Reggie Middleton

The Next Step in the Bank Implosion Cycle

RonB: Just because you don't see my name on a top performing list doesn't mean I am not a top performer. How in the world you know if I outperformed Buffet over the last 10 years or not? Because you don't see me on a list???

And that broad based analysis comment doesn't make sense either. The WFC analysis is 60 some odd pages of some of the most intense scrutiny that I have ever seen on the company. Since you didn't bother (or didn't pay) to read it, how is it that you can call it broad based - or anything else for that matter?

Wasted Lessons from AIG

Interesting that all of the critics of the article basically ignored what the article was about, which is naked swap writing. It was not about the names of the AIG execs, my business back then, my relationship with them, nor the split adjusted price of AIG.

BTW, thanks John, et. al. I don't frequent SA comments that often.

Banking Sector: Worst Is Yet to Come

viewfromnyc: some of the banks are so sick they cannot take advantage of zero interest rates. Even JPM, the most respected, has actually had declining NIM, even though the Fed has been letting them get money for free and FASB has implemented "look the other way" accounting for marking their assets.

If you look at the economic earnings of most banks, they are not earning money nearly as fast as they are losing it on stinky assets. No matter how high your margins may be for funding, if you are not making loans those margins are not going to be translated into profits. The only substantial lending done over the last year was refinances and government subsidized purchases (with the $8k tax credit), and both of those have pretty much come to an end.

Now, the reality of a deflationary environment and extreme slack in credit demand will meet the reality of extreme dearth in credit quality and the deleveraging of highly levered assets that where written at the top of a bubble. The result, crash....

Banking Sector: Worst Is Yet to Come

@ Joseph, you said:
"Our three largest banks posted superficially reassuring numbers for the second quarter. Bank of America and Citi both relied on profits to prevent posting enormous losses due to credit/asset write-downs. JP Morgan was only able to show a profit on the back of volatile proprietary trading profits. With no numbers disclosed to date that indicate the growth of problem assets has slowed we have every reason to believe that banks are using the least conservative accounting possible to mask losses."

This is what JP Morgan wants everybody to think. JPM took a loss last quarter of over a billion (unadjusted for risk), and hid it by tweaking their inputs on their MSRs (level 3 assets) to produce a profit where a loss would have occurred. Read all about it in the public excerpt on my blog: boombustblog.com/Reggi...

There a BIG surprises in all of these banks. BIG ONES! For those that subscribe to my blog, see what else JPM is hiding: boombustblog.com/Reggi...

Check those hidden surprises in Wells Fargo that go way beyond those CDS that were written by Wachovia in an attempt to sell those bogus CMBS: boombustblog.com/index...

Then there is this bank that is currently doing exactly what caused AIG to need a $183 billion bailout - selling naked swaps - your busted - boombustblog.com/index...

As for the guy above who doesn't think there is any business sense in my article because I lack optimism, I don't use optimism or pessimism in my analysis. Use of either is a recipe for failure. The only "ism" that I allow into the thought process is realism. I don't give advice, but if a bird on my should were to ask, I would strongly suggest that he take that to heart.

Why I'm Short So Many Financials

I'm sorry, I meant Citibank - not Bear Stearns. Anyway, we shall see how this plays out. I have release strategies on my blog that detail how I apply short strategies on the financials that allow me to participate on the downisde without getting burned if the stocks rally. The SA editors require the term "short" in their disclosure policy. Let there be no mistake, though. I am thoroughly bearish on many financial companies.

Why I'm Short So Many Financials

The government is not (directly, at least) backstopping the share prices, they are backstopping some of the entities. Hey, the government backstopped Bear Stearns, was that a good short?

Many a layman has a much, much too rosy outlook for the financials. I strongly suggest one takes a much closer look at that their balance sheets and prospects. Japan unconditionally backstopped their banks in the '80's after it let its credit and real estate bubble blow and pop, and of all of those banks backstopped, I can only find one that has survived intact, and it appears to have survived in name only.

Why I'm Short So Many Financials

I forgot to mention in the post above, that the point of the article has nothing to do with shorting financials. The point is that the systemic risk posed by the biggest banks in this country just got riskier after all we have been through. The banks are bigger, the risks are more concentrated, and apparently the political will to do something about it has effectively been stymied by the ever-so-effective Wall Street lobbying machine.

