52 Banks in America failed in last one year

According to the data by FDIC(Federal Deposit Insurance Corporation) 52 banks have failed in the last one year, one failure per week on an average. This, once again, highlights the gravity of the crisis, and its impact on the financial institutions across the United States.

Month	No. of banks failure
Apr-09	8
Mar-09	5
Feb-09	10
Jan-09	6
Dec-08	3
Nov-08	5
Oct-08	4
Sep-08	3
Aug-08	3
Jul-08	3
May-08	2
Total since May 2008	52

These banks combined had an asset size of 388 billion USD. The failure had cost about 2 billion dollars to the FDIC Deposit Insurance Fund.

Washington Mutual was the biggest of them all with 307 billion dollar assets in its balance sheet. Before the failure it was the sixth largest bank in US. The panic started in Washington Mutual when about 16 billion dollars were withdrawn from the bank during 10 day bank-run. This was about 9% of the size of the total deposits in the bank. However, the pain was avoided by the sale of the bank to JP Morgan Chase (JPMC). This failure was the largest in the history of America.

The second biggest bank to fail during the year was IndyMac Bank with 32 billion dollars of assets. This was the fourth largest bank failure in American history. The failure cost FDIC about 9 billion USD.

About FDIC
"The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails."

State Bank of India (SBI) amongst World's top 50 Banks

State Bank of India, the only bank from India to figure in the FT Global 500 list, is amongst the top 50 Banks of the World by market value as on 31 December 2008. The complete list is available here. With a market capitalization of 16.8 billion dollars SBI stands at 43rd rank in the world in comparision to other banks. If Financial Services sector is included SBI ranks 52 with only 0.2 billion dollars less than coming within top 50.

SBI has higher market value than HBOS & Lloyds TSB of U.K., and Wachovia of U.S. It is quite close to U.K.'s fourth largest bank - Barclays which ranks 39 and has market value of 18.5 b$. These ranks are based on market value as on 31 December 2008. Since then Barclays market value has fallen considerably. Today, Barclays has dropped by about 25% to 12 billion dollars. Though market value is changing everyday it is the best measure which ideally(in an efficient market) takes into consideration all the fundmentals of the business.

At todays closing price and exchange rate SBI's market cap is 15.2 billion dollars.

Standard Chartered Bank announces $3 billion rights issue

Standard Chartered Bank has gone ahead with raising capital to weather the economic downturn and take advantage of the opportunities available in current situation. StanChart is listed on London and Hong Kong stock exchanges. StanChart announced that it will raise £1.78bn through rights issue at 390 pence per share, huge discount to its current market price of 760 pence per share. Existing shareholders will have the option of subscribing 30 new shares for every 91 shares held. This step will raise its Tire-1 capital ratio to 7.4% from 6.1%. This is in line with the industry wide shift of Tire-1 capital ratio towards 8%.

Temasek Holdings Pte is currently the biggest shareholder in StanChart with owning about 19% of the company. If Temasek goes ahead with the rights it can increase its stake to 22%. But this will make StanChart lose the right of printing Hong Kong currency. According to Hong Kong Monetary Authority regulations no bank with more than 20% owned by foreign government can issue currency notes in Hong Kong.

Remarkably, StanChart has so far been relatively insulated from the subprime crisis because of its focus on emerging markets like India, Taiwan etc. But now the economic situation spreading, even the emerging economies are not insulated and it is good option to raise capital while you still can.

US' struggle to save financials continues with Citi

The US Treasury (UST) appears to have been haunted by Lehman Brothers woes. UST cannot see Citigroup falling down. It is such a big player in the financial system that its failure can jolt the already feeble banking system. According to an article on BBC news:

"If the bank were to collapse, it could have caused financial havoc around the globe, seizing up fragile lending markets and causing untold losses among institutions holding debt and financial products backed by the company. "

So here comes the biggy-big rescue package for the giant. Some crucial points in the package are:

• A pool of $306 billion assets identified and Citigroup will bear first $29 billion losses on it rest to be absorbed by UST , Federal Reserve (Fed) and Federal Deposit Insurance Corp. (FDIC).
• Treasury department will give $20 billion from the $700 billion package passed for rescuing the entire financial industry. This is under the Troubled Asset Relief Program (TARP).
  
