Michael Shulman

Geithner's Plan Fits Perfectly with New Mark to Market

The net impact of Geithner plus a new MtoM accounting standard will be increased, and, for some banks, unwanted transparency. Banks will have to distinguish what is written down due to impairment and what is being held due to illiquidity. Once the auctions begin, banks unwilling to participate and keeping assets in the illiquid category will be seen as having marks too high -- and privtae investors will react accordingly. The banks that take the hit, either mark their assets down to where they belong and/or sell them at auction will be the first in line to receive private capital. I am no fan of Geithner's plan but in combination with the new MtoM rules, and stress testing, banks will begin to fall into various categories of "investor worthiness" -- private investor, that is.

Latest Bank Leverage Stats - Some Still High

THis does not include off balance sheet assets....Citi has $1.2 trillion.

The Market Is Improving, Cancel the Coffin

Fundamentals win out, always, over time. The market is driven by earnings and the multiple of that earnings. It is currently selling at more than 16 times the now mid-range case for S+P 500 earnings -- the multiple stocks get in a 3% plus growth economy. Large banks -- Citigroup and BOA, and come to mind -- are technically insolvent based on their current asset holdings and conservative projections for future mortgage defaults. JP Morgan Chase and Wells are sitting on more than $150 billion in option ARM mortgages they hold, so they are writing them down as the are impaired - they do not have to use mark to market rules on these assets. That is at least $75 billion -- probably more -- in write offs in the next three years, I could keep going -- listening to the bankers yesterday was like listening to the Wizard of Oz -- you are waiting until the stress tests are over and Toto pulls back the curtain.....