everyothercatstaken

Meredith Whitney Hasn't Been This Bearish in a Year

CNBC is tuned into it's version of "entertainment",as a business strategy, when what we as investors really want is objective information and analysis. What else would drive giving a Meredith Whitney 20-25 minutes near the close. Whether you think a Whitney interview is worthwhile or not, she's an alarming lightning rod. The close is no time for this sort of programming, witness the market's reaction to Whitney yesterday and Bove a few weeks ago with his comments bereft of homework on the WFC numbers.

It's one thing to have someone present info which moves the market during the day, but quite another to throw it in at the close when investors have no fair chance to digest and consider the information. Instead, we're forced into a pure trading mentality and inclined to just sell to protect ourselves.

Please, CNBC, give us objective objective programming which will help us do our serious work.

First Impressions Don't Mean Much to Dick Bove

Tom Armistad is right on target when he points out the mark to market of Wells' MSRS as a major offset to the hedge gain when analyzing earnings. Furthermore, since these are both before-tax issues, the net affect has to be further adjusted.

Then, had Bove translated the net effect on a per-share basis he would have learned that Wells still probably beat average analyst estimates.analyst. There was plenty of time for Bove to have put together these adjustments before he contemplated Wells' "quality of earnings".

Bove's last mistake was to announce his change of view(based on a faulty analysis) half an hour before the close. Shoddy and unethical. Why wouldn't he have waited until after the close to give his audience the opportunity to look into and evaluate his "conclusion"?

Whitney’s Goldman Downgrade: Why She Did It

Nice article Mr. Harrison. I agree with your conclusion to lighten up on financials about now. While there might be a few more nice upside surprises on Q3 earnings, I would expect an ensueing sell-off as investors worry about increased loan loss provisions in Q4.

And thank your for the terrific Genstein share and your attention to valuation of MSRs as expertly explained by Moore in the Bloombert article. The bottom line which financial sector investors should understand is to forsee the efficacy of the bank's hedging strategies to offset any losses in MSR valuations. To which I say "Good luck!" I've seen a number of major servicers get it wrong fairly consistently, which is obviously based on missing their interest rate projections; hence misdirecting their hedge strategies. A couple of larger servicing banks, though, seem to nail it positively most of the time.

Again, thank you!

Why Was Bank of America Settlement with the SEC Rejected?

Facinating turn of events. My read on this is Judge Rakoff if feeling his responsibility heavily and he senses the SEC deal may be low and unfair.

A fair reading of events would suggest Ken Lewis wanted this deal badly, but set up a pose in front of his board that "I'm being forced into this by the government" to protect himself later if if the deal went badly. I really think he worked the board and stockholders on this acquisition, and if Judge Rakoff were to find any harder evidence of misleading the Board and stockholders he might very well come down for a much stronger settlement.

Wells Appears to Be Covertly Offloading Subprime Loans

Hmm?!, I agree completely with your point that the private sector is in a better place, at least at this point, to market its assets. And without US help.

I've seen statistics which back up your statement that Wells has been a major player in sub-prime originations. But I believe Wells has stated it sold off virtually all of that production. My only question is whether those sales are completely without recourse to Wells. I believe they are, as this has been Wells practice in the past; namely, to sell without recourse and retain servicing.

I feel the big questions on Wells should be focused on the acquired Wachovia portfolio---the performance of those assets relative to what Wells took as a reserve at the time of the purchase. I also feel the Wells second mortgage portfolio performance deserves attention.

Wells Appears to Be Covertly Offloading Subprime Loans

"No one involved in the recent sale is talking on the record, which may be a key reason lenders will look to private transactions to unload bad assets rather than turn to a government-sponsored program.

"It is very interesting how many other comparable portfolios Wells Fargo has been offloading without public notification, ........"

Please! Would the author kindly verify some of the information and innuendo he is posting here?

The first quote is from another party you seem to take as gospel, which infers the third party talked to Wells. In the second case, you are stating the current transaction is on the heels of "other" transactions for which you provide no facts whatsoever.

