Portfolio Cover: After the Fall
There is a long-but-worth it article (The End) in Portfolio by Michael Lewis, who traces the arc from Liar’s Poker to the End of Wall Street.
Before you turn in fear of yet another Magazine Cover Indicator, be aware of one thing: The prostrate bull on the cover of the magazine does not represent,a s you may have guessed, the stock market. What Lewis is declaring dead is the old way Wall Street used to do business.
Bailouts to Banks
Nice interactive table from ProPublica: > >
Bailout Bucks to Banks
ProPublica, October 29, 2008 1:43 pm
The full list is at ProPublica.
Campaign Finance Map: Monies Raised by Candidates
Fascinating graph of the candidates money raising this campaign cycle. What is so astounding this election cycle is not that John McCain trails Barack Obama in fund raising, but that he also trails Hillary Clinton: Obama $659.7m, Clinton, $249m, McCain $238.1m.
I posted a bunch-o-election related graphs, polls, charts, tables, etc. over in digital media.
There is an interesting debate here amongst those who blame Bush for McCain's campaign woes: Was it the money raising, or was it Bush? I suggest an alternative view: Both. The negative effect of W. hampered the McCain campaign's ability to raise funds.
Regardless, the GOP nominee trailing BOTH the Democrat's nominee, and the 2nd place Democratic candidate in money raising -- that's simply amazing to me.
Map Graphs of all the candidates fund raising are here.
Sending Money to the Wrong Banks
Today's featured MSM column is this Bloomberg discussion as to whether or not Treasury is sloshing the cash to banks that don't really need it.
"The U.S. government's $160 billion handout to banks from Niagara Falls to Beverly Hills is going mostly to lenders that need it least, putting weaker rivals at risk of being shut down or taken over, analysts say.
"This has the unintended effect of making the strong stronger and the weak weaker,'' said Gray Medlin, founder of Carson Medlin Co., a Raleigh, North Carolina, investment bank focused on banking deals. "Banks that are getting bad exams and are under intense pressure from regulators won't be successful in applying.''
The government buying spree has so far targeted two dozen regional lenders. One, PNC Financial Services Group Inc., immediately bought a competitor, National City Corp. Another, Saigon National Bank, had almost four times the minimum level of capital before selling a $1.2 million stake.
Treasury Secretary Henry Paulson is doling out cash to recapitalize lenders and jump-start takeovers. Besides PNC and Saigon National, regional lenders that have accepted government stakes in exchange for cash include SunTrust Banks Inc., Capital One Financial Corp. and KeyCorp. They also include City National Corp., in Beverly Hills, and First Niagara Financial Group Inc., in upstate New York."
As we have previously discussed, its time for triage -- close the bad banks, recapitalize the good banks, and move forward.
The entire article is worth reading . . .
How to Repair What Ails Us (October 13, 2008)
U.S. Treasury Shuns Banks That Need Cash Most in Buying Spree
David Mildenberg and Linda Shen
Bloomberg, October 29 2008
Why Banks Have Become Schizophrenic
Its an understatement to say these are difficult times for banks. Between the mortgage collapse, the Treasury recapitalization, and the recession, they are trying to do business -- and that that involves some risk. But doing so without losing too much money involves doing less business.
They have become utterly schizophrenic. Whether its the TARP or the credit crisis or deleveraging or something else entirely, I cannot tell you. But damn, these guys have gotten weird.
Back in August, we noted that numerous banks and brokers were sending nastygrams to their HELOC clients telling them "Too Late!" Unused portions of equity lines were being withdrawn.
Our own Citibank HELOC, which was about half unused, was withdrawn 2 months ago. Yesterday, we received a letter offering us a new HELOC from Citi -- for the same amount that was withdrawn in August.
Our Visa via JPM/Chase went through the same process. A short while ago, I had a month of extensive business travel expenses. Before we even got the bill (which was paid off in full) came a sort-of-odd, borderline rude letter about our (high) credit use. It was "Thanks for the business, but please use credit responsibly, ya deadbeat."
It was a strange letter. Any review of the charges could see it wasn't frivolous, but were all business T&E. My solution was to switch to an Amex card, and not use the Visa for business expenses. That was September, and last week, we got a JPM letter -- We want your business! We are raising our credit limit on the Visa.
I understand the fear that firms have when they are lending these days. As the NYTimes writes this morning (Consumers Feel the Next Crisis: Credit Cards), another credit crisis is on the horizon. But you guys better get a more coordinated message. You are confusing and self contradictory -- and its easy to see how you could alienate some, less understanding clients.
NY Times Ubiq-cerpt:™
"First came the mortgage crisis. Now comes the credit card crisis.
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.
The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.
Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001."
The mortgage collapse has changed my sense of what is a lot of money. $21 billion? That's chump change...
graphic courtesy of NYT
Morgan Stanley HELOCs: Don't Delay, Act Now! (August 06, 2008)
Consumers Feel the Next Crisis: Credit Cards
NYT, October 28, 2008
Bank Dividends ?
Interesting dinner last with Martin Barnes of BCA, Scott Frew of Rockingham Capital, and Chris Whalen of Institutional Risk Analytics.
Its an interesting crew: Frew has been bearish for a long time, Barnes is a recent convert to the Bear camp, and Whalen has been unapologetic about forecasting a large number of bank failures. I was the lone bull at the table, thought Frew is longer than shor these days.
I see Frew and Whalen pretty often, but not together -- We don't do this often enough, and its a fun group -- we should do this more often.
One of the things we each discussed was "What is unknown by the bulk of Investors/Traders/Public."
The most interesting of the four of us was Whalen's comments: "Read the fine print -- The $250 billion bank recapitalization effectively ends divdiends. If they took the cash -- and they all needed it -- there are no divvies paid until the money is paid back. No common dividends, no preferred either (though they will accumulate)."
