US Banks Ask Japanese Banks For Bailout

[Mulboyne]

Reuters: Japan's SMFG says may say no to subprime fund
A top executive at Sumitomo Mitsui Financial Group said the Japanese bank would cautiously consider a request to help finance a U.S.-led subprime rescue fund and did not rule out rejecting the bailout. SMFG, Mitsubishi UFJ Financial Group and Mizuho Financial Group have each been asked to put up $5 billion, which would make Japan's three "megabanks" among the top contributors to the fund. "We have to consider this carefully and thoroughly," Masayuki Oku, president of SMFG's core banking unit, told a regular news conference of the Japanese Bankers' Association. Oku is also the head of the country's banking lobby. Japanese banks have been given until Dec. 19 to answer on the funding request. "It is possible that we could ask for an extension. And it is not as if we have ruled out giving an answer of 'no'," Oku said. Citigroup, Bank of America Corp and JPMorgan Chase & Co initiated plans for the fund to prevent a fire sale of securities held by structured investment vehicles (SIVs) at the heart of the subprime mortgage crisis. But the size and even establishment of the fund have been put in doubt in recent days amid scepticism among market players over how effective it would be...more...

Although they are probably quite fearful of the prospect of a global financial meltdown, Japanese banks are nevertheless feeling a little bit smug right now at the woes of their overseas competition.

[Tsuru]

Mulboyne, since I believe you're a bit of a financial type what's your take on this whole subprime thing?

I know the whole banking system is basically just a worldwide circle of dominos, but when I read stuff like this I can't help but wonder why we (=the rest of the civilized world) should help US banks just dig deeper holes for themselves. I mean, it's not like they'll learn from their mistakes is it?

[GuyJean]

Mulboyne, since I believe you're a bit of a financial type what's your take on this whole subprime thing?..

He could tell you.. But then he'd have to kill you.. Or someone would have to kill him.

Yeah, I'm kind of sick of this subprime stupidity..

Hey, I got a great idea! I'll lend money to someone with no job then spread his debt all over the world in mutual funds!.. It makes perfect economical sense!.. Especially if we're bailed out if the plan sucks!

In the end, the drug dealers will be bailed out.. Not the addicts.. And the addicts would've never gained access without the pushers..

GJ

[Adhesive]

Vote Ron Paul.




:hidesbehindwall:

[American Oyaji]

I think part of the problem is idea of punishing subprime lenders with adjustable rate mortages, but telling them that the rate won't really change when in fact they WILL change.

[kamome]

I'm no financial guru, but I work with clients who are financial gurus, so here is my feeble understanding of the crisis:

Subprime loans in the housing market were made to risky borrowers who took a bet that the value of their homes would continue to rise so that they could refinance once the rate on their loans reset. Problem was that the rates for many home owners reset at a time when home values were stabilizing or declining, so the home owners are now defaulting.

Now banks are more cautious about lending money at all given the losses they have taken. Less credit in the market means that there is less investment and therefore the economy slows down. A slow US economy means there is less consumer demand for foreign products - fewer people to buy Toyota, Honda, Sony, etc. So supposedly J-banks are acting in their own self-interest by helping to stem the US credit crunch.

The people who should not get bailed out are the US borrowers who obviously were borrowing recklessly and helped to inflate the real estate market to incredible highs. Since they hardly put any money down on their house to begin with, what they were doing was not much different from paying rent on a place. If they have to move, they will leave the buyer's market and move to the rental market.

[james]

[Mulboyne]

There's a whole series of problems here. One of the reasons why mortgage lenders could offer so many loans is because they could repackage them and sell on to other investors. If you assume that a certain portion of risky loans will go bad, then you also assume that another portion of those loans will be good. Consequently, you structure the package in different tranches, maybe 5 different levels, If 20% of the loans go bad then the investors in the risky bottom fifth will lose everything. Investors in the top 20% feel relatively secure because it would take over 80% of the loans to go bad before they are at risk of losing anything. The ratings agencies assigned certain grades to these investments and it now seems that they were far too optimistic in their assessments. People who thought they were investing in safer tranches have discovered that the underlying loans are far riskier for the reasons Kamome gives.

