US Banks (2008)

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chiaroscuro
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Post by chiaroscuro »

Bylo Selhi wrote:Is It Time to Tiptoe Into Financial Stocks?
Jason Zweig wrote:Inquiring minds want to know: What would Graham do?

This column, named after Benjamin Graham's classic book on value investing, launched only two weeks ago -- and several readers have already asked whether Graham would be loading up on financial stocks now. Unfortunately, I can't ask the great investor directly. Graham died in 1976. But a close look at his writings suggests that the answer is unambiguous: No. ...

Don't get me wrong. I'm not saying there's no money to be made on financials in the next couple of years. But the potential for further losses is at least as great as the odds of big gains. When bankers themselves have no clue what their own assets are worth, there's no way most outsiders can determine which stocks are undervalued and which cannot be valued.

Graham warned that speculation is most dangerous when you delude yourself into thinking you are investing, take it seriously and risk more money than you can afford to lose. Many people who stampeded into financials over the past few days may end up wishing they had heeded Graham's advice. For many banks, the nightmare has only begun...

Whatever you do, use only the money you were salting away for that trip to Las Vegas.
It might be time to do the hmk and pick one or two potentially to invest in. I think we are closer to the end then to the beginning and while banks will go through tough times as streams of income will mostly be reduced...low points in stock prices will probably come now or by the end of the year. The banks have been shown for what they are...a pack of lying dogs...but perhaps one or two are better then the rest and have been caught in this major financial correction.

Me personally? I don't like the financial image the US has internationally and I don't like it's public financial leadership. They are gutless, caving into shucksters once again. They need to hold those responsible to the same standards other criminals are held. "They all got drunk and now have a hangover". Invitations to the next party should be sent out shortly...give em a few short years for the smoke to clear and the merry go round to continue. I also don't like impossible health and social security obligations the US has for aging boomers...not to mention it's ever growing deficit. I think you can get all the US exposure you need simply by investing in Canada. I'd be investing in Canadian or international banks who also got caught in the downdraft.
Last edited by chiaroscuro on 30 Jul 2008 09:37, edited 5 times in total.
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marty123
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Post by marty123 »

Mike Schimek wrote:
What a sad story...450k mortgage with a gross income of 48,000? These people need to be institutionalized immediately.
Well, the government kept interest rates at 1% for a couple years
Yes, but the article says their mortgage payments started at $2,500/mth. Add property taxes and utilities and you are at $3,000/mth. They had a gross income of $48,000 and paid $36,000 (75%) towards housing. Their housing expenses likely approached or even exceeded their take-home pay when they bought the place.
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Post by kcowan »

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Which sector should we be looking at for potential investments?
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Post by mpav »

marty123 wrote:
Mike Schimek wrote:
What a sad story...450k mortgage with a gross income of 48,000? These people need to be institutionalized immediately.
Well, the government kept interest rates at 1% for a couple years
Yes, but the article says their mortgage payments started at $2,500/mth. Add property taxes and utilities and you are at $3,000/mth. They had a gross income of $48,000 and paid $36,000 (75%) towards housing. Their housing expenses likely approached or even exceeded their take-home pay when they bought the place.

It may be just a US thing (or even North America) but people have this obsession with owning a house no matter what....and if you don't it has such a negative sterotype.

This is not just in the people, but the government as well who sponsor so many home ownership programs.

Please people rent more so my apartment REITs go up!
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Post by kcowan »

Root causes of housing problems explained (youtube)

Very entertaining and it would be funny if not true.

