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Banks haven't over-fired, says Meredith Whitney, arguing the big lenders are only about halfway...

Banks haven't over-fired, says Meredith Whitney, arguing the big lenders are only about halfway through their expense-cutting cycle. "I hope I'm around when the over-hiring phase returns." Washington can stay out of the "break 'em up" debate, she says as shareholders are taking care of it, not investing until the banks show they can "earn their cost of capital."
Comments (7)
  • I was involved in a total salaried reorganization cutback where everyone was permitted to apply for any position in the company, including your own if it was not being eliminated. Cutbacks are not pretty but provide companies the opportunities to streamline and hopefully become more efficient. What a wakeup call!!! More power to the Banking Sector.
    31 Jul 2012, 11:26 PM Reply Like
  • Too much Fed money sent to banks now residing back in the Fed's "excess reserves".

     

    Bruce Bartlett explains in his recent NYT story:
    "According to the Federal Reserve, they have $1.5 trillion in excess reserves. This is extraordinary. It is as if individuals took $1.5 trillion of their savings out of stocks, bonds and every other income-producing financial asset and put it all into non-interest-bearing checking accounts back in 2009, and just left it there."

     

    http://bit.ly/IUNZQ8

     

    "Economists have puzzled about this phenomenon for years. They note that historically the Fed never paid interest on reserves, but in October 2008 it began doing so. Moreover, the Fed pays interest on excess reserves as well as required reserves. Originally, the rate was 0.75 percent to 1 percent, but since Dec. 17, 2008, it has been fixed at 0.25 percent."

     

    "This may not sound like much, but keep in mind that interest rates on United States Treasury securities with maturities of less than two years are currently less than 0.25 percent. The effective fed funds rate is also lower than 0.25 percent. In recent weeks, it has been as low as 0.13 percent. Compared with these rates, a riskless return of 0.25 percent looks pretty good."

     

    http://nyti.ms/PpDnfJ
    1 Aug 2012, 02:20 AM Reply Like
  • Do the math, .25% on the $1.5 trillion excess reserves is ~$375mil risk free to the banks, although the spread will vary for each bank given how they fund (money center banks paying 0% for deposits are capturing almost all of it). I believe this is part of the continuing bailout against the real estate/mortgage collapse and one way the banks are rebuilding capital to write off the bad debts. By the end of the this year it adds up to $1.5bil and continues to accrue to the sector.

     

    The U.S. is working through the burst debt bubble (I have read that private sector U.S. debt levels relative to GDP have been reduced/written off since 2009 when the recession ended, although much of it has been transferred to the public sector which is well known /link below), but Europe is only getting started.

     

    http://yhoo.it/MRnpQu

     

    Europe remains the focus since their banking system is globally linked to all large banks via derivatives. The European banking system needs to guaranteed by the ECB/EBA and will need euro bonds to do it as they move toward fiscal integration. The only alternative would be a break up of the euro and that potentially could cause a major bank there to become insolvent. If that bank was a major player in the derivatives market it could blow holes in many global banks balance sheets and cause further insolvencies. This is why the large banks are being required to have the extra capital requirement, in my opinion.

     

    Until global debt levels fall back to more normal levels, growth will remain slow or worse with another recession. Given this scenario, banks have no choice but to continue to cut costs.
    1 Aug 2012, 03:57 PM Reply Like
  • Geodan, you missed on the decimal point: 0.25% of $1.5 trillion is $3.75 Billion per year and $15 Billion over four years.
    2 Aug 2012, 08:50 AM Reply Like
  • gjg49, Thank you, you are right, I missed keying an input on my HP12C (you run out of space in the window with these astronomical sums). The corrected number only furthers the pace that the bailout has achieved in providing capital to the sector.
    2 Aug 2012, 11:08 AM Reply Like
  • Geodan,
    You are welcome. As to "furthering" the pace, that is why I pointed this out to you--your argument is 10 times greater.
    BTW, I, and many others as well, also sometimes accidentally move decimal places--expecially in the rush to post something. Just goes to show something (not sure what though) about our humanity.
    3 Aug 2012, 12:48 PM Reply Like
  • Why wouldn't the banksters deposit at the Fed that pay .25% when the T-bill rate for buying T-bills is significantly less. You can't lose at the taxpayer's expense.

     

    http://1.usa.gov/NWFXvT

     

    This is just another example of socializing the losses and privatizing the gains.
    2 Aug 2012, 06:22 PM Reply Like
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