Posted on 04/09/2009 9:02:06 PM PDT by adm5
The recent FASB accounting rules that were relaxed last week, give the "too big to fail" type banks a literal free pass when it comes to fudging LYING about their books and the general health of said financial institutions.
The SEC will not be going after these banks for this outright fraud because protecting these institutions has now become the only way to prevent the financial meltdown of the entire world - as per Bernanke/Geithner/telepr0mpter.
GM will declare bankruptcy this weekend, probably tomorrow, so that the long weekend can help Wall Street/Main Street digest the news without causing panicky crash-inducing selling next week.
Ergo, todays smoke-n-mirrors Wells Fargo pump-job. Add to these shenanigans that there is real trouble brewing for ALL of these major financial players.
Yet another tidal wave of foreclosures is about to hit in the next 6 months or sooner and CRE (Commercial Real Estate) and Pension Funds are in so much trouble, they are next up on deck for The Congressional Bailout Lottery. Which I will predict right now to be a TRILLION DOLLARS minimum combined.
But, Wells Fargo is now free to report mark-to-fantasy projections and the market explodes higher thinking that the worst is over.
Unfortunately there are many poor souls who will get suckered into putting the remaining 50% of their investment portfolio they have left back into the market... at the worst possible time.
My 2 cents.
“Ergo, todays smoke-n-mirrors Wells Fargo pump-job”
Tell what part of today’s news is inaccurate and “smoke and mirrors”?
Exactly so. Fraud condoned by the powers in charge to prevent it.
Wells Fargo put out this profit forecast with overstated numbers. They valued assets at fantasy pricing vs. the current true market values.
You make some statements, but point to nothing to back them up.........Mark to Market has just been around for a couple of years: are you saying that for hundreds of years before that ALL the banks were lying?
As to the point of Mark to Fantasy: Banks don’t get to do what ever they wish..they are audited.
My take is that the Banks are better off than is being reported or thousands would have already gone belly up........
What is wrong with banks NOT going out of business? And make money? And get big? And makes lots of strong loans?
It would help the economy if they did...
Sopunds like you just have a hard on against banks........
fasb rules are effective with 2nd Q reporting, and are not reflected in the numbers just released by WF
This is a false rise in the market and a manipulated one.
Beware, the next downturn will be substantial.
This big gain in Wells Fargo after buying Wachovia with stimulus money just made for an accounting fiasco, IMHO
“Sopunds” = sounds
BWAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAH
From today’s Wall Street Journal:
Banks Get Boost From Wells Fargo
Shares Jump on News of a $3 Billion Profit; Earnings Surprises Ahead?
By MATTHIAS RIEKER and DAMIAN PALETTA
Wells Fargo & Co. fueled a sharp rise by bank stocks after the San Francisco bank said it expects a profit of about $3 billion in the first quarter.
But budding optimism about U.S. banks will be tested as other financial institutions report results this month.
The 50% surge in net income from $1.99 billion, or 60 cents a share, a year earlier came largely from the acquisition of Wachovia Corp. on Dec. 31 and resurgent mortgage volume as interest rates decrease.
Wells Fargo also got a boost from a smaller-than-expected loan-loss provision, which some analysts criticized but others said could mean U.S. financial institutions are coming to grips with all the troubled loans piling up during the recession.
“We have put a lot of their losses behind us when we closed the deal,” Wells Fargo Chief Financial Officer Howard Atkins said in an interview, referring to the purchase of the Charlotte, N.C., bank, battered by losses from adjustable-rate mortgages. “We are now enjoying some of the benefits from their revenue.”
Wells Fargo plans to report full first-quarter results on April 22.
Shares of Wells Fargo jumped 32%, or $4.72, to $19.61 in New York Stock Exchange composite trading Thursday at 4 p.m. It was the stock’s biggest one-day percentage gain since July and its highest closing price since Jan. 28.
Bank of America Corp. rose 35%, J.P. Morgan Chase & Co. was up 19% and Citigroup Inc. jumped 13%. Those three banks previously said 2009 got off to a strong start, thanks to robust trading volumes and a boom in mortgage-refinancing.
