Wednesday, 07 December 2022

A Analysis

Reggie Middleton

Reggie Middleton

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ZeroHedge regports:

From Deutsche Bank to Credit Suisse and from Barclays to

Note: Those who can't wait until the end of this article can download "Banco Popular and the Potential for a European Bank Crisis" by clicking the link.

I met with the second in charge of one of the world’s largest money center banks yesterday. It was an enlightening discussion for both of us. Bank management got to glimpse the true reality of disintermediation as this autonomous technological paradigm shift sweeps over the street, and I was enlightened to the fact that bank management really does get it – or at least will get it if they are presented with a realistic story. I have those in droves. He prefaced the discussion with stark disclaimer, “Before we get started, I just want you to know that I know that Blockchain is a bunch of hype BS!”. It appears that is the reason why I was called in.

You see, from his perspective – or at least the perspective that has been sold to him – Blockchain tech is a bunch of overblown BS. The technology vendors prominent in the day have been pushing blockchains and related tech as a panacea for banks’ legacy bank-end systems. Not only am I in agreement with this CXOs assessment of the tech’s utility as sold, but even if we’re all dramatically wrong and the implementations are massive successes, it will all be for naught.

This is what the CXO didn’t get until I enlightened him. You see, blockchain technology, and any properly implemented software application written on top of it, is autonomous in nature. That is, the users are empowered to retain maximum control of their assets, information and transactions. This is Peer-to-Peer technology, and to force it into a centralized, hub and spoke model (or anything similar) neuters it at best, destroys it at worst. The CXO sees blockchain tech as forced into a centralized economic model, hence sees failure, or at best mediocrity attempting to replace a legacy system. I painted a very different picture for him. Imagine this technology released in its true P2P form, not to the banks, but directly to the banks’ clients so they can use it to do what it was meant to do – eliminate the middleman!

The bank exec said, “Do you mean us?” I said, “Absolutely”. He said, “So why should I believe your pitch? How do I know this is actually doable?” I said, “Don’t believe me. Our next meeting may include some of your most lucrative clients trading without you. Think about the risk/reward ratio here. You can invest $25 million in us and there’s a 90% chance that we fail, with an absolute loss. There’s a 10% chance that we succeed and 15% of your clients trade through us at 1/3rd the cost. That’s a minimum of a $1 billion quarterly recurring loss, likely growing linearly!” I said, “Do the math!”

I say the same to a hedge funds, family offices and most importantly, banks.

Another point that came up was the ancillary services that came with prime brokerage with a bank. It was thought that the bank’s sell side research was sought after as a value add to buy side clients, and as an extension, by us who were dismantling the prime desk apparatus. I couldn’t disagree more! We provide buyside orientated research that is second to none, and have been doing so for a decade.

We've decided to release a recent report on EU banks to give those who are not familiar with us a taste of the type of research that comes part and parcel with trading on the Veritaseum platform. Read Veritaseum Blockchain-based Bank Research Hits Another Homerun - Banco Popular Shown to be Bear Stearns Redux! for a background to the report, then click here to download it directly - for free: Banco Popular and the Potential for a European Bank Crisis 1.0. Please keep in mind that the company dropped in excess of 14% after it reported earlier this month - exactly as we anticipated in this report! 

Oh, and don't forget, the paradigm shift is already happening... Wall Street Disintermediation Arrives as Hedge Fund Trades P2P Via Blockchain, Without a Bank or Broker

See also:

Exactly one year and one month ago, I penned "Fu$k the Fundamentals!": Negative Rates In EU Will Absolutely Wreck the Very System the ECB Sought to Save" a piece that warned of the consequences of the EU negative rate policy and how it would effect Spain and Denmark among other EU nations, in particular. To wit:

I have been warning Veritaseum users about the unbridled risks the ECB is taking with its banking system by slamming its yield curve - driving short and medium term rates negative. Despite the ECB's proclamations, its banking system is still quite fragile, and it is putting pressure on the barely recovered fractures, causing additional stress fissures.

Before we go on, if you haven't read "It's All Out War, Pt 3: Is the Danish Krone Peg to Euro More Fragile Than Glass Beads? The Danish National Bank Infers So! and "How the Danish Central Bank is Destroying the Danish Citizens' Wealth Form Both Sides While Stressing It's Bank!", please do. My warnings in 2010 on the PAN-EUROPEAN SOVEREIGN DEBT CRISIS will do a lot to fill in the background as well.

