Bank Failure Outlook Updated October 30, 2009

http://ocnww.blogspot.com/
Update January 22, 2010
Editorial comments by Benjamin Train

Derivative Defaults about to hit
the news again as Gold soars
over $1000 per ounce

Composite article by Benjamin Train
September 5, 2009

Derivative defaults may cause another major bank failure, or another
Stimulus Bill to be drafted by Congress.

Beijing's derivative default stance has rattled World markets for the
last five trading days and caused the precious metals market to drive
the price of gold to $1000 per ounce as traders seek protection.

China has given the green light and authorized the defaulting on
commodity derivative contracts. On September 1, 2009 Reuters
said that the Banks, not the commodities would be at risk if China
followed through.

Another bank was rumored to be close to defaulting. The Reuters
report cited 6 foreign banks that received letters indicating that
the Chinese State Owned Enterprises would be given the green
light to default on their derivatives.

A Derivative is a financial instrument that is derived from some
other underlying asset, index, event, value or condition. Rather than
trade or exchange the underlying itself, derivative traders enter into
an agreement to exchange cash or assets over time based on the
underlying.

An futures contract is an agreement to exchange an underlying asset
at a future date, at a future price. Commercial and investment banks
make up the foundation of the over the counter (OTC) derivatives
market.

Investors use derivatives to protect against risks, such as sudden
changes in price or value of the underlying asset. Others tap
derivatives to take on extra risk, in the hope of extra gains. China
owns billions of these financial instruments.

The Reuters story cited 6 foreign banks, including; Spokespersons at
Goldman Sachs (GS.N) and UBS (UBSN.VX) declined comment, and
media officials at Morgan Stanley (MS.N) and JPMorgan (JPM.N)
were not immediately available for comment. All are major global
providers of commodity risk management.

A Chinese Statesperson was quoted as saying “"If we were among
the banks receiving that letter, we would be very angry.” This time,
the concern may be over Oil. Have you noticed that the price of oil
has declined recently?

China's SOE regulator, the State-owned Assets Supervision and
Administration Commission (SASAC), had told the financial institutions
that SOEs reserved the right to default on contracts, Caijing magazine
quoted an unnamed industry source as saying.”

Yes, we can also expect to have Chinese political figures and US banks
to downplay these facts and story in an effort to avert panic. However,
if the Chinese can prove that these derivatives or the underlying asset
was manipulated in a manner to profit the banks that issued the
products then that may even do more damage than the default
themselves. Gold, a classic hedge against troubled times has broken
out to the upside, China has purchased 50 billion in IMF bonds.

http://www.reuters.com/article/marketsNews/idAFPEK1183220090831?rpc=44



US Economic Risk in the trillions?

Some lawmakers are complaining about one figure in the chief
watchdog's report for the government's bail-out TARP funds.
Barofsky's report, which assigns an eye-popping value of $23.7
trillion as the sum total of dozens of federal programs supporting
companies, industries and consumers affected by the economic
meltdown.

The $23.7 trillion number is a "staggering figure," said Rep.
Darrell Issa, R-Calif., the ranking minority member of the House
Oversight panel.

The aggregate figure includes bank debt backed by the Federal
Deposit Insurance Corp. Taxpayers are on the hook if the banks can't
make good on the debt, but so far taxpayers haven't lost a dime and
have in fact made billions in fees paid to the program, said industry
analyst Jaret Seiberg, who generally supports transparency and
disclosure of risk.

"You can start raising questions about lots of different components,
but that's throwing lighter fluid on an already politically-charged fight
to produce nothing of substance," said Seiberg of Concept Capital's
Washington Research Group.

Find this complete article at:
http://money.cnn.com/2009/07/20/news/economy/TARP_report


TARP Inspector Urges Treasury to Track Banks' Aid More Closely

Bloomberg -

By Rebecca Christie July 19 (Bloomberg) -- Treasury Secretary
Timothy Geithner should press banks for more information on
how they use the more than $200 billion the government has
pumped into US financial institutions ...

Revised Bank Failure Outlook
160 to 280 Banks will close this year,
1400 More Banks to Fail by 2012

By Benjamin Train
Written June 26, 2009

After further due diligence, I believe the U.S. financial
system and the Federal Reserve will delay plans to close
up to 1,450 banks until 2012. I also expect we will see that
over 2,000 banks, credit unions and savings and loans will
be taken over or closed by 2014. The Federal reserve and
large national banks are well on their way to consolidate and
centralize wealth, as well as, the entire financial system here
in the U.S.

