Michael Shulman

Latest Bank Leverage Stats - Some Still High

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

America's Banks: Are They Really Insolvent?

Insolvency, in banking does not mean a bank shuts down in a meaningful way -- the customers can get their money, the loans are still serviced and so on. Insolvency means the banks have less tangible equity than liabilities -- and this is truly the case for several very large banks. Geither would not look like a deer caught in the headlights if this were not true -- and check out page 21 of the Citgroup town hall meeting presentation last November where they use acronyms to describe more than $1.2 trillion in off balance sheet assets. What insolvency means is shareholders in selected banks, over time, will be wiped out and so will some unsecured bond holders. Any solution you come up with, including bone head ones like suspending market rules, and there is so much dilution and so little of the current equity left shareholders get killed. And that is exactly the way it is supposed to play out. When I said this on Fox Business a week or two before Freddie and Fannie disappeared Ben Stein made fun of me, saying this was somewhere between improbably and impossible. So.....

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.....