A bank-by-bank breakdown of exposure to mortgage risk under different scenarios indeed shows...

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kaa1016 Comments (175)
 
A bank by bank breakdown in 2007 showed that the credit problems were isolated to subprime and that the banks could handle any losses. Bank Of America's price action since April obviously disagrees with the above statement by CS. The financial system is even more fragile than it was in 2007 and this guy is trying to convince people that this is a manageable situation. I disagree.
26 Oct 2010, 10:25 AM Reply Like

7footMoose Comments (2242)
 
I disagree that the financial system is more fragile than it was in 2007. Since essentially no new loans have been originated in a couple of years, the banks have made some effort to add capital and old loans are either continuing to perform or being addressed in some way the situation has to have improved. Are we out of the woods yet, is the real question to be asked. I would say no. Will we continue to see bank failures and consolidation? I say yes. Are we in the midst of a financial melt down, only if the foreclosure gate problem is significantly worse than has been reported. Even the numbers above are considered by most to be worst case and the probability of worst case is low.
26 Oct 2010, 10:45 AM Reply Like

kaa1016 Comments (175)
 
The financial system is absolutely more unstable now than it was back in 2007 for a couple of reasons. First, the banks still own billions of dollars worth of paper that is worth substantially less than they report. Remember, we still live in an environment where banks are not marking to market, but marking to model. That in itself creates the illusion that the banks are healthier than they really are. Second, sovereign balance sheets are more stressed now than at any point since this crisis began. We all saw what happened a few months ago when it looked like Greece would collapse. Is Greece a systemically important country? No. But the entire financial system can not withstand even one sovereign default by a country as small as Greece. In essence, that shows the inherent weakness in the system. Very few even bring up what will happen if the economy rolls over gain. Why wouldn't it. The government spending that propped up the economy the last 2 years is ending and private sector demand is MIA. This is a powder keg that can explode at any given point. Look at the CDS's on BAC and some of the other financials. Do not underestimate how some of these problems manifest and grow into something completely unstoppable.
26 Oct 2010, 10:59 AM Reply Like

bbro Comments (7847)
 
CDS unfortunately don't have much predictive value...they tend to be coincident at best plus the product itself is insurance against default
so it has an inherent bias....
26 Oct 2010, 11:04 AM Reply Like

7footMoose Comments (2242)
 
In my opinion your points are correct but these things were in place but unseen and unknown in 2007. They are now at least known.
26 Oct 2010, 11:52 AM Reply Like

kaa1016 Comments (175)
 
They were known, just not properly quantified. Such is the case today. In terms of a CDS, they can be used to accelerate pressure on a stock and they also are used to show in real time the increased probability of default. Though not a magic bullet, it is a good indicator of stress in the credit market of a particular issuer.
26 Oct 2010, 12:00 PM Reply Like

bbro Comments (7847)
 
34 billion is very painful but not catastrophic.....45 billion a year in preprovsion earnings...
126 billion In TIer 1 common capital....933 billion loan portfolio with
a 43 billion loan loss reserve.....about 50 billion more in chargeoffs
spread over 2 or so years to reach normalized eanings.....tangible
book value currently 12.91....
26 Oct 2010, 10:39 AM Reply Like

Drobezisi Comments (11)
 
In the retail banking business, a loan portfolio would have something like 5% non-performing loans under very poor circumstances. So if BOA has a 933bn loan portfolio with 46bn in LLR, it is probably pretty well reserved under the circumstances. Of course, these are extraordinary times and one never knows, but I'm skeptical that the potential losses would be as bad as what's been priced in lately. But in any case, looks like it's going to be a fairly long slog before much price recovery, just because of the psychology out there right now - not really because of the fundamentals.
26 Oct 2010, 11:07 AM Reply Like

User 489326 Comments (272)
 
This is a "Chicken Little" The sky is falling story. The gloomers and doomers will hype the daylights out of the foreclosuregate story with warnings of impending catastrophe and collapse. They will also short the crap out of the bank stock and make a ton of money. The average Joe will get tired of hearing the sky is falling and will begin to buy bank stocks again. The G'ers and D'ers will then move on to something else just like they have with Greece, Spain , Portugal, Ireland etc., etc., etc,. I also look for things to quiet down after the Teabaggers have duped the American voter into voting for them. Let's hope the Baggers as a group are sharper than Christine O'donnell!
26 Oct 2010, 11:05 AM Reply Like

Tack Comments (9262)
 
User:

It's such a simple, reliable and near-foolproof strategy to let the chorus of doom decimate the target du jour, then, pick up cheap shares for quick gains on the rebound. Works like a charm, requiring little guesswork and equally low risk.

The recent Euro-debt panic was a bonanza for anybody buying the dip, and this supposed bank buster will turn out identically. In toppy markets, it's always nice to have some new panic fomented, so that a clear buying opportunity again presents itself.
26 Oct 2010, 11:25 AM Reply Like

User 489326 Comments (272)
 
Tack, very nicely said.
26 Oct 2010, 11:33 AM Reply Like

bob adamson Comments (4492)
 
I’m with user 489326 and Tack on this one.
26 Oct 2010, 11:49 AM Reply Like

Silvertip7 Comments (21)
 
floor on BAC?
26 Oct 2010, 07:57 PM Reply Like