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Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

Great article

very interesting i am going to see some cds traders this week it will be interesting what they say

'The Change We Need' Is in Economic Direction

Great article.

The Fed is a tool for the politicans. Bernake cut rates to near zero to save his job.

It will be very ironic to hear Obama hee haw about an era of transparency when he will be spearheading the greatest ponzi scheme of all time: The US Government and the multi trillion dollar stimulus/lifeline/bail... agenda.

Bank Investors Beware, Shareholder Interests Are Secondary

Everyone is to blame for this. The main pillars are:

1) Fannie/Freddie
2) Greenspan
3) Paulson
4) The Housing Derby

When things go the other way, the politics come into play. They will try to clean up the mess. Hide some of it and reinflate the bubble. And hope it does not pop again while they are in office.

Hopefully people come out of this mess more fiscally responsible and smarter about allocating their assets.

It is amazing people will spend hours shopping for the best deal on everything but their biggest purchases: financial assets.
On Jan 17 08:38 PM Chickenpookie wrote:

> Roy,
> Sorry dude, blame it on the private bank known as the FED. These
> banks are in bed with your congress and they are sticking it to US
> citizens who were savers by taking their 401K's and giving them a
> 50% off haircut, along with saddling the born and unborn with over
> a generation of debt. The entire outstanding US mortgage debt is
> only $10T, so what are the banks doing with the $8T they've been
> given?
>
> Do you remember NAFTA and the new rules against personal bankruptcy?
> These were your first clue.
>
> Wake up and smell the coffee bro!!!

Bank Investors Beware, Shareholder Interests Are Secondary

And when I meant another bank to fail...I meant default on their bonds.

The banks I would lump in that category are banks that are ladden with CDS, toxic assets, and massive counter party risk.

Not the little P.O.S. banks that are not intertwined in the economy through a web of sloppy contracts like AIG was.

Bank Investors Beware, Shareholder Interests Are Secondary

Good stuff. Thanks for getting back to me. And I agree with your philosophy. I hate this class warfare b.s. Especially since I was a prop trader! Blech. In many ways I would rather be ignorant about the politics and the economy right now but that does not make for great investing.

I was just referring to the preferred asset class, not the common stock. Normally, it would make sense for companies to suspend all preferred dividends, not just certain preferred issues. And the government's TARP money is a preferred. However, the government can change the rules. It certainly would set a new precedence.

Because of the aftermath what happened to Lehman, I do not think the government can allow another bank to fail because of the systematic risk.

us.ishares.com/product...


On Jan 17 07:35 PM Alan Brochstein wrote:

> Equity Has No Clue,
>
> Thanks for your comments. I don't really have an expectation regarding
> what the government will do regarding preferreds. I assume you are
> asking if ultimately they will protect the preferred shareholder
> despite their inability to shelter what's remaining of common equity
> at the large banks. What they should do and what they will do are
> two distinctly different questions.
>
> I have a very libertarian philosophical leaning, so it has pained
> me greatly to advocate government intervention in order to stem (not
> fix) this crisis. The Bush Administration actually had the right
> idea initially, but class warfare broke out. The key to ending the
> death-spiral of forced selling was to put a temporary floor on assets.
> In all fairness, the political process was as challenging as could
> be given the timing of the national elections. The way the program
> was sold and then implemented is a complete travesty of the constitution,
> though action was necessary.
>
> The goal shouldn't be to save the various classes of owners of certain
> institutions but rather to abate the pressure on asset sales. Some
> folks push the ridiculous concept of eliminating mark-to-market (let's
> just pretend this away). Sheil Bair is advocating now what I have
> advocated for quite some time, which is an RTC-like solution. I
> addressed these issues several times over the past year or so. Most
> recently, I discussed this issue as the original TARP deal died in
> Congress: seekingalpha.com/artic...

>
>
> I shared my plan, which included:
>
> Create a Government Agency to oversee the process.
>
> Fund the Agency with $100 billion by selling interest-guaranteed
> tax-exempt bonds.
>
> Create a list of eligible securities and assets for the program.

>
>
> Allow purchasers of eligible assets to purchase insurance (say for
> 3.33% of the principal).
>
> Insurance would cover the first 10% of losses.
>
> Suspend capital gains tax on any eligible securities held for more
> than a year.
>
> This is an area about which I had given considerable thought. When
> I became extremely bearish in the summer of 2007, I tried to imagine
> the end-game (and underestimated wildly, unfortunately, in my prediction
> that the nationalization of the GSEs would do the trick). In February,
> after that late January bounce last year, I published seekingalpha.com/autho....
> There, I argued:
>
> The policy responses from our government have been highly inappropriate
> at best and potentially extremely dangerous. The Federal Reserve,
> in trying to help the banks by lowering FF, looks desperate and reactionary.
> It runs the risk of alienating our “outside investors”, devaluing
> our currency, raising inflation prospects and hurting our senior
> citizens who live off of their savings. The steepening of the yield
> curve is alarming. There is NO rate low enough to create a spread
> (between short-term borrowing costs and long-term lending or investing
> rates) to compensate lenders to borrowers that are impaired. Efforts
> need to be directed towards stabilizing the value and/or liquidity
> of all of the CDOs and other distressed securities that litter the
> balance sheets of our financial institutions. Some might argue that
> we will have a refi boom with the lower mortgage rates. Good luck
> to those who NEED to refinance, because your loan appraiser may want
> to see you kick in some equity (the “cash-in” refi). The fiscal stimulus
> package is barely a finger in the dike and smells of politics. Recipients
> may pay down some of their debt or build savings: It is very unlikely
> to do much more than cause a temporary blip in spending at best.
> Keep your eyes on the dollar/yen and dollar/euro relationships as
> well as the 10yr Treasury (absolute yield, relationship to short-term
> rates and to corporate bonds) to monitor the risks of these policies.

