levin70

More on Capital Ratios of U.S. Banks

Zach

My only comment to your comment is that the big 19 banks don't really hold much commercial exposure. The real exposure and real danger is to the medium and larger regionals. While they didn't play the residential subprime game, they most certainly played the commercial subprime game. And that is where they are hurting.

Regards

On Aug 02 09:45 PM Zachary Scheidt wrote:

> One of the biggest dangers to the capitalization rates (and ultimately
> to the banks survival) is the commercial real estate market. Many
> loans to developers and builders on the commercial side have not
> taken the hit that residential mortgages have. But the losses could
> simply be the next step of this ugly economic cycle.
>
> If losses begin to mount on the commercial real estate portfolios
> the capitalization rates could evaporate and it wouldn't surprise
> me to see TARP #2 (or #3). This would be very troublesome for not
> only the banking industry but for the overall economy (and ultimately
> the broader equities market). Risk control is still necessary although
> the current market would lull many investors to a false sense of
> security.
>
> Zach
> zachstocks.com

More on Capital Ratios of U.S. Banks

The article is slightly misleading.

If we include the exchange by C for its trust preferreds into common, we note that its TCE doubles from the first quarter measure. If we also include the asset sales by Citi, its TCE comes out almost triple what it was as of Q1.

This would raise the TCE of the Top 4 from the article presented 4.4% percent to over 6% (its a simple average weighting so if one increases by 3x its not hard to move the average)

This shouldn't imply in any way that I believe those to be adequate measures - for smaller banks a TCE between 6-7% is just fine really. But for banks that have grown to well over a Trillion in assets, the risk model should be adjusted (severly I might add, in such as way as some might consider it a penalty in fact) such that systemic protection is at a paramount

Regards

Auction the Warrants: Follow-Up

"This is a key point. ”A deal is a deal” should be a guiding principle in dealings between the government and the private sector. Unfortunately, that hasn’t always been the case in TARP."

Too true on the last sentence. You could easily make the contra argument about the Gov't changing the compensation rules of private companies as a deal breaker for not changing the rules re: the warrants. In addition, certain we have now seen the e-mails and heard the exchanges where certain TARP investments may not have been exactly made at "arms-length" and thus another question on why not change the rules.

I like the idea of selling off the warrants to private investors in auctions.

Kind Regards

The Nationalization Debate: Confused by Surowiecki

To the OP

From what I remember reading of the footnotes, the definition of "risked based assetsl" in the FED stress tests was to exclude cash, soverign debt assets (us treasury securities and repos) and agency MBS's (since those now are in receivership, I assume the FED thinks that they are essentially the same as us treasury securities) as those are considered by the FED as "riskless"

Regards

BofA's State of Denial

"The stress-test capital requirements are in addition to regulatory capital requirements, not a replacement for them. And since the government’s preferred stock does count towards a bank’s regulatory capital, then you can’t just repay it on the grounds that it doesn’t count in the stress-test calculations."

Felix - are you sure that the results of the stress tests were inclusive of the TARP funds? I haven't read anywhere the details where this is so. If so, could you please indicate where you read such authoritative literature?

Why are Banks Playing Hardball with Chrysler?

Why shouldn't the banks play hardball. They lent money to Chrysler, received a first lien security interest in substantially of their assets. I don't remember one article when the gov't gave money to Chrysler that these banks were holding a gun to the Administrations head saying "do it or else". The government has three choices; (1) accept the higher settlment offer from the banks, (2) let chrysler go into BK and let the BK judge sort it out or (3) fire the boards and management of the banks

I guarantee you the worst outcome is #3 as this will lead to a complete stoppage of all banking activity in the US as everyone heads for the exit at the same time.

Regards

More Stress Over Stress Tests

"However, a bond will sell below par for one of two reasons -- either because ambient interest rates have gone up, or because there is substantial doubt about the ability to repay. With the entire yield curve near record lows, it is clearly not the former. Also, most bonds come with covenants that say the bond can not be called (i.e. paid back) before a specific date, and then only at a specified price -- which is usually above par. If such "theoretical profits” are the only thing that put you in the black, you are not in very good shape. Gee, just think about how much money they would make if they declared bankruptcy!"

Nothing stops a company from going out into the marketplace and buying the bonds. That is why they can be marked at the lower value, not because of put or call features. By buying back the bond at a lower price, they get to book a gain. If the market is liquid for the Company's bonds then they can record them at fair value just as if they are not liquid, they can't.

Regards

Bank of America Punishes Customers Who Dare to Have a Balance

I'm sorry, did someone put a gun to your head and make you BORROW money from BOFA? If you don't like the terms go elsewhere. It really is that simple. There are thousands of banks in the US that issue credit cards, so its not like you don't have choices. Even better, stop borrowing money from BOFA and pay them back.

Stop whining on blogs and move your money and borrowings elsewhere. That will send a far bigger message to BOFA than your simplistic rants here

Regards

Banker CEOs Lied to Congress

If the question that was asked was "what was your stock based compensation granted in 2007"

Why is the OP posting grants from 2006 and 2008? That doesn't make sense to me. As long as they listed the grants from 2007 that's all that they need to respond with, not in addition to that i was granted a bunch in 2006. IF the congressman wanted to know about 2006 and 2008 he should have also asked about 2006 and 2008.

What am I missing?

