STILL in BUSINESS
“The move by western nations towards bail-in regimes whereby “too big to fail” banks confiscate individual and companies’ deposits has been put in place with very little public discussion or awareness of the risks and ramifications.”
How the world’s biggest companies bribe foreign governments—in 11 charts
by Roberto A. Ferdman / December 3
“Corruption knows no boundaries, or borders, according to a new study released by The Organization for Economic Cooperation and Development. The OECD analyzed 427 foreign bribery cases that were closed between 1999 and 2014. What the researchers found is a steady stream of illicit money exchanges between multinational businesses and public officials in both poor and rich countries.
“JP Morgan CEO Jamie Dimon made personal phone calls to reluctant members of Congress on Thursday to help ensure that the House passed a massive spending measure that many progressives opposed because it contains an unrelated clause that reverses a key piece of the Wall Street reform packages passed in 2010. The measure was hand-written by lobbyists from Citigroup — 70 of its 85 lines reflect the bank’s preferences, and the two crucial paragraphs were pulled verbatim from the lobbyists’ draft — and had even passed the House as a standalone law. The financial industry as a whole spent nearly $2 million a day on influencing Congress during the most recent election cycle.”
“We have learned that bribes are being paid across sectors to officials from countries at all stages of economic development,” the researchers wrote. “Corporate leadership is involved, or at least aware, of the practice of foreign bribery in most cases, rebutting perceptions of bribery as the act of rogue employees.” Although the number of foreign bribery cases resulting in a punishment has fallen since its peak in 2011, it remains historically high.
And there have been cases affects at least 86 countries around the globe.
That should raise an eyebrow. After all, these are business executives and government officials who have actually been caught, meaning that they likely only represent a fraction of the total number involved in under the table cash exchanges. While the report doesn’t name any of the corporations, finding one currently embattled by corruption accusations isn’t hard. Wal-Mart, the world’s largest retailers, is currently being probed for bribery in a number of countries, after the company disclosed potential violations in Mexico. But what is truly unique about the study is the level of detail it uncovers about how the bribes are being paid, where they are being paid, why they are being paid, who is offering them, and to whom they are being offered. Large multinational companies, for instance, appear to be much fonder of offering illicit cash for quiet favors than smaller corporate entities.
There are also certain industries, which appear more comfortable with—or, at least, familiar with—the practice than others. Nearly 60 percent of the foreign bribery cases observed happened in just four sectors: extractive (i.e. mining), construction, transportation and storage, and information and communication.
Senior management—sometimes even very senior management—was aware of, or complicit and even instrumental in more than half of the foreign bribery observed.
There are trends not only among the givers of bribes, but also among the takers. The sorts of foreign public officials who were offered or solicited bribes ranged from employees of state-owned or controlled businesses to customs, health, defense, tax, and transport officials, and even heads of state. Some—namely, the employees of state-owned or controlled businesses—were much likelier to be involved in foreign bribery cases.
While employees of state-owned businesses were also the likeliest to actually accept a bribe, they comprised a much smaller percentage (some 27 percent) of all public workers who pocketed illegal money. Customs officials (11 percent) were second likeliest; health officials (7 percent), third; and defense officials (6 percent) were fourth.
The most common reason observed among the bribes was that companies wanted to gain an advantage landing public contracts with foreign governments—more than half of the time, the bribes were offered to win public procurement contracts. But a significant percentage—some 12 percent—were related to customs clearance—and another 6 percent were offered in exchange for favorable tax treatment.
In all, the bribes—whether merely offered or also accepted—amounted to more than $3 billion. Sometimes the bribes were huge—the costliest foreign bribe observed totaled more than $1.4 billion. Sometimes they were much smaller—the skimpiest was just $13.17. Frequently, however, they significantly increased the cost of business. Bribes, on average, equaled more than 10 percent of the total transaction value and over a third of profits inherent in each transaction. Multinational companies in the extractive (or mining) sector tended to pay largest bribes relative to the value of the related business, according to the OECD’s findings, followed by those in the wholesale and retail sector, and those performing administrative service activities.