>
>
> In January, when the market plunged as I had anticipated, I shared
> a post suggesting that Bernanke was barking up the wrong tree: seekingalpha.com/artic....
> I stated:
>
> What can and must be done? Very simply, while it pains me as one
> who believes that government solutions are suboptimal at best and
> often disastrous, I believe that the government must resurrect a
> play from the S&L crisis and create an entity similar to the
> RTC to buy securities. By providing a floor on the value of municipal
> bonds, asset-backed securities or mortgages that lose their ratings,
> the financial calamity of a self-fulfilling prophecy of mass liquidation
> can be avoided. THE GOVERNMENT MUST STEP IN AND PROVIDE DIRECT LIQUIDITY
> TO THE HOLDERS OF THESE DISTRESSED FIXED-INCOME AND DERIVATIVE SECURITIES.
>
>
> I say this all because I continue to believe that the government
> has gone very slowly up a steep learning curve, and I don't quite
> get it. The RTC program had flaws, but it was effective in helping
> solve the commercial real estate crisis in the early 90s. This challenge
> is of much greater significance, and the failure of the Fed, the
> Treasury and Congress to show leadership rather than cater to politics
> has cost us millions of jobs. I firmly believe that had the government
> been proactive in setting up liquidity programs as I was advocating
> early on, we could have avoided going over the cliff this past Fall.
>
>
> Not sure I answered your question, but I hope my thoughts shed some
> light on how things ought to be done.
>
>
> On Jan 17 04:19 PM Equity Has No Clue wrote:

Bank Investors Beware, Shareholder Interests Are Secondary

As in "big" i meant the big risk is changing government policy....the govie maybe invested thru TARP but are they willing to destroy the preferred market a la Fannie and Freddie? Not that there is new issuance in that market but it would create giant holes in terms of losses on a global basis like Fannie/Freddie did across the world.

Bank Investors Beware, Shareholder Interests Are Secondary

Great article Alan. What do you think the government's policy will be in regard to the preferreds? The TARP investments are preferreds so I cannot see the government stopping their dividend payments or wiping out the preferreds. However, the government also can change the rules at any time and many of the bank preferreds are trading at either stressed or distressed levels.

The preferreds do look interesting and Barron's even wrote an article on them a few weeks ago, but the big is changing government policy?

Any thoughts? The PFF is heavily weighted with financial preffreds. Single names could be a way to play it too.

Last Thursday Was the Bottom - It's Time to Get Back in

Have you ever done any credit analysis on Dry Ships other than looking at a Debt/Equity ratio?


On Nov 29 03:04 PM Glen Bradford wrote:

> It's unfortunate that a lot of the comments on this article just
> state random opinions and facts and don't back them up with any evidence.
> I figure it's the least I can do.
>
> BAC - First off, ignore the last 4 quarters (1 year) of figures.
> It's not really historically accurate. Ignoring the last year and
> looking at the 4 previous --- you have a company growing at at least
> 10% and last time I watched TV, it's making strategic acquisitions
> to spur growth in the next 5 years. It's priced to shrink earnings.
> This is not the case. Out of all banks, this is the only one that
> I've considered owning lately (Besides citigroup since it got saved).
>
>
> C - Citigroup has been growing at at least 7% over the past 5 years
> under similar analysis and is priced to shrink faster than BAC.
>
>
> That said, I've been staying away from banks for the last year since
> I saw and heard about this one coming... I think there are better
> deals out there, but the banks as you've seen are the first to rebound
> the hardest. Hopefully you were smart enough to buy C earlier this
> week (monday morning)
>
> HERO - Priced to grow at 1.8%, it's been growing revenues significantly
> faster (80%) than that but the relationship between revenue growth
> and net income(-24%) has not been as strong lately... I like NOV
> and APA more.
>
> DRYS - this one should recover from the fact that commidity prices
> are "bottoming" esp. if you are calling a market bottom. It's grown
> Net income at 82%. Can they keep this up? Well --- anyone who knows
> anything about the transpo business knows that there's no profitable
> way to transport people, but transporting goods is the way to go.
> My favorite transpo business distributes liquor (CEDC)
>
> As for the bottom, you're 5 days late and everyone's screaming "bottom."
>
> This could have been the bottom, look to global markets... there
> are strong indicators that it's the bottom. I think it's the bottom.
> But, I'm holding out a little bit, i've leveraged up 3 times at 9000,
> 8500, and 8000. I'm saving one more time to leverage up at 7000 in
> case the market is as unpredictable as I think it is. But I'm all
> in. I think that the DOW is worth about 10500, but would be surprised
> to see it reach that. If it does, it will overshoot to 11000+.<br/>
>
> Hope this helps you guys!