• Govt will get $7 billion of preferred shares with 8% dividends.
  
• Dividends will be limited to $0.01 per share for next 3 years.
  
• 10 year warrants of $2.7 billion to FDIC and Treasury department at strike price of $10.61 per share.
• Citibank to help distressed homeowners.

The Citi's term sheet of agreement is available from Citigroup's website.

The impact of this package will be that Citigroup's capital adequacy will improve with additional $40 billion in capital benefits. This capital infusion will make the Citigroup's Tier-1 capital ratio at 14% well above the mandatory requirement. On the other hand this rescue has increased the burden on the US government and more than trillion dollars of tax-payers money is at stake. With more and more companies lined up for protection the $700 billion may fall well short. Automobile giants like GM and Ford are so close to bankcrupcy and they certainly require some capital infusion to keep them alive.

Despite the lucrative package, investors at Wall Street are still skeptical about the long term outcome of this. But one thing is sure that if this works out well in near future more of such packages will be seen making their way.

Merrill Lynch faces huge loss due to bad mortgage write-downs

Last time when I wrote about Merrill Lynch posting record losses in its 93 years of existence, I knew some more pain was left, what the results exceeded all imaginations. Merrill Lynch reported fourth quarter loss of 8.6 billion USD from continuing operations. This is huge considering the profits it earned in 2006 - $7.5 billion. Total write-downs for this year so far have been around $16.5 billion. The breakup of the write-downs is like:
$9.9 billion - collateralized debt obligations (CDO),
$1.6 billion - sub-prime mortgages
$3.1 billion - bond insurance
$0.9 billion - residential mortgages
$0.2 billion - real estate investment

This is the second biggest write-down so far. Earlier Citigroup has written-down more than 23 billion dollars and reported close to 10 billion dollar loss in fourth quarter. Both these firms have been on a look-out for capital raising since last quarter and have successfully raised billions of dollars. But with the sub-prime crisis not coming to end these investment banks are poised to have a very tough time ahead.

Merrill had earlier replaced Stan O' Neal from the chief executive position following the sub-prime crisis. The new CEO of Merrill, Mr John A. Thain, has a lot of responsibility in bringing back Merrill to its original status. According to a report on Merrill Lynch's website, Mr. Thain said:

"While the firm's earnings performance for the year is clearly unacceptable, over the last few weeks we have substantially strengthened the firm's liquidity and balance sheet,.. In addition, a great majority of Merrill Lynch's key businesses delivered record results in 2007, and as I look ahead to 2008, the firm is intensely focused on continuing this momentum and delivering growth and increased profitability for our shareholders and employees."

With the declaration of results on 17 January Merrill's stock price fell by more than 10% in a single day. The stock has been falling since 2007 from a highs of around 100 to current price of 49.45 per share.

Banks’ CEOs and executives ousted due to subprime losses

Citi CEO Charles Prince







Merrill Lynch CEO Stanley O'Neal










UBS AG CEO Peter Wuffli










Bear Stearns Co- President Warren Spector







HSBC head North American business Bobby Mehta








Morgan Stanley Co-president Zoe Cruz

Zoe Cruz exits Morgan Stanley

Morgan Stanley on 29 November declared a number of management changes effective December 1, 2007. Zoe Cruz was shown the way out after 25 years at Morgan Stanley. She was one of the top 10 most powerful business women in 2007 according to Forbes.

Zoe Cruz's role as co-president of Morgan Stanley came to an end because of ongoing subprime crisis which claimed more than 3 billion dollars for the company. Walid A. Chammah and James P. Gorman have been named as co-presidents of the firm.

Morgan Stanley will announce its fourth quarter results around December 17, 2007. Skeptics feel that the ouster of Cruz before the results signals some more writedowns in the results. The New YorkTimes reported that the move represents a sharp reversal for Morgan’s chief executive, John J. Mack, who had supported and cultivated her career.

