Why Friday Was Such a Critical Day for Bank Stocks 37 comments
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Friday, 20 Feb 2009 was a critical day for large bank stocks.
While I know I’ve also said that Friday, 10 April 2009 will be important (see Touchdown or Just How Top Heavy Is The Top), February 20th was just as critical. Here’s why.
Last month Jim Bianco observed:
- The Dow Jones Industrial Average (DJIA) is a price-weighted index. … Dow Jones, the keeper of the DJIA, has an unwritten rule that any DJIA stock that gets below $10 gets tossed out. [emphasis added]
(Jim Bianco/Bianco Research LLC, The Dow Is Distorted, 21 Jan 2009; at Cumberland Advisors.)
There are currently four financial stocks in the 30-stock DJIA, as listed below:
click to enlarge
Figure 1: Four Financial Stocks In Dow Jones Industrial Average
The index committee that maintains the Dow Jones Industrial Average has clearly NOT observed the “unwritten rule” mentioned by Mr. Bianco. It has not yet “tossed out” or delisted from the DJIA, any of the financial stocks that trade below the $10 floor.
Friday, however, was the first time (see Figure 2, below) that the AVERAGE price of these four stocks closed below the $10 floor.
Figure 2: Sum and Average Shares Prices, Four Financial Stocks In DJIA.
Source: Yahoo Finance & Author’s Calculations.
Disclosure: Author has a long position in JPMorgan.
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This article has 37 comments:
But for appreciation, I'd go with BAC.
The weakest does appear to be C which did not rebound like BAC.
But then I've gone the BAC-Trust PFD Series X route and am Biased.
Bank of America (BAC) declined 64% from a peak of $7.05 to an intraday low of $2.53 over just 10 trading days. Bluntly put: Bank of America is dead.
Dead actually means dead. It is unlikely they can survive the weekend... and if they do, they most definitely cannot survive the week.
benbittrolff.blogspot....
GET OUT WHILE YOU STILL CAN!!
pdf warning:
www.occ.treas.gov/ftp/...
To some that means nothing.
To Others that means the U.S. President just threw the weight of the U.S. Government behind the banking system.
Just like the Fannie and Freddie who were foced to assume the lions share fo the fraudently written loans with overvauled appraisials. The U.S. Treasury stands behind their value.
Looks like the Hedge Funds have enough money to lay off shore and Short the U.S Market into a deep recession or depression at will.
Unless the SEC or Congrees ties the Hedge Funds to ownership of the Banks and the Subprime Lenders showing a clear picture of CRIMINAL BEHAVIOR with this being a TERRORIST ATTACK ON THE U.S. ECONOMY by PROFITEERS!!!!!!!!
What a hoot that would be to watch unfold around the country.
I make this assertion because you did not disclose a short position, BAC will be BACk to $7 by the end of next week and the overall market will rally.
You are afraid to be wrong. IMHO
Actually I should have bracketed that post with quotes as those are the words of the author I attributed with the link to the article.
I have no positions. There are old sailors and bold sailors. There are no old bold sailors.
On Feb 22 10:31 AM paultaut wrote:
> Bosun: Since I know you are an optimistic soul at heart and very
> diligent as your handle implies, I take it you have a reason for
> your pessimism. They are both "dead" per your view. But you aren't
> shorting them either.
>
> I make this assertion because you did not disclose a short position,
> BAC will be BACk to $7 by the end of next week and the overall market
> will rally.
>
> You are afraid to be wrong. IMHO
>
A terrorist attack, eh?
Really their ability to make it depends on the degree of the downturn. By not giving a clear message on how they will keep banks private, the government is allowing people to continue bring the stocks down(can't blame people for that). Outside of external information, people have no more information about banks than they did 6 months ago. To blindly say that JPMC is safe and the others are not is silly. In this case they are all together. You can throw GS and Morgan in there too.
At some point, the US Government guarantee will be questioned, as national debt skyrockets to umpteen trillions of dollars. Then the run will begin and banks will be closed for a "bank holiday."
