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Kurt Kendis

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  • Too Big To Value [View article]
    Well done Michael, but the forces of the trading world probably won't listen (they are too busy flipping warrants) and so the news streams are polluted with optimism. How did you avoid using the term 'opacity' until the last paragraph? Given the events of the past month we also can include 'partial transparency' as a sin of commission. Someone clever will have to conjure a 'complexity discount', because abandoning the sector seems impossible. A few sources look at things like audit intergrity and negative news flow, but perhaps the academics can look at the 'tone and intensity'(see NYU research) of all these revelations to give us a discount algorithm.Meanwhile I offer you a one page overview
    Mar 24 07:50 AM | 1 Like Like |Link to Comment
  • More on the Citigroup (C) upgrade at UBS: There are 4 legs to the catalyst not yet priced in. 1) and 2) The tailing of the earnings headwind and freeing up in capital from Citi Holdings 3) New efficiency ratios should add $0.75 in EPS 4) The DTA is set to release large amounts of capital over time. The bank - more than any other of the TBTFs - also remains a play on the housing recovery. [View news story]
    Excuse me....whatever happened to core earnings from core business activity? I understand that trading activity has sensitive triggers in all sorts of places ....but the four 'legs' that the UBS report cites as well as other positive signs are all from accounting items or structures and not the core businesses. Even the comments (speculating) on margin imrovement relate to accouinting.
    At the moment other banks are in the headlines for litigation risk, but Citi has added an extra billion in reserves. By over (IMHOP)emphasizing accounting results you allow for even more volatility in your scenarios.
    Mar 12 04:28 PM | Likes Like |Link to Comment
  • UBS's Lies [View article]
    It is not over. The claims from damaged counterparties-- Freddie and Fannie in particular --- will be many billions.
    Dec 20 07:47 AM | Likes Like |Link to Comment
  • Reserve Releases At Banks: More Scrutiny Required. What Are They Thinking? [View article]
    Dear 'It figures'; I must have asked over 100 people about the extent to which releases are discretionary, and I have been led through both the micro processes (determining classifications) and the macro processes (if there are excess reserves, why not put them in other buffers?) and I have seen sufficient examples to believe, as I said, that there is a great deal of 'wiggle room'. I am sure that the formal narrative will remain in support of the rules-based system but I do not believe it anymore.
    Dec 17 08:56 AM | Likes Like |Link to Comment
  • Ghoulish Bank Financials In Time For Halloween [View article]
    You may appreciate the data in "How Much Longer Can Banks Utilize Reserves to Manage Earnings?" 1 October 2012 by Todd Hagerman at Stern Agee. The charts and tables provide details I have not seen before.
    Oct 13 07:51 AM | 1 Like Like |Link to Comment
  • Why Banks Shouldn't Trade [View article] many of the banks' legacy burdens fall into the catagory of 'the inexorable logic of marginal thinking' ? (wonderful line....I hope everyone who steals it gives you attribution!)
    Oct 11 08:09 AM | 2 Likes Like |Link to Comment
  • Citigroup's Q3 Earnings: Surge Or Break Even? [View article]
    The 3Q12 published statements for Citi and all the big banks are (still) polluted with accounting items. You mentioned a few, but there are also litigation costs($350m), putback charges($150m), negative CVA/DVA hit($1.5b), and the MSSB transaction hits both OTTI and non cash earnings. There are more,and some offset (every back still releases reserves) so for all these companies 'fools rush in...'.
    Oct 9 08:01 AM | 1 Like Like |Link to Comment
  • Citigroup Is Undervalued [View article]
    Chris....Citi is still impossible to value if you consider the items on the balance sheet that are legacy assets or liabilites with no currently available market, or the enormous number of items in the P&L that are a product of accounting policies and not core earnings.
    Aug 27 07:48 AM | 1 Like Like |Link to Comment
  • Citigroup: Fed Should Let Citi Increase Dividend And Buy Back Stock [View article]
    Superficial analysis of large financial institutions is an opacity trap. You have to dig in and do the work to try to uncover the strange and very material items in the statements that are either hard to value (Citi holdings) or non core accounting items. To ignore CVA/
    CVA/DTA, litigation, complex impairment accounting, and the miriad of contingencies each quarter, even if they net, will eventually lead to tears.
