This is a picture of Hugo Chavez in Copenhagen last night. It remains unclear whether he was running away from the smell of sulfur after Obama spoke at the conference or if he is running away from one of those flying Dutchmen that wants to invade Venezuela.
Archive for December, 2009
The Superintendence of Banks issued a resolution today saying that three of the banks intervened will be reopened on Dec. 21st. I still don’t see how this will work, since I expect people will simply take their money out as soon as they can and the funds will flow to better banks or to foreign currency.
It may be that the Government is doing this knowing quite well that this will happen, but the strategy will be costly. In some sense all the Government is really doing is moving loans and deposits from these banks to Banfoandes and changing the name of the bank, something that it could have done on day one and created much less panic than it has.
First of all, the Government will have to replace the capital in each of the three banks which reportedly was lost with the creative operations done by the owners.
But more importantly, let’s look at the deposits in each of the three banks, looking at the total in each bank, as well as the size of “official” deposits (As of October 31st., we don’t know how much fled the week the first two were open):
——————————-Deposits (Bs) Off. Deposits (Bs)
Bolivar 4,038 mill. 858 million
Confederado 3,001 mill. 1,702 mill.
Central 4,003 mill. 835 mill.
As you can see, in Bolívar and Central official deposits were roughly 21% of all deposits. We don’t know how much of that left Bolívar in the week that it was intervened with open doors, but I assume quite a bit. Thus, the only way to insure these deposits will not leave is for the Government to add to the official deposits. The case of Central is likely to be worse as investors did not have a chance to take their money out, as it was shut down when intervened.
You can also see how ridiculous Banco Confederado was, with 57.1% of its deposits in official ones, something that makes no sense in any way you look at it.
It is clear why the Government decided to liquidate Banorte, the bank had 65.9% in official deposits, a number that should have raised the eyebrows of the Superintendence and shows there was help from the regulators in this whole crisis.
And then we come to Banco Canarias. The Government has said little about the losses in any bank, but Canarias’ profile in deposits was not too different than these banks, with 43.3% of its deposits in the form of official Government deposits. Clearly, the losses had to be huge to justify the different strategy of liquidating the bank. The question is whether people will ever be told what exactly happened there and what is the cost.
Thus, in the end the Government is doing what it should have done from day one, but making Banfoandes stronger, which is surprising, given the charges that this bank kept part of its deposits in many of the intervend banks. But the worst part is that people are likely to move their funds to the private commercial banks that are perceived to have no problems. This could easily have been avoided.
It also makes little sense for the Government to now have so many banks. Banfoandes will now surpass Banco de Venezuela (assuming all deposits stay, which will not happen) with 19% of all deposits, Venezuela will have a similar amount in fourth place. Industrial will be a distant 12th. with 2%.
This will all have an unknown financial cost, as the Government will have to replace capital and cover losses in thse banks. But more importantly, Government banks have been unable to keep up with even the Government’s requirements for loan quotas, so that lending will be hurt, which will be bad for economic growth at a time when things are not well.
If anyone has been humiliated, abused and cheated by the Chavez Government, it has been Franklin Brito. But at the same time, Mr. Brito has responded with amazing strength and dignity, going on hunger strikes in front of the Supreme Court and the OAS, asking for something very simple: Justice.
Mr. Brito first incited the wrath of the Mayor of his municipality in Bolivar State, where he was a teacher and a farmer, when he suggested that rather than using pesticides, they could simply change the strain of “ñame” (yam) they were growing. Mr. Brito was fired, together with is wife (They are still owed salary and severance from their teaching jobs) and his farm was taken over.
Mr. Brito went on a hunger strike and the Government relented, his salary would be paid and his land returned…
It was never done.
Then Mr. Brito went on another hunger strike. The Land Institute signed an eleven point agreement with him….
It was never complied with.
Then Mr. Brito went on a 150 day hunger strike in fron of the OAS that left him in really bad shape and ended with the Government agreeing to return his land. Mr. Brito gave up his hunger strike, spent a few days in intensive care, but..
the agreement was not complied with and two days ago, Mr. Brito went back on his hunger strike at the OAS.