GM's Tough Treatment Should Be a Model for Other Bailouts

Rick

Let me first preface this by saying that I actually think having the FDIC take over the banks and having the holding co's go into bk, but realize that at a policy level that might not be "financially correct" let alone "politically correct". My comments below discuss as such

One of the reasons why this hasn't happened is because of the fact that the banks have the cash to repay TARP. Would it be economically sound, no, but they could, and as a choice between being booted with no severance and paying back the TARP and being able to pay market salaries, they will chose paying back the TARP. There is no downside as worse case, would result in having to have the FDIC call the banks insolvent and the holding co's would go bk. The difference being is that a bk judge sets compensation for management, including offering very nice retention bonuses. Remember, the FED and treasury have said they want oversight and the ability wind down holding co's, but they don't have it yet. That means a nasty BK for the holding co level, which would trigger a lot of angst in the markets right now a la lehman bros.

I think the Treasury guys have already explained that they cannot play chicken yet with the banks as the banks management would actually receive higher compensation under bk then they would under TARP and that would be bad, very bad. Law of unintended consequences you know

Kind Regards

Are the Big Banks Gaming the Taxpayer?

If Citi and Bofa are creating markets for these, then they are no longer "illiquid securities" and may not fall under the PPIF. Not only that but the guys running the money for the PPIF can see these trades too and thus wont except prices above those amounts, in which case its neither loss nor gain for citi/bofa

Im not sure I see the problem here, unless of course the guys running the money are truly stupid. I guess thats possible.

Kind Regards

What Else Are the Banks Hiding?

Tom

What you need to do to find out whether the SIV's portfolio will need to be consolidated is to read the agreements that were filed when the SIV was created. Those documents are all on the individual bank's SEC filings page. What you are looking for are provisions within the controlling documents that indicate under which conditions , and this is really important, "IF ANY", that would force the bank to make up for losses within the porfolio, and this is just as important, should those losses exceed the equity within the SIV. If the agreement is that the bank never needs to make up the losses, no matter what, than obviously, you can toss that SIV out and not worry about it - the investors and bondholders are on an island. It then becomes a grading/ranking of provisions within the remaining population - ie which SIV's have easy triggers to require the banks to pony up more collateral or equity vs which triggers are hard.

Obviously, its a whole lotta sluething, but that's why those wall street analysts get paid the big bucks.

Kind Regards

The Escalator of Life Is Going Down (Part 2)

If there is one thing I hate its retread without checking what your retreading. I will give one example because thats all the time I have - that nice subprime graph showing the resets coming coming from neg am and other loans. That graph is from a Nov 2007 Deutch Bank presentation. The data is from 2006.

I hate to tell you this, but 2006 data is so old right now in regards to loan resets its rediculous you even included it. Care to bet how many of those loans are gone already, wanna guess?

Please do a better job retreading what other blog writers are writing on other sites. It will save some of us the time we read your articles that we could be doing something far more productive

Regards

BofA, Wells Fargo: No Equity After Accounting for Bad Loans

ChrisB

How did we get there? Simple - that was the greenspan put


On Mar 05 03:48 PM Chris B wrote:

> "Now take it to the bear sterns extreme and you bought your house
> with a 3% downpayment and funded the rest with overnight commercial
> paper that you need to roll every day." -levin70
> ----------------------...
> You're exactly right. Now, how did we get to the point where mortgages
> were being financed with short-term revolving commercial paper instead
> of bank depositor's money? When did we get to the point where Bear
> Stearns, Goldman Sachs, Wachovia, Countrywide, etc. were borrowing
> from the investment markets to underwrite, bundle, and resale mortgage
> backed securities? Glass-Steagal was repealed because it was considered
> to be stifling this kind of "innovation" and keeping the investment
> banks out of the action.
>
>
> "Lets assume in your example, that instead of a 30 year mortgage,
> you bought your house with a 3 year mortgage in 2006. Your maturity
> date is November 30, 2009. You are now seriously constrained in that
> your house will be around for 27 more years, but you need to pay
> off the principal in only 6 more months or find someone who will
> roll the paper. Now what are you willing to sell the asset for? -levin70
>
> ----------------------...
> When investment banks could borrow commercial paper at 1% annualized
> interest, they thought they could afford to issue 3 year ARMs at
> 3% interest. It's safe to say those kind of arbritage opportunities
> have dried up, and now mortgage investment funding is virtually unavailable.
>
>
> Note that in the pre-1999 world of traditional banking, the mortgages
> could have been refinanced using depositors' money even during a
> recession / credit crisis. Depositors were willing to lend in a crisis
> because it was FDIC insured and convenient and because they knew
> the lenders had incentives to write good loans. The money that underwrote
> most lending in the last several years, however, came from fickle,
> liquidity constrained investors. The supply of such money is inherently
> instable, especially in a crisis when banks need it most.
>
> Again, this is what always happens when you combine commercial and
> investment banking.

BofA, Wells Fargo: No Equity After Accounting for Bad Loans

Rigged

You obviously have no idea about accounting theory so i would suggest you not comment on it.

Traditional bank loans are not accounted for under FAS 157, ie they are not marked to fair value at each reporting date.

In addition, the problem isn't M2M anymore - that was a 2007 problem. The problems now are loan loss reserves (see my comment above) covering regular bank loans, from home loans to credit cards to commercial loans. Those provisions are still calculated the way they have been for 50 years (i understand the simplification doesn;t make this totally true). If you go back and look at the large bank filings when they reported earnings in January you will notice that the actual losses on the M2M marks were actually small. What you saw causing the ballooning losses were the loan loss provisions (i exempt from my statement above the loses at ML - those were more marks than loan loss provisions)

Regards


On Mar 05 02:23 PM Rigged wrote:

> In M2M even PERFORMING loans (i.e. bank getting positive cash flow
> from interest payments) are being forced to mark down to the current
> depressed market value. So banks are forced into take writedowns
> on PERFORMING loans that are actually making money for them.
>
> If you have a rental property that is making you a positive cash
> flow of $300 per month. Would you sell it at a current market value
> if it means you will lose money (i.e. having to put up some extra
> money to cover the difference in the mortgage owed and the sale price?)