Banking collapse in Q4 numbers, care of AMERICAblog
Merrill Lynch – $10 billion loss in Q4
Bank of NY – Q4 profit drops 68%
PNC Financial – Profits down 53%
JP Morgan – 24% decline in profits
Wells Fargo – down 38%
US Bancorp – 21% decline
Citigroup – $10 billion loss
This is not pretty
Consumer prices rise by the highest amount since 1990, though it should be noted that the inflation numbers have become far less reflective of reality due to “creative massaging” since then.
H/t to The Big Picture for finding the cartoon.
Bond Insurerer Ambac Cuts Dividend, and declares loss, they are bleeding to death.
[on edit, added the following]
Standard & Poors raises the assumed losses on 2006 subprime bonds from 14% to 19% when it makes ratings on financial instruments, such as CDOs. They are in the process of reviewing their models for all outstanding mortgage backed debt. (The end result won’t be pretty)
Then we have a report from JP Morgan saying that home equity delinquencies are high In fact, they are higher than they would have expected at the bottom of a recession, which implies that the way down is still pretty scary, and their profits fell 34%.
On the good news side, oil prices have fallen below $90/bbl, because traders expect to see a moderation in demand because of an economic slowdown.
BofA is aggressively shringing its corporate investment division to focus on its “core competencies”.
My analysis, this is Indiana Jones outrunning the boulder. Unlike Citi, for example, they were not so tied up in the big sh%& pile that they could not extract themselves without collapsing.
This is true, he is calling for regulation in the mortgage markets. Of course, his prescriptions are disastrously wrong, but he’s new at this regulation thing.
The short form for any solution: Do what FDR did. This problem has grown as we have rolled back depression era regulations.
His points, and my rebuttals:
For what it’s worth, a good first step would be to allow bankruptcy judges to redefine the terms (not the principal) of the loans, as they can for vacation homes and rental properties.
If someone has that option, then a lender is likely to be more willing to deal with them responsibly about loan restructuring.
At this time, the people servicing the loans frequently do not own the loans, and as such, they are unable to renegotiate the terms. Allowing bankruptcy to do so would save a lot of homes, and save the market, and it would penalize the most egregiously abusive lenders.
The New York Times and Forbes have reported that it has over $18 billion in write-offs, resulting in $9.83 billion in losses.
The job cuts, looking to be as high as 10% of the workforce, are normal during a problem, but they have cut the dividend on their stock, which indicates far deeper problems*.
Citibank is in real trouble, and I think that foreign investors will snap up an even bigger portion of the company, assuming that they can be found.
*Of course, the fact that in business cutting jobs and putting people out on the street is normal, and cutting dividends is outrageous and extreme indicates just how f%$#ed up the values are of American business.
Just this morning, I suggested that Bank of America’s purchase of Countrywide was throwing good money after bad.
It appears that Moody’s Investors Service things the same way, they are considering downgrading B of A.
Barry Ritholtz makes the same point, using Dennis Gartman’s #1 rule of trading:
1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin
After that initial disastrous buy in at $18-20, BoA is doubling up — at $6 . . .
Maybe I need to change banks.
MBIA, one of the largest bond insurers in the nation, is floating a debt sale. The problem is that no one is buying, so it looks like they will have to pay 14% on the money that they borrow.
This is an AAA rated company, and they need 14%. That’s (low) credit card rates.
Any claims as to the end of the credit crunch are premature.
The Institute of Supply Management’s manufacturing index had declined for the first time in 11 months. Predictions had placed it at 50.5, rather slow growth, but it came in at 47.7, on drops in orders and production, and we have the same thing happening worldwide, with the Global manufacturing PMI falling to a 4½ year low, which seems to indicate that the rest of the world has not “decoupled” from the US economy.
Singapore’s economy is taking a hit, because Americans are no longer able to buy their stuff.
Then we have the other Mecca of Anglo-Saxon capitalism going through the same real-estate crisis that is hitting in the US
The latest figures indicate that 23 per cent of people – 9.5 million adults – were finding their current level of debt “unmanageable”. Although the Bank of England cut the base rate of interest last month, an estimated 1.4 million people will still have to pay more for their home loans when their fixed-rate deals come to an end this year, costing an extra £150 to £250 a month.
Sounds familiar.
Merrill Lynch has sold itself for some more cash, which seems to indicates taht there are some more losses, probably significant ones, that have not yet found their way to the balance sheets and quarterly reports.
In further banking news, General Electric and the Blackstone Group had to backoff of a buyout of PHH, a mortgage and auto-leasing company, because their financing fell through.
Finally, we have reports that dollar-based assets held by the world’s national banks have fallen to a record low. There is not yet a stampede to the door, but people are definitely standing up and stretching their legs.
The data indicated that of the $3.8 trillion in allocated reserves, about 63.8 percent was held in U.S. dollars, down from 65 percent at the end of the second quarter this year.
This is not good:
Like Subprime Mortgages, Some Construction Loans Are Delinquent
Like Subprime Mortgages, Some Construction Loans Are Delinquent
By FLOYD NORRISBANKS across the United States, particularly the smaller ones, have become dependent on construction lending just as that area of the economy is weakening and the number of bad loans is growing.
Figures compiled by the Federal Deposit Insurance Corporation and released last week show that both midsize and small banks had construction loans outstanding that were greater than their total capital. A decade ago, such loans were equal to only a third of capital for those banks.
