Who is going to get hit hardest in the coming rounds of writedowns? The report suggests that it will be U.S. commercial banks, such as Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), and Bank of America (NYSE: BAC). So far, foreign banks have borne 60% of total losses -- UBS (NYSE: UBS) alone accounts for nearly 10% of the total. It’s time for their U.S. counterparts to pay the piper.
According to Bridgewater, U.S. commercial banks haven’t taken larger losses simply because they are not forced to apply mark-to-market accounting to their loan books -- valuing their loans on the basis of market prices, as you would for mortgage-related securities. That constraint has been the source of a lot of pain for investment banks such as Lehman Brothers (NYSE: LEH), Merrill Lynch (NYSE: MER), and Morgan Stanley (NYSE: MS). Instead, the commercial banks take loan loss reserves based on their own loss estimates.
(In fact, U.S. banks took $38.1 billion in reserves during the first quarter -- four times the amount in the same quarter last year.)
I'm benefitting from the bank rally big time having bought all Canadian financials yesterday, but I am under no illusions as to this being a "bottom". I didn't think it was over back in March when I last went long, didn't think it was a bottom in May when I went short again, and I certainly do not think its a bottom today.
However improved equity markets might help firm up some other capital markets which are causing US banks their issues - it could be constructive.
One also has to be looking out for the next set of concerns the market might decide are worthy of selling... will it be commercial real estate and the impact on banks? General economic issues?
Or is it the potential new storm not far away from the Caribbean which will probably, once it hits the news, provide support for oil in the coming days?
I am under the illusion that for WFC this was the bottom.
Keeping the dividend unchanged under pressure is one thing, raising the dividend while providing for additional bad loan protection is different altogether. This was the most solid bank to start with and they are in a perfect position to pick which other financial institution to buy best.
I worry that RY or BNS or TD will buy more US assets which is specifically why I chose HFU rather than individual Canadian banks for my latest financials trade. HFU not because I'm greedy and need the double long exposure (but its nice) but because its unlikely this rally will hold up long enough to allow me to collect anything approaching a dividend stream.
And for today's humour installment, laced with no small amount of reality and irony, here's an excellent read on the U.S. situation, resonating particularly strongly for those who like me may have been listening to Bernanke testimony and Q+A for the past two two days:
While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone -- except their own horrific negligence.
Massively over-leveraged companies? Blame short sellers.
Wildly under-capitalized financial firms? Blame rumors.
Heinously poor corporate management? Blame a Senator.
At Wells Fargo & Co., the fourth-largest U.S. bank by stock-market value, investors and analysts are jittery about its $83.6 billion portfolio of home-equity loans, which is showing signs of stress as real-estate values tumble throughout much of the country.
Until recently, the San Francisco bank had written off home-equity loans -- essentially taking a charge to earnings in anticipation of borrowers' defaulting -- once borrowers fell 120 days behind on payments. But on April 1, the bank started waiting for up to 180 days.
'Out of Character'
Some analysts note that the shift will postpone a potentially bruising wave of losses, thereby boosting Wells Fargo's second-quarter results when they are reported next month. "It is kind of out of character for Wells," says Joe Morford, a banking analyst at RBC Capital Markets. "They tend to use more conservative standards."
mw wrote:....One also has to be looking out for the next set of concerns the market might decide are worthy of selling... will it be commercial real estate and the impact on banks? General economic issues?
Or is it the potential new storm not far away from the Caribbean which will probably, once it hits the news, provide support for oil in the coming days?
Etc.
I am concerned about the adverse impacts of the economy. Their credit card profits will likely be eroded by lower consumer demand and rising bad debts.
Business loans are another segment worth watching. Is the recent bounce based on anything real? Do investors think the worst of the mortgage mess has been dealt with?
One of my newletters is screaming to take money off the table, i have made a wad on BAC , so maybe they are right, although Citigroup looks good this a.m.??
You want the truth, you want the truth, you can't handle the truth.
The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.
If you do not risk anything , you risk even more. Jong
You want the truth, you want the truth, you can't handle the truth.
The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.
If you do not risk anything , you risk even more. Jong
adrian, check the charts, made over a 20% return in a little over a week, from just under $22 to just over $27, so I gather I can expect an apology.??
gyrfalcon, did some one twist your arm to read this??
I will reenter BAC /NYSE when I see some clear market direction, for now I'll sit on the sidelines .
You want the truth, you want the truth, you can't handle the truth.
The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.
If you do not risk anything , you risk even more. Jong
The Feds of course were going to bail out Freddy and Fanny, a GREAT opportunity to make money, just be sure of when to get in and when to get out, I think the party is over, the easy money made.
Regional Banks they will let go under but too many votes would be lost had they not bailed them out, plus the favourable press.
Wachovia still has some problems.
You want the truth, you want the truth, you can't handle the truth.
The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.
If you do not risk anything , you risk even more. Jong
arthur wrote:adrian, check the charts, made over a 20% return in a little over a week, from just under $22 to just over $27, so I gather I can expect an apology.??
If you were posting your trades like mw and have written about the buy at least on the same day, yes, you'd get an apology.
The way the things are, you deserve none. It's easy to find a stock which had gone up 20%, pick the best possible entry in retrospect and gloat about how you've made a "wad" after the fact.
Please post the prices / dates on which you've traded.
adrian, give me a break, like I need to try to impress, just stated facts, you have a problem with that, well that is your problem.
I give up, I'll keep my trades to myself, sometimes it just ain't worth the energy.
Petty.
You want the truth, you want the truth, you can't handle the truth.
The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.
If you do not risk anything , you risk even more. Jong
adrian2 wrote:
Please post the prices / dates on which you've traded.
I picked up some BAC @ 21.53 on wednesday or something... I posted the buy in the "What you might buy?" thread. I don't plan to sell so I guess it really doesn't matter what my "1 week" return works out to be. lol.
That being said, it has provided some entertainment the last few days.