cranyinnyc

A Granular Look at the Stratified U.S. Consumer

i am not jeff but rather a buy side analyst who has regularly read Rosenberg's reports. you would be the first to want to get recognition if you ever could come up with an original (and at the same time good) piece. it sickens me when someone won't just man up and give recognition to those authors/analysts that are actually responsible for most of the work. Tyler deserves praise for bringing attention to work that may not be getting it but not praise for the work itself.


On Aug 16 11:12 AM wheelbarrelsofcash wrote:

> Stop whining like a little girl Jeff

A Granular Look at the Stratified U.S. Consumer

hey you should claim very little credit for this post and don't hide behind that throw away line that you relied on a BAC report. First of all you should be kind enough to at least name the author (Jeff Rosenberg) and secondly you should pass off as your thoughts what are summaries of the Rosenberg's report. Ever heard of quotations??

Has Sheila Bair Finally Learned Her Lesson?

you clearly have no idea what the FDIC proposal actually entails

Mark-to-Market: Of Course Not at Par - That's Par for the Course

finally a reasoned and knowledgeable explanation about FAS 157 and why it is not the cause of the problems but rather a reflection of the underlying problem!

one point to add is that if you don't have match funded term financing you can't pretend to hold the asset to maturity so you must mark it to market

A Loan Loss Reserve Primer: Beyond Simplistic Ratios

Tom, your lecture on asset quality and how analysts misuse/misunderstand the metrics would have more impact if only you could show you actually understood and followed your own 'advice'. Hmm Indymac comes to mind

FAS 157: Let the Tweaking Begin

Another misinformed attempt to blame the problem on accounting rules rather than high leverage and weaken underwriting.

Other than temporary impairments in not new nor was it a product of FASB’s move toward more reliance on of fair market values. It existed in the S&L crisis.

Other than temporary impairments are only taken on assets that are designated by the banks as held to maturity and as a result the assets were valued at amortized historical cost. Such impairments are not automatic when the fair value is below amortized historical cost. In fact management has wide latitude and only has to book OTI charges when it is clear that even if they held the security to maturity they would not realize the amortized cost. Such OTI hits have been very modest thus far. They are not why banks face capital pressures.

By the loans are accounted on an analogous manner. When the banks expect they will not be repaid the full loan balance they are required to make provisions for loan loss reserves.

Stop trying to blame accounting you are only enabling zombie banks.



On Mar 15 08:43 AM bruggs wrote:

> The issues on mark-to-market are numerous. The biggest issue that
> has hurt banks in the past year is related to Other Than Temporary
> Impairment charges. This is where fair value accounting is absolutely
> broken. If a bank estimates that they will incur a loss in the future
> on an investment due to credit issues, it must mark that investment
> to market through earnings immediately (which hits capital).
>
> For example, many banks as well as the Federal Home Loan banks have
> securities which were originally Aaa that now have estimated losses.
> These estimated losses occur over 20 or 30 years and might be 2 or
> 3% of the balance. With market liquidity so strained, these securities
> are trading at 40 to 50% unrealized losses. So banks write off 50%
> of the bonds through earnings when they expect to receive 97% of
> the principal back.
>
> This accounting is non-sense. Allow the banks to mark the investment
> down by the estimated losses and not the fair value (when little
> or no bonds are trading). There are other OTTI examples like this.
> OTTI accounting needs to be reformed now.
>
> If loans were accounted for in this same manner, the entire banking
> industry would be undercapitalized. Banks are entities which raise
> deposits to fund illiquid assets. They earn net interest income cash
> flow from these assets and liabilities. Most banks (excluding the
> larger banks with broker dealers) do not actively trade assets. Why
> account for these activities using trading levels? It makes no sense.
>
>
> Let the banks get back to serving their purpose. Regulators need
> to restrict trading activities in the future to make sure the larger
> banks that were trading do not hurt the rest of the industry. Accountants
> need to reform the accounting policies to properly report the activities
> and cash flows of the banks (especially the banks which take deposits
> and lend without trading).

FAS 157: Let the Tweaking Begin

Another misinformed attempt to blame the problem on accounting rules rather than high leverage and weaken underwriting.

Other than temporary impairments in not new nor was it a product of FASB’s move toward more reliance on of fair market values. It existed in the S&L crisis.

