Earnings Releases for the Banks with Massive Derivative and no Bailout

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In the past few days, earnings have been announced by 7 of the 9 remaining banks which have massive derivative exposure, but haven't yet been bailed out by a Central Bank, and the earnings have been horrible.

National City (NCC) #14
The lasted earnings (8K released 10/21/2008) can be found here -
http://phx.corporate-ir.net/phoenix.zhtml?c=64242&p=irol-sec

The release is 129 pages! Oh my. In an effort to protect clients' assets, I have learned how to decypher these things , as in the past 18 months I have been forced to read everything from Level III asset filings to Money Market Fund Prospectuses.

The management of National City can say what they want and try and manipulate the "market to market pricing" of vast swaths of their assets to goose their earnings higher, but here is what I see for NCC -

Market Capitalization $6.47 billion
Non-performing Assets $3.537 billion
Home Equity Lines and Loans $15.8 billion (page 75)
Total Loans $111.2 billion (these are "assets" on the books of banks)

So an equivalent of 3.2% of their loans have already been written off as total losses. If real estate prices fall a little further (highly likely), or credit cards delinquencies rise (highly likely) or they "mispriced" there assets be even a little bit (remember when Merrill Lynch sold that $30 billion bond portfolio for an effective price of 5.8 cents on the dollar a few months ago) (highly likely), then NCC will take a large enough loss to wipe out ALL of their equity and be insolvent!

Take a look at what people who had their money managed by NCC did the past quarter -

Assets under management -
Equities down -58% in the most recent quarter (page 68)
Bonds down -26% in the same quarter (page 68)

They pulled their money out. They clearly were nervous enough to move their money.

My big concern is that NCC has over $110 billion in derivative exposure (394% of what Lehman had). If National City were to go out of business (which seems like a real possibility after reading the 8K filing), then the markets would melt down yet again.

The Fed/US Treasury gets this and in my opinion will not allow National City to fail. I think NCC will either get nationalized or bought by a larger bank in the not too distant future. I have no clue whether they get bought out for a premium or a discount to the current price and personally choose to avoid all exposure to anything bank related.

US Bancorp (USB) #15
USB may another train wreck waiting to happen, with a $87.448 billion derivative portfolio.
This quarter, the delinquency rates on their loan portfolio increased markedly (pages 43 of 46).

http://media.corporate-ir.net/media_files/irol/11/117565/USB_3Q_2008_Earnings_Release_and_Supplemental_Analyst_Schedules.pdf

The one think US Bank has going for it is that their new worth is enormous ($54 billion) when compared to the other names on this list.

So USB may end up being a buyer of other banks, and not get taken over or sold at a deep discount. Again, I do not own it and have no intention of doing so. Buy it or short it at your own risk!!

Fifth Third Bank (FITB) #20
Same story as NCC, but the release is only 14 pages -

http://media.corporate-ir.net/media_files/irol/72/72735/FifthThird3Q08EarningsRelease1021.pdf

PNC Financial (PNC) #10 and BB&T (BBT) #17
Seems to be more in the camp of US Bank. I think they will be buyers and not sellers. Just a guess, but we'll see. Same disclaimer as above...

Remember, they can only by buyers if the Fed gives them big piles of money. So expect these guys to get bailed out. In Fed Speak, it will be a "injection of capital" in the form of the Fed buying preferred stock "at no risk to the taxpayer".

Keycorp (KEY) #13 and Regions Financial (RF) #16
See NCC

The 2 stragglers are Suntrust (STI) #9 and Northern Trust (NTFS) #11
In my opinion, these are coin flips are to whether they are acquirers or acquirees.
Time will tell, but we should know in the next few months who the survivors with massive derivative exposure are. Then the giant game of "Go Fish" will begin!