The politicians who created this problem are unlikely to solve it.
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Post by MathGuy »

Somewhere WAY back in this thread I think I remember someone saying that this recent market was a once-in-a-lifetime opportunity for Canadian investors to load up on US banks (what with the high C$ and the decimation in the banks). Made a lot of sense, from a long-term investors viewpoint. Anyone else get the feeling that this window has just about slammed shut given the C$'s collapse over the last week and the month-long rally in the US banks? :(
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Post by MathGuy »

Not only banks, but US Blue-chippers are getting a whole lot more expensive day-by-day. The US $ is flying the last 4 weeks.
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Mike Schimek
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Post by Mike Schimek »

Somewhere WAY back in this thread I think I remember someone saying that this recent market was a once-in-a-lifetime opportunity for Canadian investors to load up on US banks
Anyone that loaded up on U.S. banks WAY back no doubt got that once in a lifetime experience you're talking about.
(what with the high C$ and the decimation in the banks). Made a lot of sense, from a long-term investors viewpoint. Anyone else get the feeling that this window has just about slammed shut given the C$'s collapse over the last week and the month-long rally in the US banks?
I wouldn't touch U.S. banks unless I did a TON of homework on picking the right one. Wells Fargo is the only one I'd consider, because Warren Buffet already did the homework -), Just copy his homework. Surely there's others though, but there's no way I'd go walking around in a minefield trying to dig up a diamond (unless I had a map maybe). There's so many other opportunities out there (non banking) it's ridiculous. Been creeping back in and increasing my portfolio size of late, I'll be increasing again on Tuesday as I move some bucks back into my brokerage account.

:wink:

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Post by parvus »

An Acid-Tongued Maverick Keeps Bankers on the Edge of Their Seats
But Mr. Bove is also something of a maverick. In the last few months, he has suggested that Morgan Stanley might have avoided its current problems if the company had not pushed out Philip J. Purcell as chief executive in favor of John J. Mack. He criticized Citigroup’s chief financial officer for disclosing information about write-downs during a conference call. And he accused Merrill Lynch of disclosing inadequate financial information in a recent press release.

Clearly Mr. Bove is not afraid of making enemies. Back in 2005, when he came out with his initial negative outlook on the housing market, a television anchor warned him that he might not have a job much longer. Soon afterward, Mr. Bove began downgrading the banks he covered, eventually putting a sell on 60 percent of them, even as others dismissed his prediction that “this powder keg is going to blow.”

“I was convinced that the financial industry was out of control,” Mr. Bove said. “It just smelled, it looked, it felt like this thing was going to crash. And we kept pounding on it.”

<snip>
Mr. Bove remains negative on the prospects for investment banks like Goldman Sachs and Merrill Lynch. But he has upgraded several commercial banks this year. He thinks banks are healthier because of the new capital they have raised and because investors have pushed their stocks too low. But, once again, he is pushing against the grain — and he has yet to be proved right.

“Again, I’m early, and I’m fighting against the trends,” he says. “But the fact is that banks are too cheap.”
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Post by MathGuy »

Mike Schimek wrote:
Somewhere WAY back in this thread I think I remember someone saying that this recent market was a once-in-a-lifetime opportunity for Canadian investors to load up on US banks
Anyone that loaded up on U.S. banks WAY back no doubt got that once in a lifetime experience you're talking about.
Let me clarify:

1) "Way back" in this thread only put us around mid-march.
2) Hopefully no one "loaded up" at that time. That would have been silly, what with their downward momentum.
3) Hopefully what they did at that time was start monitoring the situation, doing their research, and looking for signals to enter.

I only brought this up on Wednesday because it now seems to me that those signal bells are ringing pretty loud in my ears right now: crashing C$ relative to US$ + strong US Equity rally, including in the financials.

Hopefully some of us have already benefited from XLF +23% and C$ -6% since July 15th, which appears, in retrospect, to have been a prescient time to enter.
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Post by chiaroscuro »

"It's going to be a bloody, expensive mess for the banking industry"
Seems the recent US bank failures are going to increase the cost of insurance for the other banks.
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Post by lilbit »

Just for information purposes, the short restriction rule ends tonight at midnight...and from what I've been told, it won't be renewed. Things could change rather suddenly now that the big financials are fair game for the shorts once again...or not!

Thought y'all would like to know...
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todays news

Post by Joni »

Just browsing CNN money.. here's the latest on "troubled banks"


Overall, the second quarter proved to be yet another difficult period for the nation's banks as industry profits fell 87% to $5 billion from $36.8 billion a year ago.

