highalpine

C&I Loans Are Starting to Unravel

Good work! The charts, as they say, are better than a thousand words. Unfortunately, most of the press (and hype) has been focused on the political ramifications of the collapse of the "shadow banking system", and all of the sturm & drang around mark-to-market of toxic structured debt instruments. The collapse of Lehman, and the resulting seizing of the financial system brought a speedy halt to spending last fall. Now, as the charts show, we are entering into a classic business cycle credit contraction. The banks are already wounded, and the climbing asset problems will cause them to husband their capital. Any other response, like making new business loans into the teeth of a downturn, is irresponsible. This will play out over the next 9 -18 months, as it allways does. Pretty soon we will hear the inevitible talking heads expound on the recovery being delayed.

The U.S. Banking System's Terrifying Balance Sheet

Mr Salmon should at least get a small grounding in how banks work before he stands on a street corner with the "End Is Near" sign. Yes there are large problems to overcome. Yes, the marks on those assets (securities) have imperiled the banking system and have torn a hole in the capital base, and the govt is stepping in, but to follow Salmon's thesis (I can't use the term "logic") on the loan problem is laughable. Prior posts (Reese and Steve W) have it right. All the loans won't go bad. Those that do will have a recovery rate (on balance) of north of 60%. Salmon doesn't speak to the reserves already held against the probability of upcoming defaults, and lastly, he ignores the earnings on (modest though they be) the earning assets to support future losses.

Mr Salmon, stick to sports reporting. Your style and depth of comprehension is more appropriate for that pusuit.

Mark-to-Market Marches Towards Extinction

Interesting discusssion, but: 2 points

1. Banks are geneally levered at least 8:1 and most about 12:1 (8%tangible capital). The big ones more. If 29% of the asset base is subject to mark-to-market accounting, it doesnt take much of a move to impair tangible capital.

2. Watch out for TRUPs (trust preferred securities) in the smaller bank's investment portfolios. These are essentially bank holding company loans with no market and with a provision in them that lets the issuing banks PIK the dividend payment. IF PIK'd the impairment is going to hurt. But they only go PIK if the bank's in trouble. The smaller banks that hold these things are only in trouble if the security is PIK'd. Catch 22.

Regional Banks: Defining the California Ratio

a 50% value to REO is perhaps a bit severe, if the bank is following regulatory guidance and is bringing the asset into REO at fair market value, less cost to dispose, as they are required to do. Doesnt mean they do it, but their regulators are supposed to be calling them on it.

First Marblehead Fights to Free Itself from Credit Market Whims

Interesting article and analysis. The Savings bank must be providing a temporary haven for loan origination, however, it's capital base is insufficient to allow FMD to return to the origination volume that used to drive it's eranings. Further, the allowance for loan losses on Union's balance sheet is probably way low for the losses that the student loan portfolio will eventually show. Just look at the delinquincies revealed in the company's disclosures of it's securitization trusts (in Jan). That's probably why the T-1 capital has been raised so high at the savings bank. I agree that Goldie is probably helping to direct brokered deposits (a.k.a. Hot Money) to the savings bank. In my opinion, it's a good TEMPORARY tactic to gain some time, however, if the capital markets don't open up eveneually, FMD unfortunately will probably not make it. Finally, I thought the CapitalSource-Fremont deal cratered. I could be wrong, or do I have my faxed mixed up with the ier One acquisition?

Why I'm Not Long Downey Financial

Excellent analysis! KPMG is forcing Downey to account for the restructured loans as "TDR's". Further attempts to address the increasing delinquencies will only bloat the NAL levels more. While a portion will cure, the rising tide may overwhelm the earnings base. A significant writedown of the portfolio will cause a large erosion in capital, as the allowance for loan losses is now just a fraction of the non-performing levels. While the bank has about 700 million of capital in excess of regulatory minimums, it's not beyond the realm of possibility to see that floor challanged.