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

Securitization Accounting Rules Changing, But Interagency Action Necessary

"I don’t know what this all means because I never understood the old rules and don’t know what the new rules will do to financial reporting."

Mark - its nice you own up to knowing nothing about the subject. However, given that fact, I find your desire to write the President about your ideas on how to fix a problem about a subject you know nothing about, pure hubris. Btw, the SEC, one of the "intergovenmental" agencies you want in the decision making process, is actually required to sign off on the new standard, as the SEC oversees all FASB pronouncements as they relates to US reporting companies.

Please try harder

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

Will Banks Lead the Way to 1929 Crash Part II?

Andy

Not all banks are heavily exposed to the four horseman of the housing apocalypse (IE, LV, AZ & FL). And even some large banks are not that heavily exposed. Thus even with significantly increased credit loss exposure for mortgages, cc, commercial and other loans their net interest margin more than offsets those provisions. They won't make big money, but they will eek out small profits so long as they lend at 5+% and their cost of funds are 0.25%.

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?

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 Three Riskiest Banks - American Banker

I like to add perpetual preferreds to common equity when looking at ratios to tangible assets. However, if the preferreds have call provisions into cash or other assets aside from a conversion to common, then treating them akin to debt is preferable (even if the cash call provision is contingency based)

Kind Regards

Bank Nationalization: It's Just Plain Wrong

I'm sorry, but this has to be the worst article on SA in a while.

Go ask Japan how well your solution worked from 1989 through 1998? Let me just refresh your memmory - it didn't work at all. Zombie banks don't make an ecomony strong, in fact the opposite happends, it leads to ever weaker economies.

Do we follow the Japanese down the same path to another lost decade?

Insolvent financial institutions must be allowed to fail. Let the vultures pick over the carcases and restore liqudity to the system.

Regards

Thinking the Impossible: Could Bank of America Go to Zero?

You talk about the derivative portfolio in gross nominal terms, trying to stimulate a discussion about "the bank's balance sheet" however, there is no discussion about the duration of those contracts, the netting of positions, the counterparty's and the collateral held against those positions

Until you do so, this article lacks any real substance

Try again please

Kind Regards

Contemplating the Demise of Bank of America, Citi and JPMorgan

Just one point asking for clarificaiton on the JPM numbers above

From 9/30 10Q issued

SHE was listed at 145 billion with 46 billion of gw and 22 billion of other intangibles. This is 86 billion of tangible net. However post 9/30 they received 25 billion in tarp funds with a 4th quarter net income of 0.7 billion. Tier 1 capital listed from the 10Q was 111 billion.

Therefore, I understand how you came to the 136 billion T1 number, but I think you may have misstated the tangible net worth. It appears it should be 25 billion higher at 111 billion, not 86 billion

Kind Regards

Four Banks to Bank on - Barron's

Wake me when the stock price falls to somewhere around 1/2 tangible book - the same ratio during the last S&L crisis. Although i will say that JPM is now sporting a nice 6% yield, but I will wait for lower prices.

Kind Regards

Bank of America Facing Mortgage Servicing Losses

Why not just let the servicing companies go broke at your expense, and work out the loans later if it's still necessary?

ChrisB. The reason is because the advance payments occur only so long as the servicer shows the loans in non-default status (as defined by the service agent agreement). Once the loans get put into non-accrual and default status, the servicer stops advancing against the loan and is then able to file to receive its advances back from the investor.

Kind Regards