Then, last night at 1:30 AM, Mr. Brito was kidnapped by the Metropolitan Police and the Fire Department and was taken while he refused to go to the Military Hospital, where he is now being held against his will according to his lawyer. The Government claims they are protecting Mr. Brito’s life, but the truth is he has been officially kidnapped by the Government in an attempt to block his right to protest and denounce the abuses of his rights and the lies by the Chavez Government.
Mr. Brito’s protest was getting too inconvenient and visible.
His wife has now gone on a hunger strike at the OAS, but Mr.Brito remains held against his will at this time.
Such is the state of Injustice and abuse of power under Hugo Chavez, you can be held against your will, in violation of the laws of the Land and the Constitution.
In case you were wondering, our good friend Daniel from Venezuelan News and Views has been ill and has been hospitalized. His condition is delicate, but seems to be improving, he managed to call me yesterday and hopes to be out of the hospital by the end of the week. Just talked to him and asked his permission to post on this private matter, but figured his readers may wonder what is going on.
Best wishes to Daniel from here!
When Ricardo Fernandez Barrueco fell from grace three weeks ago, we were wondering what the reason was and whether this was a fight between groups or simply Chavez cleaning up the new wave bolibourgeois bankers. And on the third week of the Bolivarian Mafia Wars, Chavez shut down today BaNorte, the third bolibourgeois Chavista banking group. And while “liquidity” was cited as the reason for the intervention with closed doors, the truth is that BaNorte’s situation is not too different from the other two groups: Uncertain source of funds, sudden growth, large official deposits, new wave bankers who claim to be pro-Chavez.
Thus, only one banking group left and one has to wonder whether it will be taken over or not.
The problem is that there are after shocks to come from this financial earthquake, as the Government continues to say very litte about what is happening. Today for example, the only Government official who had been removed from his position, the Head of the Comision Nacional de Valores (Venezuela’s SEC equivalent), was actually arrested for his involvement with the intervened banks. What his participation in all this was is still unclear, but clearly the clean up is not over yet.
Whether Chavez had planned to clean up or not from the beginning is yet unknown. He may have decided to get rid of all his bolibourgeois bankers after the crisis grew beyond what he had expected. A full clean up of what his advisers had been telling him for months. But if that is the case, where will he stop? His Government has also intervened some insurance companies belonging to these banking groups, but nobody knows whether they are in good shape or not or if they were also looted.
Meanwhile, local market remain nervous. The swap rate went down at the beginning of the week only go to back up today. The Government claims it will reopen some of the intervened banks in ten days, but nobody seems to believe it. Thus, the money continues its flight to quality, whether the blue chip banks or hard currency as everyone awaits for the Government’s next step…
The guy at minute 2:08 is none other than banker Arne Chacon, courtesy of lavidadesdeaqui.
I guess those ideals did not survive a fistful of dollars
During the last three weeks many people have said, stated and/or accused me of writing (at least) two other blogs:
How anyone can think that I can write this blog (www.devilsexcrement.com), sometimes translate these posts into Spanish (www.exdiablo.com) as well as posting in my orchidblog (miguelorchid.wordpress.com) and have a regular job (where I do write a newsletter) is simply beyond me. In fact, lately I have been posting less and less due to the lack of time.
Thus, just to make sure it is very clear, I (M.O.) am the sole writer of The Devil’s Excrement and have no link (other than those on the left of this page) or association with any other blogs. For seven years, I have been writing this blog and I did try to hide who was the author in February 2004, but my name was inexorably linked to the Devil’s Excrement.
