Monday, July 2, 2012

Analyst: All trust in banks now gone

As your humble blogger said, the Libor Scandal threatens to end all trust in the banking system, including both the banks and the regulators, and the only way to restore trust is by requiring the banks to provide ultra transparency.

The Telegraph just published an article confirming this.

Banks have blown so much trust that there is no point crunching the numbers on them, a leading City analyst has declared in the wake of the Barclays Libor scandal. 
Sandy Chen, bank analyst at Cenkos Securities, said it was pointless revising forecasts until Barclays came clean over what had gone on. 
“Analysts spend 99pc of their time crunching numbers, but underneath the complicated edifice of earnings forecasts lies a basic foundation of trust,” he said. 
“In essence, the price movements in markets track the flow of conversation around one basic question 'Do I trust them and their promised returns?’ Without the trust, nothing stands.” ...
“The trust has been breached. Until the banks clear their names, we expect the markets for their shares and bonds will remain dysfunctional,” he said. “Without full management clarity, transparency and responsibility... we think forecast revisions are futile.”
Please re-read the highlighted text again as Mr. Chen calls for full transparency.  Without the detailed information available under ultra transparency, he does not have the information he needs to confirm or deny management's representations.  Since there isn't ultra transparency, he is staying away.

As I continue to say, the sooner banks are required to provide ultra transparency, the sooner the financial crisis will be over.

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