Yesterday, the Wall Street Journal ran a story on the Spanish bank, Bankinter S.A., which was actually paying customers interest on their mortgages, in a rather backwards twist that is the result of the perverse incentives (basically, the opposite of typical tenets that underlying fundamental analysis) that come about when you turn the world of borrowing, literally, upside down. Here's an excerpt (and remember I warned about Spain 5 years ago in "The Spanish Inquisition is About to Begin..."):

At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes.

The problem is just one of many challenges caused by interest rates falling below zero, known as a negative interest rate. All over Europe, banks are being compelled to rebuild computer programs, update legal documents and redo spreadsheets to account for negative rates.

Well, fastforward a year and a month, and we have the WSJ reporting that Reggie seemed to have a pretty damn good point: A Battle Brews Over Negative Rates on Mortgages

Consumer groups in Spain and Portugal say lenders should pay up when mortgage rates drop below zero. Lenders are fighting back, with billions of dollars at stake. As interest rates in Europe fall near or below zero, lawmakers and consumer advocates in Spain and Portugal are attacking an ancient tenet of finance by insisting that lenders can owe money to borrowers. Banks in the two countries, struggling to recover from recessions that shook their financial systems, are fighting back, with billions of dollars in mortgage interest payments potentially at stake. Portugal’s central-bank governor, in a reversal, has rushed to defend the banks against a proposed law that would require them to pay borrowers when interest rates turn negative. Banks in both countries are rewriting new mortgage contracts to warn homeowners that they could never profit from subzero rates.

... Europe already has a precedent: Banks in Denmark are paying thousands of borrowers interest on their home loans, nearly four years after the central bank introduced negative interest rates. Danish banks have increased some fees to compensate but never mounted serious legal objections.

In Spain and Portugal, bank executives said they would pay borrowers when pigs fly. “In no case could a client receive interest payments” because that would go against the nature of a loan, Banco Bilbao Vizcaya Argentaria SA Chief Executive Officer Carlos Torres Vila said at a news conference in April after the bank released its earnings. Portuguese bank executives are similarly categorical in private. In the few cases in which interest rates went negative, Portuguese banks lifted the rate to zero.

Oh, bank execs want to go by the fundamentals now, but only as they apply to their customers. When it's time for the bank to get paid to borrow money, it's "Fu$k the Fundamentals", to wit: ECB pays banks to take its money

The project would mean that banks qualify for billions of euros of initially free loans from the ECB and would get paid up to 0.4 percent of what they borrow on condition that they lend more to companies or consumers.

... "The amount that banks can borrow is linked to the amount of loans they have," Draghi said. "So a bank that is very active in granting loans to the real economy can borrow more than a bank that concentrates on other activities."

... Spanish bank executives told Reuters they welcomed the move, whereas German banks were caustic in their criticism of the ECB's steps to loosen money supply, saying it would hurt savers.

This reminds me of the character on the old Popeye cartoons that used to divvy up the food by saying, "One for you, two for me, three for you, four for me..."

Consumer groups said banks are contractually obligated to stick to the terms of a variable-rate loan, which by definition rises and falls with changes in interest rates. If rates fall far enough below zero, these groups said, the banks should make interest payments to borrowers, just as they would charge clients more if interest rates rose.

But the consumer groups don't seem to realize that only Veritaseum smart contracts are ironclad. EU bank contracts have an implicit malleability clause wherein the contradts are only valid if things go in favor of the banks. The terms of payment are null and void if during normal business, banks don't get their way.

The Left Bloc, an ally of Portugal’s Socialist government, introduced legislation in January that would oblige lenders in such cases to pay up. As Parliament debates the bill, Lisbon-based consumer rights group Deco has instructed customers to check their loan contracts and complain if they don’t benefit from negative rates.

“It was the banks that chose to fix loan rates to Euribor, not customers,” Paulino Ascenção, a Left Bloc lawmaker, said. “It’s a matter of principle and trust to follow the rules of the contracts.”

Portugal’s central-bank governor, Carlos Costa, stepped into the fray last month, reversing an earlier position and siding with the banks.

Last year, he had issued a recommendation that lenders apply negative Euribor in calculating loan interest, which would be following the rules of the contracts. Back then, Mr. Costa told lawmakers last month, he couldn’t have imagined that Euribor would keep falling.

Now that it has, he argued, the banking system is at risk.

Do you remember the name of the article I penned last year, this time? "Fu$k the Fundamentals!": Negative Rates In EU Will Absolutely Wreck the Very System the ECB Sought to Save". I told you so!

