US Banks (2008)

[arthur]

The steepening of the yield curve is good news for the banks going foreward, saying that, I expect some more headlines and Buying opportunities, the banks that emerge will be stronger gaining more clients.

I deal with Suntrust Bank personally, I think this is a good one, I will buy more BAC when I see the dust settling an a trend established.

FTR, my real name is neither Howard, howie, Arthur or arthur, I am Spartacus.

Ignore button on.

[Nemo2]

I will buy more BAC when I see the dust settling an a trend established.

Bank of America profit tops expectations

The bank's shares rose 8.8 per cent to $29.90 in pre-market electronic trading.

[arthur]

BAC looks like it is up $2 in Pre Market, let's see if this is an Entry or Exit for many??

[active]

I collected my gains from BAC and WFC.

[arthur]

Wachovia, Bad News Day, Europe of almost 2%, active may look like a genius today, BAC should give back some of its' gains.

[kcowan]

US Banks Deploy Felons to Drive New Business

Finally we discover that all the felons are not working The Street.

Gary Kafka, former body builder with a long rap sheet and violent past, wrote millions of dollars in mortgages in South Florida without ever applying for a state license.

Fresh out of prison after serving time for bank fraud, he never went through a criminal background check before selling loans. He never took a competency exam.

He never had to.

[Taggart]

Wachovia posts an $8.86 billion loss, slashes its dividend and announces job cuts following soaring mortgage- related losses.

[nisser]

LOS ANGELES, TORONTO and NEW YORK — Patricia Ramirez's home, which sits on a ragged dead-end street at the edge of East Los Angeles in the shadow of an elevated freeway, cost $445,000 (U.S.) when she and her husband bought it in February, 2007.

Mrs. Ramirez, an office manager at a tortilla maker, and Mr. Ramirez, a truck driver, together make $48,000 a year. When a relative of theirs bought a house a few years ago, his real estate agent told the Ramirezes they could afford a house too. They had dreamed of owning a home for years, and jumped at the chance, scraping together a $5,000 down payment, or 1 per cent.

They moved into the one-storey, three-bedroom beige house in a working-class neighbourhood that was bid up in value during the boom, because while it's on the edges of the rougher parts of town, it's not too far from downtown or the ocean. A pleasant green cemetery is half a block away and the nearby main streets are colourful, lined by eclectic shops and strolling families, most of whom are Hispanic.

Today, the Ramirez home, with its rusted basketball hoop in the driveway and yellowed lawn, is worth just $360,000 – a drop of 20 per cent in less than a year and a half.

Yet their monthly mortgage payments have moved rapidly in the opposite direction, escalating to $4,500 from the $2,500 payment they originally made – a sum they believed was fixed for five years.

What a sad story...450k mortgage with a gross income of 48,000? These people need to be institutionalized immediately.

[Mike Schimek]

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 (possible mortgage floating rate of 3%? Not sure, I'm paying 3.85% right now on my condo mortgage in Canada, prime less .9% I think), so at 450k x 3% = only 13500 per year in interest = 1125 in interest per month. So if they paid a bit more than that to pay down some capital, they in theory could afford the home.

The problem is stupid people voting for stupid politicians making stupid short term policies, no matter how damaging in the long term. "Every American deserves to own his own home!" (add: "vote for me" silently). Stupid people often have not very fun things happen to them.

[WishingWealth]

On the front page of Sunday’s Times, Gretchen Morgenson described Diane McLeod’s spiral into indebtedness, and now a debate has erupted over who is to blame.

Some people emphasize the predatory lenders who seduced her with too-good-to-be-true credit lines and incomprehensible mortgage offers.
...
Other people emphasize McLeod’s own responsibility. She is the one who took the credit card offers knowing that debt is a promise that has to be kept.
...
If you go to the online comment section affixed to Morgenson’s article, you see advocates of these two positions talking past one another, one side talking the morality of social protection and the other the morality of personal responsibility.

And yet if you look at McLeod’s case, and the entire financial crisis that it stands for, there is a third position. This is the position held in overlapping ways by liberal communitarians and conservative Burkeans.

This third position begins with the notion that people are driven by the desire to earn the respect of their fellows. Individuals don’t build their lives from scratch. They absorb the patterns and norms of the world around them.

