"tip of the iceberg." Banks rife with fraud and shady business practices.
Subj: Charles Peabody - A Primer on Credit Derivatives
+ Bank of America Corp. "Questioning BAC's Capital Management"
Date: 9/2/99 4:33:46 PM EST
From: LePatron@LeMetropoleCafe.com
To: dougak
Le Metopole members,
Charles Peabody has served two commentaries at
the Hemingway Table for you. The first is entitled,
" A Primer on Credit Derivatives."
"With the news that Ecuador may default on its Brady
bonds, derivatives as an asset class may return to the
spotlight. More specifically, with the news that a
"credit derivative" linked to Ecuadorian government
bonds and underwritten by Merrill Lynch has lost almost
all its value, I thought it might be useful to provide
investors with a primer on "credit derivatives." A
sort of derivatives 101, if you will.
What is a credit derivative?"
The second serving is entitled, "Bank of America Corp. -
"Questioning BAC's Capital Management."
"I would argue that Bank of America is in worse shape
than most banks in terms of their capital adequacy.
First of all, Bank of America's unrealized losses are
larger than those at most any bank in the Mitchell
Securities bank universe. Secondly, its accounting
practices tend to be a little more aggressive than most,
leaving little room for error in its valuation of
assets. And finally, before making any such adjustments,
Bank of America's stated Tier I (7.38%) and leverage
capital (6.34%) ratios are already some of the weakest
in the Mitchell Securities bank universe (see Table 2).
At June 30, 1999, the average Tier I and leverage
capital ratios for the Mitchell Securities bank
universe were 7.6% and 7.1%, respectively."
The banking index is now down on the year. In
addition, there is one banking scandal after another
cropping up. Some are making headlines. Some do not.
I will go into this in the next Midas, but Charles
Peabody informed me today that First National Bank
of Keystone was just shut down by the Office of the
Comptroller of the Currency for fraud. It was the
biggest U.S. bank failure in 7 years. Were you aware
of that? They were reporting $1.1 billion assets.
Minor detail - $515 million of them were phony.
This scandal follows Credit Suisse's one way trip
out of Japan for fraud, The Bank of New York Russian
money skimming scandal, today's Republic Bank scandal, etc.
This may be just the "tip of the iceberg." The banks
are rife with fraud and shady business practices.
I will also be covering what all this means to the gold
market in the next Midas. Guess what that might be?
In the meantime, stay on top of what Charles Peabody
has to say. His predictions for 1999 and what
was going to happen (and why) in the
bond and banking world, are all coming to pass.
Remember, he has predicted a banking stock crash.
Today the bank index was down over 16 more
points and shows no bounce to the ounce.
If the bank stocks crash, can the la la internet
stocks and other overvalued stocks be far behind?
Le Metropole Café
All the best,
Bill Murphy
Le Patron
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