For most of this decade, that was a good strategy. Construction loans proved to be very profitable, particularly for smaller banks as competition from larger banks and securities markets eroded their position in areas like mortgage lending and credit card issuance.
Now, however, more than 3 percent of all construction loans are classified as being nonperforming, or have borrowers that are behind on their payments. That is the highest proportion in a decade.
…
The smaller banks have eschewed many of the riskier practices of the larger national operations, but it looks like they are going to get bitten by the turndown too.
existing household real estate assets declined $67 Billion in the 3rd quarter. That’s about $200 for every man, woman, and child in the US.
You can see this in declining home equity percentages over time (there are more graphs at the link):
While we’re at it, Morgan Stanley analysts are saying that home prices could be falling for at least the next three years.
.…
The property derivatives market seems to be suggesting that we are in a very different environment, on the heels of market events that could force a housing recession like none ever imagined or experienced,” Morgan Stanley analysts said.“The fundamental argument for going long housing is that history has never seen such extended periods of house price declines,” Morgan Stanley said. “We think that such arguments have limited credibility because of limited periods of data and over-reliance on analysis using national level data.”
While home price declines for three years or longer have not occurred in recent years on a national level, regional data demonstrates that unusual price increases often lead to sustained corrections, the report said.
….
And then we have Standard and Poors sayint that the mortgage relief program might cause downgrades on some of the related bonds.
Honestly though, I don’t see how the action will make things much worse:
.…
The share of all home loans with payments more than 30 days late, including prime and fixed-rate loans, rose to a seasonally adjusted 5.59 percent, the highest since 1986, according to a report today from the Washington-based bankers trade group. New foreclosures hit an all-time high for the second consecutive quarter in a survey that goes back to 1972.
….
While this is interesting, I’m dubious that it will result in any changes, at least not without a larger Dem majority in Congress and a Dem in the White House.
Between veto threats, and a reflexively anti-regulation Republican party, we are not there yet, but it’s good that it is entering the dialog.
Oh Dear!!! Some Wall Street pukes at the center of the mortgage debacle may find their bonuses cut in half.
The hardest hit will be the salespeople dealing with mortgage-backed securities, according to Options Group director Eric Moskowitz. Their average bonus will be about $1 million compared with $2 million last year.
Only a million dollar bonus???? Cry me a river.
*This is sarcastic. I feel no sympathy.
†This means “thief” in Yiddish, which is largely archaic German. It is from the Hebrew ganov, and you find the term “gnof” in Chaucer, meaning “churl” or “peasant” generally, which probably has the same Hebrew roots.
What, the CEO of Countrywidemay have dumped his stock when he got advance notice in violation of insider trading law???
Don’t make me quote Claude Rains in Casasblanca.
Here is the CEO in an industry that has largely depended on a pump and dump mantality, and has increasingly relied on the ignorance of its customers for its business, and we are supposed to be Suprised when it turns out that there are indications that perhaps the senior management did not scrupulously follow the rules????
Well, knock me over with a sledge hammer.
SWIFT, the international payments processing body, is pulling the processing EU banking data from the US because its presence in the US required it to provide data to the US state security apparatus in violation of EU laws.
Given the general lawlessness in the US with regards to civil rights and privacy these days, it’s the only prudent thing to do. Right now, banking transaction data is probably more secure in the People’s Republic of China than it is in the US.
This was actually a VERY important decision. If it had gone the other way, you would have seen much of the internet based credit card activity simply stop.
It’s nice that someone has FINALLY found a limitation to “compensatory infringement.
Court upholds ruling vs. publisher
FIRM SOUGHT TO PUNISH CREDIT CARD ISSUERS OVER PIRACY OF ADULT IMAGES
By Dawn C. Chmielewski
Los Angeles Times
San Jose Mercury NewsCredit card companies that process payments for Internet pirates are not liable for copyright infringement, a federal appeals court ruled Tuesday.
The 9th U.S. Circuit Court of Appeals in San Francisco decided that a judge in San Jose was right in dismissing a lawsuit brought by a publisher in Beverly Hills against Visa International, MasterCard and other financial companies.
The 2-1 decision found that Perfect 10, a publisher of adult magazines and Web sites, failed to prove that credit card providers were liable because the financial companies played no role in helping people find or download the infringing images.
The decision dealt a setback to Perfect 10’s efforts to cripple Web sites that sell access to its erotic photographs without permission. The company said it would request a new hearing by a larger panel of appeals court judges.
…
This is an attempt to sell at fire sale prices, so they can get out before everyone is heading for the exits.
It is the start of a panic.
Bear Stearns fund scrambles to sell bonds
Hedge fund faces losses as it tries to sell about $4 million in mortgage-backed bonds to raise cash for redemptions, according to a report.
June 14 2007: 8:03 AM EDTNEW YORK (Reuters) — A hedge fund managed by Bear Stearns Cos. Inc. is trying to sell large amounts of mortgage-backed bonds in a potentially troubling sign for the broader mortgage-backed bond market, The Wall Street Journal reported in its online edition.
Bear Stearns’ (Charts, Fortune 500) High-Grade Structured Credit Strategies Enhanced Leverage Fund is facing losses and, together with a sister fund, is trying to sell about $4 billion in bonds to raise cash for redemptions and to prepare for likely margin calls, according to the report, which cited people close to the fund.