The blame can be spread quite widely. On the one hand, borrowers have been quite reckless. Then again, there were a lot of mortgage brokers who used aggressive and often misleading sales tactics to sell these mortgages. Credit officers at the mortgage lenders were also asleep at the wheel in not recognizing how risky their loan book was becoming. Investment banks who repackaged these loans are also culpable since they also misunderstood the level of risk. Goldman Sachs is one of the few banks to make money out of the crisis because they bet heavily that the market would fall. People are wondering, then, why Goldman continued to sell these packages to investors while they were betting with their own money that they would turn out to be poor investments. The ratings agencies look very bad in this debacle because they assigned the wrong grades and also failed to downgrade their ratings when the warning signs began to appear. Investors who bought these products are guilty of looking only at the rating and not at the underlying investment which is laziness of the highest order. Finally, regulators and central banks failed to supervise the financial system. There will always be an incentive for one bank to take on a higher level of risk than a competitor but what might be a good strategy for one bank can become a systemic problem if many banks copy them and the regulators are the only ones who can judge that and step in to curb excesses. I posted this video before but it is a fairly accurate summary of how things happened:

[YT]SJ_qK4g6ntM[/YT]

The reason the central banks have put together a multibillion dollar package now is because banks have largely stopped lending to each other because they can't tell whether their counterparts have a ticking bomb on their balance sheets. The usual tactic to increase liquidity is to reduce interest rates but, currently, inflation pressures around the world have been growing as food, metals and fuel prices have been rising sharply. It's a long time since we have faced inflationary pressures around the world and even longer since we faced them at a time of economic fragility.

I place the main blame on the regulators because they essentially left banks to regulate themselves. It might be that they just believed that market forces would rein them in or, more likely, they really didn't understand what was going on until it was too late. Part of the problem is that the financial industry is huge and countries compete with each other to attract financial business by offering lax regulatory environments. When the US introduced Sarbannes-Oxley to hold corporate executives more accountable, a lot of firms switched away from Wall Street to the City of London. It seems that the risks of driving away lucrative financial businesses made regulators more hesitant to get hands-on and we'll all pay a price for that lack of oversight.

[Catoneinutica]

A couple of rambling, probably incoherent questions whilst I'm able to sneak in some quality FG time:

To what extent did the yen "carry trade" help bulk up the bubble? I've had J-folks tell me that a good economic paradigm for Japan is Switzerland with its reputation as a resource-poor country that produces high-quality niche-market goods (quite a step down from the bubble-era rhetoric of Japan being the lead bird of the triangle-shaped flock of East Asian economies, but there it is). Still, Japan continues to behave like a developing country in its overwhelming reliance on exports over domestic consumption, the latter remaining so utterly dire that the BOJ feels constrained from increasing interest rates after years of near-zero levels. The tsunami of yen and yuan (let's not forget Japan's currency-beggaring partner) looking for decent returns must have played a significant role in the America's it's-the-eighties-all-over-again neo-junk-bond fiasco.

Second, the property bubble in and around London appears to be every bit as bad it ever was in bubblelicious places like Phoenix and Las Vegas, yet it's the US bubble that seems to get all the attention, even the England already has a significant financial institution, Northern Rock, that has collapsed and been nationalized (i.e, the British taxpayer is footing the bill).

-catone
-hope those British equity locusts go back to Londonistan so that property prices in Greece and Croatia return to saner levels. One can dream anyway.

[Adhesive]

There's a whole series of problems here.

Thanks for the awesome break-down, Mulboyne. Great video as well, watched it when you first posted and had a good laugh.

[Mulboyne]

There's still a prospect that a private buyer will take over Northern Rock so it hasn't been privatized yet although some commentators believe that would be the right option.

