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Offshore Banking – Weekly Round-Up

Since the financial meltdown on Wall Street started in 2007, economic experts started to predict the dire consequences these would entail on the economy. True enough, the world’s largest economy bowed under pressure. Banking giants such as Citigroup Inc, Bank of America, and JPMorgan Chase all had to be bailed out. The real cost to the taxpayer is not being felt now, but it will in the future.

This week’s roundup has something to do with opening an offshore bank account. Fortunately or unfortunately, American perspective seems to be getting wider due to the economic crisis. Previously, everyone thought that their banks and their currency were safe.  Seems that they are not so sure now. As a result, bloggers are talking about how opening an offshore account will help individuals both as business and as personal investors.

Amy @ Ofiz uploaded a blog post titled “The Benefits of Having an Offshore Bank Account for Business Purposes“. It essentially talked about how businessmen, especially those who travel a lot, can access their funds easier if they have an account in another country. Further, Amy also discussed about how an offshore account can be opened.

The blog Wealth Building Empire recently had an interesting article named “Hide Money Offshore with an Offshore Bank Account and Offshore Debit Card“. At first glance, the blog post seems suspect. Is it teaching its readers to engage in money laundering? But upon closer inspection, it actually does nothing of the sort. Its author is merely recognizing the fact that bank accounts can be frozen in many parts of the world. And there is nothing a depositor can do about it unless he looks offshore.

There’s also a little-known WordPress blog called the My Panama Lawyer that provides a lot of detailed guidelines about offshore banking. In a post titled “How to Open an Offshore Bank Account“, the author details the process in 6 easy-to-follow steps. Everything from choosing a country to the permitted amount you can deposit is outlined in this blog post.

As the economy remains uncertain, a lot of people are also becoming hesitant in keeping all their money at home. And indeed, they are wondering if they should keep their money in dollars.

Bank of America Now Closing in on the $33.9 Billion Gap

Previously, the government stress test had revealed that Bank of America (BofA) has a deficiency of $33.9 billion in common equity. Now, it seems that the company is fast plugging this loophole. The bank announced its plans to add an extra $26 billion, or as much as 76%, of the $33.9 billion that they were told to raise.

The Charlotte-based bank was able to raise $5.9 billion by exchanging its 436 million common shares into preferred stock. The bank further noted that it might issue an additional 564 common shares in the same scheme. Another source of capital was the sale of its stake in the China Construction Bank Corp. which is worth $13.47 billion. It is highly likely that the BofA will also sell its Columbia Management Group and First Republic Bank units to close the remaining gap.

The BofA statement included stipulations that requires future capital raise to fulfill the regulator’s mandate. In the earlier part of this month, it was revealed that 10 of the nation’s biggest banks need to infuse capital into their system.

Government regulators have asked these institutions to raise common equity levels as the safety net against possible adverse economic situations in the future. In addition, this will provide a sense of security for the banks’ depositors. After the expected announcement, the shares of the company went up 1.5 percent to $11.5.

Other Banks Are Doing the Same

BofA, as the largest US-based bank, does not stand alone in these drastic measures. Several major financing firms such as Citigroup Inc increased its common equity by requesting preferred shareholders to swap their stakes into common shares.

Meanwhile, PNC, the seventh-largest bank today, was asked to raise $600 million by the government. This bank is plugging their shortfall by selling 15 million common shares in a market offering. PNC has also said that it planned to repay the $7.6 billion it took from the TARP program as soon as it was “appropriate”.

Although the TARP has greatly helped the banking sector at the time of crisis, it is seen as a weakness by most. Furthermore, most of the banks it helped does not like the excessive restrictions imposed including its executive pay regulations.

GMAC LLC Changes Its Name to Ally Bank

Wanting to leave its own problems behind, auto and mortgage-financing firm GMAC LLC has dropped its own name and re-launched itself as Ally Bank. The company has been suffering from billions of dollars in losses since the mortgage crisis hit. Currently, it has an $11.5 billion in capital shortfall.

The bank’s chief marketing officer, Sanjay Gupta, has revealed that the company wanted to new name that will eliminate the baggage that most banks have to deal with after they received billions in bailout money. Last December, GMAC received $6 billion in bailout money including $5 billion from the Trouble Asset Relief Program.

Plugging the Capital Shortfall

“Ally” was selected as the new name because of its implications that the bank is a friend and a trusted partner for consumer’s banking needs. Gupta said that, it contains the “attributes we are trying to convey”. GMAC LLC expects that this move will help them gain more customers. The new image is expected to attract retail depositors which are a crucial funding source with today’s credit squeeze.

The improved bank deposits will help fill the gaping $11.5 billion capital hole as was revealed in the stress test results. Nineteen banks took the so-called stress test and ten banks, including GMAC, were told to raise their capital. Despite all strategies on the contrary though, many experts still believe that the company will need another bailout in order to survive.

Attracting Retail Deposits

Long before GMAC LLC decided to rename itself as Ally Bank, it was already offering above-industry average industry yields for consumers. A lot of lenders have tried this strategy since the financial crisis hit in 2007. Ally Bank will offer a 2.8 percent rate on a one-year certificate of deposit even if the industry average is around 2.29 percent.

This strategy appeared to work. The bank’s deposit showed a significant increase during the first quarter. It experienced 16.5 percent improvement to $22.5 billion which is broken down as $11 billion in retail deposits, $9.5 billion in brokered deposits, and $2 billion in other types of deposits. In addition, Ally Bank expects more federal funding because of its status as the preferred lender for vehicles made by the now-bankrupt Chrysler LLC.

Stress Test Results Officially Announced

After weeks of speculations and leakage, it is finally confirmed: some of the nation’s largest banks need additional capital. Federal regulators finally announced last May 7 that 10 out of the 19 banks that underwent the stress test “failed” it.

Leading the pack is Bank of America which needs an additional $33.5 billion. Meanwhile, Wells Fargo needs $13.7 and it is closely followed by GMAC LLC which needs $11.5 billion. Citigroup and Morgan Stanley need $5.5 billion and $1.8 billion respectively. Among the banks that were given a clean bill of health are JP Morgan Chase, Goldman Sachs, US Bancorp, Bank of NY Mellon, and MetLife.

In spite of the vulnerable state the banks are still in, the government is confident about the financial industry. The Obama administration believes that even if the banks are not totally out of the woods yet, it is fast getting there. Almost half of the banks that have taken the stress test passed them. Even those that didn’t were actually in better financial shape that people originally thought.

Fed Chairman Ben Bernanke expected the report to restore investor confidence. And indeed, his projection proved to be accurate. Markets have improved steadily since the results were announced with rising share prices, better liquidity, and other signs of a stabilizing market. Regulators were also happy that capital marketers were willing to fill in the holes the stress test revealed at the banks.

The stress test showed that some of the major banks required a $74.6 worth of additional capital to ensure that they can withstand worst-case scenarios. Both Morgan Stanley and Wells Fargo sold over $15 billion worth of bonds and shares the following day. On the other hand, Bank of America said that it planned to sell 1.25 billion shares when they saw that investors were positive about their relatively small shortfall.

The Obama administration is pleased with this development. This is because if the banks are able to raise the necessary capital halfway by next week, the administration would not need to ask Congress for more bailout money.

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