These extra (and illegal, for that matter) costs aren’t always shouldered by the company—they can be levied onto the company’s workers too. “In this context, the average of 10.9% of the transaction value spent on bribes means that the bribing individual or company would have to somehow recover or offset those costs,” the researchers wrote. “Some companies might do this by paying employees less in countries with weaker employment laws.” But the costs are also borne by society, more broadly. By bribing officials, multinational companies are in turn perpetuating a system that undermines the relationship between businesses and governments around the world, creating a form of corporate inequality where cash-rich corporations get all the breaks.
In other words, it undermines both democracy and law, and funnels money away from otherwise moral companies and governments, and into the hands of corrupt officials and business owners. There are, of course, significant obstacles in the way of correcting the system, and dissuading both multinational companies and government employees around the globe from offering, soliciting, and, ultimately, exchanging bribes. Among them is the reality that corrupt practices can be part of a culture. “China is an environment where petty corruption is common and tolerated,” Daniel C.K. Chow, a law professor at Ohio State University., told Bloomberg last year, in reference to China’s “bribery culture.” Both Brazil and Mexico, two other developing economies, have also had to face uphill climbs in their bouts with corruption. But it’d be a mistake to assume that bribery affects just developing countries. Nearly half of the bribes observed by the OECD, after all, were paid not to officials in poor countries, but rather to ones in particularly rich nations.
Another part of the problem is that a lot of foreign bribery—and corruption more generally, for that matter—is hard to track, for obvious reasons. In lieu of concrete, reliable data, other organizations, like global corruption watchdog Transparency International, have created corruption indices based on perception, rather than proven reality. As the OECD notes, studies like theirs are but the tip of a much, much larger iceberg. A good deal of the data for even the concluded cases was unattainable. “These preliminary findings indicate that the pressure on governments to step up their enforcement of anti-bribery laws and ensure that penalties for this crime are effective, proportionate, and dissuasive, is well-placed,” the researchers conclude. “There has, indeed, been progress in the fight against foreign bribery, but clearly, much more must be done to be successful in this fight.”
‘CORRUPTION INDEX’ CORRUPTION
$178 Billion In Government Kickbacks: Meet The World’s Biggest Organized Crime Syndicate
by Tyler Durden / 12/03/2014
Once upon a time it was the Sicilian, or Russian, or Japanese, or Chinese mob that were some of the biggest sources of funding for corrupt government officials (incidentally, most of them). After all, the government is smart enough to realize that it is more lucrative to “cooperate” with the world’s biggest criminal syndicates than to wipe them out and cut off a major source of funding (of course, when it comes to populist optics and reelection, there is always an easy low-level perp walk every week or so to keep the peasants in place… and Diebold). So while the underlying symbiotic principle between the government and the world’s biggest criminal enterprise remains the same, the counterparty has changed. So who, in simple numeric terms, is the world’s biggest organized crime syndicate? The answer, courtesy of a new report by the Boston Consulting Group, which shows the transfer of some $178 billion in litigation costs into the pockets of government appartchiks in the past 6 years, is clear. Banks.
From the report:
The new era in banking is characterized by a rigorous enforcement of sanctions. As of September 2014, the cumulative litigation costs for EU and U.S. banks since the onset of the financial crisis has reached some $178 billion. Most of the costs originated with U.S. regulators’ mortgage-related claims, and the remaining litigation costs are divided among claims focused on misselling, violations of U.S. sanctions, improper conduct, market manipulation, tax evasion and misrepresentation. Litigation costs of banks headquartered in the U.S. leapt higher in 2011, driven by mortgage-related claims, which continue to dominate.
