Preparation for collapse

U.S. banks told to make plans for preventing collapse

U.S. regulators directed five of the country's biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.

Reuters,

10 August, 2012

The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.

Officials like Lehman Brothers former Chief Executive Dick Fuld have been criticized for having been too hesitant to take bold steps to solve their banks' problems during the financial crisis.

According to documents obtained by Reuters, the Federal Reserve and the U.S. Office of the Comptroller of the Currency first directed five banks - which also include Citigroup Inc,, Morgan Stanley and JPMorgan Chase & Co - to come up with these "recovery plans" in May 2010.

They told banks to consider drastic efforts to prevent failure in times of distress, including selling off businesses, finding other funding sources if regular borrowing markets shut them out, and reducing risk. The plans must be feasible to execute within three to six months, and banks were to "make no assumption of extraordinary support from the public sector," according to the documents.

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Commerzbank flags fears of eurozone collapse

Business Recorder,

10 August, 2012

Germany's second-largest bank Commerzbank braced for a worsening of the euro zone crisis and gave a grim profit outlook on Thursday, warning it may not pay a dividend in 2013. The bank, which is 25 percent owned by the German state, said it would restructure its retail business and continue to clear out toxic assets in response to sliding profits.

The bank's second-quarter group net profit dropped to 275 million euros ($340 million), missing analysts' forecasts of 388 million as retail and investment banking revenues slumped and provisions for bad shipping loans spiked. It warned that second-half profits would be lower still. "The greatest downside risk remains an uncertainty shock from an escalation of the sovereign debt crisis - ie the collapse of the monetary union," Commerzbank said in its quarterly report, adding it thought that risk was higher now than in autumn last year. 

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Goldman Sachs Cut Italy Debt Holdings 92% Last Quarter

Bloomberg,

10 August, 2012

Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, cut its holdings of Italian sovereign debt by 92 percent in the second quarter after boosting them in the first three months of the year.

“Market exposure” to Italian government bonds fell to $191 million at the end of June from $2.51 billion at the end of March, the New York-based firm said in a quarterly regulatory filing today. Goldman Sachs also increased its credit-derivative positions on Italy in the quarter, pushing its total market exposure to Italian government and non-government securities to negative $977 million from positive $2.4 billion in March.

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