I had no idea . . .
UPDATE: October 24, 2008 5:45pm
Scott writes in:
Go to this link -- http://www.ustreas.gov/press/releases/hp1207.htm
-- at the bottom the Public Term Sheet.
Here’s the relevant section of the term sheet, Restrictions on Dividends:
Restrictions on Dividends:
For as long as any Senior Preferred is outstanding, no dividends may be declared or paid on junior preferred shares, preferred shares ranking pari passu with the Senior Preferred, or common shares (other than in the case of pari passu preferred shares, dividends on a pro rata basis with the Senior Preferred), nor may the QFI repurchase or redeem any junior preferred shares, preferred shares ranking pari passu with the Senior Preferred or common shares, unless (i) in the case of cumulative Senior Preferred all accrued and unpaid dividends for all past dividend periods on the Senior Preferred are fully paid or (ii) in the case of non-cumulative Senior Preferred the full dividend for the latest completed dividend period has been declared and paid in full.
So no dividends may be declared or paid on junior preferred, preferred ranking pari passu with the Senior Preferred, or common shares. … unless (i) in the case of cumulative Senior Preferred all past dividends are fully paid, or (ii) in the dase of the non-cumulative Senior Preferred etc etc.
Note no (iii) in the case of the common.
Pretty cut and dried. Chris is dead on here, and for the record, I knew this from Joanie’s (McCullough) work. Just so you have the full story, the next paragraph addresses common dividends, and reads as follows:
Common dividends: The UST’s consent shall be required for any increase in common dividends per share until the third anniversary of the date of this investment unless prior to such third anniversary the Senior Preferred is redeemed in whole or the UST has transferred all of the Senior Preferred to third parties.
But Joanie’s take on this, with which I concur, is that it’s misdirection, an attempt to hide what’s in plain sight in the paragraph above.
Is Wells Fargo "Sugarcoating" Balance Sheet?
NY Post quotes a trader fearful of SEC reprisal on
When Wells Fargo reported third-quarter earnings last week - which beat Wall Street expectations by a few pennies - investors cheered, and watched the bank's shares keep most of the 9 percent gain they had pocketed the previous day.
But banking and mortgage-sector analysts cast a wary eye on the San Francisco-based bank. That's because Wells Fargo, despite booking a near $1 billion increase in non-performing loans in the third quarter compared to the previous three-month period, cut its loan-loss reserve by $500 million. The slick accounting moves, while perfectly legal, gave a false impression of just how strong Wells Fargo's balance sheet actually was, the analysts said in separate interviews and reports last week.
"Wells Fargo are pretenders," said a trader at one top hedge fund, who spoke on condition of anonymity because he is afraid of trouble from the Securities and Exchange Commission, in light of the regulatory body's recent threat to prosecute short sellers.
The trader said trimming the loan-loss reserves had the effect of boosting profits, which in turn boosted its share price, which in turn made it easier for the bank to successfully move forward with a move it announced this week to raise $20 billion of capital."
Note that earlier this year, Wells Fargo increased its definition of non performing loans, from 120 delinquent to 180 days. This made their balance sheet appear stronger than it was.
Analysts fearful of SEC reprisal for doing analysis -- that is the net result of the ruinous tenure of the worst SEC chair in decades -- Christopher Cox.
click for larger graphic:
THE PRETENDERS: ANALYSTS SAY WELLS FARGO SUGARCOATS BALANCE SHEET
NYPost, October 19, 2008 4:00 am
The Invisible Man
SEC Chairman Cox has often been missing in action during the financial crisis, even while Treasury Secretary Paulson and Fed Chairman Bernanke tread on his turf
Jesse Westbrook and Robert Schmidt
Bloomberg Markets, November 2008
Laid Off By Lehman: One Broker's Story
Speaking of anecdotal sentiment indicators: What does a Lehman Brothers' broker do with his days now? Untucked Films found out. Directed by Chuck Divak and Jonathan Emmerling.
OMG, this is hysterical:
Perfect entertainment for a quiet Friday --
Hat tip: themessthatgreenspanmade
Bank Earnings Are Fugly !
Wow, this is some collection of disasters:
The exceptions? Wells Fargo, JPM:
Will the US Fashion a Smarter Bailout Plan?
So far, we in the US have had an ad hoc, half-assed, on-the-fly approach to resolving the credit and financial crisis.
The smartest bailout approach to date has been the British/Swedish/Buffett approach: Inject capital at a corporate capital structure level by buying preferred stock, rather than at the balance sheet level by buying bad assets.
Now, we read that the Treasury is considering following these other, smarter approaches:
"Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.
Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.
The Treasury plan was still preliminary and it was unclear how the process would work, but it appeared that it would be voluntary for banks.
The proposal resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares. It also would provide a guarantee of about $430 billion to help banks refinance debt."
Sure its a year late, and a trillion dollars short. Yes, this would have saved most of the firms that went belly up.
Better late than never . . .
UPDATE: October 9, 2008 2:18 pm
The way we have the government buys into a cop-any via prefereds is to match any private sector investment into banks on the same terms. So GE and Goldman Sachs get double the capital injection, and since Warren did it on those same terms, we know Uncle Sam isn't getting ripped off.
If you cannot raise dollar one, Uncle Sam doesn't waste any good money on you.
UPDATE 2: October 9, 2008 2:40 pm>
Greg Mankiw discusses a similar approach: How to Recapitalize the Financial System
5 Historical Economic Crises and the U.S. (February 09, 2008)
Global Financial Crises, Part II: Norway 1987 (February 10, 2008)
U.S. May Take Ownership Stake in Banks
EDMUND L. ANDREWS and MARK LANDLER
NYT, October 8, 2008