State Owned Banks or Bank Owned States?

Investors dump bank shares.

The Guardian has:


One large shareholder in banking stocks warned that it was considering ditching all its investments in the sector in the wake of the Libor scandal and the money laundering allegations at HSBC – which were compounded by the allegations against Standard Chartered.

State Owned Banks or Bank Owned States?

Comment: What did you expect? If a bank cheats its costumers – what should keep them from cheating their shareholders?

That begs the next question: Which shareholders? Considering the large sums in bad loans, where the banks have not made (adequate) provisions what equity is left to share? And do you really think a large investor would bad mouth stock he is trying to ditch? Off course those shares have been sold a comfortable while ago.

Bank stocks seem to be one large game of musical chairs with the banks desperately hammering ever harder in the keyboard.

Pretty exactly a year ago yours truly sensed a major sell off of Danske Bank A/S (PINK:DNSKY) (CPH:DANSKE) shares – which later turned out to ATP and PFA seepingly getting toilet papers out of the portfolio. Where do such “securities” end up? Well of course the bank doesn’t buy them themselves – that would probably be illegal – and I wouldn’t dream of accusing Danske Bank A/S (PINK:DNSKY) (CPH:DANSKE) of doing something illegal……. far from ….

But of course the bank cannot prevent some of their “investors” from buying into the opportunity of obtaining cheap bank shares – even if it means extending the credit line (temporarily of course – just until things normalise and the profit can be taken home) slightly: There is of course no risk, as splendid shares are available for collateral. And of course such “investors” have an unshakeable faith in the management of the bank – brilliant as it is – the faith, not the management.

But when push comes to shove and the grim reality broaches like a Los Angeles class submarine with white hot reactors trying to outrun the torpedoes. Then in the aftermath – where do the shares end up – and more importantly: Where has the equity gone?

This possibly was a factor in Bankia: When shares approach zero value the loans to “investors” are called home – “investors” can’t pay off course and the collateral is seized. Not only does the share enter into the own share holdings – reducing the number of voting shares – but the losses on the costumers (limited liability companies if the “investors” have any sense) will have to be deducted directly from the equity.

So the bank inspection end up with a bank without share holders and no equity – depositors have left the building a long time ago. The only thing not being figments of imagination is the losses on outstanding loans: The CB has of course extended credit; but naturally with the few serviced loans as collateral – which of course are seized and sold off. The only thing left is misery.

What can a “responsible” bank management and market place do to prevent the runaway train from crashing?

Frankfurter Allgemeine Zeitung has the answer:

Blame the computers!


The series of stock exchange break downs continue: Tuesday the trade in derivatives was suspended in Tokyo, the world’s third largest stock exchange. For two hours futures on the Topix-index, Japanese sovereign bonds as well as all options could not be traded in Tokyo. The exchange announced a technical problem in the newly installed system.

Already in February the trade in 241 stocks (among them important securities like Sony and Hitachi) on Tokyo exchange was suspended for more than three hours.

The incident in Japan put the spotlight on the still more frequent trading problems on exchanges. Monday the stock trade was interrupted on the Madrid exchange – due to technical problems – for four and a half hours. The exchange company BME had renewed the system three months ago to increase speed and capacity – to keep up with competing exchanges. The Xetra-Handelssystem on the German stock exchange was out of order for more than an hour in the beginning of May.

The electronic exchange Bats (third largest in America after NYSE Euronext (NYSE:NYX) and NASDAQ OMX Group, Inc.


) had technical problems.


The computer problem explanation lacks credulity: I for one have drawn attention to the end-of-year break down in Denmark of the cash machines (centred on  Danske Bank A/S (PINK:DNSKY) (CPH:DANSKE)) and there was a smaller hiccup end of March, which nobody noticed – and probably another mid-April (haven’t bothered checking if the CB has retrospectively corrected the figures). Danske Bank is generally acknowledges to have very good computer system – reliable, with a good interface and competent help desk. So we can pretty much dismiss computers as being the problem.

“Technical problems” is hilarious: The marketplace works supremely – as long as nothing is traded!

There are however more serious implications for the serious investor – and I’m not here referring to the self important smart-asses that should rather waste their time in a bingo-parlour or with on-line poker.

For one the serious investor cannot rely on the accountability of any stock exchange, when they offer the same bold faced lie at all the numerous opportunities. That is not a place to deal with entrusted money.

The CEO of ATP, Lars Rohde was even more outspoken when he denounced the CIBOR related securities pointing out that the interbank lending market did in practise not exist due to the very limited turnover. Turning to quality sovereign bonds despite their pitiful yield, as the possibility of major losses was of frightening dimensions.

This means that the days of passive investment are over. Diversifying out of stocks and bonds where you haven’t got the technical (not financial technical) insight is begging for turning an uncertain yield into a dead certain loss. Rohde of ATP is taking the proposition a bit to the extreme: He is consistently mentioned as the next CB CEO when the current retires early next year.

The problem with nationalized banks is that it is preferable to have state owned banks to having bank owned states. So what you really want is to own the state – provided it is in reasonable repair!