It's All Good (Reprinted)

Here's a reprint of mine from over a year ago(October 7, 2007)on banks. Things haven't changed much. Look for Bank of America and JP Morgan Chase to be next in line behind Citi Group. It is hard to believe Paulson and Bernanke when they say, "Everything is under control." They can't possibly be referring to the banks!



The Wall Street Journal came out with an article on write downs tied to mortgage debt Saturday. Their bar graph (left) displays about 20.7 billion in 3rd quarter losses. Washington Mutual with 1 billion of charges this quarter didn't even make the list. The amount shown for the Bear Sterns doesn't really reflect what happened when this mess started (BS had a 1.6 billion hedge fund bankruptcy). Of course Amaranth is long forgotten.

The above chart is mixing brokerage houses with banks. So these write offs or what ever, could be coming from several different places, bad housing loans, credit card debt and hedge fund investments. Don't worry everything is "contained." Yea, right!


Here's a list of the top world banks. The banks in the top picture seem to have a handle on projected losses if you compare their net holdings (left) to declared write downs (top). But this is just third quarter losses. So do we multiply this by four to come up with a yearly total? It sounds logically conservative and nightmarish. [Note: Morgan Stanley in the top pic and JP Morgan Chase in the one at the left are not the same company, the first is a brokerage house and the latter is a bank, they were one entity at one time]

HSBC wrote off 11 billion in March, Citibank plans to announce earnings October 15 and refers to earnings as "abysmal" in their news release last week. Two banks not saying much are Bank America, and JP Morgan. It could be an eye opener when they report quarterly earnings.

Now mix in 2.46 trillion dollars of credit card debt. Here is list of the top ten issuers of general purpose credit cards:

1. Bank of America
2. J P Morgan Chase
3. Citigroup
4. American Express
5. Capital One
6. Discover Card
7. HSBC
8. Washington Mutual
9. Wells Fargo
10.U S Bancorp


The puzzle is starting to come together. We know who the players are. Citigroup made all three lists, which doesn't sound too good. They might have company, if Bank of America and J P Morgan "measure up" in the next week or two when they announce earnings. The real problem is the three month time frame this mess transpired in. How can we believe that things are now OK?

The stock market is still going up, go figure. I guess you could call it herd (heard) mentality. Follow your favorite stock commentator over the cliff.

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