I think the most important question is at what point to people let themselves be talked into acting so irrationally as to have a run on the banks. The US could guarantee every deposit in a US bank up to 250,000 without breaking a sweat, however, at this point in time its not exactly the type of thing that would help.
Its always reassuring to see that people are outwardly hoping all of this stuff happens. I guess deep down having guns to shoot at cans and animals really isn't good enough, they are looking forward to when they have an excuse to blow away some people as they guard their forest hideout and gold coins.
On Feb 22 12:25 PM mr freddo wrote:
> With bank equity holders running for the exists, or already long
> gone, my question is, when do depositors get squeamish and start
> a run on these banks? I'm surprised it hasn't happened yet and I
> assume it is because people feel safe with the FDIC insuring each
> account up to $250,000.
>
> At some point, the US Government guarantee will be questioned, as
> national debt skyrockets to umpteen trillions of dollars. Then the
> run will begin and banks will be closed for a "bank holiday."
So many "smart" people all analyzing, studying and speculating about what amounts to a large gambling parlor. Problem is right now people are much more into complaining and pointing fingers and grabbing big headlines about the problems than actually fixing anything.
Its hard to be optimistic that these problems will be fixed without them being so far beyond broken it will make billions of people poorer.
On Feb 22 12:46 PM Joel87 wrote:
> If the companies were to be dropped from the DJIA. It would cause
> great panic from people unfamiliar with the matter causing bank runs
> and prices to go down further
What we have here is a race: Cash flow against write-downs.
The actual event that took down Washing Mutual and Wachovia was a run on their deposits, which caused them to run out of cash. So many changes have been made since then that I really doubt customers will be running on even BofA. For one thing, there is a counter-flow in new deposits coming from the smaller banks (which people trust even less then the bigger banks). FDIC limits have gone up, the government is guaranteeing non-interest-bearing accounts, providing insurance for inter-bank loans and money markets, and the consumer is not so easily taken-in by the panic-mongering the bears are trying to foment.
The cost of money has almost been cut in half, greatly improving interest margins. New mortgages and refi's have gone up over 40% as home prices have dropped. This translates to something on the order of 60 billion in cash flow this year for Wells+Wachovia alone.
I don't think the metrics which took down WaMu and Wachovia can be applied to Wells, MS, JPM, and probably not even to BAC. Citi is already a zombie, but even they still appear to be able to pay their bills.
Clearly the government is going to be looking at the banks ability to service their debt and the rate at which they can write-down bad loan with this new stress test. It will all come down to two things: (1) Getting within 20% of the housing bottom and (2) Unemployment stabilizing or at least becoming modelable (the rate slowing down). Either event slaps a hard limit on bank losses.
-Matt
There will not be a partial payout. The Gov. received PFDs from BAC which have a Yield of XYZ. The Trust PFDs have priority over the Gov..
Citi's Trust PFDs operate the same way. They have priority over the Gov's payout. But I believe C has a greater probability of dying. So i'm not interested.
Because of having a large real estate portfolio, with BAC holding the mortgages on many of them, I was a Premier client, that status is being dropped in March as real estate is no longer a criteria for such status. I really don't care about the status, what I care about is the reason, they can't or won't do business with me any more.
They don't care that I've made all the payments on time, they don't care about the fact that I'm not trying to get loans over 70% of current value, I have more than four properties, they no longer wish to deal with me.
Sadly, when speaking with my Premier banker she did indicate they'd talk to me about new loans if I didn't make a payments for two months, but I'd be speaking with someone else.
I know they may be following the guidelines for selling loans to Fannie, Freddie, etc, but if you want to stay in business, you learn to provide the services your customers need. Right now Americans all over need help, those that provide it will be well rewarded.
I for one will still be looking to refinance both for better rates and cash out to pay off other short term debt. I'm planning to wait for things to ease as it's clear that now's not the time, but when they do, I doubt if I'll be dealing with BAC again.
