The Second Wave of Bank Troubles
Floyd Norris notes that the S&P financials have sunk back to their mid-March lows. But although the index as a whole is back at its mid-March level, its components generally aren't. What we're seeing is pretty much what Mohamed El-Erian predicted in April: the second shoe dropping, and the bad news moving from the world of financial engineering into a much more real world of struggling businesses.
During the next few months there will be a reversal in the direction of causality: the unusual adverse contamination by the financial sector of the real economy is now morphing into the more common phenomenon of recessionary forces threatening to undermine the financial system...
While the financial system has taken steps to enhance balance sheets, they speak essentially to addressing the consequences of excessive leveraging and imprudent financial alchemy. As such, the nasty turn in the real economy may fuel another wave of disruptions that, this time around, would also have an impact on mid-size and smaller banks.
So far, Wall Street still looks noticeably healthier than it did during the worst days of the Bear Stearns crisis. But Main Street, as exemplified by lenders in places like Ohio, looks much worse. Here are the biggest financial stock-price losers in the banking industry, from Norris:
- First Horizon (FHN), down 43 percent. (It is the parent of First Tennessee Bank.)
- National City (NCC), down 34 percent. Ohio's largest bank is under increased regulatory scrutiny.
- Wachovia (WB), down 21 percent. Its CEO was fired for losses.
- Huntington Bank (HBAN), down 21 percent. Also from Ohio.
- Regions Financial (RF), down 21 percent. It is based in Birmingham, Ala., where the county government may have to declare bankruptcy after getting caught in the derivatives mess.
- Fifth Third Bank (FITB), down 21 percent. Another Ohio bank.
- KeyCorp (KEY), down 19 percent. Another Ohio bank.
These aren't institutions which came unstuck when their leveraged super-senior trades imploded; these aren't banks which were lending billions of dollars to private-equity firms in the form of PIK-toggle bonds. Yes, they have real-estate exposure, but look at the states here: Tennessee, Ohio, Alabama. Not California or Florida, where the real-estate bubble burst most spectacularly.
Commercial banks are in many ways a leveraged play on the strength of their local economy. So while the March dip in the S&P financials was symptomatic of Wall Street's troubles, the June dip indicates something much broader.
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This article has 17 comments:
- Alex_G
- 43 Comments
Jun 09 01:02 AM- FXTrader40
- 10 Comments
Jun 09 01:38 AM- Eagle-Chief
- 67 Comments
Jun 09 01:54 AMThis is serious stuff. Read what Nouriel Roubini or Meridith Whitney has to say about the credit crisis.
- Toeser
- 14 Comments
Jun 09 07:34 AM- OJO Zafado
- 66 Comments
Jun 09 08:39 AM- tattors
- 4 Comments
Jun 09 09:47 AMthe Charlotte skyline is stricken with symbols of their excessive displays of egotism.... and now the NY banking cults are at war with these boys, as is Chicago... Hugh McColl and Ed Crutchfield made lots of opposition with their slashing and burning strategies... imo
- buyitcheap
- 408 Comments
Jun 09 09:52 AM- francis schutte
- 67 Comments
My Website
Jun 09 10:53 AM- Benl
- 1 Comment
Jun 09 11:02 AM- Skjellifetti
- 57 Comments
Jun 09 02:03 PMHuntington Bank is down due to a purchase of Sky Bank which has cost it the usual merger/acquisition/int... stuff plus Sky had a link to Franklin Credit Management Corp. (NASDAQ:FCMC) which has forced Huntington to take a $500 million loan loss set aside on subprime mortgages related to the Sky acquisition.
- OJO Zafado
- 66 Comments
Jun 09 02:20 PM- OJO Zafado
- 66 Comments
Jun 09 02:23 PMDoes any one have an opinion of the ETF PGF? Starting to look like a dollar cost averaging candidate.
- barcswine
- 13 Comments
Jun 09 06:46 PMapparent as the consequences of it are emerging now.
That said, even this financial crisis will eventually pass as such have in the past.
The FEDS need to pass financial "transparency&quo... legislation to insure this kind of fiscal disaster never happens again; and if it does, those responsible go to prison for a long, long time.
Federal bailouts I guess are ok short term to keep the US economy on an even keel. However, very stiff Federal fines and long prison sentences are required to eliminate the kind of wholesale greed from adversely affecting the innocents (us) ever again.
- Vegasjoe
- 56 Comments
My Website
Jun 10 12:40 PM- Emerald
- 124 Comments
Jun 10 01:25 PM- meatball
- 1 Comment
Jun 13 10:42 PM- messenger
- 1 Comment
Jul 21 12:04 PMMore by Felix Salmon
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