Posted on 01/17/2008 4:44:23 AM PST by TigerLikesRooster
Banking Bust: More To Come
Liz Moyer, 01.16.08, 4:30 PM ET
Banks have written down more than $100 billion since the summer. Yikes. Now the bad news: There are still billions worth of potentially toxic securities sitting on the books.
The additional $1.3 billion write-down disclosed by JPMorgan on Wednesday was just the latest loss big banks have reported in the fourth quarter. Merrill Lynch is expected to report a sizeable write-down when it reveals fourth-quarter numbers on Thursday, by some estimates in the neighborhood of $15 billion. Bank of America, Wachovia and other big lenders report next week and are also expected to write down billions of securities holdings.
At Citigroup, $37 billion of collateralized debt obligation exposure remains even after the bank wrote down an eye-popping $17 billion of its holdings in the fourth quarter. Of course that raises the likelihood that Citi will have further substantial write-downs in the quarters ahead. The bank reported a more than $9 billion loss in the fourth quarter because of the write-downs and related credit costs, the worst quarter in its history.
The self-inflicted water torture, taking the hits in increments, coincides with Citi's search for new capital. It raised another $14.5 billion of it from a consortium of investors, including its former Chief Executive Sanford I. Weill. It cut its dividend 41%, saving about $4 billion a year. But many believe it needs to go much further.
"They are dragging their feet," says Christopher Whalen, managing director of Institutional Risk Analytics, who estimates Citi will need to raise $30 billion of additional capital this year, somehow, some way.
Further write-downs will only hammer the stock more and hamper the bank's ability to go out and raise capital. Shares of Citi are trading around $26, down from a 52-week high of $55.
Analyst David Hendler of CreditSights estimates that Citi faces another $15 billion in write-downs of its credit derivatives holdings to bring it more in line with the valuation E*TRADE got for its assets in selling them to the Chicago hedge fund Citadel last fall. That valuation was 27 cents on the dollar. Citi's mark-to-model valuation on its portfolio was closer to 60 cents on the dollar.
"It is very difficult to forecast exactly where all this is going to go," said Gary Crittenden, Citi's chief financial officer, during a conference call Tuesday. "We certainly could have additional risk as we go into the first quarter and the second quarter of next year, but we have tried to be thoughtful about that in terms of the total amount of capital that we have raised."
The mortgage securities issues linger even as these banks face a daunting new issue, and one that has the potential to be far greater in scope: consumer credit, which is deteriorating. JPMorgan said non-performing assets rose 33% in the fourth quarter from the third quarter and are 81% higher than the end of 2006.
Consumer non-performing loans rose 37% from the third quarter and 82% from the end of 2006, with home and home equity loans being the worst of the problem but issues cropping up in auto loans and credit cards.
JPMorgan set aside another $2.3 billion for credit losses in the quarter, raising its total reserve to $10 billion. Dimon said consumer credit would deteriorate further this year, even without a recession as some have forecast.
At least it's got its CDO portfolio under control. JPMorgan has $2.7 billion of subprime mortgage exposure and $200 million of subprime CDOs remaining.
The bank "is exiting one set of problems and write-downs in one part of the company but now must face more significant issues in the other half," says Michael Mayo, an analyst at Deutsche Bank.
Rising consumer delinquencies, particularly in markets hard-hit by falling real estate prices, is the next big battlefront for banks. Citi also set aside $4 billion for credit costs, and another huge lender, Wells Fargo, said Wednesday net-chargeoffs in the quarter rose $1.2 billion, half of it from consumer real estate loans. Wells Fargo profits fell 38% in the quarter, to $1.4 billion.
"We're not predicting recession, it's not our job," Dimon said during a conference call Wednesday. "But we are prepared in almost every way," he said.
JPMorgan Chase, which so far has avoided the shelling that has hit rival banks in the credit crisis, disclosed a $1.3 billion fourth-quarter write-down and said it was "extremely cautious" heading into 2008. Profits of $3 billion, or 86 cents a share for the quarter, were 33% lower than the previous year and short of expectations.
"JPM has done a very good job at managing its risk exposures in all of its businesses," Goldman Sachs analyst William Tanona wrote in a note to clients. "However, with the economic environment weakening, credit quality trends, particularly in the consumer segments, will work against them in coming quarters."
Banks never learn.
Yup...the tip of the ice burg is now just showing. Smoke and mirrors from the Feds and the MSM until the hedge fund guru’s and politoho’s have made all the shifts, not to mention liberal greasing of Congress, cabinet, judiciary, Federal Bank directors, etc. with loads of cash from under the table by both domestic and international big dogs as to screw the average citizen to pay for it all while they keep their profits and bonuses buries.
This is hue. I'm stuned. My beeber quit a while back in 01/2006 as the mess started. The beeber kept flippin' all the time.
this banking “bust” is a scam
it didn’t “just happen”
and now us tax payers are gonna have to pick up the bill, or guess what: the market will collapse and take all our retirement funds down the toilet
all corrupt societies fail because they steal from themselves the substance of their own sustainment
“At least it’s got its CDO portfolio under control. JPMorgan has $2.7 billion of subprime mortgage exposure and $200 million of subprime CDOs remaining.