In contrast to Wells Fargo, though, they aren’t expected to sharply reduce their provisions for future losses on mortgages, credit cards and other loans.
ISI Group Inc. analyst Ed Najarian called Wells Fargo’s first-quarter results “unsustainable and designed to show regulators that Wells has strong underlying earnings power ahead of the bank stress tests.”
Regulators are working through the controversial assessments of the 19 largest U.S. banks, a process being driven largely by the Federal Reserve Bank of New York.
The tests are intended to determine whether certain banks will need more capital to continue lending if the recession intensifies.
Several banks are expected to get orders to raise additional capital as a result of the tests, though it is unclear how much money might be needed, several people familiar with the process said.
If the companies can’t raise capital through private investors, government officials have said they will invest more public money into the banks.
Government officials are concerned the public perception of the test results could undermine their intent, which was to build confidence in the banking system. If the results are uneven, with some banks appearing strong and others very weak, it could precipitate an investor run on certain institutions, making it more difficult to raise private capital.
Government officials hope to have the stress tests finished by the end of the month, shortly after major banks report their earnings for the first quarter.
A scarcity of private capital is likely to last until signs of recovery emerge at additional U.S. banks.
“It will be six or nine months down the road until people are investing in banks again,” said Dave Muchnikoff, a lawyer at Silver Freedman & Taff LLP in Washington. Some small banks that he represents have been trying unsuccessfully to attract capital for months.
For example, Colonial BancGroup Inc. announced last month that an investor group agreed to inject capital into the Montgomery, Ala., bank.
But the deal hinges on whether the group can raise $300 million, which some analysts have predicted will be difficult.
President Barack Obama plans to meet Friday with several of the top officials overseeing the federal government’s rescue of financial companies, including Federal Reserve Chairman Ben Bernanke, Treasury Secretary Timothy Geithner, Comptroller of the Currency John Dugan and Federal Deposit Insurance Corp. Chairman Sheila Bair.
Is there a current “Texas Ratio” for Wells Fargo ? Can the TR be faked ? Honest question ........
“Wells Fargo put out this profit forecast with overstated numbers. They valued assets at fantasy pricing vs. the current true market values. “
Please show the specifics of how their earnings are wrong, and how “fantasy pricing” is what is driving up the soon to be reported earnings..
And if you are that sure about this, by all means short the stock and make some big money.
"Wells Fargo CFO Howard Atkins discusses the banks $3 billion reported first quarter 2009 earnings. Atkins hypes the impact of mortgages to the bottom line, due to low interest rates and foreclosure selling no doubt, but shockingly admits at the 7:45 mark that with the writedowns that would have been required by Mark to Market the bank actually lost money on the quarter."
http://implode-explode.com/viewnews/2009-04-09_InDepthLookWellsFargosTraditionalStrengthBloomberg.html
If the quarter earnings report not up to WF, C and BAC comments expect the mother of all lawsuits.
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Wells Fargo is making money doing mortgage refinances.
People are refinancing because interest rates have come down.
Interest rates have come down because the Fed is buying Treasuries.
This process can continue as long as mortgage rates can continue to decline by significant amounts.
If this process continues long enough for either real-estate or consumer spending to recover, then the entire global economy will be saved (certainly for the moment, at least).
If not, then more drastic steps must be employed (or else a widespread meltdown will ensue).
None of this is smoke and mirrors (compared to the recent past). No one is gaming the bond ratings for the current mortgage refi boom to work, compared to what was going on in the run-up to this worldwide liquidity crisis, for example.
Nonetheless, significant upsides and substantial downside risks are currently heightened. We do ourselves no favor by under-estimating *either* risk.
Again, the value of underlying non-performing assets and bank-owned real estate (REO) is subjective; if the banks are allowed to price their lovely 1100 sq.ft. 2br/2bath in Compton sold in 2006 at the original price of $600,000 - when similar homes down the street are now selling for $200,000 (or lower) now, yeah they can be manipulated.
Do red line fines still occur with regards to buying up bad loans ?
