’s enough for Powell to swear before Congress that he is not monetizing the debt.

Oh, and incidentally the fact that Dealers immediately flip their purchases back to the Fed is also another reason why NOT QE is precisely QE4, because the whole point of either exercise is not to reduce duration as the Fed claims, but to inject liquidity into the system, and whether the Fed does that by flipping coupons or Bills, the result is one and the same.

Source: ZeroHedge

Major Banks Admit QE4 (money printing) Has Resumed And That Stocks Are Rising Because Of The Fed’s Soaring Balance Sheet

There was a period of about two months when some of the more confused, Fed sycophantic elements, would parrot everything Powell would say regarding the recently launched $60 billion in monthly purchases of T-Bills, and which according to this rather vocal, if always wrong, sub-segment of financial experts, did not constitute QE. Perhaps one can’t really blame them: after all, unable to think for themselves, they merely repeated what Powell said, namely that 

“growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis. Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy. In no sense, is this QE.

As it turned out, it was QE from the perspective of the market, which saw the Fed boosting its balance sheet by $60BN per month, and together with another $20BN or so in TSY and MBS maturity reinvestments, as well as tens of billions in overnight and term repos, and soared roughly around the time the Fed announced “not QE.”

And so, as the Fed’s balance sheet exploded by over $400 billion in under four months, a rate of balance sheet expansion that surpassed QE1, QE2 and Qe3…

… stocks blasted off higher roughly at the same time as the Fed’s QE returned, and are now up every single week since the start of the Fed’s QE4 announcement when the Fed’s balance sheet rose, and are down just one week since then: the week when the Fed’s balance sheet shrank.

The result of this unprecedented correlation between the market’s response to the Fed’s actions – and the Fed’s growing balance sheet – has meant that it gradually became impossible to deny that what the Fed is doing is no longer QE. It started with Bank of America in mid-November (as described in “One Bank Finally Admits The Fed’s “NOT QE” Is Indeed QE… And Could Lead To Financial Collapse), and then after several other banks also joined in, and even Fed fanboy David Zervos admitted on CNBC that the Fed is indeed doing QE, the tipping point finally arrived, and it was no longer blasphemy (or tinfoil hat conspiracy theory) to call out the naked emperor, and overnight none other than Deutsche Bank joined the “truther” chorus, when in a report by the bank’s chief economist Torsten Slok, he writes what we pointed out several weeks back, namely that

“since QE4 started in October, a 1% increase in the Fed balance sheet has been associated with a 1% increase in the S&P500, see chart below.” 

Not that DB has absolutely no qualms about calling what the Fed is doing QE4 for the simple reason that… it is QE4.

The chart in question, which is effectively the same as the one we created above, shows the weekly change in the Fed’s balance sheet and the S&P500 as a scatterplot, and concludes that all it takes to push the S&P higher by 1% is to grow the Fed’s balance sheet by 1%.

And just to underscore this point, the strategist points out that such a finding is “consistent with this new working paper, which finds that QE boosts stock markets even when controlling for improving macro fundamentals.” Which, of course, is hardly rocket science – after all when you inject hundreds of billions into the market in months, and this money can’t enter the economy, it will enter the market. The result: the S&P trading at an all time high in a year in which corporate profits actually decreased and the entire rise in the stock market was due to multiple expansion.

In short: the Kool Aid is flowing, the party is in full force and everyone has to dance, because the Fed will continue to perform QE4 at least until Q2 2020. Which reminds us of what we wrote last week, namely that another big bank, Morgan Stanley, has already seen through the current melt up phase, and predicts the “Melt-Up Lasting Until April, After Which Markets Will “Confront A World With No Fed Support“.”

Source: ZeroHedge

Federal Reserve Network Failure Caused Nationwide Direct Deposit Outage

Pinto beans, white rice, water filtration, etc…


In recent years, banks and credit card processors had blamed hackers, blackouts, infrastructure inefficiencies, and of course the “Russians” for periodic service outages. As of today, they are now blaming the Fed itself.

Starting around 7am, there was a surge of outages reported at Capital One…

… with DownDetector noting that while focused on the Northeast however, the outages was nationwide.

What happened?

According to CapitalOne, network issues at the Federal Reserve were causing certain banking transactions to be delayed.

“We’re monitoring the situation closely in partnership w/ the Fed,” Capital One said in a tweet.

Capital One says it will make sure transactions are posted as soon as possible as soon as Fed issues are resolved.

During the day, customers on Twitter of Capital One and other banks have complained that their direct deposits have been delayed.

Various other banks and credit unions were also experiencing the direct deposit outage.