 Portuguese banks would take a collective €700 million ($796 million) hit to their interest margins annually if the country’s six-month Euribor rate, which now stands at minus 0.144%, were to fall to minus 1%, the central bank estimates. Even if banks could limit interest rates to zero, they would lose €500 million from the difference between what they pay to depositors and what they make from lending, the central bank said.

Veritaseum has new EU bank research to release, likely today. Remember how easy this was to see coming. Remember how well, our last bank research piece performed? We killed it, crystal ball-style! Reference Veritaseum Blockchain-based Bank Research Hits Another Homerun - Banco Popular Shown to be Bear Stearns Redux!

During the months of March and April of 2016 we released a series of proprietary research reports indicating signficant weakneses that we found in the European banking system and released it for sale through the blockchain (reference The First Bank Likely to Fall in the Great European Banking Crisis). This was performed by the same macro forensic and fundamental analysis team that first warned about the pan-European sovereign debt crisis in 2009 and 2010 (reference Pan-European sovereign debt crisis) as well as Bear Stearns and Lehman Brothers (Is this the Breaking of the Bear? January 2008). 

Today, Reuters released news vindicating our position in spades, leading any institution that took a position via our blockchain-based Veritaseum trading platform or today's legacy system with 14% cash gains or 50% to 100+% leveraged gains in the short time period in question, to wit: Tumbling Banco Popolare leads Italian bank shares lower

Banco Popular Research teaser1

 The quality of loans has been deteriorating with percentage of non-performing and bad loans showing signs of increase due to adverse macro-economic environment. Of the total loan portfolio, the bank’s performing loans decreased to 82.1% in 2015 from 83.7% in 2013. Furthermore, BP stopped reporting restructured loans for at least two years. That looks quite suspicious given that loan credit quality has been tumbling. The numbers offered add up, but they shouldn't unless the restructured loans have been somehow reclassified as performing loans (quite possibly). If so, that's quite misleading and should be duly noted.

A significant percentage of the loan portfolio comprises mortgage loans and loans on current accounts. Distressed residential real estate sector and subdued business environment are likely to take toll on % of performing loans in these categories.  As can be seen below, Italy as a nation, has high NPLs and it is not materially improving, YoY.

 Banco Popular Research teaser2

Contact me via the info directly above this line if you're interested in purchasing the newest bank research.

During the months of March and April of 2016 we released a series of proprietary research reports indicating signficant weakneses that we found in the European banking system and released it for sale through the blockchain (reference The First Bank Likely to Fall in the Great European Banking Crisis). This was performed by the same macro forensic and fundamental analysis team that first warned about the pan-European sovereign debt crisis in 2009 and 2010 (reference Pan-European sovereign debt crisis) as well as Bear Stearns and Lehman Brothers (Is this the Breaking of the Bear? January 2008)

Today, Reuters released news vindicating our position in spades, leading any institution that took a position via our blockchain-based Veritaseum trading platform or today's legacy system with 14% cash gains or 50% to 100+% leveraged gains in the short time period in question, to wit: Tumbling Banco Popolare leads Italian bank shares lower

  • https://blog.veritaseum.com/templates/gk_simplicity/images/style1/typography/bullet1.png") 0px 12px no-repeat scroll rgba(0, 0, 0, 0) !important;">Banco Popolare shares fall 14 pct to record low
  • https://blog.veritaseum.com/templates/gk_simplicity/images/style1/typography/bullet1.png") 0px 12px no-repeat scroll rgba(0, 0, 0, 0) !important;">Bank booked writedowns ahead of merger with Popolare Milano
  • https://blog.veritaseum.com/templates/gk_simplicity/images/style1/typography/bullet1.png") 0px 12px no-repeat scroll rgba(0, 0, 0, 0) !important;">Italian banking shares dogged by concerns over bad loans (Recasts with details)

MILAN, May 11 Shares in Banco Popolare plunged 14 percent on Wednesday after a surprise first-quarter loss driven by loan writedowns -- the main focus of investor concerns over Italian banks.

Banco Popolare booked loan writedowns requested by the European Central Bank as a condition for approving a planned merger with Banca Popolare di Milano that will create Italy's third-biggest banking group.

To improve its loan loss provisions Banco Popolare must raise 1 billion euros in a share issue slated for early June.

Investors are expected to be more supportive of the move than was the case when Banca Popolare di Vicenza IPO-BPVS.MI tried to raise cash last month and had to be supported by a new bank rescue fund.

Shares in Banco Popolare lost 14 percent by 1040 GMT, hitting a record low of 4.14 euros.