A report on cnn.money.com quoted Richard Bove( an analyst at Punk Ziegel):

"This must mean that Morgan Stanley is going to report write-downs much greater than previously suggested,"

Chairman and CEO John Mack said:

“Throughout her 25 years of distinguished service, Zoe has always demonstrated a deep commitment to Morgan Stanley. She has helped to build some of our most important and successful businesses and worked tirelessly to strengthen and grow our global franchise. We greatly appreciate the enormous contributions Zoe has made in a wide variety of roles, and we are confident that she will continue to do great things in the years ahead.”

Bloomberg reported that Morgan Stanley has taken bigger trading risks and expanded its mortgage securities business under the leadership of Mack. Mack joined in mid-2005 after former CEO Philip Purcell was forced to resign due to investor’s discontent.

Morgan Stanley is a leading global financial services providing firm. For further information about Morgan Stanley, please visit www.morganstanley.com.

FINRA imposes fine of $300k on Wachovia Capital Markets

The Financial Industry Regulatory Authority (FINRA) has censured and fined Wachovia Capital Markets LLC, a division of Charlotte-based Wachovia Corporation, with $300,000 for violation of FINRA's research analyst conflict of interest disclosure.

"This case strikes at the heart of FINRA's research-disclosure program, which was put into place in 2002 in part to combat incentives that could lead to biased research," says Susan Merrill, FINRA executive vice president and chief of enforcement."These critical reforms require firms to provide investors with information about actual and potential conflicts of interest that could influence analysts' conclusions about investing in publicly traded companies. Wachovia failed to ensure that certain of its research reports contained this vital information."

Source: The press release can be accessed at :2007NewsReleases/P037532

For more information, please visit www.finra.org.

About FINRA:

The Financial Industry Regulatory Authority (FINRA) is the largest non-governmental regulator for all securities firms doing business in the US. FINRA watches over about 5,100 brokerage firms, 174,000 branch offices and more than 675,000 registered securities representatives.

It was created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the NYSE. It has approximately 3,000 employees and operates from Washington, DC, and New York, NY, with 15 District Offices around the country.

"The creation of FINRA is the most significant modernization of the self-regulatory regime in decades," said Mary L. Schapiro, Chief Executive Officer of FINRA. "With investor protection and market integrity as our overarching objectives, FINRA is an investor-focused and more streamlined regulator that is better suited to the complexity and competitiveness of today's global capital markets."

Top 10 banks in India by market capitalization

The top 10 banks in India by market capitalization (on Nov 26, 2007) are:

Rank	Company Name	Type	Market Cap. billion INR	Market Cap. billion USD
1	ICICI Bank	Private	1287	32.4
2	SBI	Public	1180	29.7
3	HDFC Bank	Private	581	14.6
4	Kotak Mahindra	Private	393	9.9
5	Axis Bank	Private	335	8.4
6	PNB	Public	189	4.8
7	Bank of India	Public	165	4.2
8	Bank of Baroda	Public	132	3.3
9	IDBI	Public	118	3.0
10	Canara Bank	Public	110	2.8

Source: http://www.moneycontrol.com Public Sector Banks and Private Sector Banks

INR-Indian National Rupee; USD-United States Dollar

The ‘type’ column shows that the bank is in public sector or private sector.

The logos of the above mentioned banks are:

Biggest Treasury Scam and Salomon Brothers

About Salomon Brothers: Salomon Brothers & Co. was formed in January, 1910 as a partnership of three brothers – Arthur, Herbert, and Percy; and a clerk, Benjamin Levy. They continued their father’s business of money brokerage with great ambition. But, the firm faced capital crunch and in the same year, April month it merged with Martin Hutzler & Co. It was later acquired by the commodity trading firm Phibro Corporation. The joint company was named at Phibro-Salomon and then Salomon Inc. and the commodity operation were sold. Its greatest dominance came in 1980s when it became known for many innovations in Bond market and created the first “mortgage-backed security”. With time, it became the largest issuer and trader of bonds in the United States. Its dominance can be judged by the fact that in those days a bond was called liquid if it was traded by Salomon brothers.