    Aug 2 08:32 AM | Likes Like |Link to Comment
  • Mega Banks Must Shrink: Great For The Country, Better For Shareholders [View article]
    One of these arguements where everyone is correct! The giant banks must rightsize on a)scale b) complexity, and c) opacity. The accounting is not transparents since it is still dominated by material and sometimes wierd accounting nuances (DVA is best example), but the complexity is making the valuation problematic. Translation: there are many reasons to discount the large financial institutions until all the effects of a decade of excessive scale complexity and opacity are worked out (or regulated out) of the system.
    Jun 19 09:57 AM | 1 Like Like |Link to Comment
  • Wells Fargo's Economic Moat And Valuation Make The Company An Attractive Investment [View article]
    Your comments do not reflect the financial statements. WFC, like its peers,is overwhelmed with accounting items, hard to value assets, and a system for provisioning that is about to be revised. Not that these companies do not have value, but the analysis has too many variables. To be specific, WFC had (just in the past quarter) $314m in litigation,$218 integration costs,$100m mortgage servicing costs,$58m MSR losses,$400m in reserve releases. That is a lot of non core earnings components to digest, so I hope you are comfortable with pure market analysis.
    May 9 07:47 AM | Likes Like |Link to Comment
  • Fed supervisors are pressuring banks, including BNY Mellon (BK) and JPMorgan (JPM), to reduce their exposure to the $1.7T market for triparty repos. The obscure credit market is where many large firms get funding for their trading businesses, and there has been informal discussion about labeling it systemically important and bolstering oversight.  [View news story]
    This is an old issue, and an enormous potential Black Swan originally and extensively documented by Darrell Duffie and Antoine Martin almost three years ago. If I recall, even the credit documents are not perfected and the netting does not always match for these massive exposures. The real question is "Why does it take the regulators so long to act?" when the evidence is clear. Reference= “Strengthening the Tri-Party Repo System,”
    Authors: Darrell Duffie, Stanford University &
    Antoine Martin, Federal Reserve Bank of New York
    May 4 09:20 AM | Likes Like |Link to Comment
  • Bank Stock Risks Mount: Sell In May And Go Away [View article]
    Financials are overloaded with what you refer to as 'one time' items and are actually non core incomes and expenses. Financials are also loaded with still-difficult-to-value assets and risks. Your views seem unaffected by financial statements and although the Q's are just coming out a little (actually a lot) of homework will reveal that you are correct in your conclusion but focused too much on the markets. If any of several events (rate increases, property value deterioration) occur the entire portfolio of second lien assets (consumer and commercial) will have much less value than they are currently carrying. The reserve releases are dominated by 'balance sheet repositioning' -- the selling of risky assets and the acquisition of anything with a government guarantee and these releases cannot go on forever.
    This blog space continues to emphasize trading trends and not fundamentals, but here is a conclusion where both agree. Investors in financials' should only move towards solid 'core' earnings and a fortress balance sheet, just like we learned decades ago.
    Apr 27 08:04 AM | 1 Like Like |Link to Comment
  • The $31.6 Billion Blow To The Banking Industry [View article]
    Matt...This is a snapshot of a much bigger issue involving operation risk management (or lack of) at all levels of financial institutions. I would also suggest that this is a governance issue -- if nobody was auditing and verifying simple proceedures for simple products, then the 'risk assessments' apparently topped with assessments without proper followup. Then one by one, the regulators and the class action lawyers will be taking their shots well into the future.
    Apr 22 06:20 AM | Likes Like |Link to Comment
  • JPMorgan Reports Strong Revenue, Income; Mortgage Risk Looms [View article]
    There are still too many accounting items of very large proportions for straighforward analysis. Hits: $900m DVA hit ($0.14), $2.7b of total litigation costs, $302m of mortgage repurchases, and $200m of other servicing costs. Positives: $1.7b of loan loss reserve release, $1.1b gain related to the Wamu deal, $536m securities gains, $191m of MSR gains. These are all material and not part of core earnings IMHOP.
    Apr 13 03:04 PM | 1 Like Like |Link to Comment