Did Krawcheck ever have a chance at Bank of America?

Sometimes you have to wonder: Do banks hire Sallie Krawcheck just so they can fire her when times get tough? It almost seems to be her role to repeatedly rise to become "the most powerful woman on Wall Street" only to be cut loose by a more powerful man.

The most intelligent take on Krawcheck's fall I've come across today is Josh Brown's at Reformed Broker:

I'm going to go on the record here and say publicly that despite anything you may read about Sallie Krawcheck this week, the truth is that she did her best, but never really had a shot. Krawcheck was lured away from Citi a few years ago to do the impossible—take the melting iceberg that is Merrill Lynch and somehow turn it into the statue of David. Yes, she went after the job, one of the biggest positions in finance to be sure. But there was never any chance that she could make it work—because no one could have.

Sallie couldn't change the fact that the brokers at Merrill want to be thought of as wealth managers, not salesmen, not anymore.

Sallie couldn't change the fact that these "wealth managers" had zero interest in being affiliated with the banking giant from Charlotte in any way once the rescue was accomplished in the wake of Lehman's failure.

Sallie couldn't change the fact that the brokers have no interest in peddling bank products or making referrals to other divisions within the slimeball supermarket. She also couldn't change the fact that the clients are wise to game as well, and that they are not very excited about having their retirement accounts be "synergized" either.

Sallie couldn't change the fact that the jig is up, and everyone knows that Merrill Lynch's fiduciary responsibility is to the shareholders of Bank of America first and the clients second. Sallie couldn't change the fact that once the brand name is tarnished, there is little reason for the salesforce to stay.

The really amazing thing is that Krawcheck did seem to be making it work, somehow. She was doing the impossible. But "the impossible" was made even tougher because of the resistance and jealousies of other senior managers at Bank of America.

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Ackermann Says Market Reminiscent of 2008

Three years after the collapse of Lehman Brothers Holdings Inc., financial shares in Europe are under assault, the cost of insuring bank debt is at records, and bankers see worrying parallels to that time.
A Bloomberg index of European financial stocks fell 5.6 percent yesterday to the lowest level since March 2009, while a measure of banks’ reluctance to lend to each other jumped to the highest since April of that same year.

The chief executive officer of Deutsche Bank AG (DBK), Josef Ackermann, said market conditions remind him of late 2008, and urged lawmakers to act to avoid a repeat of the financial crisis, which spawned the worst global recession since the Great Depression. Investors drove yields higher on the bonds of Greece, Portugal, Spain and Italy yesterday on doubts Europe’s leaders will be able to stop the sovereign debt contagion.

“Investors are not only asking themselves whether those responsible can summon the necessary willpower to overcome this crisis, but increasingly also whether enough time remains and whether they have the needed resources available,” Ackermann, 63, said at a conference in Frankfurt. “As long as uncertainty holds whether the agreements can be quickly and fully implemented, the nervousness on the market will remain.”

Demands led by Finland for collateral for new Greek loans, deteriorating economic growth in Europe and the U.S. and wavering commitment to austerity packages from euro members such as Italy risk derailing efforts to contain the crisis.
‘Political Direction’

The disarray in financial markets will raise pressure on finance ministers and central bankers from the Group of Seven nations to take further steps when they meet in Marseille, France, on Sept. 9 and 10.
“If there’s not a clear political direction to find a solution for Europe’s problems, then we will enter a very difficult market situation,” said Wolfgang Kirsch, head of DZ Bank AG, Germany’s biggest cooperative lender, in an interview at the Frankfurt conference yesterday.

The Bloomberg Europe Banks and Financial Services Index of 46 stocks dropped almost 10 percent in the past two sessions, to the lowest level since March 31, 2009. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers soared 13 basis points to 259, according to JPMorgan Chase & Co. The difference between the three-month euro interbank offered rate, or Euribor, and the overnight indexed swap rate, a measure of banks’ reluctance to lend to each other, rose to 0.77 percentage point, the widest gap since April 2009.
‘Going Lower’

European stocks tumbled, with the Stoxx Europe 600 Index posting its biggest two-day drop since March 2009, as investors speculated that support for bailing out Europe’s indebted nations may fade. German Chancellor Angela Merkel’s party suffered its fifth election loss this year on Sept. 4 after she failed to sway voters in her home state with a campaign based on her handling of the euro-area debt crisis.
“We’re likely to keep going lower unless governments step in, in a big way,” said Lex van Dam, a London-based fund manager at Hampstead Capital LLP, which oversees $500 million.

