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BankUnited, Downey Financial Getting Hammered by Gamblers

Written by:
Jagajeet Chiba
Published on:
Jul/17/2008
Bank Failures

According to the prediction markets Thursday evening, the public has serious doubts that BankUnited can stay afloat between now and December 31 of the his. The odds of BankUnited shutting down were now at 40 percent according to Intrade and Downey sat at 35 percent.

Punters can now bet on bank failures in America, thanks to 12 new contracts against individually named banks listed on July 16th by Intrade, the largest online prediction market, one of which is Wachovia Bank - added just yesterday.

Intrade says it has brokered $76m of bets this year. Its data have been used as a price-discovery tool by America's Commodities Futures Trading Commission, the United States Navy, various Federal Reserve banks, and the European Central Bank, according to The Economist.

The accuracy of prediction markets makes them hard to ignore; they were better than Gallup polls in predicting the outcome of elections between 1998 and 2004. Using the wisdom of crowds, they do a good job of forecasting the outcome of sporting events.

Miami-based BankUnited Financial, with its high ratio of non-performing loans to total assets had its stock more than double on Wednesday despite all the bad news that is prevalent.

More bad banking news came Thursday amidst reports that Wachovia Corp.'s securities division was inspected by a team of regulators from more than five states who delivered subpoenas today as part of a probe into the company's sales of auction-rate bonds.

Investigators searched the unit's St. Louis headquarters to seek information about sales practices, internal evaluations of the auction-rate securities market and marketing strategies, Missouri's Securities Division said in a statement. More than a dozen subpoenas were issued to Wachovia executives and agents.

More bad news as Sen. Carl Levin (D-MI) told ABC News today that federal regulators should consider revoking the US banking license of the giant Swiss Bank UBS because of its role in helping wealthy Americans evade billions of dollars in taxes.

"I don't think that any bank that goes to the extent that UBS has gone through to avoid doing what their agreements with the United States require them to do, should be allowed to continue to do business unless they clean up their act," Levin said.

The Wall Street Journal reports that UBS will close its private banking operations for US clients.

A UBS AG executive told a U.S. Senate panel that the Swiss company will shutter its private-banking services that have served U.S. clients from Switzerland.

"That means UBS will no longer provide offshore banking or securities services to U.S. residents through our bank branches," said Mark Branson, chief financial officer of UBS Global Wealth Management and Business Banking.

The Missouri Securities Division is also reviewing the fraud complaint filed against UBS by Massachusetts regulators late last month and is conducting simultaneous investigations into auction rate securities complaints on other firms.

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