Look, first things first. Is this a transaction involving Wells' assets, or was Wells acting on behalf of the owner? In other words, was Wells a contract servicer on the assets? If so, and this is my sense, the implications the author raises, at least as it concerns Wells, is absurd and unethical in my view.

If, on the other hand, these were Wells assets and the assertions about ".....other comparable portfolios Wells is offloading without notification......" are indeed true, I as an investor would like to know so I can evaluate the information.

Please!, Mr. Durden, can we have some homework and information we can treat as objective?

Disclosure: I am not an emploee of Wells. I hold some Wells as a part of my portfolio which includes larger investments in Wells' competitors, as matter of fact.

Wells Fargo's Assets Sale Begs Some Questions

If Wells did indeed own these assets I agree there are some good questions put forth in this article. My stong sense, though, is that Wells is the contract servicer for owners who were speculative buyers of the paper; and if so, maybe a better question is "If Wells as a major servicer is going to the mat and selling big packages like this, are they making money for their efforts?

But first things first. Are these loans from portfolio or not? Wells would presumably be transparent about the transaction, so I look forward to Mr. Harrison's follow-up.

The Shadow Banking System Will Not Die

Outstanding article, Mr. Brown!

It makes no sense whatsoever banks and insurance companies should be able to conduct risk transactions opaquely in their holding companies or off-balance sheet.

And Brown is absolutely correct that money market funds are analogous to bank deposits and should be regulated accordingly. Also a no brainer.

To say these areas of regulation stifle innovation is incorrect. Plenty of responsible, functional products have been engineered by the financial services industry. The issue is to regulate them in a way which will fairly protect the saving and investing public.

Now to the elephant in the room---the question of regulation of the investment banking sector.....

Big Banks in Trouble: Huge Mortgage Write-Downs Seem Inevitable

A couple of points on point to the article:

1) It would be helpful if the author could provide some stats from the T2 report which segment "how far" under water each of the product segments is. For example, if X% of the estimated 25% of prime mortgages were !0% under water, the liklihood of a foreclosure is far less(probably quite small) than the segment which might be 40% underwater.

I tried the T2 website for its report, but was undable to access the report without a paid subscription. Perhaps the author can answer my question, but I'd be very surprised if there's any segmentation.

2. Given the IMF, T2, Roubini, and GS(Which I consider most accurate) projections, what is the relationship between the estimated "losses to come" and the bank's loan loss reserve accounts which are targeted to the various product segments. To assume that estimated losses are competely uncovered by reserves---and that seems to be what the author is assuming----is highly misleading.

3. IMF financial institution estimates have been notoriously off the mark in the past. GS projections have been historically.....conse...

4. Mr. or Ms. Milweed has an excellent and realistic point: When time passes and the real estate market even starts to improve, most of the borrowers who were going to turn in their keys have already done so. The obvious question, then, becomes "Where are we in this cycle?". If real estate were to continue to decline markedly, the author's assertions could become partly true. I say partly because their are a few questions to be cleared up first, namesly Nos. 1 and 2.

By the way, I don't work for any financial institution---or Wall Street, or consultancy outfit: I'm just a retired dope who's trying to get a few simple answers so I can objectively analyze risks to my portfolio. Easier said than done.

Financial Company Risk Accelerating

"Oddly, Wells Fargo (WFC), which is facing millions in foreclosed units, is considered less risky even than......"

What does this mean? Forclosures on WFC's books? No.
Forclosures on loans being serviced by WFC? I don't know, but if true, the risk for such credits lies with the owners of the loans, not the servicers. Wells is a major servicer.

The kind of comment above is playing fast and loose with words and represents a characterization which seems to me as highly inaccurate, unfair and unnecessary.

Revisiting the Merrill Acquisition

Felix, I disagree Lewis wanted out of the deal in December, but buckled in December under pressure from the Administration and Fed.