The collapse of New York-based Lehman Brothers froze credit markets and forced taxpayer-funded bailouts of banks from Washington and London to Berlin. At that time, the concern was over U.S. mortgage-backed securities. This time, it’s about the bonds of Europe’s debt-ridden governments.
‘More Dramatic’ Than 2008

“The situation is much more dramatic than in 2008,” Ulrich Schroeder, head of Germany’s state-owned development bank KfW Group, said at the Frankfurt conference yesterday. Many countries wouldn’t be in a condition to rescue their lenders in a similar crisis because of their deficit problems, he said. “The banks aren’t out of the danger zone.”

Many European banks “obviously” wouldn’t be able to shoulder writedowns on sovereign debt held in their banking books based on market values, Ackermann said. Greek two-year notes traded yesterday at less than 50 percent of face value.

Still, measures taken by the European Central Bank have made it possible for banks to finance their operations even when other banks and investors have cut off funding, preventing a credit freeze similar to the one that followed Lehman Brothers’ collapse, DZ Bank’s Kirsch said.

The Frankfurt-based ECB provides euro-area banks with unlimited liquidity in its refinancing operations, and started buying Italian and Spanish government bonds on Aug. 8 to stem a market rout.

The difference between the three-month euro interbank offered rate and the overnight indexed swap rate is still less than half the peak in October 2008, according to Bloomberg data.
‘Crucial Moment’

“Europe is at a crucial moment and if we are to survive this, northern countries like Germany need to step up and support the weaker members, something they just don’t want to do,” said Neil Phillips, a fund manager at BlueBay Asset Management Plc in London, which oversees about $45 billion.

Collateral demands as a condition of participating in the next Greek rescue plan have complicated the program’s prospects, the Institute of International Finance, a Washington-based banking group that Ackermann chairs, said in a report yesterday. This has “visibly reduced” the chances that euro-region countries would come together to rescue another nation in distress, the IIF said.

Euro-area governments pledged 109 billion euros ($154 billion) in public money for Greece on July 21, accompanied by 50 billion euros through an IIF-coordinated private-investor debt swap and bond buyback program. Negotiations will continue today, with a meeting of the Finnish, Dutch and German finance ministers in Berlin.

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China money rates jump as banks begin paying extra reserves

China's money market rates jumped on Monday morning as banks began meeting extra reserve rules due to a new policy that has expanded the base for bank reserve requirements.

China had widened the base for calculating banks' reserve requirements, Reuters reported, a move that would pull an estimated 800-900 billion yuan ($125-141 billion) from the banking system, or the equivalent of between two and three 50-basis-point increases in the reserve requirement ratio.

Banks have been given some grace period to meet the extra reserve requirements in batches, with major banks taking the lead to start to pay the first batch on Monday, traders said. The weighted average seven-day government bond repurchase rate jumped 67 basis points to 4.8872 percent by midday from Friday's close of 4.2140.

"A temporary liquidity squeeze resulting from the payment pushed money market rates sharply higher today," said a dealer at a major state-owned bank in Beijing. "But cash flow may improve as early as tomorrow as we don't feel there is an acute shortage of funds on hand." The shortest overnight repo rate surged to 3.9028 percent from 3.4729 percent while the 14-day repo rate

rose to 5.2968 percent from 4.9583 percent. While some analysts interpreted the move as another tightening step, many traders said the new policy was more a measure aimed at improving the health of banks and the supervisory system by putting a large part of banks' off-balance-sheet business under regulatory supervision.

To ease the money market squeeze, the People's Bank of China on Monday asked banks about their potential demand for 7-day and 14-day repos in its open market operations, signalling it might be planning to return to using the shorter tenors.

The PBOC last conducted such tenors of repos in January, when tight credit conditions prompted it to seek the greater flexibility of shorter tenors, rather than having to use 28- or 91-day tenors. Last week, the central bank refrained from doing repo business and drained 2 billion yuan ($31 billion) in bills, and thus injected a net 25 billion yuan into the market.

Traders said investors widely expected the PBOC to inject money into the market via its 176 billion yuan in maturing bills and repos this week, the eighth straight week of injection. The fund crunch kept the curve of China's interest rate swaps inverted on Monday, continuing the inversion of last week.