Anyone that looks at the style and posts in those other blogs will easily note that the styles and nature are completely different and I have no idea why someone has decided to spread the idea that I was also writing those two other blogs, which I read regularly and list them as such on this page. (Unless someone wants somehow to damage my reputation or that of the company I work for)
I note this, because today I have received half a dozen calls from a rumor that started the week before Thanksgiving with caracasgringo and continued this week with venepiramides. I am honored that anyone can think that I can be so prolific, manage so many topics simultaneously and do so much research and writing at the same time, but any content that I like to publish lies within only these pages, where I have said and written whatever I wanted in any case.
I am sort of tired of the financial crisis, so let’s look at Chavez blasting the project to build a solar plant in the Sahara. He said today:
“Europe is looking to take away Africa’s solar energy…without leaving anything for Africa”
Well, this is only so far a project, which you can read about here and see the diagram above.
While I don’t know enough about the environmental impact of such a project, it would power up desalinization plants which would provide water for drinking and agriculture, leaving quite a bit for the countries involved.
The project is being promoted by the Desertec Foundation.
Jeez, I wonder why Chavez opposes it and even more, with so many problems here, like Provea saying today poverty and policies to fight it are either stuck, or have taken a step back in Venezuela in the last two years, how come Chavez has time to learn about this and even have his own not so knowledgeable opinion?
Why doesn’t he spend that time learning about Venezuela’s problems?
You have to hand it to Hugo Chavez, after mishandling the crisis of the banking system for the first few days, he made a 180 degree turn, turned it into his personal fight against corruption and since most people can not tell a Fernandez Barrueco from a Torres Ciliberto, many have believed him, as he seeks to “help” the people have their money for Christmas and has plans to refloat the intervened banks and create yet another Government bank.
The problem is that imagine you had your money in Banco Confederado and on Dec. 21st. you can go to Chavez’ new Banco Bicentenario run by the Government. What will you do?
Well, even if it makes little sense, you will take your money out. Little sense, because if it is already a Government-run bank, why take the money out? This may sound logical, except that if everyone thinks like you and takes their money out, Banco Bicentenario may be in trouble (again) in a very short time.
Of course, the Government may deposit more of its funds in the new bank so that people can continue taking it out. That is certainly throwing good money after bad. And that good money is going to get worse, because this whole thing is going to cost lots of money. The same way that the Government spent US$ 11 billion in trying to lower the swap rate and it is now creeping up to a more realistic value.
But on top of that, this crisis is far from over, because to start with, the Government has not released much in the way of information on the health of the banks which had problems. In fact, we haven’t been even told why it was that they had to shutdown Canarias and Banpro and why Bolivar and Confederado can supposedly be saved.
Curiously, the only Government official to have been removed from his position (Will he be charged with anything?) is the former President of the Comision Nacional de Valores, who was replaced today by someone with no experience in capital markets.
And the crisis is not over because there are too many interconnections left that will still cause some pain. How much, is hard to tell, but it can’t be this simple when you look at the numbers and the concerns. To this day, we don’t know how much various brokers had in Banco Canarias, U21 and/or Banpro and lost most of their money. Or how much certain banks can withstand the run on their deposits. I still think the best option would have been to merge all four banks, two and a half weeks ago, into Banco de Venezuela and take it from there. Too late now, nobody asked me.
And at this point we can see a number of secondary effects from the crisis: First, more inflation as the Government is going to have to print Bolivars to replace the missing money. A higher swap rate, which is also inflationary. More banks in the hands of the Government which has proven to be completely incompetent in managing banks. A significant drop in the country’s bond prices which limits the ability of the Government to issue more bonds (Which I think is good). A total mistrust between financial institutions, which limits economic activity. Flight to quality in banks and currencies, which is clearly a negative.
All of which may get more complicated in the upcoming days. This time around, Chavez has managed to convince the uninitiated that this is about fighting corruption, but he may be over promising on what he can do and most people can’t be fooled all of the time.
So, while we say goodbye to Jesse Chacon, as Chavez’ token sacrifice in the financial crisis, there may be more that have to the gallows in order to be truly convincing.Thus, Chavez has turned the crisis in his favor, but his victory may be ephemeral and not hold if other problems were to surface. And we expect they will.