“The bank “is exiting one set of problems and write-downs in one part of the company but now must face more significant issues in the other half,” says Michael Mayo, an analyst at Deutsche Bank.
“Rising consumer delinquencies, particularly in markets hard-hit by falling real estate prices, is the next big battlefront for banks.
Well, if JPM exercised great caution in making subprime loans, and very few of them caused problems compared to other banks, perhaps the same thing will be true of credit cards and auto loans.
If you are still making money while everyone else is losing their shirt, you must be a little more astute at doing business.
The banks are selling foreclosed houses in Cleveland for 30% of appraised value. Some of the houses are in decent shape. Not as bad in the suburbs, but still pretty low. More like 60%.
If you have some bucks, it’s a great time to pick up some bargains to fix up, rent out, or live in. Several good 2000 square foot houses on my street in a suburb have sold for $90,000. Of course, that lowers the value of my place, too.
I heard of a case where a bank guy helped put through an $80,000 equity loan on an animal infested house that had holes in the outside walls. The owner spent the money on fixing up his own house, instead.
What a mess. I’d like to drop some of those bank weasels/idiots into the desert without a water bottle.
Seen on local news ticker this morning something to the effect that Realtors report high income homeowners are starting to be forced to sell homes and that they expect this to be just the start of a major sell off by high income home owners.
Huh? High income home owners finding themselves forced to sell their homes or holdings?
If that’s actually correct, it means we’ve only just begun to see the start of a major correction in real property values. And frankly, it doesn’t make any sense to me.
on the other hand,
there’s the positive—
maestro greenspan made many people a lot of $!
and some investment houses did NOT get hurt, for example, goldman sachs.
the ceo of goldman sachs called a high level company conference to deal with sub-primes in dec. 2006.
they dumped some investments and took out insurance on others.
Property values were artificially elevated by cheap credit (way too cheap, thanks alot Greenspan!) But I don’t think the high end market will go down much around here (DC area), a lot of foreign owned dollars are being exchanged for high end homes.
Those guys went for houses they cannot afford in a long term. Little guys and big guys all went for things they cannot afford. Everybody financially stretched themselves to the max. Financial industry and business media egged on them to do so. It is not surprising that many of them fell for it, while laughing at others who did not.
Paper profits from a credit bubble are just paper. If you haven't sold your house, you haven't made anything. And Goldman Sachs made money betting on a credit implosion, that's smart and they deserve credit, but it still should never have happened in the first place.
American Express reported a few days ago that they are seeing increased delinquincies in their credit card business. So yes, so-called "high income" (i.e. high income if you don't count spending close to 100% of it immediately anyway) households are having trouble too.
~~"Only Yesterday: An Informal History of the 1920’s" by Fredrick Lewis Allen
"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."
~~E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."
~~Irving Fisher PhD, leading U.S. economist , New York Times, October 17, 1929
"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market and so check the movement."
~~Harvard Economic Society, October 19, 1929
"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."
~~R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
~~Ludwig von Mises
"All safe deposit boxes in banks or financial institutions have been sealed...and may only be opened in the presence of an agent of the I.R.S."
~~President F.D. Roosevelt, 1933
Well, they’ve been screwing the consumers for years. Maybe it’s time the banks got a taste of their own medicine.
OH! They learned well.......after the savings and loan fiasco........that the government will eventually bail them out!
bump
That's just silly. $0.27 was the bottom. Citi's assets aren't going to fall to zero.
Consider that each individual loan note asset (e.g. a home mortgage) has homeowner's insurance on it, wrap insurance on it, many will have PMI protecting the note, all will have a borrower whose salary can be garnished, and a few of those homes will even have positive equity.
All of the homes can be sold for some amount of money, be it $.20 to the Dollar or $1.20 to the Dollar amount owed on each note. Any shortfall is then made up by garnishing the wages of the borrower, demanding that the wrap insurance pay up, demanding that the PMI note protection pay up, and demanding that any damage to the home be covered by homeowner's insurance.
So why would anyone sell those notes for less than $.27 on the Dollar?!
That's the cheapest way to own U.S. real-estate in History. Buy the notes. Foreclose. Attack the insurance companies. Garnish the wages of the borrower. Sell the house.
Who wants to claim in print that you can't get 27% of the value of each home that way?!
Haven’t you heard? All the mortgage insurance companies are technically bankrupt. There is absolutely no way they can pay off.
Yea, you’re on it; check out http://www.reuters.com/article/inDepthNews/idUSN1530426720080117?feedType=RSS&feedName=inDepthNews&rpc=22&sp=true
Bad news. Although it’s nice to know the wealthy can negotiate “short sales” to avoid the “embarrasement” of foreclosure. (scum).
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