Is A Second Banking Crisis Looming?

Criminal Charges Against Banks Risk Sparking Crisis

As U.S. Justice Department prosecutors angle to bring the first criminal charges against global banks since the financial crisis, they’ll have to stare down warnings of uncontainable collateral damage.

The 2002 collapse of Arthur Andersen, the accounting firm indicted in the Enron scandal, “should be a lesson” for prosecutors, Brad Hintz, an analyst at Sanford C. Bernstein & Co., said today in an interview on Bloomberg Television. “Don’t play with matches.”

Stung by lawmakers’ criticism that multibillion-dollar settlements have done too little to punish Wall Street in the wake of the financial crisis, prosecutors are considering indictments in probes of Credit Suisse Group AG and BNP Paribas SA, a person familiar with the matter said. Even after talking with financial regulators about ways to mitigate damage -- such as ensuring banks keep charters -- prosecutors might not fully understand consequences for the market, according to industry lawyers and bankers who are following the case.

The warnings show the resistance prosecutors face in seeking to prove global banks aren’t too big and systemically important to indict. Preet Bharara, the U.S. attorney for the Southern District of New York, signaled in a March speech that a large financial firm would be charged soon, despite the industry’s bleak predictions of fallout. 

 “Companies, especially financial institutions, will do almost anything to avoid a tough enforcement action and therefore have a natural and powerful incentive to make prosecutors believe that death or dire consequences await,” he said. “I have heard assertions made with great force and passion that if we take any criminal action, the skies will darken; the oceans will rise; nuclear winter will be upon us; and the world as we know it will end.”

Japanese Banker Commits Suicide after 'Losing £900,000 

A Japanese banker who lost £900,000 he had persuaded clients to invest has committed suicide, according to reports.

Resona Bank, where the 25-year-old worked, confirmed the man had taken his own life after his employers discovered he had frittered away 155 million yen (£900,000) without telling his bosses.

The unnamed 25-year-old, who worked at the bank's Ikebukuro branch in Tokyo, invested the money using his employer's books after convincing three clients of the Osaka-based bank last year that he could generate profits if they entrusted their cash to him.

The bank had raised eyebrows over the banker's activities in January after one of the three clients complained that he was uncontactable, reports Japan Today.

"Most of the money appeared to be lost as he allegedly used the funds in foreign exchange and other trading," a bank spokesman said. 

 My view:

This brings the number of recent banker suicides to 15.  Rather an astonishing number for a dull profession.  Makes one wonder if there is something more here than meets the eye?  Perhaps moral hazard is acting as the Grim Reaper?

Deutsche Bank Resigns From Gold Fix After Seat Sale Fails

Deutsche Bank AG (DB) resigned from participating in setting gold and silver benchmarks in London after failing to agree on a sale of the seat.

The German bank’s last day taking part in the fixing will be May 13, according to a person with direct knowledge of the decision who asked not to be identified because the information isn’t public.  Europe’s largest investment bank said in January it planned to withdraw from the London fixing. A sale couldn’t be arranged, the person said.

“Deutsche Bank is resigning its position on the gold and silver benchmark setting process,” the bank said in an e-mailed statement today. “We remain fully committed to our precious metals business.”

The bank is one of five gold and three silver members that help set fixings, benchmark rates used by mining companies, jewelers and central banks to trade and value metals. Deutsche Bank said Dec. 6 it will cut 200 jobs in commodities and exit dedicated energy, agriculture, dry bulk and base metals trading.

My view:

Is it surprising, that a seat worth over $1 million (in 2004) is no longer saleable?
Increasing regulator oversight after the LIBOR scandal seems to be cooling any demand for a seat in London.  One wonders, given the other headlines in recent days, if the gold fix is indeed breaking down as excess leverage in the banking system is becoming more apparent.

Given the fragile state of the banking system, it would not take much for another financial crisis to emerge.  Perhaps the best evidence we have is the rash of banker suicides.  These insiders, known to be risk takers with other people's money, are capitulating at a rather astonishing rate.
As financial detectives, we need to follow the trail of evidence, and with insiders panicking, perhaps it is time for us to take cautious, defensive actions.