Public TARP funds have proven helpful in making it possible to
temporarily fortify REIT's, credit vehicles and other
commercial loan securities, as well as commercial bank
funding sources, and suspend the eminent closure of a large
number of smaller community banks, and credit unions that are
facing devaluation of commercial real estate assets by bank
regulators.

To see the complete list of failed banks and credit unions visit:

Online Consultancy Network™ Bank Failure List
http://ocnww.blogspot.com/2010/09/bank-failure-list-update-september-1.html


"There are still too many banks in the United States,"
said JPMorgan Chase CEO, Jamie Dimon to Calyon
Securities analyst Mike Mayo in a webcast call
on Monday, May 4th.

JPMorgan last year purchased Bear Stearns at
a fire-sale price and snapped up the assets of
failed Seattle thrift Washington Mutual Inc.
who is now suing JPMorgan Chase & Co.

In the Delaware federal bankruptcy court suit
Washington Mutual, Inc., filed last Monday against
JPMorgan Chase. Just in case it wasn't inflammatory
enough to accuse the bank of misappropriating $4 billion
that the bankrupt parent company of Washington Mutual
Bank had on deposit at WaMu when JPMorgan purchased
the savings bank for $1.9 billion.

Quinn Emanuel filed a motion
claiming that JPMorgan engineered a deliberate scheme
to undermine WaMu so it could purchase WaMu's assets
on the cheap. Quinn Emanuel represents Washington Mutual,
Inc., WaMu's parent company.

The second-largest bank is busy absorbing
these acquisitions, Dimon said, but added that
regulators may still look to JPMorgan to
"do something" in terms of acquisitions.

Acquisitions of retail banks in emerging markets
remain JPMorgan Chase’s biggest “strategic issue”
but the US group is also open to buying smaller
lenders in its home market, Jamie Dimon said on Monday.

As the U.S. banking sector continues to further
consolidate, regulators may encourage JPMorgan
to take-over additional U.S. assets, including
stronger community banks.

JPMorgan is also looking to grow outside of the
United States by expanding existing businesses
in countries like Brazil, China, India and
Russia, he said.

Consumer businesses in the United States remain
under stress and the credit card business in
particular is suffering, according to Dimon,
who added that he expects these businesses to
shrink over the next two years.

Commercial Property Values Continue to Fall

Commercial property values fell 21.5
percent through February from their
October 2007 peak, according to Moody’s
Investors Service. Properties bought in
2006 are now worth on average 11 percent
less than their original price, and those
bought in 2007 are worth almost 20 percent
less, Moody’s said.

Commercial mortgage delinquencies in the
U.S. climbed to the highest level in at
least 11 years in April as scarce credit
made it difficult for landlords to refinance
loans, according to property research
firm Trepp LLC.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aES8UegfUvkU

"Unemployment and home prices (are) driving
losses way beyond what we expected, even
(with) unemployment like this," he said.

Discussing the broader economic outlook, however,
Dimon said the pace of decline has slowed.

"I don't know if I call it bottoming out,
but kind of a crawling along the bottom here,
maybe a little bit better," he said.

JPMorgan posted a better-than-expected
first-quarter profit in April, largely helped
by trading gains and a surge in underwriting
revenue at its investment banking unit, and
Dimon warned in a call with analysts last month
that those conditions were unlikely to continue
into the second quarter.

When Mayo asked him on Monday about April's
trading performance, he declined comment.

Bank regulators will be publishing their results
of the U.S. largest banks 19 banks this week.

The regulators' focus could spell trouble for
local regional banks and Credit Unions subject
to the test criteria. Their portfolios have
more individual loans and fewer of the big pools
of securitized loans that Wall Street giants
specialize in.

The methodology "certainly penalizes those banks
that are more involved in traditional banking,
which frankly have been performing better in recent
months," said Wayne Abernathy, a former Treasury
Department official now with the American Bankers
Association.

The government's "stress tests" of 19 large U.S.
banks also takes a harsher view of loans than of
other troubled assets including commercial real
estate portfolios, REITs and underwritten loans.

According to a Federal Reserve document obtained
by The Associated Press. That approach favors a
few Wall Street banks while potentially
threatening the smaller regional community banks
and Credit Unions.

The test assumes that the banks' individual loans
will lose up to 20 percent of their value. Many
analysts are expecting a much more significant
decline in commercial real estate portfolios over
the next six months, as retailers abandon shopping
malls in droves and file bankruptcy liquidations.

A Treasury Department spokesman referred all
questions regarding these issues to the the
Federal Reserve, a foreign Corporation. A spokesman
for the Federal Reserve would not comment.