How Reliable Are The Banks True “Profits”?
I am far from being negative. However,I find it questionable to believe all the statements coming out of the FED that the bail out has worked and we will avoid an economic depression. Hopefully we will only encounter an economic recession. An economic recession is healthy and wrings out the excesses of the economy.
The FEDs have stated that all of the 14 largest banks have earned a ג€passingג€ grade in their just-completed ג€stress tests.ג€ But just six months ago, the same swore ( scared us) that, without a massive injection of taxpayer funds, those same banks would suffer a fatal meltdown. That was why they instituted a bail out. Maybe I am being too picky but Ben Bernanke stated the debt crisis would not exceed $100 billion. Also the International Monetary Fund (IMF) estimated the losses would be $1 trillion, with only a small percentage written off. Well the truth is both have vastly underestimated the carnage and their bail out has not really worked. The IMFג€™s latest estimate: $4 trillion in losses, with only 1/3 of those written off so far. This does not even start with the issue of derivatives. How did the bail out help these toxic assets?
Looking a little more carefully,JPMorgan Chase one of the largest US banks has 1.7 trillion in assets in its main banking unit. The issue is that it is horribly exposed to defaults by its trading partners in derivatives ( remember counter party risks) ג€” It is stated that it is almost four time its risk-based capital.
Next on the list is Citibank, the nationג€™s third largest, with assets of $1.2 trillion in its main banking unit. Its total credit exposure to derivatives is a about three times. To make both issues even more obvious…what about surging default rates in credit cards, consumer loans, CDOs and CLOs. Next Goldman Sachs, which reported for the first time as a commercial bank in the 4th quarter, took the biggest risks of all in derivatives. Its total credit exposure is 1,056 percent of capital.
Wells Fargo and Wachovia jointly comprise the US fourth largest bank with combined assets of $1.17 trillion. They have their fare share of MAJOR Problems. Even TheStreet.com Ratings has downgraded Wells Fargo to a D+ and Wachovia got a D. So whose ratings do you believe the FED with their Stress Tests… or an unbiased TheStreet.com?
I can keep on going on and on with the large US banks… but isn’t it clear? Maybe yesterday was just a harbinger of what we will seeing? Will the dominoes start falling again?
What do you think?
Is the S&P running out of gas?