Tuesday, September 06, 2011

Mark to make believe

"Josef Ackermann, CEO of Deutsche Bank admitted the obvious today with statements recognizing that many organizations will fail at mark-to-market pricing. To show you the Fantasyland world these bankers live in, Ackermann also believes European banks are now much better capitalized and less dependent on short-term financing.

"The chairman of Deutsche Bank, Josef Ackermann, today highlighted another obstacle to resolving the debt crisis that crosses the euro zone.  
"It is obvious that many organizations will not survive in the event of having to reassess their portfolios of sovereign debt at market prices," Ackerman said in his speech at a banking conference held in Frankfurt.  
These comments came after the controversy arose Christine Lagarde, managing director of IMF, which has called for an urgent recapitalization of European banking. According to the institution, the shortage could reach 200,000 million euros, resulting from exposure to sovereign debt.  
Ackerman believes that the turmoil facing the financial sector is reminiscent of the crisis suffered in 2008 after the collapse of Lehman Brothers, but also believes that European banks are now much better capitalized and less dependent on short-term financing term. However, the president of Germany's biggest bank predicted a long period of difficulties for entities to still "have not provided convincing answers to the crisis," while the prospects for revenue growth are "limited to some extent ". 

Somehow we are supposed to believe banks do not need to raise capital, even though banks cannot survive mark-to-market pricing, and even though a very biased head of the IMF states that European banks need to raise capital. Only in the fantasyland world where there are no sovereign debt defaults can banks remotely be considered adequately capitalized. The stress-free tests came to the same conclusion as Ackermann by the same ridiculous measure (assuming no losses on sovereign debt)."  via Mish

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