I certainly know BAC isn't alone in the practice, I've spoken with a loan officer at Well Fargo as well, they're following the same guidelines. The difference is it wasn't Well Fargo who told me that whenever I needed to refinance in the future they'd be there for me, BAC did.
Gary
I agree with you. These funds and their activities have to be regulated/overseen. I really don't like to quote Cramer; but, at least I Think he said this. "Pigs get slaughtered". These greedy Pigs (read Hedge Funds) have lead us all to the slaughter.
The Hedge Funds with their Trillions of dollars were speculating in oil in the spring and early summer of '08. When speculation began to catch a lot of heat in July, they switched to shorting the market especially Financial instutions.
On Feb 22 10:27 AM James Wilson wrote:
> The President of the United States said We WILL Support the Banking
> System.
> To some that means nothing.
> To Others that means the U.S. President just threw the weight of
> the U.S. Government behind the banking system.
> Just like the Fannie and Freddie who were foced to assume the lions
> share fo the fraudently written loans with overvauled appraisials.
> The U.S. Treasury stands behind their value.
>
> Looks like the Hedge Funds have enough money to lay off shore and
> Short the U.S Market into a deep recession or depression at will.
>
>
> Unless the SEC or Congrees ties the Hedge Funds to ownership of the
> Banks and the Subprime Lenders showing a clear picture of CRIMINAL
> BEHAVIOR with this being a TERRORIST ATTACK ON THE U.S. ECONOMY by
> PROFITEERS!!!!!!!!
Most media just concerns about the market, cry for the bailout as the temporary solution. I think market will adjust by themself.
The currently economic and financial can not be fix in few days, a week or a month. It needs a few quarters or more. I read many reliable articles, most of them forecast until the end of 2009.
Patient, Let Obama to do his job. I belived he knew what it need to be done.
add PNC
On Feb 22 04:21 PM Omer wrote:
> The market was selling on Fear on Friday of nationalization. The
> white house explicitly stated they were not interested in nationalizing
> the banks. That's why the market rebounded in the last hour or so
> of trading. BAC hit lows of 2.50 and rebounded up to $4 after hours.
You folks are so blind :)
On Feb 22 09:30 AM bosun.j wrote:
> Citigroup (seekingalpha.com/symbo...) declined 61% from a
> peak of $4.10 to an intraday low of $1.61 over just 10 trading days.
> Bluntly put: Citigroup is dead.
>
> Bank of America (seekingalpha.com/symbo...) declined 64%
> from a peak of $7.05 to an intraday low of $2.53 over just 10 trading
> days. Bluntly put: Bank of America is dead.
>
> Dead actually means dead. It is unlikely they can survive the weekend...
> and if they do, they most definitely cannot survive the week.
>
> benbittrolff.blogspot....
>
>
> GET OUT WHILE YOU STILL CAN!!
>
Lets assume you do. Your quote: "You are gambling if you support them."
Lets say all of the Banks are nationalized. You are Now Gambling that the Government will allow you to take your money out. The Run would be on the US Treasury. It would not be Limited to just your money.
The Rest of the world would what theirs too.
They are rumored to be announcing a $60 Billion loss on Monday. They have multiple insurance subsidiaries across the country which have Mark to Market assets. These assets have to meet the Standards of each individual State to be able to provide insurance in that State. Mark to Market has been around in the Insurance Industry since the 1970s.
State Audits only cover roughly 1/3rd of the Industry every year. (things may have changed in the last 25 years but I doubt it. Insurance is a very staid industry)
If AIG goes into Bankruptcy, dissolution of numerous insurance companies under its umbrella will follow.
Neither the Fed nor the Treasury govern the Insurance Industry. The NAIC is the watchdog, National Association of Insurance Commissioners, one from every State. Each State will decide on the Fate of the Subsidiary selling insurance policies in their respective states.
This Bankruptcy would make Lehman seem like peanuts.