Other than temporary impairments are only taken on assets that are designated by the banks as held to maturity and as a result the assets were valued at amortized historical cost. Such impairments are not automatic when the fair value is below amortized historical cost. In fact management has wide latitude and only has to book OTI charges when it is clear that even if they held the security to maturity they would not realize the amortized cost. Such OTI hits have been very modest thus far. They are not why banks face capital pressures.

By the loans are accounted on an analogous manner. When the banks expect they will not be repaid the full loan balance they are required to make provisions for loan loss reserves.

Stop trying to blame accounting you are only enabling zombie banks.



On Mar 15 08:43 AM bruggs wrote:

> The issues on mark-to-market are numerous. The biggest issue that
> has hurt banks in the past year is related to Other Than Temporary
> Impairment charges. This is where fair value accounting is absolutely
> broken. If a bank estimates that they will incur a loss in the future
> on an investment due to credit issues, it must mark that investment
> to market through earnings immediately (which hits capital).
>
> For example, many banks as well as the Federal Home Loan banks have
> securities which were originally Aaa that now have estimated losses.
> These estimated losses occur over 20 or 30 years and might be 2 or
> 3% of the balance. With market liquidity so strained, these securities
> are trading at 40 to 50% unrealized losses. So banks write off 50%
> of the bonds through earnings when they expect to receive 97% of
> the principal back.
>
> This accounting is non-sense. Allow the banks to mark the investment
> down by the estimated losses and not the fair value (when little
> or no bonds are trading). There are other OTTI examples like this.
> OTTI accounting needs to be reformed now.
>
> If loans were accounted for in this same manner, the entire banking
> industry would be undercapitalized. Banks are entities which raise
> deposits to fund illiquid assets. They earn net interest income cash
> flow from these assets and liabilities. Most banks (excluding the
> larger banks with broker dealers) do not actively trade assets. Why
> account for these activities using trading levels? It makes no sense.
>
>
> Let the banks get back to serving their purpose. Regulators need
> to restrict trading activities in the future to make sure the larger
> banks that were trading do not hurt the rest of the industry. Accountants
> need to reform the accounting policies to properly report the activities
> and cash flows of the banks (especially the banks which take deposits
> and lend without trading).

FAS 157: Let the Tweaking Begin

This is incredible. So many people who know nothing about accounting are leaping to the conclusion that all these problems banks are experiencing are either the result of or exacerbated by mark to market. Nonsense!
First, only assets (and liabilities) designated by the bank itself as TRADING assets are subject to mark-to-market accounting with the gains or losses impact earnings and consequently regulatory capital. Let me repeat the banks acquired the assets and THEY decided they wanted to use mark-to-market accounting because they INTENDED to trade the assets not hold them to maturity! Nobody 'forced' the banks to do this.

Second, when there no longer is a functioning market for a trading asset the banks can use Level 2 or Level 3 methods to value the assets (Level 1 is to use available quotes). Level 2 method looks to functioning markets of similar assets to derive key inputs such duration, discount rates etc. that the bank will use to value the assets based on its cash flows (so called marked-to-model). Level 3 can be best described as mark-to-myth. Assets valued this way have nothing to do with any quotes. The bank forecasts cash flows and durations then values these cash flows using discount rates they believe appropriate.

So assets that were once so liquid that the banks bought them to trade (i.e. never had the intention to hold them to maturity) but now there is a wide gap between what the bank thinks they are worth and the bids they are getting (if any) are now valued by the banks at values they think they are worth and not at the bid price.

Assets the banks designated as available for sale are subject to the same mark-to-market rules as the trading assets but the resultant gain or losses do not effect income (the gains or losses net of taxes are booked directly to equity through accumulated other comprehensive income or AOCI) nor do they have any impact on regulatory capital (AOCI is excluded from tier1 or core capital).

Third, the overwhelming majority of the banks’ assets (and more importantly the banks credit exposure and source of future losses) are valued at amortized historical cost.

Mark-to-market has neither forced banks to sell assets at prices they consider too low nor has it forced them to raise capital or sell other liquid assets to meet capital demands.

So why is mark-to-market ‘pro cyclical’ and why will its removal help?

Accounting Rule Changes Creating False Rally in Financials

I am sorry but clearly you have no idea of mark-to-market acccounting for banks.

First, only assets (and liabilities) designated by the bank itself as TRADING assets are subject to mark-to-market and the gain or losses impact earnings and consequently regulatory capital. Let's dwell on this for a moment the banks acquired the assets and they decided they wanted to use mark-to-market accounting because they INTENDED to trade the assets! no one 'forced' them to do so.