...
But the important shifts will be private, as people and communities learn and adopt different social standards. After the Depression, a savings mentality set in. After the dot-com bubble, a bit of sobriety hit Silicon Valley. Now it’s the borrowers’ and lenders’ turn. As the saying goes: People don’t change when they see the light. They change when they feel the heat.

David Brooks in the NYTimes.
The Culture of Debt

WW

[creep]

Wachovia, Bad News Day, Europe of almost 2%, active may look like a genius today, BAC should give back some of its' gains.

Money left on the table... up another 13% today.

[adrian2]

Financials: How - And When - We Reached the Bottom

One never knows until long after the fact, of course, when stock prices reach the exact top or bottom of a given cycle. And, besides, trying to pick precise tops and bottoms always turns out to be a pointless, unprofitable game. So don’t even try.

Have I hedged myself sufficiently? Good. For, as it happens, I believe July 15, 2008 will turn out to be as good a date as any to mark the end of the long, painful bear market financial stocks have endured for the past 18 months. And more to the point, it marks the beginning of the greatest financial stock bull market in our lifetime, one that will be much broader than the bull market that began in 1990.

Caution! The observation above is offered to investors only. If you can’t stand the idea of seeing another, say, 20% on the downside, please stop reading at once and head back to CNBC.com. If you measure your investment horizon in weeks or months, please, for your own good and sanity, leave this site pronto.

But if you understand what drives stock prices, and have an investment time horizon of at least one year, feel free to keep reading. And if you are a patient value investor, get out your highlighter and get ready to buy stocks.

I believe the current valuations of scores—even hundreds—of financial companies are wildly out of whack with the companies’ long-term earnings potential. The companies are extraordinarily undervalued, in my view. In the vast majority of cases, I can get comfortable with their potential future credit losses and (in the cases where they’re needed) the possibility of future, dilutive capital issuance.

With the gap between current market values and business values so wide, investors shouldn’t even worry too much whether July 15 was indeed rock bottom for the stocks. The margin for error today is so wide that any investor with at least a one-year horizon and a little analytical ability can pick huge winners. We wouldn’t buy across the board, but the vast majority of the depressed financial stocks will survive, recover, and deliver high investment returns from these levels.

Some thoughts about the Garzarelli du jour:

Then there’s Meredith Whitney, who last year raced to become the most bearish bank analyst on Wall Street. She published her latest report last week and held a conference call with investors on July 15. Her new angle: Stay away from bank stocks because future credit losses will be much higher than they think. Why? Well, Meredith discovered that the home-price futures that trade on the Chicago Merc are forecasting greater price declines than the banks expect. The futures market on which Whitney hangs her entire report has an open interest of all of 435 contracts, with a notional value of—are you ready?—$17 million. Since when do equity analysts rely on new, illiquid market pricing to do their forecasting?

[parvus]

"In the spring of 2003, shortly before a prolonged multi-year bull market, she predicted "a stock market stuck in a holding pattern for years."[4]

I dunno, Garzarelli's thesis seems to have held (keeping in mind 1966-1982 holding pattern).

[mw]

U.S. regulators take over two more banks

CARSON CITY, Nev. — Twenty-eight branches of 1st National Bank of Nevada and First Heritage Bank, operating in Nevada, Arizona and California, were closed Friday by federal regulators.

The banks, owned by Scottsdale, Ariz.-based First National Bank Holding Co., were scheduled to reopen on Monday as Mutual of Omaha Bank branches, the Federal Deposit Insurance Corp. said.

The FDIC said the takeover of the failed banks was the least costly resolution and all depositors – including those with funds in excess of FDIC insurance limits – will switch to Mutual of Omaha with “the full amount of their deposits.”

FDIC carries on its Friday after the market disclosure of bank failures. Pace seems to be picking up.

Bill Uffelman of the Nevada Bankers Association said Friday the FDIC action “is a reflection of the times for the banks. It's a poor economy.”

No, its a reflection of how your members conducted business in past times.

[mw]

From the Wall Street Journal:
FDIC Faces Mortgage Mess After Running Failed Bank

Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn't afford them. It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court. The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill.

According to the extract published on Mish's Global Economic Trend Analysis blog, a bank which bought assets off the then govt run bank is suing the U.S. Federal Government.