But, the turning point for which company got so much of media attention came in 1991, when the treasure scam done by company got exposed. By this year, Salomon Brothers had taken control of the U.S. Treasury Bond market. Firm became one of the selected groups of buyers allowed to bid on government securities in the primary market. The securities purchased in the primary market were then sold to general public in secondary market. In order to ensure competition and fairness in primary market, federal regulations prohibited individuals or firms from purchasing more than 35 percent of any bond issue. On three separate occasions, however, Salomon traders exceeded the limit by unethically using the names of its clients for submitting fraudulent bids. Client’s name was used for the bidding without their authorization, cornered the Treasury bond market and firm illegally made millions of dollars of profit.

The scandal involved billions of dollars of illegal bids in the multi trillion-dollar Treasury market. By making such bids, Salomon was able to exert unusual control over the marketplace. But, soon the head of bond-trading desk at Salomon Brothers, Paul W. Mozer, was accused of manipulating the bidding at government auction of Treasury securities. The civil suit, brought by the Securities and Exchange Commission, accused two former managing directors, Paul W. Mozer and Thomas F. Murphy, of falsifying the details and improper bidding for Treasury securities. The then CEO, Mr. John H. Gutfreund and the firm’s president, Mr. Thomas W. Strauss, announced their resignation on account of not taking prompt action even after getting to know in April about the one of the unauthorized bid at a February Treasury auction.

The encouragement of reckless trading culture at the investment firm led to commitment of fraud and constituted a breach of public trust of the most serious kind. It cost Gutfreund his job and Salomon Brothers its independence, almost putting the firm out of business. The scandal is covered extensively in the book Nightmare on WallStreet.

How deep is Japan in subprime mess?

According to an estimate by Japan’s Financial Services Agency (FSA) Japanese financial institutions have lost over 230 billion ¥ (Yen) or about 2 billion dollars this fiscal half year because of degradation of the US sub-prime investments. This is about 17% of its total exposure of 1.3 trillion ¥ ($12 billion) in the securitized instruments as of September 2007.

Official estimate by the Japanese financial supervisors on the impact of US sub-prime crisis and came after the Japanese largest financial lender Mitsubishi UFJ Financial Group reported its half yearly results. FSA had surveyed 575 financial institutions in Japan primarily to gauge the extent of sub-prime related exposure and its impact of their performance. These included 10 major banking groups, 110 regional banks and a total of 455 cooperative financial institutions.

Out of the 1.3 trillion Yen exposure 1.2 trillion is to the top 10 banking groups. According to Nikkei, Japan's leading six banking groups are likely suffer a total loss in excess of 300 billion yen ($2.75 billion) due to bad debts originating from the slump in the U.S. housing market. Regional banks were less affected. They were hit by about 15 billion yen loss.

The six leading lending institutions of Japan are:

1. Mitsubishi UFJ Financial Group
2. Sumitomo Mitsui Financial Group
3. Mizuho Financial Group
4. Sumitomo Trust & Banking
5. Resona Holdings
6. Mitsui Trust Holdings

The above six banks have written-down 115 billion yen ($1.1 billion) as bad debt. All of these, including, the top three banks, which are also known as megabanks, have shown a decline in profit so far this year.

Mitsubishi UFJ Financial Group Inc., Japan's largest bank, has reported a loss of 260 billion yen in subprime mortgage related investments. The exposure of Mizuho, Japan's second-largest bank, is about 800 billion yen in the US mortgage-linked securities as of the end of September. 575 Japanese banks and credit unions held subprime-related products worth $1.2 billion in book value and recognized $985 million in unrealized valuation losses.

Yoshimi Watanabe, Minister of State for Financial Services and Administrative Reform, said at a briefing in Tokyo:

"In response to this market turbulence, we will pay due attention to the status of risk management by financial institutions and the conditions of financial markets from a wide range of standpoints, while cooperating with other authorities in Japan and abroad."

According to Seiji Nakamura, a policy board member of the Bank of Japan, :

"We need to watch closely if the subprime problem will affect the global economy and if there will be a spillover effect on the Japanese economy,"

UCO bank signs MOU with ICRA for credit rating

[India]

The bank loans and other exposure of UCO bank will be rated by rating agency ICRA. The grading of these exposures will help the bank to move to Reserve bank of India’s new capital ratio adequacy framework for Basel-II norms. ICRA says – “The MOU seeks to deliver benefits to the bank as well its clients. For the bank, ICRA’ credit rating would assist in implementing RBI’s new framework under Basel-II, whereas for the entity in a superior position in terms of faster loan processing and to obtain competitive credit terms from the bank.”