EU bank costs were kick-started in 2012, beginning with redress payments for misselling payment protection insurance in the UK, followed by market manipulation issues-for example, those related to the London Interbank Offered Rate scandal-as well as improper-conduct litigation, such as anti-money-laundering cases. The current wave of litigation cases has not yet been settled, and potential-still hidden-litigation risks are substantial. Meanwhile, regulators have shifted their view toward more unified and sanction-based supervision, adopting regulations with a stronger focus on business conduct. All of these developments reflect the persistent character and future burden of litigation-a new cost of doing business.
Sure enough: when one is a criminal syndicate, the largest in world history, paying litigation kickbacks in the hundreds of billions to the government is just the cost of “doing business.” And here is the absolute punchline: the Sicilian, or Russian, or Japanese, or Chinese, or any other mob, they all had one or more members thrown in jail for good measure. Just how many bankers have ended up in prison in the past 6 years? This may be a trick question.
5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives
by Michael Snyder / September 24th, 2014
When is the U.S. banking system going to crash? I can sum it up in three words. Watch the derivatives. It used to be only four, but now there are five “too big to fail” banks in the United States that each have more than 40 trillion dollars in exposure to derivatives. Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable. And unlike stocks and bonds, these derivatives do not represent “investments” in anything. They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future.
The truth is that derivatives trading is not too different from betting on baseball or football games. Trading in derivatives is basically just a form of legalized gambling, and the “too big to fail” banks have transformed Wall Street into the largest casino in the history of the planet. When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe. If derivatives trading is so risky, then why do our big banks do it? The answer to that question comes down to just one thing. Greed. The “too big to fail” banks run up enormous profits from their derivatives trading.
According to the New York Times, U.S. banks “have nearly $280 trillion of derivatives on their books” even though the financial crisis of 2008 demonstrated how dangerous they could be…
American banks have nearly $280 trillion of derivatives on their books, and they earn some of their biggest profits from trading in them. But the 2008 crisis revealed how flaws in the market had allowed for dangerous buildups of risk at large Wall Street firms and worsened the run on the banking system.
The big banks have sophisticated computer models which are supposed to keep the system stable and help them manage these risks. But all computer models are based on assumptions. And all of those assumptions were originally made by flesh and blood people. When a “black swan event” comes along such as a war, a major pandemic, an apocalyptic natural disaster or a collapse of a very large financial institution, these models can often break down very rapidly. For example, the following is a brief excerpt from a Forbes article that describes what happened to the derivatives market when Lehman Brothers collapsed back in 2008…
Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?
The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.
After the last financial crisis, we were promised that this would be fixed. But instead the problem has become much larger. When the housing bubble burst back in 2007, the total notional value of derivatives contracts around the world had risen to about 500 trillion dollars. According to the Bank for International Settlements, today the total notional value of derivatives contracts around the world has ballooned to a staggering 710 trillion dollars ($710,000,000,000,000). And of course the heart of this derivatives bubble can be found on Wall Street. What I am about to share with you is very troubling information. I have shared similar numbers in the past, but for this article I went and got the very latest numbers from the OCC’s most recent quarterly report.
As I mentioned above, there are now five “too big to fail” banks that each have more than 40 trillion dollars in exposure to derivatives…
Total Assets: $2,476,986,000,000 (about 2.5 trillion dollars)
Total Exposure To Derivatives: $67,951,190,000,000 (more than 67 trillion dollars)
Total Assets: $1,894,736,000,000 (almost 1.9 trillion dollars)
Total Exposure To Derivatives: $59,944,502,000,000 (nearly 60 trillion dollars)
Total Assets: $915,705,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $54,564,516,000,000 (more than 54 trillion dollars)
Bank Of America
Total Assets: $2,152,533,000,000 (a bit more than 2.1 trillion dollars)
Total Exposure To Derivatives: $54,457,605,000,000 (more than 54 trillion dollars)
Total Assets: $831,381,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $44,946,153,000,000 (more than 44 trillion dollars)
And it isn’t just U.S. banks that are engaged in this type of behavior. As Zero Hedge recently detailed, German banking giant Deutsche Bank has more exposure to derivatives than any of the American banks listed above…
Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That’s a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of… the world.