Popolare Milano lost 10 percent to 0.50 euros, against a 3 percent drop in Italy's banking index.

Italian banks have lost nearly 40 percent of their market value so far this year, weighed down by concerns they could need additional capital to shoulder losses from sales of bad loans that rose to 360 billion euros ($410 billion) during a long recession.

A share rebound triggered by the hasty creation last month of the fund intended to inject capital into weaker lenders and buy their bad loans proved short-lived.

Banco Popolare said late on Tuesday that it had written down loans for 684 million euros in the first quarter, nearly four times more than in the same period of 2015, posting a net loss of 314 million euros for the first three months.

CEO Pierfrancesco Saviotti told an analyst call that the loan writedowns were the first step towards selling chunks of bad loans and that it would book further provisions this year."

Banco Popular Research teaser

Let's take a look at what the Macrotechnology, fintech and blockchain research experts at Veritaseum had to say about Banco Popular. Keep in mind that although we are now a technology firm, we specialize in Fintech and Macrotech, hence keeping our finger on the pulse of the global banking system is paramount. We mush be aware of what it is that we are disintermediating! On that note, we will happily create a distributed blockchain solution using our realistic approach to isolate these risks in a zero trust confine, essentially bullet proofing parts of this bank or any other from catastrophic loss. Ping me for more.

 

Income from operations declined every year from 2011 due to lower interest margin and higher operating expense. The declining trend was stopped in 2015 as the bank recorded a rise of 13% in income from operations. The pop was due to sale of equity investments held in ICBPI (13.88%) and Arca SGR (19.9%) amounting to Euro172.6 and Euro68.7 million, respectively, and higher other operating income including fees and commission earned. However, the notable aspect is the core income from operations has been on constant decline (even in 2015) over the last few years

Banco Popular Research teaser1

 The quality of loans has been deteriorating with percentage of non-performing and bad loans showing signs of increase due to adverse macro-economic environment. Of the total loan portfolio, the bank’s performing loans decreased to 82.1% in 2015 from 83.7% in 2013. Furthermore, BP stopped reporting restructured loans for at least two years. That looks quite suspicious given that loan credit quality has been tumbling. The numbers offered add up, but they shouldn't unless the restructured loans have been somehow reclassified as performing loans (quite possibly). If so, that's quite misleading and should be duly noted.

A significant percentage of the loan portfolio comprises mortgage loans and loans on current accounts. Distressed residential real estate sector and subdued business environment are likely to take toll on % of performing loans in these categories.  As can be seen below, Italy as a nation, has high NPLs and it is not materially improving, YoY.

 Banco Popular Research teaser2

Since the hyperlinks are not active in these report jpg snapshots, I'll past the text here so you can access the live links, reference Reggie Middleton vs Rating Agencies.

Banco Popular Research teaser3

Parallels to Bear Stearns Before it Popped

In January of 2008, we warned (in exquisite detail) of the collapse of Bear Stearns. It was 2 months before Bear Stearns actually fell, while it was trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies. See for yourself: Is this the Breaking of the Bear? As part of the analysis, we did a counterparty risk profile, see below:

Counterparty Risk

In $million   OTC Derivative credit exposure ($ million)      
           
           
TThe table summarizes the counterparty credit quality of the company's exposure with respect to OTC derivatives  
Rating(2) Exposure Collateral (3) Exposure, Net of Collateral (4) Percentage of Exposure, Net of Collateral Total exposure a % of Total assets Net exposure as a % of Total assets Net exposure as a % of equity
AAA 3,369 56 3,333 42% 0.8% 0.8% 25.6%
AA 6,981 4,939 2,153 27% 1.8% 0.5% 16.6%
A 3,869 2,230 1,784 23% 1.0% 0.4% 13.7%
BBB 354 239 203 3% 0.1% 0.1% 1.6%
BB and lower 1,571 3,162 322 4% 0.4% 0.1% 2.5%
Non-rated 152 223 94 1% 0.0% 0.0% 0.7%
  16,296 10,849 7,889 100% 4.1% 2.0% 60.7%
               
(1) Excluded are covered transactions structured to ensure that the market values of collateral will at all times equal or exceed the
related exposures. The net exposure for these transactions will, under all circumstances, be zero. How this is accomplished is beyond our ken, and likely not at true in the event of a liquidity crisis.    
(2) Internal counterparty credit ratings, as assigned by the Company’s Credit Department, converted to rating agency equivalents. (3) Includes foreign exchange and forward-settling mortgage transactions) as of August 31, 2007

 Banco Popular Research teaser4

Banco Popuar is slated to merge with Banco Popular Milano. We have performed a deep dive analysis on this bank as a standalone entity and assessed the synergistic benefits of a newly formed combined entity. Anyone wishing access to that report can purchase it from us by contacting me, reggie AT Veritaseum dot com.

