News Flash to BofA's Lewis: Demand Isn't Problem - Supply Is

Bank of America's (BAC) Ken Lewis talks to Fortune:  

Lewis is under no illusion that the next few years will be easy. “The Golden Age for financial services is over,” he tells Fortune. “It will never be the same, not in my career. Revenues will be far harder to get in the future.” [Emph. added]

Really? Let’s do a thought experiment, to see if that’s true.

Suppose you’re in the energy business, and a massive, global hurricane wipes out a huge portion of the industry’s infrastructure, from offshore platforms, to refineries, to pipelines. Capacity is reduced materially, at the same time that remaining participants, heaven help them, decide en masse to pare back investments in new capacity, and pay down debt, instead.

Long-term global demand for energy, meanwhile, hasn’t changed, and remains strong. You’re one of the lucky operators whose assets have come through the mess relatively unscathed.

Do you really think revenues will be hard to come by?

Neither do I. . . .

Comments

[Vox Rationalis:]

But you're missing part of the story. Your earth-sized hurricane doesn't just destroy the energy infrastructure - it destroys much of everything else, so there is certainly a demand aspect to your example.

Of course, your example isn't particularly apt, as much of the increase in revenue in the financial industry has been increasingly disconnected from the real economy for years.

2008 Oct 08 08:22 AM

[DSB:]

Care to call another bottom in the financials Tom?

2008 Oct 08 02:58 PM

[PlentyOStocks:]

Why does Tom need to call another bottom?
Of the stronger banks like BoA, WFargo, Keycorp, JPMorgan, First Horizon, etc, etc the 52 week low is still July 15.
Yes, we are testing that low, but we are not there yet.

Same for the Credit Card issuers like Capital One; its still July 15.
Amex is at a new low, but it did not go down like the others in July.

2008 Oct 08 04:25 PM

[PlentyOStocks:]

Tom point is demand drives revenue not the current fate of the banks...

The only way demand will go away is if people save up and pay cash for everything and throw their credit cards away. People will also have to just inherit and live in their parents house, so they don't need a mortgage.

They will also have to stop using online banking and debit cards. Are some of you saying we are going back to cash only?

We are not going back to life in the 1930's. The banks left standing will face less competition for quite a while, even if economic activity is down. Lewis did say "for my lifetime" not the next year or two. He was interviewed and gave a CYA answer.

Most of the bigger problems have not been in the banks. Fannie, Freddie, Countrywide, Bear, Lehman, Merrill, AIG are not banks. Wamu was the poster child for Subprime. Most banks are not. All those mortgage securities are mostly in the non-banks.

The banks around here are full of people buying FDIC insured CD's with money taken out of the stock market. This will increase bank capital, not decrease it.

Bank of America paid Zero cash for Courtrywide and Merrill. They diluted stockholders.

2008 Oct 08 04:49 PM

[DSB:]

Just shut up. It is clear that you don't understand what is going on, much like Tom. Tom called a bottom on July 15th, as meaured by the XLF when it was $17.17. It is now at $15.28, a full 8% lower. Tom then put out this 'disclaimer'

"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."

Tom said this on 7/22/08, when the XLF was at $22.49. As of today, the XLF is 32% lower than when Tom made that call. THIRTY TWO PERCENT LOWER!!!

This thing is a mess, and Tom continues to avoid the heart of the matter. People who have listened to Tom have lost money, when 'smart money' was pulling out of financials. How can one be SO wrong, and not own up to any of it?

Tom, we would respect you a lot more if you would at least own up to your bad advice.

There is a real risk of failure in the system. It may be a small fraction of a percent, but the risk is still there, and it has increased over the last 3 months. It would be nice to hear Tom acknowledge this risk and issue a cautionary note.

Look at the SEC website to see what second curve capital owns. If Tom had thrown in the towel 3 months ago, it would have avoided MILLIONS OF DOLLARS OF OTHER PEOPLE'S MONEY down the drain. That is reckless.

Paulson even said today that there is more pain to come.

That is all.

/rant over

2008 Oct 08 05:28 PM

[Buprestid:]

Ditto another terrible analyst.

2008 Oct 08 09:17 PM

[glassbox:]

I think when Lewis says revenues are going to be harder to come by, he is probably referring to non-interest revenue. Banks and financial institutions have done themselves a great disservice in the last 10 years by failing to self regulate and allow certain practises to go to the extreme. I've heard many people say that they have stopped trusting bankers. Frankly, banking and financial services will still continue but the ease of asking one to part with their money is no longer going to be the same - Wall Street has lost the trust of many - including themselves.

As for all of the rest who are here on this board spouting cynisim about Tom's analysis - let me have this to say: its precisely this cynism and high horse (I know better and you should have known better) attitude that has brought Wall Street to its knees. Prosperity is brought about by great men and women who are prepared to counter the current flavour of the day and look upwards and ahead - not backwards and down.

Tom, I'm an optimist by nature and do hope that things will recover. I'm sure it will, its just we will have to go thru a lot of pain before it happens. Its about time to just take the pain (instead of keep talking about it) and move on.,...

2008 Oct 08 09:52 PM

[BSexposer:]

Tom - please STOP POSTING, I mean, really. Who do you think would actually listen to ANYTHING you say after your utterly dismal performance the past 2 years, which will go down in the hedge fund hall of shame with laurels. If you had just shorted every stock you've endlessly pumped since the credit crisis began, you'd be FILTHY RICH by now. But you can't admit being TOTALLY WRONG ABOUT EVERYTHING. So, please, just give and stop embarrassing yourself further...

2008 Oct 26 12:12 AM