For those looking forward to the day when these mammoth banks will collapse, you need to keep in mind that when they do go down the entire system is going to utterly fall apart. At this point our economic system is so completely dependent on these banks that there is no way that it can function without them. It is like a patient with an extremely advanced case of cancer. Doctors can try to kill the cancer, but it is almost inevitable that the patient will die in the process. The same thing could be said about our relationship with the “too big to fail” banks. If they fail, so do the rest of us.
We were told that something would be done about the “too big to fail” problem after the last crisis, but it never happened. In fact, as I have written about previously, the “too big to fail” banks have collectively gotten 37 percent larger since the last recession. At this point, the five largest banks in the country account for 42 percent of all loans in the United States, and the six largest banks control 67 percent of all banking assets. If those banks were to disappear tomorrow, we would not have much of an economy left. But as you have just read about in this article, they are being more reckless than ever before. We are steamrolling toward the greatest financial disaster in world history, and nobody is doing much of anything to stop it. Things could have turned out very differently, but now we will reap the consequences for the very foolish decisions that we have made.
“Mother Jones was the first to publish the document showing that Citigroup lobbyists had drafted most of the legislation. Here is a side-by-side of a key section of the House bill”
Wall Street Demands Derivatives Deregulation In Government Shutdown Bill
by Zach Carter / 12/04/2014
Wall Street lobbyists are trying to secure taxpayer backing for many derivatives trades as part of budget talks to avert a government shutdown. According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said. The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. — potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.
“US banks are the proud owners of $303 trillion in derivatives (and spare us the whole “net exposure” cluelessness – read here why that is irrelevant when even one counterparty fails)”
Taxpayer insurance helps banks secure higher credit ratings for their derivatives, since taxpayers assume some of the risk, which in turn makes the banks more profitable. Last year, Rep. Jim Himes (D-Conn.) introduced the same provision under debate in the current budget talks. The legislative text was written by a Citigroup lobbyist, according to The New York Times. The bill passed the House by a vote of 292 to 122 in October 2013, 122 Democrats opposed, and 70 in favor. All but three House Republicans supported the bill. Himes was passed over for leadership positions after the 2014 midterm elections, which he said he interpreted as unrest within the Democratic Party over his strong ties to financial elites.
“My guess is, it was a factor, which is disappointing because I think the criticism is way off base,” said Himes, who previously worked at Goldman Sachs. It wasn’t clear whether the derivatives perk will survive negotiations in the House, or if the Senate will include it in its version of the bill. With Democrats voting nearly 2-to-1 against the bill in the House, Senate Majority Leader Harry Reid (D-Nev.) never brought the bill up for a vote in the Senate. President Barack Obama opposed the bill ahead of the House vote, as did former FDIC Chair Shiela Bair, former House Financial Services Committee Chairman Barney Frank (D-Mass.) and Rep. Maxine Waters (D-Calif.), currently the top Democrat on the Financial Services Committee.
“Car dealership in hell after night of arson following #Ferguson grand jury decision”
COMMERCIAL RIOT INSURANCE
Most business insurance covers riots
by Jacob Kirn / Aug 12, 2014
The rioting that erupted Sunday night in Ferguson likely caused millions of dollars in damage, but will the affected businesses — some of them locally owned — be covered?
Probably, according to insurance experts. “Most small businesses have what’s known as a businessowners policy (BOP), and BOPs generally cover riot-caused property damage,” according to Insurance Information Institute spokesman Michael Barry. The National Underwriter’s Commercial Property Coverage Guide defines a riot as “any tumultuous disturbance of the public peace by three or more persons mutually assisting one another in execution of a common purpose by the unlawful use of force and violence resulting in property damage of any kind.” (The Los Angeles riots of 1992 caused $775 million in insured losses, according to the Insurance Information Institute.)