Why?

"1,500 of the 5,315 loans it sold to Beal either have defaulted or are nonperforming." -- Mish.

The comedy of errors, incompetence, fraudulent and criminal activity continues to roll out.

[mw]

MER gets busy selling assets at loss:

On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. At the end of the second quarter of 2008, these CDOs were carried at $11.1 billion, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008.

On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier.

MER dropped significantly during the day pre announcement and carried on after hours to dip below the July 15 lows. It has since recovered some.

Adding to the above, in Merrill Lynch gored by $5.7 billion worth of write-downs Peter Cohan calculates:

At that rate, the holders of $2 trillion worth of CDOs outstanding earlier this year would need to take a $1.56 trillion haircut if they sold all the CDOs. And I don't think they have nearly enough capital to be able to afford that.

[Mike Schimek]

I think I'll continue to stay away from banks for a wee bit longer.

[Bylo Selhi]

Is It Time to Tiptoe Into Financial Stocks?

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.

[brad911]

[url=http://online.wsj.com/article/SB121700939198285307.html]

I personally enjoyed the line, "The banks aren't lying, they're guessing."

[kcowan]

MER gets busy selling assets at loss:

On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. At the end of the second quarter of 2008, these CDOs were carried at $11.1 billion, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008.

On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier.

But MER also financed 75% of the $6.7 billion with their only recourse being the CDOs themselves so they are selling this junk for 5.5 cents per dollar. Their only upside is if all $6.7 billion stays worth more than 100% of its value. Sounds like another mortgage deal...

[mw]

MER it seems to me has developed a new trick, perhaps one day to become a verb, i.e.:

Merrill (v): to obfuscate or otherwise hide almost virtually worthless financial assets on someone else's balance sheet to avoid credit quality downgrades.

Joe merrilled that sale through, the buyers don't know what hit them!

What a bizarre time.

[kcowan]

MER it seems to me has developed a new trick, perhaps one day to become a verb, i.e.:

Merrill (v): to obfuscate or otherwise hide almost virtually worthless financial assets on someone else's balance sheet to avoid credit quality downgrades.

Joe merrilled that sale through, the buyers don't know what hit them!

What a bizarre time.

I think Enron invented it.

[mw]

Perhaps Merrill has leased it from them.

Meanwhile:

Citigroup Markdowns May Rise $8 Billion, Analyst Says

July 29 (Bloomberg) -- Citigroup Inc. will probably write down the value of collateralized debt obligations by $8 billion in the third quarter, Deutsche Bank AG analyst Mike Mayo said, after Merrill Lynch & Co. announced it will sell CDO holdings for 22 cents on the dollar.

Citigroup values the securities, mortgage-related bonds at the heart of the credit crisis, at 53 cents, Mayo wrote in a report to clients today. Citigroup has $22.5 billion of CDOs and it may have another $7 billion in writedowns to come, Mayo said. That could force it to raise more money, as Merrill did today, he said.

``The decision about raising new capital may be closer than we previously thought,'' Mayo said in the report. He expects the bank to write down an additional $1 billion because of its $2 billion in exposure to so-called monoline insurance companies.

Meanwhile Barry Ritholtz opines that Merrill effectively dumped its CDOs for under 6 cents on the dollar, substantially less than the headline number.

[mw]

I'm something of a student of language but clearly no Parvus. Nevertheless I gotta read these press releases more carefully. Ritholtz follow up on MER sale:

The Merrill sale involved "U.S. super senior ABS CDO, the majority of which comprises older vintage collateral – 2005 and earlier."

2 0 0 5 !

How many "Vintages" might we have left? 2 0 0 6, 2 0 0 7?

This makes sense. They'd sell off that which they could, keep some of the best for themselves, and hang on to that which they can't dump at all.

Perhaps there are newer vintages still to be written down.

[augustabound]

MER it seems to me has developed a new trick, perhaps one day to become a verb, i.e.:

Merrill (v): to obfuscate or otherwise hide almost virtually worthless financial assets on someone else's balance sheet to avoid credit quality downgrades.

Joe merrilled that sale through, the buyers don't know what hit them!

What a bizarre time.

I think Enron invented it.

I remember hearing "Enronitis". I think it was used something like, "They caught a case of Enronitis". Like a disease.