Category Archives: Banking

Money Laundering Scandals Bring Court Charges and Record Job Cuts to Euro Banks

The international financial establishment is known to express concern about the risks of money laundering when the crypto space is mentioned. A string of scandals indicates, however, that traditional banks are not only susceptible to the phenomenon but sometimes complicit, whether knowingly or inadvertently. New chapters have been added to the saga over the last few months that are hurting banks, bankers and their clients.

Deutsche Bank Prepares to Lay Off 20,000 Employees

Deutsche Bank, one of the biggest names associated with money laundering accusations, has been dogged by many problems during the past year. The leading German financial institution is now preparing for a major reorganization that may include the sacking of up to 20,000 employees, if the plan is approved at the end of this week.

The changes come after a failed merger with Germany’s Commerzbank a couple of months ago, which was eventually deemed too risky by the teams of both banks. It did not materialize, despite the support of the federal government in Berlin.

Many of the layoffs are expected to affect Deutsche Bank’s investment banking offices in London and New York. According to a BBC report, the German bank has 8,000 employees in the British capital. And the 20,000 jobs that are likely to be cut represent a fifth of the institution’s global staff.

Besides persistent problems with its investment business and unsatisfactory financial results, the banking giant has been suffering from its involvement in money laundering scandals. In November, 2018 its headquarters and other offices in Frankfurt were raided by law enforcement officers and representatives of the German tax authority.

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How To Decode Investment Adviser Speak

(by Luke Delorme) As an investment adviser, I can’t help but sometimes fall into the trap of industry lingo. Mea culpa.

This is my short list of things I hear way too often in the investment industry, and my honest translation into English.

What advisers say: “Your returns were good last year because we maintained exposure to equities.”

What it means: “The stock market went up and we didn’t do anything stupid.”

What advisers say: “Your portfolio has downside protection in the event that the market falls.”

What it means: “Your portfolio includes both stocks and bonds (and probably some other stuff). Usually, when stocks fall, bonds will go up to offset the losses.”

What advisers say: “We’re cautiously optimistic about the market.”

What it means: “We have no idea what’s going to happen, but things generally go up if you wait long enough.”

What advisers say: “Economic fundamentals are strong.”

What it means: “Unemployment is low. Other economic factors seem to be moving in the right direction. The economy is growing instead of contracting. We have no idea what that means in the short term for the stock market, but a growing economy should help companies that issue stocks and bonds, which is good for investors over long periods of time.”

What advisers say: “The equity premium is still positive.”

What it means: “Stocks have historically gone up more than bonds. We expect that to happen in the future, although nothing is guaranteed over the short-term.”

What advisers say: “The 5-year return of this hypothetical portfolio was 7% per year.”

What it means: “The 5-year return of this hypothetical portfolio was 7% per year, which means practically nothing without context. The return over the next five years could be almost anything.”

What advisers say: “We see an opportunity in … emerging markets equities, small cap value, high yield bonds, gold, and so on.”

What it means: “Since no one knows what will do well next, it’s probably smart to hold a little bit of everything. That way, when something goes up, we can point to it and everyone will be happy.

What advisers say: “We believe it is important to maintain broad diversification.”

What it means: “Again, since no one knows what will happen next, we want to be positioned to capture returns wherever they happen to show up. Also, holding a broad array of assets reduces exposure to any single asset that might tank.

What advisers say: “Portfolio A has higher expected returns than Portfolio B.”

What it means: “Portfolio A is riskier than Portfolio B, and probably more concentrated in stocks. This may or may not be a good idea based on your financial needs, expectations, and circumstances.”  

What advisers say: “These funds are actively managed.”

What it means: “Someone is getting paid really well to guess what companies to buy in that fund. There is no evidence that they can consistently succeed, but they get paid either way.”

What advisers say: “We are forecasting that X, Y, and Z will happen and the result will be A, B, and C.”

What it means: “There are an infinite number of possible outcomes in the world. Good luck guessing what will happen next. Even if you can guess it, financial markets will react unpredictably. We’re going to tell you that we’re forecasting something because it sounds good to tell a confident story instead of being honest.”