Here's my take. Lewis wanted the deal from the beginning. He'd trailed ML for years and felt the calculus of a broadly based mostly retail bank and a broadly based mostly retail broker was strategically a perfect fit.

Now to September of '08. Lehman was exploding and ML was in obvious trouble and Lewis, with the help of his Regulator, made his move. But in December, with a huge ML trade going off the charts and a 12 billion $ loss impending, Lewis saw trouble He still wanted the deal badly, and when he met with Regulator Bernanke and the Administration, he brought up a red herring(MAC) to worry his adversaries to the point they would offer taxpayer help. Bernanke was on his toes: he brought in solid legal opinions that looking to the MAC clause was clearly impractical. It was, and Lewis was obviously negotiating.

Now to December and the Board. The impending 12 billion $ ML loss was an obvious risk to Lewis, he still wanted desparately to do this ill-conceived deal, and he needed Boasrd approval and a paper record. Bottom line, he raised the MAC option with the Board, pretending to endorse it strongly------but blamed his Regulator and the Administration for "forcing" completion of the acquisition against his will.

Varian Medical: Outstanding Results at a Bargain Price

I like this company a lot. World demographics are solidly in place to point business to the radiation equipment industry.

Chemical therapies will, of course, compete, and there are plenty of therapeutic possibilities coming to fruition at this time---witness the reporting form biotech and drug companies at the recent ASCO meeting of clinical oncologists.

Yet------when you consider the cost of these potential therapeutics, you really have to forcast most of the world will be unfortunately afford them vis-a-vis the cheaper and tried-and-true radiation option. And, horrible to think----a silver bullet for cancer will escape us for a long, long time......

Fed Finds a Way to Use Stress Tests to Screw Bank Shareholders One More Time

The date for submitting a plan is November.

So, if a bank puts a capital registration on the shelf now(to be safe), but then goes ahead and achieves its profit projections through its third calender quarter it will get that credit to its capital ratios. And probably meet Treasury's mandate. Right?

The only problem I see is that if the bank misses and goes to the market in October or November, the market at that juncture might be less attractive than right now.

What am I missing here?

C&I Loans Are Starting to Unravel

Very interesting data, and esssential to the earnings projection process.

I wish Mr. Bernsteins charts could show us lonmger times frames: A peek at the 90's data with real estate loans would, of course, help us with the perspective of the early 90s real estate debacle.

It would also be wonderful if we had some C & I data. Renewal and "demand" note info could obscure what's really going on and is probably not even available outside of the individual banks. But, non-accrual info would be extremely helpful if available.

Mr. Bernstein, a follow-up article with a longer time perspective and some detail on the C & I picture?

Buffett on Banking: 'A Very Good Business'

'What is the end result? Run-rate pre-tax, pre-provision profitability at Wells Fargo (WFC) in the last quarter was $36.8 billion. When combined with the existing $22.8 billion in credit reserves, that gives $60 billion in capacity to absorb lending losses over the next year"

I agree completely with this Mr. Cullen's thesis that NIM(Net Interest Margin) is the issue in determining the medium term potential profitabilty of banks such as Wells which have demonstrated a robust ability to gather cheap deposits. His further contention that the weak competititive environment will permit careful lending at strong prices is very astute.

The other issue, of course, is the potential future losses from the current loan books. Given that, I do not recommend investors focus on on future pre-tax AND pre-provision earnings.

The author sums up: "What is the end result? Run-rate pre-tax, pre-provision profitability at Wells Fargo (WFC) in the last quarter was $36.8 billion. When combined with the existing $22.8 billion in credit reserves, that gives $60 billion in capacity to absorb lending losses over the next year."

Question. So? At the conclusion of that hypothetical period loan loss reserves are..........zero. And they obviously have to be replaced out of future earnings.

Investors should take a more conservative view and calculate price/kearnings metric using your projection of pre-tax earnings alone. Then move to an analysis of the adequacy of present reserves taking into consideration your analysis of the historical and current loss and delinquency/default trends.