Another Dangerous Virus Hits the U.S. – Wall Street Bank Contagion

If the big banks were rolling in liquidity, as many Wall Street hucksters claim, they wouldn’t be needing those hundreds of billions of dollars in revolving repo loans from the Fed each week, which just got massively bigger today.

By Pam Martens and Russ Martens of Wall Street on Parade

There has been a lot of delusional talk about the strong capital levels of the mega banks on Wall Street, not only from the Federal Reserve, but also from Wall Street analysts spreading fantasies about the banks on cable news programs. We took an afternoon off last Friday to hear what was being said about the banks on CNBC.

We were stunned to hear Mike Mayo, a long-tenured bank analyst on Wall Street, who currently works for Wells Fargo Securities, deliver a huckster-like assessment of the mega Wall Street banks. Mayo said this:

“The banking industry has the strongest balance sheet in a generation. Now think about this: the banks have added $1 trillion of additional capital – that’s $1 trillion with a T; $2 trillion of additional cash; $3 trillion of additional deposits. You have a Federal Reserve stress test every year. Every year, the Federal Reserve, the overseer of the banking industry, they assume Armageddon will happen.”

Mayo forgets to mention this: the big banks have been bleeding common equity capital since this selloff began. Since the first trading day of this year, January 2, JPMorgan Chase has lost $138.27 billion of its common equity capital, a decline of 32 percent. The carnage at Citigroup has been even worse with its common equity capital tanking by 37.5 percent, more than a third. See the chart above for the contagion effect among the other mega banks on Wall Street.

As for the Fed’s stress tests, which are simply another illusion, see our report: Three Federal Studies Show Fed’s Stress Tests of Big Banks Are Just a Placebo.

Then there is Mayo’s pitch that the banks have $2 trillion of additional cash. If they were actually rolling in liquidity, they wouldn’t be needing those hundreds of billions of dollars in revolving repo loans from the Fed each week, which began for the first time since the financial crisis on September 17 of last year and just got massively bigger today. (See our in-depth, ongoing series on the Fed’s repo loans to Wall Street here.)

As for adding $3 trillion in additional deposits, that has been eclipsed by the retention of dangerous derivatives at these banks. As of September 30, 2019, according to the regulator of national banks, the Office of the Comptroller of the Currency, those same five bank holding companies held $230 trillion in notional (face amount) of derivatives, which represents 85 percent of all derivatives held by the more than 5,000 banks and savings associations in the United States. This is the very definition of concentrated, uncontrollable risk

Continue reading the article

 

One thought on “Another Dangerous Virus Hits the U.S. – Wall Street Bank Contagion

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s