We are anxious to provide macro analysis, deep dive fundamental analysis, and blockchain consulting for banks, buyside institutions and particularly investors (the clients of the money center banks). We were the first entitiy to apply for patent protection for the capital markets application of blockchain tech. We were the first entity to launch and clear blochchain based securities, and we were the guys that called the banking, real estate, European sovereign debt, and mobile tech moves of the last ten years. We know what we're doing, and we know how to apply this blochchain tech correctly - the first time around.

For those who want to know where all of this came from, read... 

The Central Banker's Definition of Money is Obviously Wrong, And That's Not Taking Into Consideration Veritaseum Technology and also The Real Definition of Money in a Modern Economy and The Global Currency War - USA Edition.

Starting the 3rd quarter of 2016, Veritaseum will embed links throughout all of its research to allow users to easily (with the click of a link) trade on the research with over 45,000 tickers in all asset classes and major and exotic currency pairs – on a peer-to-peer basis with:

  • No credit risk
  • No counterparty risk
  • No broker
  • No centralized brokerage or exchange account
  • And no excessive costs.

Play with the prototype Veritaseum client here. Learn more about pathogenic finance here (video) and here (research report), and how we’re ushering in the peer-to-peer economy here – or learn more about Veritaseum here (presentation).

Reggie MiddletonFOR IMMEDIATE RELEASE: 5/3/2016

Veritaseum, Inc.

718-407-4751

This email address is being protected from spambots. You need JavaScript enabled to view it. - website: http://veritaseum.com

New York: Brooklyn-based technology outfit, Veritaseum, has enabled a hedge fund to be the first to trade actual traditional capital markets value peer-to-peer through the blockchain, completely circumventing Wall Street banks and brokers and the fees that they entail.

 Veritaseum - Fully districuted capitalism in its purest form

According to Veritaseum founder, Reggie Middleton, “We were the first to create a fully functional smart contract application for capital markets. We were the first to clear such a product through the blockchain, and we’re confident that we were the first to identify distinct intellectual property surrounding this space - over two years ago. We are now quite proud to be the first to announce actual trading of value using blockchain smart contracts by hedge funds, one of the most profitable clients of Wall Street banks, sans the Wall Street banks!”

 

Veritaseum’s public blockchain-based value trading platform intelligently replicates the functionality of legacy industry swaps on a fully autonomous basis with greater safety, flexibility and transparency - all at a dramatically lower cost to the fund. Veritaseum smart contracts are essentially without counterparty and credit risk. They clear within minutes, with privacy to the end user, and offer a tradeable universe of over 45,000 tickers in all asset classes across all major geographic bourses. This is done without the end user ever using or coming into contact with a bank or a broker. There is no conventional custodian of assets in a P2P system - including Veritaseum, itself. Mr. Middleton adds “We are solely a software and consulting company and our clients have no balance sheet exposure to us whatsoever. We hold no capital - yet we enable all of our clients to become their own investment banks and prime brokers. It’s already a very different world than what the legacy players in this space are accustomed to.”

 

“Of course, like many who are new to this [blockchain] technology, we were skeptical of the claims being made.” says Catalyst Managing Partner Ward Corbett. “After being walked through the Veritaseum’s capabilities, its potential becomes crystal clear to anyone paying attention. We are able to synthetically short European banks with the USDEUR pair or go long Google equity exposure by paying oil exposure. All in all, we can essentially custom design any bespoke exposure we can envision, literally in minutes.”

 

“The goal of Veritaseum is to ‘Googlify’ the financial sector” Middleton adds. “Veritaseum is to finance as Google is to media and advertising. Investment bank compensation in the investment management sector is about 57% of revenues as of last quarter. Compare that to Google’s numbers which we calculate to be closer to 25%. That’s a significant difference, returning tens of billion in Wall Street compensation to prime brokerage clients, we anticipate a bright future for Veritaseum and client-centric (in lieu of bank-centric) blockchain services.”

Veritaseum is building a consortium of fund clients for trading P2P through the blockchain, similar to how R3 is building a consortium for banks that serve these funds. Bank clients are trading real value through the blockchain, now. The consortium is just getting started, but management plans to onboard 50 funds over the next 90 days. ###

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