Why I'm Short So Many Financials

Shorting financials are risky due to the explicit and implicit complicity in the government's hiding these bank's true liabilities and financial weaknesses, not to mention the multi-trillion dollar support system that was set up for the larger banks. That being said,these liabilities and weaknesses have been hidden, NOT cured, thus still must come home to roost at some time.

Much of the big banks earnings that I have analyzed are illusory. GS skips a bad quarter to produce a winning Q1. They get a regulatory exception for their VaR reporting to mask the extreme increase in risk necessary to produce the trading profits that have masked weak business lines in nearly every other franchise that they had - and VaR still shot up dramatically. JPM took an economic loss last quarter, yet for some reason nobody seems to have taken notice.

Yes, the banks are making money due to ZIRP and government subsidies, but if you mark assets realistically, they are losing on thier legacy assets even faster.

More importantly, the money that the banks with brokerage/IB arms are making is primarily non-interest income. They are not making money conducting traditional bank business, they are making money pursuing activities that caused the collapse in the first place: speculative trading,

As stated in the article above, the small and medium banks should be up in arms and increase their lobbying pressure, for they are subsidizing GSs risk activities through their FDIC fees, yet when it is time to get bailed out GS gets well over $50 billion of direct and indirect support while lenders such as CIT and/or Indymac get shown the door.

The Coming Consequences of Banking Fraud

Petition to congress to break up the banks: www.sendmyvote.com/pet...

Is Wells Fargo Regretting Its Wachovia Acquisition?

If one were to actually parse the geographically dispersed credit risk of Wells, one would find this company steeped in up to $100 billion of credit losses. See boombustblog.com/20090... where I explicitly broke down the WFC situation.

More on Capital Ratios of U.S. Banks

Well there is plenty of info available that invalidates SCAP.

boombustblog.com/20090...

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Central Banks, Commercial Banks, and Lies: America Has Been Bamboozled

Thank you, dcb. I'm glad I'm not the only one who noticed the lack of love from the editors. I suppose my content is not what the editors consider most appetizing to their core constituency. I have recently updated the mortgage loss model behind this report and made it available as an open source project. After input from the community (isn't open source grand) it is actually more dire than even I and my team have originally calculated. See boombustblog.com/Reggi...

As Bank Industry Analysts Lose Jobs, Serious Blogs Take the Forefront

Contact Customer Support, they'll get you in - boombustblog.com/compo.../

Contemplating the Demise of Bank of America, Citi and JPMorgan

As pessimistic as you may seem, you are actually much too optimistic about the outlook for these banks. Citibank is an obvious sinkhole, but BACs recent acquisitions have pretty much done it in. It was obvious from the beginning that they couldn't handle both Countrywide and Merrill's purchase, and I am still of the mindset that they couldn't even have handled them on a singular basis as well. Alas we will never know since the government is pushing $50 billion (likely more) to bail them out.

As for JP Morgan, they are currently insolvent, and I mean very insolvent right now. At least 1.4x over. See boombustblog.com/Reggi... for a comprehensive, forensic analysis of their balance sheet. I am amazed that know one has called them to task on this earlier. I made it clear to my blog subscribers a month or two ago, but decided to bring it public since it appears that very few are seeing this company for what it is.

To be frank, I doubt very seriously if Dimon or Lewis were foolish enough to buy the rotting assets that they did voluntarily, thus I suspect government influence in play. The interesting twist is that BAC attempted to buy both Countrywide and Merrill without government aid, and obviously bone headed maneuver, even back then without the benefit of hindsight. At least JPM requested and received subsidies and debt reprieves (although it still will not save them, since the WaMu and BSC purchases are killing the balance sheet). Both of these companies could have gotten their last 4 acquisitions for free and still have been pulled deep underwater.

It is also quite interesting that the MSM has not carried anybody who has stated such explicitly and offered proof - there is a lot of proof abound. I have issued an ongoing challenge to those in the media who are willing to rate pundits by track record, in lieu of time spent being a pundit. See boombustblog.com/Reggi...

Super Brokers Form to Push Super Broken Products to Dupe Super Rich

@Monday1929

I'd be happy for you to take the other sides of my trades, and I'm sure my readers will gladly take you up on the offer as well. Those triple digit returns wouldn't be possible if we didn't have anybody to make them off of :-)

Hey, that's what capitalism is all about, isn't it?