What advisers say: “We charge a very reasonable 1.5 percent wrapper on assets under management.”

What it means: “Thanks for putting my kids through college.”

Deutsche Bank Enters Controlled Collapse Two Weeks After Passing Fed Stress Test

“The Deutsche Bank As You Knew It Is No More”: DB Exits Equities In $8.4 Billion Overhaul, To Fire Thousands

Europe’s 2nd largest banking behemoth that only a decade ago dominated equity, fixed income, sales, trading, and investment banking across the globe is no more.

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How The Fed Wrecks The Economy Over And Over Again

When people talk about the economy, they generally focus on government policies such as taxation and regulation. For instance, Republicans credit President Trump’s tax cuts for the seemingly booming economy and surging stock markets. Meanwhile, Democrats blame “deregulation” for the 2008 financial crisis. While government policies do have an impact on the direction of the economy, this analysis completely ignores the biggest player on the stage – the Federal Reserve.

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America’s Adversaries Are Buying Gold Hand Over Fist


Having tested $1300 numerous times over the past few years, gold has broken dramatically higher in the last month, hitting 6-year highs as President Trump rhetoric around the world raises tensions, increasing the odds of open WWIII conflict.

https://www.zerohedge.com/s3/files/inline-images/bfm297F.jpg?itok=NSwXn0Kd

The surge in the precious metal has accompanied a collapse in bond yields around the world and a record level of negative-yielding debt…

https://www.zerohedge.com/s3/files/inline-images/bfm5767_1.jpg?itok=RFzcu5ga

And while Gold volatility is soaring…

https://www.zerohedge.com/s3/files/inline-images/bfm4AF0_0.jpg?itok=AVs7XLx2

Demand remains abundant, as Goldman details in its latest note, raising its outlook for gold, countries with “geopolitical tensions with the US” are buying everything:

https://www.zerohedge.com/s3/files/inline-images/2019-06-25_8-31-56.jpg?itok=gGGl0dTX

Central bank demand is gaining momentum and we now expect 2019 purchases to reach 750 tonnes vs 650 tonnes last year. Visible gold purchases YTD are running at 211 tonnes until April vs 117 tonnes over the same period last year (see Exhibit 11).

Importantly, China just raised its gold purchasing pace from 10 tonnes per month to 15 tonnes for April and May as it aims to diversify its reserve holdings. 

With the Fed and ECB now both likely easing monetary policy, more CBs may decide to add gold to their portfolios as they did between 2008 and 2012 (see Exhibit 12).

https://www.zerohedge.com/s3/files/inline-images/2019-06-25_8-34-38.jpg?itok=72uMsaYX

Also, just recently, trade tensions between India and the US have begun to escalate as India retaliated with tariffs on US goods in response to US steel tariffs. Rising tensions with the US often create upside potential to a country’s gold purchases

Additionally, in case you thought the move was exhausted, Goldman notes that there is about to a pick up in demand as Russia purchases tend to be strongest in Q3…

https://www.zerohedge.com/s3/files/inline-images/2019-06-25_8-40-22.jpg?itok=XUkbj0p-

And finally, Goldman notes that good economic news and bad economic news could both be positive for the precious metal at this point in the cycle.

If DM growth fails to pick up in the second half, gold has substantial upside potential

If DM growth continues to underperform, there is room for a much more substantial build in ETF positions. Last time we were in a similar environment was in 2016. DM growth back then was as weak as it is now and both the Fed and the ECB turned more dovish.

https://www.zerohedge.com/s3/files/inline-images/2019-06-25_8-46-27.jpg?itok=c9RpItJW

But back then the push into ETFs was significantly higher than it is currently… we think that current low growth makes owning gold appealing from a diversification perspective.

And Goldman notes that an improvement in global economic growth is not necessarily bearish for gold.

Our economists expect the bulk of the acceleration in GDP growth to come from ex-US and EM countries in particular. This should support gold through the “wealth” channel. Importantly, a reduced US growth outperformance points to a weakening of the dollar, which should boost the dollar purchasing power of the world ex-US (see Exhibit 7). In addition to this, gold is starting to build momentum in the local currencies of its two biggest consumers, India and China.