The one-year IRS edged down 1 basis point to 4.26 percent by midday, while the benchmark five-year IRS dropped 5 bps to 3.78 percent and the 10-year IRS lost 4 bps to 3.84 percent. Current Pros close Change (pct) (bps) 7-day repo 4.8872 4.2140 + 67.32 7-day SHIBOR 4.8775 4.2021 + 67.54 Note: Repo rate is weighted average.

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'Draconian' UK bank reforms will push lenders into a crisis

Less than two weeks before the publication of the final report of the Independent Commission on Banking, senior politicians and financiers have warned that its recommendations could imperil Britain's banks.

Andrew Tyrie MP, the chairman of the Treasury Select Committee, told The Daily Telegraph he was worried that pushing banks to take on more expensive funding could damage them at a time when they are ill-equipped to deal with it.

"Now is not the time to implement liquidity requirements that are above those proposed internationally," said Mr Tyrie. "The banks are themselves under stress at the moment as a result of the tightening in market conditions in recent months. This requires the full attention of the FPC [the Bank of England's Financial Policy Committee] and it will need to consider whether it should deploy one of its macro prudential tools."

British bank shares prices are still close to two-year lows despite two days of consecutive rises and the cost of insuring their bonds against default last week hit 12-month highs, and in the case of Royal Bank of Scotland an all-time high.

The market indicators have led to warnings of a new banking crisis and senior politicians and bankers have become worried that any drastic reforms could make the situation worse.

Sir John Gieve, the former Deputy Governor of the Bank of England, said the Government needed to move to "reduce the pressure on banks" and said easing capital and liquidity pressures would help lenders.
"The US has been implying that banks have built up their buffers to where they need to be and won't press for more. There is some uncertainty in the UK whether the authorities share that view so there may be some scope for the UK authorities to reduce the pressure on banks to raise their capital and liquidity buffers immediately," Sir John said.

Political splits over bank reform are growing. Vince Cable, the Business Secretary, yesterday reignited the row with an attack on "special pleading" by the industry, angering Government colleagues.

David Cameron said he would not bring in any new laws that would harm the UK's economic recovery, however Nick Clegg insisted reform was urgent as banks should "never again hold a gun to the head of the British economy". The political rancour at a time of growing uncertainty and stalling economic growth drew derision from finance professionals.

"At a time when no one is taking risk, it is the government's job to give people confidence, so that banks lend money," said Crispin Odey, a veteran London-based fund manager. "The UK lives off London and would be so much poorer without it. Vince Cable's approach is going to put us back to the Stone Age. He is just hopeless and dangerous," he said. John White, a senior fund manager at hedge fund GLG, said he was "surprised" at the approach taken by the authorities.

"Confidence is everything and at this stage we need clarity from policy makers and regulators that red tape and draconian regulation are off the agenda," said Mr White. Proposals to ring-fence the UK retail arms of British banks have drawn criticism and Chris Lucas, finance director of Barclays, said yesterday the plans to create a protected subsidiary that could be seized by the authorities if a lender got into trouble would not be his "first choice". The ICB's final report is understood to be circulating among senior civil servants at the Treasury ahead of its publication on September 12.

George Osborne chairs the Cabinet Banking Committee that will decide on which of the Commission's recommendations to implement. The Chancellor has already said he supports ring-fencing.

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Bank loans pick up, credit offtake slow

With the busy season approaching and interest rates hardening in foreign countries, domestic loan demand is showing early signs of revival. According to the Reserve Bank of India (RBI), bank loans have risen 20 per cent this year till now, though credit growth since the beginning of the financial year is still lower than what it was a year before. Banks have disbursed Rs 1.09 lakh crore since April; it was Rs 1.22 lakh crore in the corresponding period last year.

“The overall sense is that lending has improved towards working capital needs. This is the segment that picks up first as recovery happens,” said P Sitaram, chief financial officer, IDBI Bank. RBI data shows bank advances grew by Rs 43,000 crore in the fortnight ended August 12, after reporting negative growth for the earlier part of the second quarter.

More and more corporate bodies had turned towards foreign funding due to the high interest rate differentials but conditions have changed. “There is the dollar crunch and interest rates have gone adverse in Western countries. This has led to increase in credit offtake domestically,” said M G Sanghvi, executive director, Bank of Maharashtra.

