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David Schawel
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Interested in agency & non-agency mbs, stocks, and options.
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  • Will Bank's take AFS gains to boost capital?

    As we look forward to Q2 earnings, it will be interesting to see how Banks responded to Fed's continued agency MBS purchases.  While the majority of the press has focused on lowering primary mortage rates to spur the housing market, relatively little attention has been paid to how it affects the Banks themselves.  It is unknown how the future regulatory reforms will unfold, but this much is certain: banks will be more motivated than ever to shore up their capital position.  This will happen whether its the raising of capital ratio requirements, or just pro-active urging of investors.
     
    It is clear the most the best option for banks would be to raise private capital.  Since very few banks will have the luxury to do this at an acceptable price, they must look for other ways to raise capital.
     
    When Q2 earnings come out, I would look for Banks to have taken significant gains in their available for sale (AFS) securities portfolio, buy selling off Agency MBS that had been propped up by the government purchases.  As stated above, these purchases were the government's way of "raising capital" for banks.  With fannie and freddie 4'5's trading into the 102's, large gains were to be had on these sales.  When earnings come out, don't be surprised to see these gains taken.
     
    Disclosure:  No positions

    Tags: JPM, WFC, FITB, RF, BAC, USB, PNC, Banking
    Jun 22 11:36 AM | Link | Comment!
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