Outing rioters? A Vancouverite takes pictures of the post-rioting damage following the Stanley Cup loss on June 15, 2011. (Geoff Howe/Canadian Press)
Brent Butler, government affairs director for the Missouri Insurance Coalition, also said most commercial policies cover riots. Merchandise stolen — not just property damage — would also typically be covered, he said. If businesses’ claims are rejected, insurers have an internal appeals process. If that avenue is exhausted, a business owner could file a formal request with the Missouri Department of Insurance.
In a case involving a lawsuit between the business and its insurer, a court may be asked to offer its opinion, which may include defining “riot” or interpreting an insurance policy. It’s possible insurance companies in the future will raise premiums for the affected area, Butler said. “Companies rate different ways,” Butler said. “Some might say that’s so far and in between that we don’t care.” QuikTrip, which saw its store at 9420 West Florrisant Ave. looted and burned, estimated Monday the damage total to be in the seven figures.
More than a dozen other businesses along West Florissant Avenue were damaged and looted, including Zisser Tire & Auto, Wal-Mart, Taco Bell, St. Vincent de Paul Thrift Store, and Toys R Us. Nu Fashion Beauty, Party City and Boost Mobile were also affected. The unrest spread beyond Ferguson Monday night, as a Shoe Carnival on Gravois near Grand was vandalized and looted.
“Their estimated worth was about $3.3 million – and may all be owned by the same person” :http://rt.com/news/207571-moscow-parking-cars-burn/
BANK-OWNED LIFE INSURANCE (BOLI) : ‘DEATH DERIVATIVES’ TRADE SECRETS
Suspicious Deaths of Bankers Are Now Classified as “Trade Secrets” by Federal Regulator
by Pam Martens and Russ Martens / April 28, 2014
It doesn’t get any more Orwellian than this: Wall Street mega banks crash the U.S. financial system in 2008. Hundreds of thousands of financial industry workers lose their jobs. Then, beginning late last year, a rash of suspicious deaths start to occur among current and former bank employees. Next we learn that four of the Wall Street mega banks likely hold over $680 billion face amount of life insurance on their workers, payable to the banks, not the families. We ask their Federal regulator for the details of this life insurance under a Freedom of Information Act request and we’re told the information constitutes “trade secrets.”
According to the Centers for Disease Control and Prevention, the life expectancy of a 25 year old male with a Bachelor’s degree or higher as of 2006 was 81 years of age. But in the past five months, five highly educated JPMorgan male employees in their 30s and one former employee aged 28, have died under suspicious circumstances, including three of whom allegedly leaped off buildings – a statistical rarity even during the height of the financial crisis in 2008.
There is one other major obstacle to brushing away these deaths as random occurrences – they are not happening at JPMorgan’s closest peer bank – Citigroup. Both JPMorgan and Citigroup are global financial institutions with both commercial banking and investment banking operations. Their employee counts are similar – 260,000 employees for JPMorgan versus 251,000 for Citigroup.
Both JPMorgan and Citigroup also own massive amounts of bank-owned life insurance (BOLI), a controversial practice that pays the corporation when a current or former employee dies. (In the case of former employees, the banks conduct regular “death sweeps” of public records using former employees’ Social Security numbers to learn if a former employee has died and then submits a request for payment of the death benefit to the insurance company.)
Wall Street On Parade carefully researched public death announcements over the past 12 months which named the decedent as a current or former employee of Citigroup or its commercial banking unit, Citibank. We found no data suggesting Citigroup was experiencing the same rash of deaths of young men in their 30s as JPMorgan Chase. Nor did we discover any press reports of leaps from buildings among Citigroup’s workers.
Given the above set of facts, on March 21 of this year, we wrote to the regulator of national banks, the Office of the Comptroller of the Currency (OCC), seeking the following information under the Freedom of Information Act (See OCC Response to Wall Street On Parade’s Request for Banker Death Information): The number of deaths from 2008 through March 21, 2014 on which JPMorgan Chase collected death benefits; the total face amount of BOLI life insurance in force at JPMorgan; the total number of former and current employees of JPMorgan Chase who are insured under these policies; any peer studies showing the same data comparing JPMorgan Chase with Bank of America, Wells Fargo and Citigroup.