Yes and no.
As long as the debt bubble was continuing to inflate, the banks were not lying.
At some point, the debt bubble had to pop. The US consumer was becoming so heavily leveraged since 1999 that it was bound to happen sooner or later - certainly within the next couple of years if it didn’t happen last year.
See, real earnings have not increased since 2002. So increased consumption has been based on ever-larger private-sector consumer debt. At some point, the consumer HAD to start de-leveraging.
The banks were making this illiquid debt on their balance sheets as “mark to model.” The models assumed a default rate of “X%” by consumers, where “X” was usually 2% or less.
Once the consumers’ income started declining due to increasing unemployment in 2007, more and more defaults were going to start coming in on this debt that had been extended to consumers.
Now, increased defaults would have been OK — if the investment banks, money center banks, hedge funds, Fannie/Freddie had not been levered up to their eyeballs on these portfolios of illiquid debt instruments (like CDO’s). But they were. Highly leveraged. Leverage in investing is just more debt - so you had debt incurred by the banks to own more of these illiquid debt instruments that were based on consumers paying their debt bills.
Now the consumers started to default. The first downgrades of these illiquid debt securities started to happen - which raised the banks capital reserve requirements to offset the losses in the illiquid debt portfolios.
So far, they were OK.
Then Bear Stearns happened.
The Bear funds that blew up held illiquid CDO’s of residential mortgage debt - lots of it sub-prime stuff. Merrill had loaned Bear 90% of the money necessary to buy these CDO’s — which was fairly normal (at that time). Well, as the downgrades came in, these instruments were downgraded in such a way that they caused Merrill to make a margin call on Bear - ie, “pay us some money, or sell off some of the stuff we loaned you money to buy to increase how much cash you have...”
NOW the crap hit the fan. The funds did a quick test of the market (remember, this is all about “mark to market”, right?) and Bear came back to Merrill and said “We don’t want to sell — we’re going to take irrecoverable losses if we try to sell these now....”
Merrill said “OK, margin call. Give US the CDO’s.” This is normal - if you, a retail investor, own stocks in a margin account and you do not meet a margin call, most often the broker will simply sell them out of your account. BUT — in some cases (like thinly traded preferred stocks, or bonds) the broker can simply seize assets in the proscribed amount necessary to meet the margin call from your account.
Bear didn’t meet the margin call. Merrill took delivery on the CDO’s as the margin call allowed them to do.
Now Merrill realized “Holy crap... we just grabbed onto a pig in a poke....” and they started asking around for a price on these things. They started getting back numbers like $0.25/dollar of face value up to perhaps $0.35/dollar.
Merrill didn’t know whether to crap or go blind.
So they held onto these wretched things, and they shopped them around... and around... and around. They finally sold them off for about $0.23/dollar of face, and they LOANED the buyer $0.12 of that amount. In reality, the buyer paid $0.10/dollar face on that crap.
OK, so suddenly that was the market. Now margin lenders as well as ratings agencies wanted banks to start “marking to market” because many of them were holding his illiquid level 3 crap that FASB had allowed “mark to mental masturbation” for so long.
What I’m trying to illustrate with the above re-telling of events is that mark-to-market did NOT cause this situation. It merely exposed it to the world, telling the world just how illiquid, how crappy and how absurd the banks had valued secondary debt backed by people who don’t pay their bills. It had been this crappy and this illiquid from the get-go — MTM merely created an environment where the banks could no longer hide behind models and fictions. Audits did not uncover just how bad this paper was - because if they did, the ratings agencies would have never stamped this crap with a AAA rating in the first place. Once the ratings agencies did that, the lies were told and re-told to everyone, from the SEC, Fed, auditors and investors on down.
The paper truly is crap, the design of CDO’s lends it nothing in the way of liquidity or marketability and now the banks are reaping what they have sown.
And the Fed is buying RMBS and agencies — they said they’d be buying a couple hundred bil of ‘em.
I don’t think the Fed can keep expanding their balance sheet long enough to bail out all the banks. At some point, the Fed’s balance sheet will no longer pass the laugh test.
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