Second, when there no longer is a functioning market for a trading assets the banks can use Level 2 or Level 3 methods to value the assets (Level 1 is to use availble quotes). Level 3 can be best described as mark-to-model -it has nothing to do with any quotes. The bank forecasts cashflows and durations then values these cashlows using discount rates they believe appropriate.

So assets that were once so liquid that the banks bought them to trade (ie never had the intention to hold to maturity) and now turns out that there is a wide gap between what the owner and the potential buyer thinks they are worth are now valued by the banks at values they think they are worth and not at the bid price.

Assets the banks designated as available for sale are subject to the same mark-to-market rules as the trading asstes but the resultant gain or losses do not effect income (they are booked directly net of taxes to equity through accumulated other comprehensive income or AOCI) nor dor they have any impact on regulator capital.

Third, the overwhelming majority of the banks assets (and more importantly the banks credit exposure and source of future losses) are valued at amortized historical cost.

Mark-to-market has neither forced banks to sell assets at prices they consider too low nor has it forced them to raise capital or sell other liquid assets to meet capital demands.


On Mar 15 03:01 AM ccerenz2 wrote:

> This author clearly doesn't understand the negative downward pressure
> that Mark to market has on assets in a declining market.

Death of the Big Bank Model

"They are run by CEOs with huge egos."

gotta love that bullet -you proved the bank doesn't have to be big to be run by a CEO with a huge ego

Barron's Is Way Off Base Regarding Mark to Market

Zach

I thought you have followed the banks for some time? Why have you not pointed out that Mark-to-market while it affects GAAP equity it has no impact whatsoever on banks' regulatory capital and therefore is not procyclical. Only when the bank determines part of the loss to be an other than temporary impairment (OTI) will it impact the bank's regulatory capital. The same would apply if the asset was classified as hel to maturity. Secondly, by far the largest component of risk facing the banks is the credit risk imbedded in their loan portfolio. Loans (other than those held for sale -which are marked to market) are held for investment and are not subject to mark to market.

Barron's: Laing's Mortgage Relief Plan Could Actually Work

davidbdc

i think you're missing the most important reason Tom's pushing this -it must benefit his deeply underwater mortgage long positions (how's that IMB position doing for ya Tom?)

Canadian Banks' Q4 Better Than Expected - TD Newcrest

ok lets see if i understand this right

"Fourth quarter bank earnings weren't pretty, but long-term fundamentals remain far more stable than what is currently priced into the market..."

so that's why he cut his price targets on 4 (RY-Hold, NA-Buy, LB-Hold, BMO-Hold) of the 7 Canadian Banks in his coverage by an average of 19.4% while keeping the other 3 (CWB-Hold, CM-Buy, BNS-Buy) unchanged. Well that's a new version of stable long-term fundementals - i guess he must have been previous mis-valuing those 'fundementals'

and how's his track record? let's see according to bloomberg he's covered all but LB and CWB for atleast 1 year and for the other 5 he had the same rating on each a year ago as he presently has.

Yesterday 1 year ago Change
RY Hold $37.50 $52.31 -28.3%
NA Buy $37.55 $53.85 -30.3%
CM Buy $53.27 $80.26 -33.6%
BNS Buy $34.76 $52.23 -33.4%
BMO Hold $36.12 $59.66 -39.5%

Average All -33.0%
Avg. Buys -32.4%
Avg. Holds -33.9%

oh and let's not forget the 18.8% drop in the value of the Canadian currency during the period for those of us who are playing in US$

Whose Freddie Investment Thesis Is Right?

Mark,

Since when is equity considered an obligation? The common and preferred equity of the GSEs is risk capital that is leveraged with borrowings. No sacred trust would be broken if the US Treasury's action resulted in the loss of these shareholders' investment. If they are going to be made 'riskless' why should they reap the upside and why would the Treasury just Nationalize the GSEs?

MBIA's Momentous 2Q: Need More Evidence That the Turn Has Arrived?

I am somewhat curious Tom how you reconcile your point #3 (about mkt overestimating expected losses because it underestimates how much will be put back to the originators) in particular the part "The numbers don’t figure to be small. In the quarter, MBIA sent out put-back notices to underwriters that totaled $300 million." with your view that banks are also very attractive at these levels. Who is MBIA putting these loans back to? and if MBIA won't have the loss won't the banks then?