At noon, demonstrators lined the streets of central Kyiv for 30 minutes to hold up mirrors in front of police in commemoration of the Nov. 30 violent dispersal of protesting students from Independence Square.
The OCC responded politely by letter dated April 18, after first calling a few days earlier to inform us that we would be getting nothing under the sunshine law request. (On Wall Street, sunshine routinely means dark curtain.) The OCC letter advised that documents relevant to our request were being withheld on the basis that they are “privileged or contains trade secrets, or commercial or financial information, furnished in confidence, that relates to the business, personal, or financial affairs of any person,” or relate to “a record contained in or related to an examination.”
The ironic reality is that the documents do not pertain to the personal financial affairs of individuals who have a privacy right. Individuals are not going to receive the proceeds of this life insurance for the most part. In many cases, they do not even know that multi-million dollar policies that pay upon their death have been taken out by their employer or former employer. Equally important, JPMorgan is a publicly traded company whose shareholders have a right under securities laws to understand the quality of its earnings – are those earnings coming from traditional banking and investment banking operations or is this ghoulish practice of profiting from the death of workers now a major contributor to profits on Wall Street?
The eight largest U.S. financial companies (JP Morgan, Wells Fargo, Bank of America, Citigroup, Goldman Sachs, U.S. Bancorp, Bank of New York Mellon and Morgan Stanley) are 100% controlled by ten shareholders and we have four companies always present in all decisions: BlackRock, State Street, Vanguard and Fidelity.
As it turns out, one aspect of the information cavalierly denied to us by the OCC is publicly available to those willing to hunt for it. On March 24 of this year, we reported that JPMorgan Chase held $10.4 billion in BOLI assets at its insured depository bank as of December 31, 2013. We reached out to BOLI expert, Michael D. Myers, to understand what JPMorgan’s $10.4 billion in BOLI assets at its commercial bank might represent in terms of face amount of life insurance on its workers.
Myers said: “Without knowing the length of the investment or its rate of return, it is difficult to estimate the face amount of the insurance coverage. However, a cash value of $10.4 billion could easily translate into more than $100 billion in actual insurance coverage and possibly two or three times that amount” said Myers, a partner in the Houston, Texas law firm McClanahan Myers Espey, L.L.P. Myers’ and his firm have represented the families of deceased employees for almost two decades in cases involving corporate-owned life insurance against employers such as Wal-Mart Stores, Inc., Fina Oil and Chemical Co., and American Greetings Corp. (Families may be entitled to the proceeds of these policies if employee consent was required under State law and was never given and/or if the corporation cannot show it had an “insurable interest” in the employee — a tough test to meet if it’s a non key employee or if the employee has left the firm.)
As it turns out, the $10.4 billion significantly understates the amount of money JPMorgan has tied up in seeking to profit from workers’ deaths. Since Wall Street banks are structured as holding companies, we decided to see what type of financial information might be available at the Federal Financial Institutions Examination Council (FFIEC), a federal interagency that promotes uniform reporting standards among banking regulators. The FFIEC’s web site provided access to the consolidated financial statements of the bank holding companies of not just JPMorgan Chase but all of the largest Wall Street banks. We conducted our own peer review study with the information that was available.
