The Simple Accountant

Can Citigroup Flail Its Way to Solvency?

The problem with breaking up Citi is that someone is going to have to be left holding the bags of rubbish, and it appears there are few volunteers. When the "bad bank" discussions petered out, so did the prospects for Citi to offload that stuff without taking a scalping. This thing has the stink of death about it.

Wells Fargo, JPMorgan and Bank of America: Stock Prices Can Double

Not too sure about this thesis. While I don't analyse bank financials, I do know from conversations with bankers in the area that Wells is carrying large amounts of very problematic Wachovia RE development loans. Wachovia did a number of major deals these bankers wouldn't dare to touch even in the go-go years. It's not clear to me that they have made adequate provision for all of this stuff, so I have avoided Wells stock. B of A raises suspicion due to its ongoing leadership problems; there may be more snakes in that woodpile than we know. Morgan may be the best of what looks to me like a slightly disreputable group.

Overall I am reluctant to buy the US banking giants, especially when there are (apparently) healthier banks with intact dividends such as BMO and STD. On the other hand, the Fed have made no secret of their intention to nurse these banks back to health, and we all know better than to fight the Fed, so perhaps the thesis has merit.

Disclosure: no current position in any financials

It May Be Time to Go Contrarian

@Mad Hedge:

To clarify a detail, Dave Rosenberg was chief economist at Merrill; Rich Bernstein was chief strategist. Their departures this spring have left B of A - MLS a much poorer firm, from a client perspective.

Citigroup Is Too Important to Fail, Which Is Why It's a Great Long Term Investment

As has been observed elsewhere, Citi common is trading like a very long term option on the shares. It's certainly not a core holding, but at $3, why not put some speculation capital into it, and see where it goes in a few years?

Bill Miller vs. Meredith Whitney - Why They're Both Right

Counties desperate for revenue can't make impact and related fees from sales of existing homes, nor can developers, builders, subcontractors, materials suppliers, etc. Residential construction is too important a part of the local economies, especially in the sunbelt, for them to recover without those industries going back to work. The banks are simply a part of the entire complex, they need the economies to get going as well. All of the commentators who said the best thing for a housing recovery would be to plow under all of the excess housing stock, were not being entirely facetious.

Why Capping Pay Is Likely to Work

The type of individual who would be attracted to a senior management role at a major financial institution, in this era, is not going to be the person who is motivated primarily by salary. Having worked with CEOs and entrepreneurs, albeit at a smaller enterprise level, my observation is that the better ones are more motivated by the challenge, and the sense of accomplishment or adulation, than by pure avarice.

They see themselves in some sense as heroic figures, and that may not be such a bad thing given the present circumstance. Imagine the public acclaim that would go to the CEO who "turned around Citi" or "saved B of A." My sense of the zeitgeist here is that this is what people seek.

Turning Japanese: The Audacity of Reality (Part 3 of 3)

Very good analysis, for the most part, though some points are debatable, particularly the anti-SEC bits. Yes, they failed to do their job, but that doesn't preclude them from shaping up and getting on with it.

In terms of stimulus, we could look at the country as if it were a business firm. Parts of its capital stock are depleted and could benefit from being refurbished. This means that investment in growth producing capital goods is the order of the day. Spending for its own sake, as you point out, is part of the problem rather than the solution.

The important distinction that one hopes (I have little confidence) the authorities will keep in mind, is the difference between spending and investment. The "projects" detailed in the essay are too much of the former and too little of the latter.

Roubini Attacks Bailout, But Misses Boat on Regulation

The market dislocations over the last 12 months have been in part a reaction to undisclosed or improperly stated risk, and the re-pricing that it requires. Certainly there are macroeconomic forces at play as well, but let us leave those aside for the purpose of this discussion. Orderly markets require a reasonably reliable way to measure present values, future cash flows, probabilities, and all the other fundamentals of finance.

Of course, that is not news to the learned readership here, but the point is this: Policy makers and regulators need not to lose sight of the fact that their role is to provide market participants with a reasonable assurance that their analytical tools will work properly, and then leave the market participants to conduct their business.

The Simple Accountant believes that the authorities have made an error, perhaps an understandable one but an error nonetheless, in putting public resources into the rescue of individual financial entities rather than systemic assurance of transparency, for example. Professor Roubini's call for more (should we say better?) regulation seems more agreeable than Mr. Shedlock's call for the complete absence of it, but the abhorrence of both gentlemen for "socialism" in the financial markets is well founded.