Mixed Outlook for Banks and Financials

Greg Farrell at ft.com writes that the third quarter outlook for banks is mixed. Investment banking activities are expected to produce robust results.

On the opposite side of the outlook, non-performing commercial and consumer credit assets will continue to present challenges. Greg highlights Goldman Sachs (GS) as a likely top earnings performer and says Morgan Stanley (MS) will likely report good results, while JPMorgan Chase (JPM) and Bank of Amercia (BAC) are mentioned a banks with strong investment results which will be offset by non-performing asset losses.

CitiGroup (C) and PNC Financial Group (PNC) were specifically mentioned because of recently lowered earnings estimates by Credit Suisse. A number of other analysts are quoted in Greg’s article.

The editors at The Wall Street Pit, quoting Rochdale Securities analyst Richard Bove, report estimates that 60% of the regional banks will post losses in both the third and fourth quarters. Bove says the banks are under reserved and are facing real estate loan losses, especially commercial real estate.

In another financial sector news item, Robin Kwong, also writing at ft.com, reports that AIG has agreed to a deal to sell its 95% interest in Nan Shan, the third largest Taiwanese life insurance company for $2.15 billion. This is larger than the sale of a motor subsidiary for $2 billion last year, making it the largest divestiture to date for AIG, according to the authors. AIG (AIG) is struggling to repay about $100 billion to the U.S. government.

Another big deal in the offing for AIG is a planned spin-off IPO in Hong Kong of AIG’s subsidiary AIA. This could bring in another $5 billion. Way to go AIG. You are only in the hole by $80 to $90 billion if all goes well, down from the more than $100 billion at the beginning of 2009. Do you have another $80 plus billion in assets that can be sold? If not, the U.S. taxpayer will have spent a considerable sum to have effected a slow-motion bankruptcy.

The controlled dismemberment of AIG is only one of the projects that may follow a similar path. I have seen nothing yet to change my earlier assessmentthat CitGroup may also go the same way.

If you want to counteract some of this negativity, read John T. Markham’s optimistic article at Money Morning.

My opinion about the extended nature of this financial crisis has not changed. It will take years, not months, to work out of this major credit dislocation.

Comments

[John Lounsbury:]

The copy of this article on my Instablog has links to four earlier related articles at the end of the text. seekingalpha.com/insta...

Oct 14 06:24 PM

[dragonpaw:]

Good to hear that all the ""too big to fail" banks are failing; all-be-it slowly but surely. The latest rally is but another Wall Street charade to drag in the little guy and cut him (her) off at the knees. So comforting to know that that the US carry-trade supported by zero-interest rates is there and strong to prop-up the latest bubble. Gov't Ponzi-schemes, schills on Wall Street (and most TV gamesters;e.g. Kramer ,at al), and world-wide manipulators (George Soros and,friends;Saudis,Rus... mid-east Holocaust-deniers, ad nauseum) are sure to bring the dollar to it's knees.
We will have squandered 200+ years of building the richest (35% of the world's wealth), the strongest ( "world police" as the rest of the free word grovels and scrapes to dictators), and the most just ( e.g.read terrrorists their Moranda rights on the battlefield) of recorded world civilizations.
Our children and grand-children will rightfully admonish us for being so arrogant and naive and subsurvient.
"We have seen the enemy ,and he is us!"

Oct 14 11:26 PM

[Steven Hansen:]

John,
nothing would surprise me about the banking system. this zirp creates a very large updraft, and part of its intention was to give the banks some breathing room to get healthy.

and this recovery is mostly for the big boys. i am sure you John are picking up some of the scraps (i am finding a few myself). the little guy has had his butt fried - and is reluctant to feast to heavily for fear the rug will be pulled out from under him.

so we are left with housing as the only thing for the little guy to get back some of his wealth. and of course this is the hardest thing to fix.

Oct 15 04:25 AM

[Michael Clark:]

seekingalpha.com/insta...

Another good article, John. I love to see AIG still paying out billions in bonuses. Are these people mad? Do they have no sense of proper limits? Do they not realize how angry Americans are becoming and how much Americans no despise bankers because of this?

Oct 15 04:35 AM