Financial institutions sub-prime writedowns

Update(2) November 16, 2007

Announced Write-downs
Bank	Billion USD
CITIGROUP	13.5
MERRILL LYNCH	8.4
MORGAN STANLEY	4.6
BANK OF AMERICA	3.8
U BS	3.7
HSBC	3.4
DEUTSCHE BANK	3.2
WACHOVIA	2.3
CREDIT SUISSE	1.9
BEAR STEARNS	1.9
JP MORGAN CHASE	1.6
GOLDMAN SACHS	1.5
LEHMAN BROTHERS	0.7
COUNTRYWIDE	0.7

Goldman Sach indicates US's lending to go down by $2t, Bank's credit loss could cross $400b

Goldman Sachs chief US economist Jan Hatzius said that "back-of-the-envelope" calculations indicate the loss for US banks to be more than $400 billion. Earlier this week Germany's biggest bank, Deutsche Bank, had also estimated the losses in the range of $300b - $400b. Jan also predicted decrease in the lending by $2 trillion because of the sub-prime crisis. In his report 'Leveraged Losses: Why Mortgage Defaults Matter' said the macroeconomic implications of these losses 'could be quite dramatic' and still have a heavy impact on lending and overall economy.

``The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,''

``A $1 mortgage credit loss could result in a reduction in lending by significantly more than $10.''

$1 bn spending by US banks on IT for Basel II

The movement to Basel II is expected to increase the spending on risk management IT by 30% over the next two years, to exceed $1 bn in 2009 for major US banks. According to Boston-based consultancy, Aite Group the spending on IT for Basel II initiatives will increase from around $805m in 2007 to over $1 bn in 2009.

The major budget of Basel II is expected to go in integration.

As of now only larger banks are moving towards Basel II and with implementation of this norm in developing countries like India is going to be effective from next year, Banks are getting ready in a big way to get into new emerging markets.

Wachovia, Bank of America, J P Morgan Chase affected by subprime wave

Bank of America, second-biggest bank of US, has accepted that its fourth-quarter results may get affected because of chaos in the credits market. BofA had $12.8 billion in liquidity support for CDO at the end of September. $9.8 billion of these are subprime related and $2.4 billion are in CDO trading.

JPMorgan Chase, third-biggest bank of US, is likely to write down more of its mortgage holdings in the fourth quarter depending on market conditions. JPMorgan had more than $40 billion in leveraged loans and unfinanced commitments on September 30. In the third quarter, JPMorgan wrote down $1.3 billion on leveraged loans and $339 million on C.D.O.’s.

Wachovia, fourth-biggest bank of US, had declared a loss of about $1.1 billion in October on assets backed mortgages. Earlier, Wachovia had reported $1.3 billion losses and write-downs in the third quarter of 2007. Its fourth-quarter result will be hurt by uncertainty in the credit markets to the extent of about $1.7 billion. Wachovia had high involvement in CDO transactions last year.

Barclays Plc, third-largest bank of UK, is yet to declare its involvement in the sub-prime mortgage securities. It had suffered a $4 billion hit due to trading, defaults and write-downs of CDOs in the third quarter. Speculations are high on its write-downs in fourth quarter.

Fourth quarter is going to be very tough for these banks as the liquidity crunch is worsening. Moreover their other sources of revenue like investment banking fees and trading gains are also getting marginalized.

AIG and Morgan Stanley declare their mortgage write-downs

AIG declared an after tax write-down hitting its bottom line by $2.7 billion and for Morgan Stanley this figure was $2.5 billion.

Morgan Stanley, the second biggest US securities firm after Goldman Sachs, has reportedly written down $3.7 billion in the first two months of its fourth quarter. More than $40 billion dollars have been written down so far by major banks and this figure is expected to escalate to $70 billion.

American International Group (AIG), world's largest insurance agency, had reported a 27% decline in earnings to $3.09 billion against $4.22 billion in the same quarter last year. AIG has insured some players against their mortgage related risks.

