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Lenders more fragile than before crash

The Times mentions today a report by the Institute of Economic Affairs dismissing claims that banks are strong enough to survive a more severe financial crisis than the last one.

Kevin Dowd and Dean Buckner, the authors, say that acute pressure on banking stock prices “contradicts” the central bank’s conclusions that they are adequately capitalised. “The Bank of England’s claims that UK banks are so strongly capitalised after the global financial crisis they could go through an even worse event and still emerge in good shape do not hold water.”

Oh dear.

The report is here.

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Mars in Aries

When the moon is in the Seventh House

The Treasury Committee made the fatal mistake in their June letter of asking Andrew Bailey how the PRA it can determine that bond spread widening is the effect of illiquidity not anticipated defaults. NEVER ask a regulator how or why it has determined something, for then it will tell you in a way that means nothing.

Continue reading “Mars in Aries”

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Road to riches

 

See here for this letter of 29 June (but only just published) from Andrew Bailey, Governor of the Bank of England, to Mel Stride, chair of Treasury Committee, in reply to Stride’s letter of 10 June with questions following on from the Treasury Committee evidence session on 20 May.

It really is the most astonishing thing I have ever seen coming out of the Bank, and there is material for many posts. But I will start with the weirdest one.

Continue reading “Road to riches”

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Stretching the bonds

 

Another great piece on insurance accounting from the Eye this week. As we always say, support great investigative journalism and buy a copy, but the crux of the article is our longstanding claim that the potential costs of no-negative-equity guarantees have been drastically understated.

Apparently there have been complaints about this since October 2018 to the Financial Reporting Council (FRC), the accounting regulator. After nearly two years, ‘the dozy regulator’ has finally addressed the point, concluding that “the guarantees should be valued at what they would sell for in the market, and since most equity release providers who might buy them (they wouldn’t, in reality) all value them in the same way, there’s no problem!”.

The FRC did not ask shareholders or policyholders what value they might place on these products, of course.

“If and when the final reckoning comes for the life insurance companies, as it did for Equitable Life 20 years ago, it might well be the bean-counting that does for them.”

We shall see.

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Even German regulators are useless

Source: Mercedes Benz

An excellent piece here on the uselessness of regulation generally. The Wirecard affair has brought out a rash of articles about how German regulation has failed, as though regulation in other countries might be better.

Wrong.

 If anybody can make regulation work Germans, precise, efficient, un-corrupt and indomitable can do so.So, the problem must be, not that German regulators are inept, but that regulation as a whole cannot catch fraud. As 2008 proved, it cannot catch sophisticated cutting-edge scams, either. So wouldn’t we be better off without it?

Continue reading “Even German regulators are useless”

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Wirecard illiquidity


Wirecard ticks all the Eumaeus boxes for things that went wrong for entirely predictable reasons. More on that later.

Meanwhile, the chart above shows the yield of the bond that Wirecard issued last September. Notice how it explodes a bit at the end. The Sam Woods theory is that such explosions are the effect of illiquidity.

Note the smaller blip upwards in the middle of October 2019 which happened to coincide with the FT’s revelation of internal documents from Wirecard pointing to “a concerted effort to fraudulently inflate sales and profits”.

Why would such a revelation affect the liquidity of the bond? And why would the later revelation this month that nearly €2bn had gone missing affect the liquidity so much that the bond is now only worth 20c?

Still, if Sam is right it looks a great buy. Repays in 2024 with a 99.5% probability of full repayment. Any offers?

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Louie Burns

I was very sad to learn of the death of my Leasehold Knowledge colleague Louie Burns this weekend.

Louie was one of the country’s leading campaigners against the injustices of the leasehold system.  He was, as they say, a larger than life character, and could light up any group that he joined.

I worked with him on the setting of the deferment rate, a subject on which he campaigned tirelessly. The world of leasehold will be a darker place without him, but the campaign will go on.

RIP Louie.