Bloomberg fired the broadside this morning. The headline –
“Banks Need to End $1 Trillion Kick the Can Game”
http://www.bloomberg.com/apps/news?pid=20601039&sid=acPs3f5Wlny0
Read the Op Ed.
“Banks have known for a while that they would eventually have to face up to some of the assets they had stashed in off-balance-sheet vehicles. Now that day is looming, and regulators are concerned that lenders might need even more time to deal with such items.
Enough already. It’s time for banks, and their regulators, to stop playing kick the can. Either banks have -- or can get -- the capital they need to support assets on their books, or government watchdogs should take action.”
Extend and Pretend…
Basically what has been going on is that the Banks have been allowed to take their bad assets and move them into Limited Partnerships that can be hidden from their Balance Sheets – “off Balance Sheet Accounting”. This is what Enron did and Skilling is still in jail for doing it. Now the FASB, The Fed, The FRBNY and the SEC have given their blessings to using this accounting trick. It only took Sarbanes-Oxley six years to die…
The goal of Team Obama is to let the banks lie about the value of their assets and use the earnings power of the banks to gradually write off their bad assets. Or they are going to just outright sell these toxic assets to the US Taxpayer (PPIP, GSE, TARP, TALF…).
Bloomberg begs the regulators to put an end to these games and do their job to protect bank account holders. His pleas will fall upon deaf ears. Geithner runs the show and he is Wall Street to the core. The rally in Bank Stocks has been a matter of Public Policy and it will end when its purpose (allowing banks to sell shares at artificially high prices and use the proceeds to write off bad loans) has been served. I get the feeling this Bull will die when there is another massive round of Secondary offerings by the Banks and REITs.
Why the Need to Lie?
The rumor this week was that a major US Bank was in major trouble. The rumor I heard most was Wells Fargo. It is a rumor, not a fake – take it for what it is. The facts about Wells Fargo are scary enough without the rumor.
28% of Wells Fargo’s holdings are in 1-4 Unit Family Residences
These units in their loan Portfolio have a delinquency rate of 14.23%!
And these are the assets they are being forced to tell you about! How bad is the junk in the Limited Partnerships performing?
57.09% of Bank of America’s (BAC) listed assets have an average delinquency rate of 6.1%
BAC admits to having $972 billion has assets, but the SEC website EDGAR shows their assets at $2.321 trillion
Where is the other $1.2 trillion of their loan portfolio?
Citigroup also has over $1 trillion hidden “off the books”
If the FASB had not changed the rules and the SEC had not turned their back, these Banks would have been insolvent long ago. Now, they are simply wards of the State. They are parasites who suck in huge volumes of Capital and produce nothing in return. But at least we got a rally in stocks, right? Who says Faust is fiction…
They have been granted $800+ billion in free capital from the Fed and all they do is park it at the Fed to collect their 0.25% in Fed Funds Interest. They take even more risk now, leveraging up all over again, writing naked put options (CDS) against anything that moves and front running the trades of their clients. They got away with crimes that made themselves rich and stuck the US Taxpayer with what will probably be a $12 trillion bill.
“Extend and pretend” becomes “shut up and take your bonus and go bribe a few Congressmen and then hire them as lobbyists”
Do you wonder why Gold is starting to rally?
Not all banks are upside down in bad loans. Guess where my accounts are…
The Bottom Line
I looked at some yields yesterday and here is what I saw –
Bank of America Bond without FDIC Guarantee maturing 4/15/2012 is yielding 3.327%
Bank of America Bond with FDIC Guarantee maturing 4/20/2012 is yielding 1.223%
An FDIC Insured CD maturing 4/12/2012 is yielding 2.451%
Who in their right mind would be buying bonds in Banks, when you know what the Banks are doing with their “Accounting”, when you are only getting paid an extra 0.875%? It takes all kinds…
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