A recent NY Times article also points the finger at regulators: "Fed Shrugged as Subprime Crisis Spread". There's also a WSJ article which has some interesting tidbits. The CEO of Bank of America, who got his firm out of subprime mortgages in 2001, said that he was seeing a "change in social attitudes to default". Usually, debtors fall behind on car payments and credit cards while trying to hang on to their house by meeting mortgage payments but this recent crisis has seen the opposite happening. One factor is that buyers have little equity in their properties because they obtained near 100% finance. If you have no money down and a $400,000 loan on a property worth $375,000 then it can make sense to walk away and go back to renting no matter what the cost to your credit rating. What it also means is that current credit scores are no guide to defaults i.e. just because people are making credit card payments doesn't mean that they won't hand the keys back on their house. The BofA CEO thinks that banks need to look at loan-to-value ratios instead to judge a homeowner's likely commitment to his property. That might mean they find more risky loans on their books than they are currently estimating.

[Tsuru]

I'm no financial guru, but...

[...]

There's a whole series of problems here.

[...]

Great stuff guys, thanks for taking the time to type that up.

[Catoneinutica]

There's still a prospect that a private buyer will take over Northern Rock so it hasn't been privatized yet although some commentators believe that would be the right option.

Northern Rock to be Nationalised

http://news.bbc.co.uk/2/hi/business/7249575.stm



The UK housing crash of 2008 - 2015 will be one of the largest financial collapses in recorded human history. And it won't stop at the UK's borders - with property-mad Brit spreading their housing ponzi scheme cancer throughout the EU, this crash will take us so many places you'll be amazed. Spain, Bulgaria, Lithuania, Portugal, Slovakia, Ireland, etc. Wherever the Brits went, a crash will follow.

Oh well, Londonstanis can now invest in "shariah-compliant" bonds.

[Greji]

Northern Rock to be Nationalised

http://news.bbc.co.uk/2/hi/business/7249575.stm

Well, maybe we can see another fine organization like the National Railways, or BOAC!

[Mulboyne]

Given the mess we'd managed to create, nationalizing the thing at least makes it a clean deal for now. The potential buyers were creating more uncertainty than the debts themselves

[Catoneinutica]

Given the mess we'd managed to create, nationalizing the thing at least makes it a clean deal for now. The potential buyers were creating more uncertainty than the debts themselves

The main reason why the British government nationalised Northern Rock was because they initially thought the potential buyers would overpay for it, vindicating Labour. Alas, Alistair Maclean Darling, British Chancellor of the Exchequer (dim-bulb-appearing fellow pictured in my previous post), is about as astute in real-world economic matters as the average Okurasho hack, and, rather than eat their humble pie by taking the loss, Labour is putting it under the bed of nationalisation in what is essentially a massive vote-buying scheme to the tune of $110 billion and counting.

-catone
-and things are looking even more ominous in the US

[kamome]

On the bright side, with interest rates declining and foreclosures increasing, shouldn't this mean that property values are finally coming down to a reasonable level so that I can buy a home with a lower interest rate?

[Adhesive]

On the bright side, with interest rates declining and foreclosures increasing, shouldn't this mean that property values are finally coming down to a reasonable level so that I can buy a home with a lower interest rate?

Not only that but my massive student loan debt can be refinanced at a much lower interst rate than I'm paying now. I'm estatic about the current situation...assuming I can find a job.

[Catoneinutica]

Cautionary lessons for UK in Japan banking crisis

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3419917.ece

Britain - at least in these early stages in its dealings with Northern Rock - appears to be turning Japanese. And if Mr Darling really is secretly committing Britain to the full horrors of the Japanese instruction manual, nationalisation of a collapsed lender is merely Chapter One in Japan's Bumper Book of Bankruptcy.

[Catoneinutica]

Northern Rock pulls plug on 125% mortgages

In an effort to limit its risky lending, Northern Rock yesterday pulled its Together mortgage range, which offered a loan to value (LTV) of up to 125 per cent.

