The Wall of Worry for 2011 is a Big One, as usual
By Richard Smith
These are things I’m keeping an eye on, or trying to find out more about. That isn’t a prediction that any of them will blow up, nor that nothing else will, just a round-up of the bees in my bonnet. If you’ve been following Naked Capitalism you are up to speed on most of this. There are one or two gaps to fill in, though, and I certainly owe readers some more about Unicredit. I touch on one part of that sprawling bank today, and when I have puzzled out a way through its convolutions, I will have a go at more.
|Foreclosuregate – LPS and the servicers|
|RMBSgate – trustees, RMBS, and misrepresentations|
|CMBS – which way will it go?|
|Unemployment, the foreclosure pipeline, and house prices|
|Irish politics…and then Lloyds-HBOS and RBS, German banks|
|Eurozone rollover risk in Spain, Portugal and Italy; Spanish RE loans|
|UK rollover risk; the beginnings of austerity in the UK; commercial property loans.|
|The non-Eurozone EU and FX risk (1): Hungary and others, local currency versus EUR and CHF, impact on Unicredit and Austrian banks, with a spillover to Switzerland?|
|The non-Eurozone EU and FX risk (2): GBP/EUR… then Lloyds-HBOS and RBS and the UK? Or French and German banks?|
|Unicredit and Italy? Long shot…|
|China – Scylla: infrastructure development loans, land loans and RE-secured loans to companies, and Charybdis: popular discontent about thwarted property ownership aspirations; inflation.|
Creeping onto the radar
|The price of oil.|
|Anything from Wikileaks|
Systemic Insolvency Is Now The ProblemAnd secondly, see this, from 2009, where $16.3Trillion of toxic European bank assets (44% of total bank assets!) very surprisingly disappear from a news item, by the mechanism of a quick but incomplete edit, post-publication, and are never heard from again. If only balance sheets were as easy to sort out as news stories and mark-to-market accounting.
2. (C/NF) King said that liquidity is necessary but not sufficient in the current market crisis because the global banking system is undercapitalized due to being over leveraged. He said it is hard to look at the big four UK banks (Royal Bank of Scotland, Barclays, HSBC, and Lloyds TSB) and not think they need more capital. A coordinated effort among central banks and finance ministers may be needed to develop a plan to recapitalize the banking system.
Unblocking Illiquid Mortgage-Backed Securities
3. (C/NF) King said it is also imperative to find a way for banks to sell off unwanted illiquid securities, including mortgage backed securities, without resorting to sales at distressed valuations. He said sales at distressed values only serve to lower the floor to which banks must mark down their assets (mark to market), thereby forcing unwarranted additional write downs.
There’s a chance that 2011 will be the year when the needed loss recognition starts happening in earnest, though not necessarily in a controlled manner, unfortunately; hence my list of hot spots.
Lastly, here’s Chris Whalen on the warpath in the US.
*Update* Looking at the Wikileaks thread, you are all on a streak. If you think I have missed something, mention it in the comments!