Driving that decline, in part, was a surge in loan-loss provisions. Facing additional deterioration in the housing market and further weakness in the broader economy, FDIC-insured banks set aside $50.2 billion during the quarter, more than four times the quarterly total of $11.4 billion from a year ago.

At the same time, net charge-offs, or loans banks don't think are collectable, continued to rise, totaling $26.4 billion in the second quarter - its highest level since 1991.
Last edited by Joni on 26 Aug 2008 20:51, edited 1 time in total.
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Re: todays news

Post by pitz »

Joni wrote: Overall, the second quarter proved to be yet another difficult period for the nation's banks as industry profits fell 87% to $5 billion from $36.8 billion a year ago.
So one dinky little Canadian Bank earned just as much as 1/5th of the banking industry in a country that is 10x larger.

The Canadian big 5 are likely to earn almost as much as the entire US banking industry did this quarter.

Really makes you appreciate the quality of banks in Canada from an investor's point of view.
Driving that decline, in part, was a surge in loan-loss provisions. Facing additional deterioration in the housing market and further weakness in the broader economy, FDIC-insured banks set aside $50.2 billion during the quarter, more than four times the quarterly total of $11.4 billion from a year ago.

At the same time, net charge-offs, or loans banks don't think are collectable, continued to rise, totaling $26.4 billion in the second quarter - its highest level since 1991.
Does that even include credit cards going bad? Or losses that will be attributed to MBS holders?
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todays news

Post by Joni »

Not bloody likely... eh. The thing that really caught my eye was the 87% decline. Gad, where would we be if our banks profits fell that much?
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latest news

Post by Joni »

well hate to double post but the topic doesn't belong in stock picking.. read this tonight on CNN:


"Overall, the second quarter proved to be yet another difficult period for the nation's banks as industry profits fell 87% to $5 billion from $36.8 billion a year ago.

Driving that decline, in part, was a surge in loan-loss provisions. Facing additional deterioration in the housing market and further weakness in the broader economy, FDIC-insured banks set aside $50.2 billion during the quarter, more than four times the quarterly total of $11.4 billion from a year ago.

At the same time, net charge-offs, or loans banks don't think are collectable, continued to rise, totaling $26.4 billion in the second quarter - its highest level since 1991."

I watch World Markets there. Often read the latest news. What really got me was the 87% decline in profits... what was Socia today? 2% Where would our banks be with a 87% decline?


Joni
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Post by BRIAN5000 »

Kenneth Rogoff, a leading academic and former IMF chief economist warned, last week, "We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one - one of the big investment banks or big banks."


http://www.bloomberg.com/apps/news?pid= ... refer=home

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Post by augustabound »

I found an interesting post at Fwallstreet blog about valuing financials.
He used a quote from Security Analysis first edition
Graham extends the negative assessment to the issue of increased volatility attributable to this lack of clarity / granularity inherent in financial firms.

The fact that the operations of financial institutions generally — such as investment trusts, banks, and insurance companies — must necessarily reflect changes in security values, makes their shares a dangerous medium for widespread public dealings. Since in these enterprises an increase in security values may be held to be part of the year's profits, there is an inevitable tendency to regard the gains made in good times as part of the "earning power," and to value the shares accordingly. This results of course in an absurd overvaluation, to be followed by collapse and a correspondingly excessive depreciation. Such violent fluctuations are particularly harmful in the case of financial institutions because they may affect public confidence. It is true also that rampant speculation (called "investment") in bank and insurance-company stocks leads to the ill-advised launching of new enterprises, to the unwise expansion of old ones, and to a general relaxation of established standards of conservatism and even to probity." (Ibid, pg. 359.)
http://www.fwallstreet.com/blog/85.htm
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Post by kcowan »

Bloomberg wrote:Toronto-Dominion Bank joined JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Banco Santander SA as potential bidders for WaMu, and talks extended through the weekend, according to a person familiar with the matter. While bidders are primarily interested in WaMu's 2,300 branches and $143 billion in retail deposits, they must also contend with up to $19 billion in mortgage losses during the next 2-1/2 years.
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Post by Shakespeare »

J.P. Morgan to Take Over Faltering WaMu
While the exact structure of the transaction wasn't immediately known, J.P. Morgan is expected to acquire Washington Mutual's deposits and branches, as well as other operations. The deal isn't expected to result in any hit to the bank-insurance fund, according to a person familiar with the arrangement. But it's likely that another arm of government would have to pick up the tab. Some analysts have worried that a WaMu failure could cost more than $20 billion.
Another bailout. :roll:
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Post by lystgl »

lystgl wrote:
mpav wrote:Very low, in this enviroment banks assets get bought rather than full fledged bankruptcy.