The range, launched nine years ago, proved popular with first-time buyers as it allowed them to combine a mortgage and personal loan to borrow more than the amount their property was valued at.
http://business.scotsman.com/bankinginsurance/Northern-Rock-pulls-plug-on.3805075.jp

Want a house worth $500,000? Northern Rock would loan you $625,000. Party time!!!

Then, of course, you simply default, and enjoy the proceeds! Meanwhile, the UK taxpayer is, well, beyond f*cked.
One would certainly hope that one day they'll put the corrupt/incompetent bankers who did this in jail.

[Mulboyne]

Takenaka says:

...Japanese institutions should actively help American and European banks bolster their capital. Capital injections to this end may open up new opportunities for Japan's financial institutions, which have finally almost cleared up their accumulated non-performing loans. Of course, decision-making must be based on cautious management plans. Yet given the current situation in which American financial institutions are considering turning to sovereign wealth funds in the Middle East, they might well appreciate help from Japanese private institutions. Wouldn't it be symbolic if the new Japan Post Bank, the world's largest bank created as part of the privatization of the Japanese postal services, could take the lead and lend out the vast pool of its under-utilized postal savings? I think this is at least worth considering...

"Heizo Takenaka is Professor and Director of the Global Security Research Institute at Keio University in Japan. He was appointed Minister for Economic and Fiscal Policy in the cabinet of Prime Minister Junichiro Koizumi in 2001 and, over the next five and a half years, spearheaded structural reform of Japan's economy."

[Buraku]

Cautionary lessons for UK in Japan banking crisis

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3419917.ece

Britain - at least in these early stages in its dealings with Northern Rock - appears to be turning Japanese. And if Mr Darling really is secretly committing Britain to the full horrors of the Japanese instruction manual, nationalisation of a collapsed lender is merely Chapter One in Japan's Bumper Book of Bankruptcy.

Where the fuck do these self serving guys come from ? IMHO they are acting like a bunch of crooks

[Catoneinutica]

Source: http://www.washingtonpost.com/


The solution? Taxpayer-funded loans, guaranteed, or outright nationalization of derelict financial institutions: privatize profit, nationalize risk!

[Charles]

I just saw this, it's a cheap laugh, but I did laugh.

Sub-Prime Rate Problems hit Japan

Following the problems in the sub-prime lending market in America and the run on Northern Rock in the UK, uncertainty has now hit Japan.

In the last 7 days

* Origami Bank has folded,

* Sumo Bank has gone belly up and

* Bonsai Bank announced plans to cut some of its branches.

Yesterday, it was announced that Karaoke Bank is up for sale and will likely go for a song while today shares in Kamikaze Bank were suspended after they nose-dived.

Samurai Bank is soldiering on following sharp cutbacks, and Ninja Bank are reported to have taken a hit, but they remain in the black.

Furthermore, 500 staff at Karate Bank got the chop and analysts report that there is something fishy going on at Sushi Bank where it is feared that staff may get a raw deal.

[Mulboyne]

Bloomberg: Mitsubishi UFJ Offers $3 Billion for UnionBanCal

Mitsubishi UFJ Financial Group Inc., Japan's largest bank by market value, offered $3 billion to gain full control of California's UnionBanCal Corp. as earnings growth slows at home. The Tokyo-based bank will pay 8.3 percent more than yesterday's closing price for the 35 percent of UnionBanCal's shares it doesn't already own, according to a statement today. Independent directors of the San-Francisco-based lender, who rejected a lower offer on April 26, have yet to respond. Swelling bad loans and declining profit in Japan is pushing the nation's banks to seek expansion overseas. Mitsubishi UFJ invested in five financial firms in Asia in the past two years while Mizuho Financial Group Inc.'s bought into Merrill Lynch & Co. and Sumitomo Mitsui Financial Group Inc. took a stake in Barclays Plc...more...