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Tuesday, 1 March 2011

An SMS from Ernst. Short Messages Service (7)

The Authority Financial Markets (AFM) in The Netherlands administered a penalty to ING Bank. The bank should pay a total of €130,000 for being careless in providing mortgages.
This was announced by the AFM today. The supervisor for the financial sector guards private customers for overcrediting by their bank.
ING was careless in three separate cases, according to the AFM. ING states that in the meantime it adjusted the credit acceptance policy at the points where the AFM considered it irresponsible.[…]

At least one case concerned the providing of a mortgage to young people, where the parents were the security for the loan. In this case the bank didn’t investigate sufficiently if the parents were creditworhty, before providing the loan. I heard this from a different source on the radio.

In this case it would be easy to blame ING for supplying too high loans to people that can’t afford it. ING got penalized for this fact.

The truth is however that it is virtually impossible for two youngsters that want to buy a house, to afford even the smallest one. At least if they don’t have an exceptionally high income. The locked-up housing market in The Netherlands in combination with the mortgage interest deduction tax break, makes that housing prices in The Netherlands are still in average about 30% too high. Politicians, realtors, the Houseowner association and the large banks all try to keep this status quo. They are frightened for the consequences of a falling housing market for the real estate portfolios and for the current houseowners.

Please read: Prime Minister Rutte, please kill your darling for my reasons to get rid of the mortgage deduction tax break.

ABN AMRO is planning to double the number of private bankers in Asia to 180.
The bank announced this on a press conference in Singaport, according to Bloomberg.
With this extension the bank will anticipate on the rising prosperity in the region.
Currently ABN AMRO’s private banking department in Asia counts 90 employees. This number will double in the coming five years, according to Hans Diederen, responsible for asset management of ABN AMRO in Asia.
Taiwan and Hongkong dominate the market as it comes to the growing of private wealth, but Singapore and Indonesia are fastgrowing markets”, according to Diederen. ABN AMRO called private banking one of the center areas for growth. In The Netherlands ABN is market leader in this market after the merger with Fortis Bank The Netherlands. The bank also owns large private banks in France and Germany.

Volkswagen purchased the car dealer division from Porsche (PHS) for €3.3 bln. Both companies announced that the incorporation of Porsche by the Volkswagen group is one step closer now.
PHS distributes and sells sportscars from Porsche. The €3.3 bln go to the owners of Porsche Holding, the families Porsche and Piech. They use a part of the yields to put new capital into Porsche.
Volkswagen already has an interest of 49.9% in the car plant of Porsche and wants to take over the remainder of the shares. Earlier Porsche tried to take over the much larger Volkswagen group. The German department of Justice is investigating currently whether Porsche tried to manipulate the exchange rates of Volkswagen at the time

The takeover attempt of Volkswagen by Porsche remains an odd story. But there is a big difference between knowing something is wrong there and proving it. I guess we will hear from it in the near future.

In the meantime the victory march of Volkswagen during the last years is quite unique. The company stated a record sales in 2010 of €126.9 bln ($173 bln) and a profit of €7.1 bln ($9.7 bln). Although the Toyota corporation is still substantially bigger with a turnover of $203 bln (€148 bln), the profit is with $2.3 bln (€1.6 bln) a lot less. And it seems that Volkswagen is well on its way to become the biggest car manufacturer in the world.

Italian banks are trying new ways to increase their core tier one capital ratios. The latest movement is that they want their stakes in the Bank of Italy, which are measured in gold, to be marked-to-market. The Financial Times writes about it:
Italian banks, which by a quirk of law are shareholders in the country’s central bank, are lobbying to have their stakes in the Bank of Italy marked-to-market on the back of surging gold prices in an attempt to ease regulatory pressure on them to raise capital in advance of this summer’s stress tests.
The move comes as Mario Draghi, Bank of Italy governor, over the weekend stepped up pressure on Italian banks, which are some of the lowest capitalised in Europe, to increase their core capital ratios or make clear to the market any plans to do so.
The Bank of Italy currently has a nominal value of just €156,000 ($215,000) divided into 300,000 shares which are distributed among Italy’s retail and savings banks according to their size.
Senior bankers say taking into account the surge in gold prices the Bank of Italy could have a mark-to-market value of about €30bn. Analysts estimate the Italian banking sector has combined recapitalisation needs of much the same amount to comply with new Basel III capital rules.
Of course the Italian banks are right that every possession in gold is now at an all-time high rate and you can’t blame them for wanting to capitalize this fact. But if the gold price drops in the near future, which it probably will, the banks could be in dire straits very quickly.

Remember: with a price of $1420 per troy ounce the gold price is historically high. And there is the chance of a snowball in hell that it will rise much farther in the future and that the gold price will remain very long at this all-time high level.

Curious readers should read the whole article. It proves that banks in Italy (and actually all over Europe) will do everything to cheat on the Basel agreements. And people should remember this and other incidents, when they think of the capitalization of the banks in general. It gives a strange notion to the word “Credit” as in “Credibility” for the banking industry.

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