Morgan may follow Citi & Merrill in writedowns

According to Fox-Pitt Kelton analyst Morgan Stanley may have to writedown $6b in ABS, CDO, and other assets. Morgan Stanley is second largest securities firm of US followed by Merrill Lynch, which had already writtendown $8.4b in subprime mortgages. Goldman Sachs, the biggest securities firm of US, is an exception to the sub-prime crisis as it claimed to be short on CDOs during the advent of the crisis.

Over the past three days Morgan Stanley's shares have declined by more than 17%. CNBC had reported than Morgan Stanley may write down $3b in fourth quarter.

According to an estimate Morgan Stanley has an exposure of $22b in ABS and CDOs.

Prince resigns as Citi struggles

Charles Prince, CEO of US biggest bank Citi, resigned from his position as chairman and CEO on Sunday taking the responsibility for the business. He has been CEO of Citigroup for past four years. He has been replaced by Sir Win Bischof as interim CEO and Robert Rubin as chairman of Citi.

Managing an organization of the size of Citi is a very challenging task and Mr. Prince had worked hard to bring all the units of Citi under one umbrella. In the recent past Citigroup has done many mergers and acquisitions. In 1998 it has acquired of Salomon Inc., the successor of Salomon Brothers, the Investment bank which started the Mortgage Based Security (MBO).

Owing to the subprime crisis the rating agencies have downgraded many Collateralized Debt Obligations (CDO) and their mortgage securities. Because of this the valuations of these CDOs have fallen significantly and has impacted almost all banks which had exposure to mortgage based securities. In continuation to its earlier writedowns Citigroup Inc. has recently announced that its sub-prime writedowns may increase further to about $8b - $11b. Citi's total assets are about $2.3 trillion and is the world's largest bank by assets. Citi owns about $55b of subprime mortgage.

According to an estimate the total subprime mortgage based securities outstanding may be more than a trillion dollars.

About Citi:
200 million customer
100 countries
Domain: Consumer banking and credit, Investment banking, Securities brokerage, and Wealth management
Major Brands: Citibank, CitiFinancial, Primerica, Smith Barney, & Banamex

Sub-prime fallout on banks

Effect on third quarter results:

Citigroup
CEO Chuck Prince likely to resign
Net profit of $ 2.4b against profit of $5.5b in the same quarter last year

Bank of America (BofA)
Slashed 3,000 jobs
The company is also exiting the wholesale mortgage business.
Net profit of $ 3.7b against profit of $5.4b in the same quarter last year

Merrill Lynch
CEO Stanley O'Neal resigned from his post on Oct. 30
Net loss of $ 2.2b against profit of $3.1b in the same quarter last year

Deutsche Bank (biggest private German bank)
Third-quarter write-downs of €2.16 billion($3.17 billion)
Investment arm reported a pre-tax loss of €179m
Total earnings up y 31% at €1.62 billion(US$2.3 billion)

Bear Stearns
Co-president and COO Warren Spector had to exit because of two Bear Stearns hedge funds meltdown.
600 job cuts in mortgage and investment banking businesses.
New York-based Bear booked a $200 million loss in the third quarter related to the hedge funds. Quarterly net income in the period ending August 2007 dropped 61% to $171.3 million.
Revenue fell to $1.3 billion from $2.13 billion last year.

Lehman Brothers
Closed its subprime mortgage unit BNC Mortgage in August and cut down 1,200 jobs.
$700 million write-down in third-quarter
Third quarter results to be declared on November 8

Morgan Stanley
Cut 600 jobs, scaled down its residential mortgage business.
Income fell to $1.47 billion from $1.59 billion.

Wachovia
Net Income decreased to $1.7b from $1.9 billion Quarter on Quarter basis while it was $2.3 billion in previous quarter of this year.

UBS (biggest Swiss bank)
Third-quarter loss of 830 million Swiss francs ($712 million) vs. a profit of 2.2 billion

Credit Suisse (the second-biggest Swiss bank)
Write-downs of 2.2 billion Swiss francs in the third
decline in net income to $1.1 billion, down 31 percent from the previous quarter.

Countrywide
Loss of $1.2b in third quarter against profit of $0.6b previous year.
First Quarterly Loss in 25 Years

Goldman Sachs
Reportedly made money on subprime business due to short positions