Four of Wall Street’s largest banks hold a total of $68.1 billion in BOLI assets. Using Michael Myers’ approximate 10 to 1 ratio, that would mean that over time, just these four banks could potentially collect upwards of $681 billion in tax free income from life insurance proceeds on their current and former workers. (Death benefits are received tax free as is the buildup in cash value in the policies.) The breakdown in BOLI assets is as follows as of December 31, 2013:
Bank of America $22.7 billion
Wells Fargo 18.7 billion
JPMorgan Chase 17.9 billion
Citigroup 8.8 billion
In addition to specifics on the BOLI assets, the consolidated financial statements also showed what each bank was reporting as “Earnings on/increase in value of cash surrender value of life insurance” as of December 31, 2013. Those amounts are as follows:
Bank of America $625 million
Wells Fargo 566 million
JPMorgan Chase 686 million
Given the size of these numbers, there is another aspect to BOLI that should raise alarm bells among both regulators and shareholders. The Wall Street banks are using a process called “separate accounts” for large amounts of their BOLI assets with reports of some funds never actually leaving the bank and/or being invested in hedge funds, suggesting lessons from the past have not been learned.
On May 20, 2008, Bloomberg News reported that Wachovia Corp. (now owned by Wells Fargo) and Fifth Third Bancorp reported major losses on failed gambles with BOLI assets. “Wachovia reported a $315 million first-quarter loss in its bank-owned life insurance program, known as BOLI, because of investments in hedge funds managed by Citigroup Inc. Fifth Third said in a lawsuit filed last month that it had losses of $323 million from Citigroup’s Falcon funds, which slumped more than 50% in the past year as the subprime market collapsed.” Citigroup’s Falcon Strategies hedge fund had lost as much as 75% of its value by May 2008.
“If arson is found to be the cause, it will be the third time for the Boston-based firm. Previous fires, in New Jersey in 1997 and London in 2006, were also caused by arson. The building, in the Barracas barrio of Buenos Aires, was reportedly equipped with a sprinkler system as well as fire-detection devices. The 1997 New Jersey fire destroyed an Iron Mountain Warehouse filled with corporate documents. Investigators spoke with scores of witnesses who refused to speculate on any theories about motivation for the arson. In July 2006, a six-story warehouse on the outskirts of London went up in flames. The warehouse held the archives of over 600 customers, including files by several major London law firms. City fire investigators concluded the fire was caused by arson as well.
“While we are sure it is a very sad coincidence, on the day when Argentina decrees limits on the FX positions banks can hold and the Argentine Central Bank’s reserves accounting is questioned publically, a massive fire – killing 9 people – has destroyed a warehouse archiving banking system documents. As The Washington Post reports, the fire at the Iron Mountain warehouse (which purportedly had multiple protections against fire, including advanced systems that can detect and quench flames without damaging important documents) took hours to control and the sprawling building appeared to be ruined.
The cause of the fire wasn’t immediately clear – though we suggest smelling Fernandez’ hands… We noted yesterday that there are major questions over Argentina’s reserve honesty…
While first print is preliminary and subject to revision, the size of recent discrepancies have no precedent. This suggest that the government may be attempting to manage expectations by temporarily fudging the “estimate ” of reserve numbers (first print) while not compromising “actual” final reported numbers. If this is so, it is a dangerous game to play and one likely to back-fire. During a balance of payments crisis – as Argentina is undergoing – such manipulation of official statistics (and one so critical for market sentiment) is detrimental to the needed confidence building around the transition in the FX regime.
And today the government decrees limits on FX holdings for the banks…
Argentina’s central bank published resolution late yday on website limiting fx position for banks to 30% of assets. Banks will have to limit fx futures contracts to 10% of assets. Banks must comply with resolution by April 30
And then this happens… Via WaPo,
“Nine first-responders were killed, seven others injured and two were missing as they battled a fire of unknown origin that destroyed an archive of bank documents in Argentina’s capital on Wednesday. The fire at the Iron Mountain warehouse took hours to control. The destroyed archives included documents stored for Argentina’s banking industry, said Buenos Aires security minister Guillermo Montenegro. The cause of the fire wasn’t immediately clear.
Boston-based Iron Mountain manages, stores and protects information for more than 156,000 companies and organizations in 36 countries. Its Argentina subsidiary advertises that its facilities have multiple protections against fire, including advanced systems that can detect and quench flames without damaging important documents… “There are cameras in the area, and these videos will be added to the judicial investigation, to clear up the motive of the fire and collapse,” Montenegro told the Diarios y Noticias agency.”