And the momentum gold prices built in the first half of 2019 can lead to an increase in EM (emerging markets) retail gold demand in the second half.

Goldman concludes, we believe that gold continues to offer significant diversification value with substantial upside if DM (developed markets) growth continues to underperform… or, as we noted above, global tensions continue to rise.

As we noted previously, combined Russia and China Treasury holdings are at their lowest since June 2010 as China and Russia’s gold holdings have soared…

https://www.zerohedge.com/s3/files/inline-images/bfm348C.jpg?itok=8s85CyGy

De-dollarization?

Source: ZeroHedge

As China’s Banking System Freezes, SHIBOR Tumbles To Lowest In A Decade

One trading day after we reported that China was “Hit By “Significant Banking Stress” as SHIBOR (Shanghi Interbank Offered Rate) tumbled to recession levels, and less than a week after we warned that China’s interbank market was freezing up in the aftermath of the Baoshang Bank collapse and subsequent seizure, which led to a surge in interbank repo rates and a spike in Negotiable Certificates of Deposit (NCD) rates…

https://www.zerohedge.com/s3/files/inline-images/china%20repo%20rates.jpg?itok=IUQDoORO

… China’s banking stress has taken a turn for the worse, and on Monday, China’s overnight repurchase rate dropped to its lowest level in nearly 10 years, after the central bank’s repeated liquidity injections to ease credit concerns in small-to-medium banks: The rate fell as much as 11 basis points to 0.9861% on Monday, before being fixed at exactly 1.000%.

https://www.zerohedge.com/s3/files/inline-images/shibor%20on%206.24.jpg?itok=i2icegOc

Seeking to ease funding strains after the Baoshang collapse and to unfreeze the financial channels in the banking sector, the PBOC has been injecting cash into the financial system to soothe credit risk concerns in smaller banks following the seizure of Baoshang Bank, which sent shockwaves through China’s markets.

Also helping drive the rate lower is China’s move to allow brokerages to issue more debt, said ANZ Bank’s Zhaopeng Xing, quoted by Bloomberg. As a result, at least five brokerages had their short-term debt quotas increased by the People’s Bank of China in recent days, according to filings.

The improved access to shorter-term debt will cut costs for brokerages compared with alternative funding sources such as bond issuance. The flipside, of course, is that the lower overnight funding rates drop, the greater the investor skepticism that China’s massive, $40 trillion financial system is doing ok, especially since the last time overnight funding rates were this low, the near-collapse of the global financial system was still fresh and the S&P was trading in the triple-digits.

Commenting on the ongoing collapse in SHIBOR, Commodore Research wrote overnight that “low SHIBOR lending rates are supposed to be supportive and accommodative in nature — but rates are now at the lowest level seen this decade and  are very likely an indication that China is facing significant banking stress at the moment. It is extremely rare for the overnight SHIBOR lending rate to be set as low as 1.00%. This previously had not all been seen this decade, and the last time it occurred was during the financial crisis in 2008 – 2009.”

Meanwhile, as the world’s biggest financial time bomb ticks ever louder, traders and analysts are blissfully oblivious, focusing instead on central banks admitting that the recession is imminent and trying to spin how a world war with Iran would be bullish for stocks.

Source: ZeroHedge

“On The Precipice”

Authored by Kevin Ludolph via Crescat Capital,

Dear Investors:

The US stock market is retesting its all-time highs at record valuations yet again. We strongly believe it is poised to fail. The problem for bullish late-cycle momentum investors trying to play a breakout to new highs here is the oncoming freight train of deteriorating macro-economic conditions.

US corporate profit growth, year-over-year, for the S&P 500 already fully evaporated in the first quarter of 2019 and is heading toward outright decline for the full year based on earnings estimate revision trends. Note the alligator jaws divergence in the chart below between the S&P 500 and its underlying expected earnings for 2019. Expected earnings for 2019 already trended down sharply in the first quarter and have started trending down again after the May trade war escalation.

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