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

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