OCCULT HIGH FINANCE
Pope sacks board of Vatican’s financial watchdog
Vatican finds millions of euros ‘tucked away’
Prosecutor freezes accounts of ex-Vatican bank heads / 6 Dec 2014
The Vatican’s top prosecutor has frozen 16 million euros in bank accounts owned by two former Vatican bank managers and a lawyer as part of an investigation into the sale of Vatican-owned real estate in the 2000s, according to the freezing order and other legal documents. Prosecutor Gian Piero Milano said he suspected the three men, former bank president Angelo Caloia, ex-director general Lelio Scaletti, and lawyer Gabriele Liuzzo, of embezzling money while managing the sale of 29 buildings sold by the Vatican bank to mainly Italian buyers between 2001 and 2008, according to a copy of the freezing order reviewed by Reuters. The money in the three men’s bank accounts “stems from embezzlement they were engaged in,” Milano said in the October 27 sequester order. Milano’s investigation follows an audit of the Vatican bank by non-Vatican financial consultants commissioned last year by the bank’s current management. The Vatican bank earlier this year also filed a legal complaint against the three men. The men have not been charged. The Vatican spokesman on Saturday issued a statement confirming the freezing but gave no names, amounts or other details.
The Vatican bank said in a separate statement that it had pressed charges against the three as part of its “commitment to transparency and zero tolerance, including with regard to matters that relate to a more distant past“. The bank statement also gave no details, citing “the ongoing judicial enquiry”. The investigation is part of a drive to improve the transparency of the Vatican administration and finances, an endeavour that has accelerated under Pope Francis. The Argentine pontiff was elected in 2013 with a mandate to make the Roman Catholic Church more accountable to its 1.2 billion faithful. Liuzzo, 91, confirmed in a telephone interview that his bank accounts had been frozen. He said the prosecutor’s allegations were “rubbish” and that all money from the sales of the buildings had gone to the bank. Caloia, 75, did not respond to emailed questions and phone calls to his home and office requesting comment. Scaletti, 88, did not respond to messages left at his home. The period relating to property sales covers seven years, and two papacies, when the Vatican’s administration often operated without oversight.
John Paul II was incapacitated by illness for years before his death in 2005. His successor, former Pope Benedict, is a theologian who Vatican officials say did not focus on management issues. During these years, the Curia, as the Church’s central administration is known, was marked by feuding among Vatican departments and leaks of papal documents. The tensions were a reason Benedict resigned in early 2013, people close to the former pope say. The bank, officially known as the Institute for Works of Religion (IOR), is the core of Vatican finances, but its influence stretches beyond Holy See walls, because of tight relations between the religious city-state and Italy. In recent years, it has changed management and closed hundreds of accounts in order to comply with international anti-money-laundering and anti-financial crimes laws. Last year, Ernst von Freyberg, a German businessman who ran the bank from March 2013 to July 2014 and worked to apply international financial standards, commissioned an independent audit of the sale of properties that had been owned by the bank.
The audit, which was reviewed by Reuters, details the sales of the 29 buildings, which are largely in Rome and Milan. In the freezing order, Milano said Caloia and Scaletti regularly under-represented the proceeds from real estate sales in the Vatican bank’s official books. The men allegedly received the difference between the real sale prices and the amount officially recorded separately and often in cash, according to the order. Some of the proceeds were deposited in a Rome bank account that was not registered in the bank’s balance sheet, the prosecutor said. An estimated 57 million euros were allegedly siphoned off illegally between 2001 and 2008, he said. Liuzzi, the legal consultant, received part of the funds, the freezing order added. In the phone interview, Liuzzi said he had always acted according to the orders of the bank president and director general. It is not clear whether Milano has finished his investigation. According to a person close to the probe, the prosecutor could seek to involve Italian authorities because most of the sales took place in Italy.