Well this is a great way to end your week
“It’s horrible, I mean they’re horribly undercapitalized,” said Federal Deposit Insurance Corp Vice Chairman Thomas Hoenig in an interview. “They have no margin of error.”
Hoenig, who is second-in-command at the regulator, said global capital rules, known as the Basel III accord, allow lenders to appear well-capitalized when they are not. That is because the rules allow the banks to use complicated measurements of how risky their loans are to determine the capital they must hold, he said.
But using a tougher leverage ratio measurement – which compares a bank’s shareholder equity to its total assets without using risk-weightings – the picture for banks such as Deutsche Bank is very different, he said.
Of course the bank says, “Nothing to see here. Â Move along”
“To say that we are undercapitalized is inaccurate because if you look at the Basel framework, we’re now one of the best capitalized banks in the world after our capital raise,” Deutsche Bank’s Chief Financial Officer Stefan Krause told Reuters in an interview, when asked about Hoenig’s comments.
“To suggest that leverage puts us in a position to be a risk to the system is incorrect,” Krause said, calling the gauge a “misleading measure” when used on its own.
I’ll let my German readers decide if you need to excuse yourself and make a dash to the nearest ATM
Around 10% of the $700 billion dollar Wall-Street bailout is going to be bonuses for the same bank executives who managed to help destroy the global banking system in the first place.
Financial workers at Wall Street’s top banks are to receive pay deals worth more than $70bn (Â£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year – despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.
Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government’s cash has been poured in on the condition that excessive executive pay would be curbed.
Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany’s Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.
The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.
At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.
So on one hand the banks come to the governments of the western world with hats in hand and ask for a massive, massive bailout and at the same time they want to continue giving out almost ten percent of it in bonuses. Is it too much to ask to wait until a) you are profitable b) have paid back a sizable chunk of the money owed. It is like AIGâ€™s big corporate retreat a week after their bailout. When this could cause millions to lose jobs over the next couple of years, it may be time to re-evaluate the optics of what you are doing and follow the Deutsche Bankâ€™s lead.