IanB

When Banks Stop Underwriting

Sadly, the moneycenter banks started giving up underwriting a decade ago when they switched the spreads on their loans from covenant-based to ratings-based. The same though occurred to me then - aren't the banks supposed to keep track of the health of their borrowers?

It was also interesting to note that the new pricing on some loans includes LIBOR plus the SUM of the spreads on the borrower's and the lender's CDS - now the borrower is paying for a downgrade of the lender's credit. Nice.

Preview of the Bank Buy-In

This could be even worse for the taxpayer than the original plan. We'll probably end up getting some noncumulative perpetual preferred with no voting rights and no exits, with a dividend that Warren Buffett would laugh at. Why in God's name shouldn't we dilute the shareholders? The shareholders (including myself) enjoyed the benefits of excess leverage on the upside, we should deal with it on the downside.