Juggling Dynamite

Today Wells Fargo CEO John Stompf is appearing before the Senate Banking Committee to answer questions on widespread fraud at many of the bank’s branches where over 5000 employees have now been fired for opening fake accounts and credit applications in order to hit their monthly product cross-selling targets. (you can watch the hearing live starting at 10am here.)

Columnists at the Wall Street Journal have come up with a list of the 10 most pressing questions that the Senate Banking Committee (well that is, the members who are not so purchased by finance that they still have some self-respect) should ask the Wells commander-in-chief:

1) Wells Fargo and regulators say that the bank has fired about 5,300 employees over a five-year period because of the aggressive sales tactics. Who was the highest-level executive responsible for the problems and is that person still at the bank? Do you believe any of the 5,300 broke the law?

2) Wells Fargo called its cross-selling initiative “Gr-Eight” to encourage employees to sell each household eight products. Is that number good for the average customer? Can you name eight products the average customer needs from his or her bank?

3) Wells Fargo this month decided to scrap all product-based sales goals in retail branches. Why did you wait so long? Are such goals generally a bad idea, or were the sales goals simply set too high?.

..read the whole list here

And while Stumpf will most certainly offer the now well-worn c-suite plea denying any knowledge or responsibility of the illegal activities under his watch, at least a couple of the senators will correctly point out that in collecting many, many millions in performance based compensation, Stompf either knew or he ought to have known about how his employees were hitting the aggressive sales targets given to them by Strompf and his management team.  Yes John, that is what they pay you the big bucks for…

As pointed out by Stephen Roach here on Project Syndicate in August, if China’s 2016 GDP growth hits the government’s official 6.7% target– China will account for 1.2% (39%) of the IMF’s estimated 3.1% global GDP growth in 2016. That share massively dwarfs the contribution of other major economies such as .3% from the US, .2% from Europe, .6% from India and less than .1% from Japan. With China stumbling under the largest debt bubble in human history, the world economy will feel the fall out.  Watch this video report.

The End of China Inc? As time is running out for China to pay off its bad debts, 101 East investigates if this could be the end of China Inc.

After years of reckless management, over-leverage, regulatory infractions and illegal activities, Deutsche Bank (one of the worlds most systemically interconnected banks) is falling into a capital death spiral reminiscent of Lehman Bros. and Bear Stearns in 2008. The shares are down more than 47% this year so far.  See:  Deutsche Bank extends losses as analysts see capital threats.

Deutsche Bank AG extended losses as analysts signaled that legal costs may force the German lender to raise capital even if it succeeds in whittling down the $14 billion bill over its mortgage-backed securities business…

Germany’s biggest bank would be “significantly under-capitalized” even assuming enough provisions to cover an eventual settlement with the U.S. Justice Department, Andrew Lim, an analyst at Societe Generale SA, said in a note to investors Monday. Any settlement above 5.4 billion euros ($6 billion) would imply a capital increase is needed just to pay the fine, he wrote. Here is a direct video link.

Of course Deutsche is not the only bank now struggling in the zero and negative yield world of central bank design. In fact thanks to derivatives and counter-party agreements, Deutsche is today a veritable hub in the global finance cartel wheel.  Financial stress is highly contagious.

Policies that were rolled out to rescue global investment banks and their bond holders from the disastrous fruits of bad business models in 2008, have now come full circle to evaporate viability.  Mark to fantasy accounting and regulatory capture is no longer proving sufficient to offset the weight of fines, legal fees and crashing margins.

You know what they say about Karma, right?

This just in: Deutsche Bank planning to raise capital by securitizing 5.5 billion of corporate loans in a synthetic collateralized loan obligation, or CLO to transfer the risk of losses to investors (recall this stuff from the 2001 ENRON collapse or the 2008 “big short”)? Same dog, same tricks. Solvency fix or desperate stop-gap measure, what do you think?