Posts Tagged ‘U.S. banks’
Prior to the financial crisis, the Federal Reserve bought minuscule amounts of U.S. government debt. In 2011, the Federal Reserve bought 61% of all net U.S. Treasuries issued (source: Wall Street Journal, Mar. 27, 2012).
Reread that again, dear reader, to absorb its full meaning—61% of all issued U.S. Treasuries were bought by the Federal Reserve last year.
Before the financial crisis, it was foreign countries that were the major purchasers of U.S. government debt. Since then, many countries have reduced their purchases of U.S. government debt, especially China.
In December of 2011, all foreign countries were net sellers of U.S. government debt to the tune of $21.0 billion (source: Forbes). South Korea reduced its holdings of U.S. government debt and its holdings of U.S. dollars from 63.7% of foreign currencies to 60.5% of foreign currencies.
Over the last five years, China purchased an average of 63% of all newly issued U.S. government debt. In 2010, it dropped to 45% of all newly issued U.S. government debt and now China is purchasing only 15% (source: Wall Street Journal, Mar. 27, 2012).
With the Federal Reserve being the largest buyer of U.S. Treasuries, it creates the false impression that the U.S. government debt market is functioning normally and that there is ample demand worldwide for it. However, if the Federal Reserve stops buying, who will be there to purchase U.S. government debt?
In the U.S. government debt market, like in all other debt markets, the higher the demand, the lower the interest rate one needs to pay on their debt. The Federal Reserve is creating its own demand, … Read More
The big banks have steadily recovered since the Lehman Brothers collapse in late 2008 that sent bank stocks in a punishing downward spiral, which inevitably required hundreds of billions of dollars in bailout funds from Uncle Sam to save the U.S. banks from collapse.
In my view, this chaotic event was an opportunity that may surface only a few times and times of chaos are when you could make big money.
What was clear was that the newly minted President Obama couldn’t allow the big banks to fail even though they were responsible for the subprime mortgage and credit crisis around the world. If the big banks collapsed, this would have likely triggered a mass selloff in the U.S. and thrown the U.S. economy into a depression instead of a recession. The housing market is showing signs of improvement in spite of continued price pressures, which you can read about in U.S. Housing Market: Anatomy of a Recovery.
There was absolutely no way the government would allow the big banks such as Bank of America Corporation (NYSE/BAC) and Citigroup Inc. (NYSE/C) to fail, as it would drive down banking competition nationwide, which would not be good for competition and confidence in the U.S. banking system.
The concept of chaos generally provides a great opportunity to make some easy money. On March 5, 2009, Citigroup could have been bought for $1.02 a share. The stock is currently trading at a post-consolidation price of $36.78 after a 10-for-1 stock adjustment. A block of 100,000 shares could have made you a cool $266,000 in two years. Citigroup was trading at over $52.00 … Read More
As if the big U.S. banks didn’t have enough trouble.
Besides the large U.S. banks’ exposure to Europe and to the derivatives on their balance sheet (off-balance sheet items, which is why no one can evaluate what they’re really worth), there is another issue—a lawsuit—that could cost the big banks billions of dollars and negatively impact their corporate earnings in a significant way.
There is a private antitrust lawsuit that has a staggering five million retailers against Visa Inc. (NYSE/V), MasterCard Incorporated (NYSE/MA), and 13 of the big banks, including Citigroup, Inc. (NYSE/C) and JPMorgan Chase & Co. (NYSE/JPM)—15 major financial institutions in total that could see corporate earnings plummet if this antitrust suit gains traction.
The plaintiffs—the retailers—are accusing the 13 big banks and the credit card companies of colluding to charge fees for credit card transactions that are much higher than a competitive market would command.
Not only are the retailers demanding compensation for overpaying for these fees—dating back to 2004—but they are also probably seeking a permanent fee reduction going forward. The defendants argue that MasterCard and Visa are public firms, which immediately implies they compete with each other for business, outside of the oversight of the big banks. There go the corporate earnings of MasterCard and Visa (if this suit progresses).
The plaintiffs believe they have a very strong case to show that this is one club—the credit card companies and the big banks are intertwined into one. As such, there really is no competition, forcing retailers to pay whatever the fees demanded are.
It is estimated that, in 2009, industry-wide, the fees amounted to some … Read More
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