Goldman, Morgan Stanley, BofA, Citi, JPM, and Wells all passed the Fed’s Dodd-Frank mandated stress test. Zions failed. In fact, “of the 30 banks that were part of the Fed’s stress test, Zions Bancorp is the only one that missed the Fed’s 5% minimum allowance. Banks logged an average Tier 1 common ratio of 8.4%. The test simulates a severe recession in the U.S. that results in unemployment hitting 11.25% in mid-2015, real gross domestic product falling nearly 5% by the end of 2014 and a 25% decline in house prices.” A professor (presumably of linguistics) at MIT says, “While it’s safe to say that banks are safer, they’re far from reformed.” Here’s a list of the expected dividend increases from Wall Street’s biggest banks (ignore Zions for now); Citigroup and BofA top the list as they have taken their time with increasing dividends since the financial crisis. Meanwhile, the Office of the Comptroller of the Currency (OCC) says “the Volcker Rule will cost U.S. national banks as much as $4.3 billion to implement as it forces them to sell restricted investments at a loss.” Then again, their estimates range “between $413 million and $4.3 billion”, reflecting “the uncertainty of the final rule’s impact on the market value of banks’ investments.”
Eurozone Is Getting A Banking Union (Fingers Crossed)
“After a marathon negotiation stretching until dawn, the European parliament and EU member states finally settled terms on the unified system (alt) for handling crises. Lenders will be policed by the European Central Bank, the EU’s top bank supervisor, and wound down by a central authority — if necessary against the wishes of its home state — using a €55bn rescue fund.” The €55bn rescue fund “will be built up over eight years, rather than 10 as originally foreseen. Forty percent of the fund will be shared among countries from the start and 60 percent after two years…Mark Wall, Deutsche Bank’s chief euro zone economist, said new rules to impose losses on the bondholders of troubled banks would reduce the burden on the fund but warned that its size was too modest…The fund will be able to borrow against future bank levies but will not be able to rely on the euro zone bailout fund to raise credit.” Here’s something to consider: €55bn = $76bn; it took $85 billion (and then some) to bailout AIG in 2008. For some reason they are really proud of what they can accomplish just before dawn: “The European parliament is powerful. We can wake up Wolfgang Schäuble at 5.30am — and he actually made concessions.” Meanwhile, the Dutch are ready in case this whole Eurozone thing goes belly up. Also, Eurozone stock valuations are still attractive relative to US stocks, however the periphery (Spain, Italy, Portugal and Greece) is looking more expensive and will need two things for the rally to continue: more reform and higher earnings.
“From helping with the purchase of a plane to organizing college tours for children — and even finding assisted-living facilities for sick relatives or evacuating them from foreign locales — some banks are drastically expanding the menu of ‘concierge’ services they offer to prized customers.” “Last year, private and commercial banks managed 38% of the investible assets of individuals with $10 million or more, down from 42% in 2007…Over the same period, independent wealth advisers, which tend to charge less than large banks and say they offer a more-personalized service, doubled their market share to 8%.”
Matthew Klein at Bloomberg argues there may be hidden inflation in the degrading quality of services: “Although the BLS and BEA have a lot of experience adjusting electronics, clothes, construction costs and textbooks for changes in quality, they mostly ignore other things people spend money on. This is because it’s harder to gauge changes in the quality of a service [rather than the changes in] screen resolution or processing power.”
“The chancellor stunned the pensions industry [on Wednesday] by announcing plans to give people far more freedom to choose what they do with their pension pot, outlining plans to change rules which effectively force people to buy an annuity at retirement.” Also, every picture of Chancellor George Osborne has him posing really intentionally with a red briefcase, so I looked into it. This is what I found.