But the turmoil at WM is the worst we have seen to date, reduce div from .56 to .15.; complete closure of the subprime channel; closing 190 of 336 loan centres, shutting down WaMu Cpaital; loan loss of 1.5-1.6Bn

Just a really bad spot.
And more to come! A large part of their business (if you can call it that) is in California. Even the state may have to declare insolvency as the Terminator again has to go to the people and try to float another bond offering (they call it something else but the name escapes me at the moment) to "balance" the budget. Add the fact that WM is under investigation for misrepresenting property values (inflating them in order to "lend" more money) and the scene is set for a possible bankruptcy. Mortgages may be artificially inflated by as much as 20% and if so, people are going to be leaving houses in droves in spite of Mr. Bush's rate fix. Then again, what do I know? A few weeks ago when our dollar was worth more than the U.S., I was actually thinking of buying some of of this. Have to thank Messrs. Dodge and Flaherty for devaluing the buck and stopping me though, in the back of my mind, the dividend at the time seemed too good to be true - which, of course, it was.
I'm amazed they lasted this long.
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Post by parvus »

Government Seizes WaMu and Sells Some Assets
The government on Thursday made the largest bank seizure in American history, taking over Washington Mutual, the severely troubled savings and loan, and selling pieces of it to JPMorgan Chase in an emergency deal intended to avoid sticking the taxpayer with a bill for another bank, according to people briefed on the plan.

<snip>
Indeed, the seizure and the deal with JPMorgan came as a shock to Washington Mutual’s board, which was kept completely in the dark: the company’s new chief executive, Alan C. Fishman, was flying from New York to Seattle at the time the deal was brokered, according to these people.

The Federal Deposit Insurance Corporation issued a statement on Thursday evening promising a seamless transition. “For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," said the F.D.I.C. chairman, Sheila C. Bair, adding that for Washington Mutual’s customers, it would be “business as usual come Friday morning."

The F.D.I.C. said JPMorgan Chase acquired Washington Mutual’s assets, assumed qualified financial contracts and made a payment of $1.9 billion. “Neither the uninsured depositors nor the insurance fund absorbed any losses,” Ms. Bair said.
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Post by Shakespeare »

“Neither the uninsured depositors nor the insurance fund absorbed any losses,” Ms. Bair said.
Somebody is backstopping this - and I would bet that if it isn't the F.D.I.C. it's Uncle Sam directly. JPM wouldn't buy without some type of guarantee.
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Post by parvus »

Story update:
Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual to JPMorgan Chase. The remainder of WaMu, the nation’s largest savings and loan, will be operated by the government. Shareholders and some bondholders will be wiped out. WaMu deposits are guaranteed by the Federal Deposit Insurance Corporation up to the $100,000 limit for each account. WaMu customers are unlikely to be affected.

JPMorgan Chase is to take control on Friday of all of WaMu’s 2,300 branches, which stretch from New York to California, and will oversee its big portfolio of mortgage and credit card loans. It will also acquire all of WaMu’s deposits with the sale.
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Post by kcowan »

parvus wrote:Story update:
Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual to JPMorgan Chase. The remainder of WaMu, the nation’s largest savings and loan, will be operated by the government. Shareholders and some bondholders will be wiped out.
I am confused. What part of WaMu is JPM buying and what part is the government running? How much is this bailout and how is this different than the Paulson Piggy Bank?

I am guessing that Paulson is asking to play God before any firm approaches bankruptcy? Or is this special deal for his buddies at GS, MS and the like? (Not yet covered as banks but will be soon.)
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