Owing to the rise in lending rates, credit growth had slowed since the start of the current financial year. Following this, most banks have lowered their yearly credit growth projections. H S U Kamath, chairman and managing director of Bangalore-based Vijaya Bank, on Wednesday said the bank had trimmed the credit growth target for 2011-12 to 20 per cent from 25 per cent. “We are also taking pre-delinquency measures to prevent the incidence of defaults due to rise in rates," he said at the sidelines of a banking seminar.

Sitaram said IDBI Bank was focusing mainly on lending to priority sector and working capital requirements. Bank of Maharashtra expects 19-20 per cent credit growth for 2011-12. “Despite the downward revision of credit growth targets, the advances’ growth has been smooth, though the coming days do not seem very good,” said Sanghvi.

On the other hand, bank deposits grew 18.4 per cent as on August 12, as compared to the same period last year. Over the fortnight, deposits grew by Rs 10,317 crore. Banks had increased interest rates on fixed deposits by 200-250 basis points across tenors in several rounds over the past six months to attract funds. “Liquidity is comfortable in the banking system, so there may be no need for further hikes in deposit rates,” said Sitaram.

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Banking in a troubled city

“Our cash deposit generation, day-to-day lending, inland transfer of money, bank-to-bank clearance of cheques, opening of letters of credit and issuance of bank guarantees, you name anything, all witnessed a slowdown,” said president of a big local bank.

Head of operations of another bank said that catering to cash requirements of branches also became too difficult. “We have set up some sort of cash supply centres in regional offices for faster cash supply to branches. But on two particular days, our systems could not work. We wanted to avoid security risks as violence was rife in the areas connecting such centres and the branches that ran out of cash though they were located in relatively less-troubled neighbourhoods.”

A senior executive of a third bank said, branches of his bank located in the most-troubled areas transacted hardly any business for two days.. “Even on other days of the week, the volumes were markedly lower than normal.” Online banking does help some people transact business even when the city life is far from normal. “But the majority of clients prefer walking into branches. And banks also need manning their dedicated desks to transact online banking. So, when our employees do not turn up to sit on branch counters or in back offices we get into trouble. And mind you, not all branches of all banks are online.”

During the week under review inter-bank money market, however, worked as usual. Though pre-Eid cash withdrawals from banks were slower than in the corresponding period of the last year, they were faster than in the previous week.

The State Bank of Pakistan, as usual, injected enough funds to maintain liquidity at reasonable levels and banks were not seen frequenting the SBP discount window to overcome cash shortages. Overnight interbank rates, therefore, remained far below the SBP’s key policy rate.

Foreign exchange dealers said, clearance of a few fuel oil import bills weakened the rupee against the dollar despite a gush of export and remittances’ dollars.

The rupee has lost one per cent of its value versus the greenback since the start of the new fiscal year on July 1.

Bankers say, the SBP continues to intervene in forex market but these interventions are aimed more at checking exchange rate volatility rather than boosting the rupee’s value artificially. In the last fiscal year, local currency was down just half a percentage point against the dollar despite suspension of the IMF lending programme, which has yet to be revived.

“Had our exports and remittances not grown fast, the rupee would have become much weaker,” commented treasurer of a local bank. Since December 2010, monthly export earnings have remained above $2 billion and remittances over a billion dollars, both showing high double-digit annualised growth rates.

He said a full one percentage point fall in the rupee value had decelerated realisation of export proceeds. “Some export houses have started holding export dollars hoping that further depreciation in the rupee value would benefit them.” But he and other bankers said that importers were still not showing much enthusiasm in forward dollar buying which has saved the rupee from additional weakening.

Interestingly, the dollar was seen selling in the open market 40-50 paisa below the inter-bank market rates. Executives of forex companies said for last 2-3 years people were investing more in gold for higher gains than in anything else. “Nobody is interested in holding hard currencies these days.

The financial crisis and global recession of 2008-09 and the revisit of another serious debt crisis in the US and Europe have made people scary of looking towards foreign currencies as a store of value,” remarked an office-bearer of Exchange Companies Association of Pakistan.

During the week under review, auction of long-term Pakistan Investment Bonds attracted enough response from banks despite a flawed yield curve. Bankers said, this in the absence of private sector credit demand, made sense for them to keep investing money in government treasuries and bonds.

The cut-off rates of three-year to 10-year bonds ranged between 13.43 and 13.50 per cent, only slightly higher than the yields on six-month and one-year T-bills. Between July 1 and August 6 this year, private sector has retired Rs87 billion banks’ credit on net basis.

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