Saturday, January 16, 2016

And so it goes with the Federal Reserve and Roy Cooper and Janet Cowell again

"...Yesterday it was the turn of the one bank everyone had been waiting for, the one which according to many has the greatest exposure toward energy: Wells Fargo. To be sure, in order not to spook its investors, among whom most famously one Warren Buffett can be found, for Wells it was mostly "roses"...

Like when the biggest banks
were receiving massive material loans
with even bigger undisclosed credit lines
most didn't know about,
but Roy Cooper and Janet Cowell knew
and did less than nothing

What was laughable is that the ...$90 million in higher oil-and-gas loan losses was on a total of $17 billion in oil and gas loans, suggesting the bank has seen a roughly 0.5% impairment across its loan book in the past quarter.

it looks like at least 18% 
of some banks commercial loan books are impaired

How could this be? Needless to say, this struck us as very suspicious because it clearly suggests that something is going on for Wells (and all of its other peer banks), to rep and warrant a pristine balance sheet...

Earlier this week, before the start of bank earnings season, ...we reported we had heard of a rumor that Dallas Fed members had met with banks in Houston and explicitly "told them not to force energy bankruptcies" and to demand asset sales instead.

Fraudulent book cooking 
approved by the Federal Reserve
in violation of securities reporting laws
again, just like Wells Fargo and Wachovia did
under former Goldmanite Robert Steel 
and Wells Fargo's John Stumpf
which Roy Cooper and Janet Cowell knew about 
and declined to act in the best interests
of hundreds of thousands of North Carolina employees
invested in the state's retirement plans

...moments ago we got confirmation from a second source who reports that according to an energy analyst who had recently met Houston funds to give his 1H16e update, one of his clients indicated that his firm was invited to a lunch attended by the Dallas Fed, which had previously instructed lenders to open up their entire loan books for Fed oversight; the Fed was shocked by with it had found in the non-public facing records. The lunch was also confirmed by employees at a reputable Swiss investment bank operating in Houston.

This is what took place: the Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down.

In violation of Sarbanes Oxley reporting requirements 
including certifications by top execs
which say the reports aren't misleading

Furthermore, as we reported earlier this week, the Fed indicated "under the table" that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches.

In other words, the Fed has advised banks to cover up major energy-related losses.

Again, with the okay from the SEC, again
in violation of multiples of securities statutes
which Roy Cooper and Janet Cowell knew about in 2008 and 9 
before declining to act in the best interests
of hundreds of thousands of North Carolina employees
invested in the state's retirement plans

Why the reason for such unprecedented measures by the Dallas Fed? Our source notes that having run the numbers, it looks like at least 18% of some banks commercial loan book are impaired...

Which means Wells Fargo's reported 0.5% impairment
is likely garbage, just like last time
and the SEC and the Federal Reserve 
approved securities reporting violations, again
and Roy Cooper and Janet Cowell know 
and will most likely violate their fiduciary duties
to hundreds of thousands of North Carolina employees
invested in the state's retirement plans

In other words, the ridiculously low increase in loss provisions by the likes of Wells and JPM suggest two things: i) the real losses are vastly higher, and ii) it is the Fed's involvement that is pressuring banks to not disclose the true state of their energy "books."

<Q - Mike L. Mayo>: What percent of the $17 billion 
[in oil and energy exposure] is not investment grade?

<A - John R. Shrewsberry>: I would say most of it. 
Most of it [is not investment grade].

<Q - Mike L. Mayo>: So most of the $17 billion 
[in oil and energy exposure] is non-investment grade.

<A - John R. Shrewsberry>: Correct.

To summarize: $17 billion in oil and energy exposure, made up "mostly" of junk bonds.

Naturally, once this becomes public, the Fed risks a stampede out of energy exposure because for the Fed to intervene in such a dramatic fashion it suggests that the US energy industry is on the verge of a subprime-like blow up.

it looks like at least 18% 
of some banks commercial loan books are impaired

...However, the big wildcard here is the Fed: what we do not know is whether as part of the Fed's latest "intervention", it has also promised to backstop bank loan losses. Keep in mind that according to Wolfe Research and many other prominent investors, as many as one-third of American oil-and-gas producers face bankruptcy and restructuring by mid-2017 unless oil rebounds dramatically from current levels.

...What does it all mean? Here is the conclusion courtesy of our source:

"If revolvers are not being marked anymore, then it's basically early days of subprime...

My question for bank [Earnings] is if you issued terms in 2013 (2012 reserves) at $110/bbl, and redetermined that revolver in 2014 ‎at 86, how can you be still in compliance with that same rating and estimate in 2016?..."

it looks like at least 18% 
of some banks commercial loan books are impaired

Beyond just the immediate cash flow and stock price implications and fears that the situation with US energy is much more serious if it merits such an intimate involvement by the Fed, a far bigger question is why is the Fed once again in the a la carte bank bailout game, and how does it once again select which banks should mark their energy books to market (and suffer major losses), and which ones are allowed to squeeze by with fabricated marks and no impairment at all? ...Or is the Fed less than "macroprudential" when it realizes that pulling away the curtain on one of the biggest bubbles it has created would result in another major financial crisis?

The Dallas Fed, whose new president Robert Steven Kaplan previously worked at Goldman Sachs for 22 years rising to the rank of vice chairman of investment banking, has not responded to our request for a comment as of this writing.

Who would have thought?

From Hartzman's prepared remarks; 1/6/2016 Federal Court Hearing; Hartzman v Wells Fargo

I flushed my stock broker career by teaching financial ethics, and all I got was peace of mind

The Goodmons, WRAL, Janet Cowell and Roy Cooper, overcharging North Carolina State employees in retirement plans and the Wachovia, Wells Fargo merger
This means Janet Cowell and Roy Cooper are going to do nothing again about reporting of North Carolina domiciled banks, again, and Cooper wants to be the governor?

The last time they did the same Wachovia's shareholders took it on the chin, which included millions in North Carolina's pension and retirement funds without them lifting a finger.

And chances are, they will get away with it again.