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“It’s About To Get Very Bad” – Repo Market Legend Predicts Dollar Funding Market Crash In Days

“No matter what the market does from now until year end, there is simply not enough cash and/or liquidity to allow the plumbing of the market to cross into 2020 without a crisis”

For the past decade, the name of Zoltan Pozsar has been among the most admired and respected on Wall Street: not only did the Hungarian lay the groundwork for our current understanding of the deposit-free shadow banking system – which has the often opaque and painfully complex short-term dollar funding and repo markets – at its core…

  (larger image)

… but he was also instrumental during his tenure at both the US Treasury and the New York Fed in laying the foundations of the modern repo market, orchestrating the response to the global financial crisis and the ensuing policy debate (as virtually nobody at the Fed knew more about repo at the time than Pozsar), serving as point person on market developments for Fed, Treasury and White House officials throughout the crisis (yes, Kashkari was just the figurehead); playing the key role in building the TALF to backstop the ABS market, and advising the former head of the Fed’s Markets Desk, Brian Sack, on just how the NY Fed should implement its various market interventions without disrupting and breaking the most important market of all: the multi-trillion repo market.

In short, when Pozsar speaks (or as the case may be, writes), people listen (and read).

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“Floodgates Are Open” – German Banks Start Charging Negative Rates To Retail Savers

It has been over 7 years since the European Central Bank’s key deposit facility rate was positive, and just a few weeks ago it was lowered to a record low of -50bps.

Source: Bloomberg

And during that time, European bank stocks have suffered greatly…

Source: Bloomberg

As Cornelius Riese, co-CEO of Frankfurt-based DZ Bank A.G. (Germany’s second-largest by assets), observed, negative rates indeed “have a huge impact on banks.” Riese ventured to offer some gentle criticism of Draghi & Co.’s grand policy experiment:

“Maybe at the end of the story, in three to five years, we will notice it was a historical mistake.”

Well, it appears we are about to reach the vinegar strokes of that ‘historical mistake’as Bloomberg reports, German banks are breaking the last taboo: Charging retail clients for their savings starting with very first euro in the their accounts.

While many banks have been passing on negative rates to clients for some time, they have typically only done so for deposits of 100,000 euros ($111,000) or more. That is changing, with one small lender, Volksbank Raiffeisenbank Fuerstenfeldbruck, a regional bank close to Munich, planning to impose a rate of minus 0.5% to all savings in certain new accounts.

Another bank, Kreissparkasse Stendal, in the east of the country, has a similar policy for clients who have no other relationship with the bank; and a third, Frankfurter Volksbank, one of the country’s largest cooperative lenders, is considering going even further and charging some new customers 0.55% for all their deposits is considering an even higher charge.

“The floodgates are open,” said Friedrich Heinemann, who heads the department on Corporate Taxation and Public Finance at the ZEW economic research institute in Mannheim.

“We will soon see a chain reaction. Banks that do not follow with negative interest rates would be flooded with liquidity.”

It appears that European banks are coming around to the fact – and preparing for it – that negative rates are here to stay (especially under Lagarde who has already opined that there is nothing wrong with negative rates).

Bank CEOs across Europe have expressed their anger at the ECB’s policy over the last few months.

The ECB’s imposition of negative interest rates have created an “absurd situation” in which banks don’t want to hold deposits, rages UBS CEO Sergio Ermotti, arguing that this policy is hurting social systems and savings rates.

Oswald Gruebel, who served as Credit Suisse CEO from 2004 to 2007 and as UBS Group AG’s top executive from 2009 to 2011, has slammed ECB policy in an interview with Swiss newspaper NZZ am Sonntag.

“Negative interest rates are crazy. That means money is not worth anything anymore,” Gruebel exclaimed.

“As long as we have negative interest rates, the financial industry will continue to shrink.”

And finally, Deutsche Bank CEO Christian Sewing warned that more monetary easing by the ECB, as widely expected next week, will have “grave side effects” for a region that has already lived with negative interest rates for half a decade.

“In the long run, negative rates ruin the financial system.”

The German savings rate was around 10% in 2017, almost twice the euro-area average, but one wonders what will happen now that even mom-and-pop will have to pay to leave their spare cash in ‘safe-keeping’. Will deposit levels tumble in favor of the mattress? Or, as some have suggested, gold will get a bid as a costless way of storing wealth.

Source: ZeroHedge

China Braces For “Unprecedented” Default Of The Massive State-Owned Enterprise, Tewoo Group

Something is seriously starting to break in China’s financial system.

Smog is seen over the city against sky during a haze day in Tianjin, China (Stringer Network)

Three days after we described the self-destructive doom loop that is tearing apart China’s smaller banks, where a second bank run took place in just two weeks – an unprecedented event for a country where until earlier this year not a single bank was allowed to fail publicly and has now had no less than five bank high profile nationalizations/bailouts/runs so far this year – the Chinese bond market is bracing itself for an unprecedented shock: a major, Fortune 500 Chinese commodity trader is poised to become the biggest and highest profile state-owned enterprise to default in the dollar bond market in over two decades.

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