Mixed Outlook for Banks and Financials

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Includes: AIG, BAC, C, GS, JPM, MS, PNC
by: John Lounsbury
Greg Farrell at ft.com writes that the third quarter outlook for banks is mixed. Investment banking activities are expected to produce robust results.
On the opposite side of the outlook, non-performing commercial and consumer credit assets will continue to present challenges. Greg highlights Goldman Sachs (NYSE:GS) as a likely top earnings performer and says Morgan Stanley (NYSE:MS) will likely report good results, while JPMorgan Chase (NYSE:JPM) and Bank of Amercia (NYSE:BAC) are mentioned a banks with strong investment results which will be offset by non-performing asset losses.
CitiGroup (NYSE:C) and PNC Financial Group (NYSE:PNC) were specifically mentioned because of recently lowered earnings estimates by Credit Suisse. A number of other analysts are quoted in Greg’s article.
The editors at The Wall Street Pit, quoting Rochdale Securities analyst Richard Bove, report estimates that 60% of the regional banks will post losses in both the third and fourth quarters. Bove says the banks are under reserved and are facing real estate loan losses, especially commercial real estate.
In another financial sector news item, Robin Kwong, also writing at ft.com, reports that AIG has agreed to a deal to sell its 95% interest in Nan Shan, the third largest Taiwanese life insurance company for $2.15 billion. This is larger than the sale of a motor subsidiary for $2 billion last year, making it the largest divestiture to date for AIG, according to the authors. AIG (NYSE:AIG) is struggling to repay about $100 billion to the U.S. government.
Another big deal in the offing for AIG is a planned spin-off IPO in Hong Kong of AIG’s subsidiary AIA. This could bring in another $5 billion. Way to go AIG. You are only in the hole by $80 to $90 billion if all goes well, down from the more than $100 billion at the beginning of 2009. Do you have another $80 plus billion in assets that can be sold? If not, the U.S. taxpayer will have spent a considerable sum to have effected a slow-motion bankruptcy.
The controlled dismemberment of AIG is only one of the projects that may follow a similar path. I have seen nothing yet to change my earlier assessmentthat CitGroup may also go the same way.
If you want to counteract some of this negativity, read John T. Markham’s optimistic article at Money Morning.
My opinion about the extended nature of this financial crisis has not changed. It will take years, not months, to work out of this major credit dislocation.

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