ValueWalk's Raul Panganiban interviews JP Lee, Product Managers at VanEck, and discusses the video gaming industry. Q4 2020 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview With VanEck's JP Lee ValueWalk's ValueTalks ·
The Bundesbank CEO demanded that the Bank Union is completed with a common mechanism for dissolving and restructuring. The necessary sufficient money for the sanitation and dissolving must be presented by the banks under supervision. It is only exceptionally a possibility to dip into the taxpayers.
Bundesbank CEO’s point of view is problematic in so far as it presupposes that the banks under supervision are able to foot that bill. This was most clearly seen in the case of Bankia in Spain. The banks under reconstruction were all of a sudden was shown to be 20 bio. EUR short – extra! Why should the other banks be liable? Is there a special guarantee tax on banks? There could be – I see no fundamental legal argument against – but IS there (a law – I mean – not an argument)?
The EU could manage to tax banks under inspection – but then again that would not pass in any country.
Furthermore it is a problem as to which country’s taxpayers are liable for a default in X bank’s branch in Y country?
We are getting back to the fundamental proposition: There are huge amounts of accumulated savings that one way or the other must pay for the negative equity in banks. Of course the banks are primarily liable for the losses; but when losses surmount book-value equity several times a state guarantee is only possible for the depositors if the banks. This inevitably means taxpayers.
The next question is which taxpayers? The taxpayers paying VAT in the supermarket? The taxpayers in the deferred tax schemes of pension funds? Tax evaders: Well they are liable in general, but have – as the word says – evaded that liability.
The “shire” has the problem close at hand!
In Berlingske a “reconstructor” of some notoriety has the view that the shareholders should take responsibility.
The headline will suffice: “The shareholders should take responsibility.”
But they HAVE taken responsibility in so far as they are liable with their share of paid up capital! The very principle of a limited liability in a shareholding company is that shareholders are liable for their share of equity – and no more!
They are responsible for electing the board – true. This board answers to the shareholders; but when they have squandered the money, the shareholders have lost their money the shares are null and void. The shareholders might have been idiots in appointing the board (very likely); but that’s it! They are not liable beyond the damage done to their shares – otherwise it would not be a Ltd.
This rather elementary proposition is leading the Bank Inspection to demand a self assessment by all members of financial boards:
I will rephrase the questionnaire into the vernacular: “Are You an idiotic buffoon and should You resign?” The answers should be in by November 1st at the latest. According to unconfirmed rumours a surprising number have answered in the affirmative – perhaps it dawned upon them what the legal ramifications were. Society and state are perfectly in their rights to make them responsible, not only to the shareholders, but to the obligations the firm has entered into.
The net effect is that we are now more or less able to see that the authorities are drawing conclusion on the annual reports – as they should look like if they were true and fair. The corollary to this is that the reports are quite a distance away from reality – which gives mr. Astrup Hansen cause for some condescending remarks on auditors. However true this might be it is an illustration of the distrust of banks.
In fact shareholders, board and auditors have been brushed aside by the Bank Inspection. Now the Bank Inspection will appoint the members of the board – or rather – board member should pass review in the Bank Inspection – which is close to the same thing.
As equity is gone apart from the claims in the now thoroughly discredited audited annual reports the state is liable and in control of the banks. The next step is to clean up among the executives.
It seem like all the preparations for a nationalisation are being implemented: One good slash with the impairment knife and equity is gone. That will inevitably mean taxpayer money for recapitalisation. Again which taxpayers? Income tax-payers? Consumers? Neither is likely as both these fountains already have been exploited to the limit. The option of taking the food-stamps away from single mothers in the trailer-park is not likely as they at best covers only a microscopic part of the shortfall.
To answer Bundesbank CEO Jens Weidmann: What is the difference between the banks and the tax-payer as the banks are broke and the tax-payer ultimately liable anyhow? (Does a question ever has an answer – except another question?)
The answer is to dip into the deferred taxes on the pensions. The rationale is ok. Why should the government trust the pension funds to yield satisfactorily when interest rates are negative for sovereign bonds up to around 5 years of maturity? Again a case of borrowing your own money and wasting profit en route. The real problem – in Denmark as well as in Spain – is what about the civil servants? Well then you just tax the money you owe to be taxed and taken back when you pay what you owe,
But then – at what percentage? Who cares? Those generous pensions were never meant to be paid anyhow. You can see that from the steady reduction in general pension benefits in case you have been so silly as to save in pension funds. General pensions are reduced in step with pensions from other sources.