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BAC, WFC Credit Continues To Deteriorate As Investors Increasingly Price In Foreclosure Fraud Risk

Tyler Durden's picture




 

Both Bank of America and Wells Fargo are refusing to go with the euphoric melt up flow, at least in stocks, and are now wider by about 13 bps each (latest rerack: BAC 177.5 +13.50; WFC 115.50 +12.5) as investors begin fretting about just how serious foreclosure fraud may be, and its impacts on banks. And yes, this is isolated to foreclosure fraud, as all the other non-originator-cum-servicers are flattish to tighter on the day (oddly, Block is wider by almost 100 bps to 515 from 422.5, and we can't quite explain the reason just yet). As we pointed out earlier, when JPM stock was still up for the day, look for this credit weakness to spill over more into stocks as Fed-frontrunners realize that the Fed, with even a $4 trillion balance sheet, where it will be in a year, will be unable to keep all the moving parts on the banks' $15 trillion liabilities in check (not to mention the $18 trillion in shadow liabilities). Bottom line - very soon foreclosure fraud will finally start to be priced into financials first, then everything else. It already has infected credit.

h/t Credit Trader

 

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Wed, 10/13/2010 - 15:33 | 647033 yabyum
yabyum's picture

Wells holds my active 401k, this scres the shit out of me.

Thu, 10/14/2010 - 03:33 | 648562 erik
erik's picture

Looks like the fraudulent Option One loans might actually be coming back to H&R Block after all.  That could send them directly to chapter 11.

http://www.businessweek.com/news/2010-10-13/h-r-block-unit-swaps-reach-record-as-foreclosure-probes-spread.html

Wed, 10/13/2010 - 15:33 | 647038 Smaug
Smaug's picture

Every one should rent the movie Rollover that was made in 1984. This is what the collapse will look like.

Wed, 10/13/2010 - 15:40 | 647053 csmith
csmith's picture

Cramdowns coming.

Wed, 10/13/2010 - 15:40 | 647056 wiskeyrunner
wiskeyrunner's picture

The stock index futures will rise overnight and SPY will gap open again. Stock index futures rise overnight 90% of the time. When America wakes up all they here is "futures point to a higher open" over and over and over.

Wed, 10/13/2010 - 15:48 | 647079 Cdad
Cdad's picture

Ignore the current intraday meltdown in the financials at your own peril.  The price action reminds me of the good ole days in 2008.  Sold to you, I guess.

Wed, 10/13/2010 - 15:51 | 647093 bob_dabolina
bob_dabolina's picture

2008 XLF would not be green

Wed, 10/13/2010 - 15:55 | 647105 Cdad
Cdad's picture

It isn't green.

Wed, 10/13/2010 - 15:41 | 647058 wiskeyrunner
wiskeyrunner's picture

Not a seller in sight, it's so easy to rally this market.

Wed, 10/13/2010 - 15:52 | 647094 doolittlegeorge
doolittlegeorge's picture

well I would think if I were a foreign nation i'd want our equity market to get hammered given our money printing.  "Teaching some manners" if you know what I mean.  "It's not that easy" however as because of the 90's our world's "co-dependency" (not the right word--there was a term that used during that decade) was realized.  even tho i'm one of only two equity bulls on this site "in no way do i agree with these policies."

Wed, 10/13/2010 - 16:02 | 647133 still kicking
still kicking's picture

I'm truly curious, what is your reason for being bullish on equities?  Is it market manipulation or do you see something fundamental?  I honestly am a bear and think that eventually this house of cards will fall but the creativity of the manipulation astounds me, I am coming around to thinking it may be years before this thing craters.  That being said I won't get back in and I wouldn't advise anyone too either.

Wed, 10/13/2010 - 15:43 | 647061 traderjoe
traderjoe's picture

Today's the first day that I thought the MSM started to reveal a bit of how big this quagmire could be. Sure, there were the talking heads that wanted to wave a magic wand and make it all go away, but they were actually talking about the notes as opposed to the robo-signers.

OT: both JPM and INTC down, even though they get thrown out as a part of the rally on "earnings news".

Wed, 10/13/2010 - 15:43 | 647063 Bold Eagle
Bold Eagle's picture

Isn't that funny how INTC and JPM are down, but everything else shot to the moon because of their great earnings. Financials may be able to survive this quarter due to POMO, but they are between an anvil (deleveraging, credit contraction and lower income from lower interest rates) and a hammer (hyperinflation that will eat their reserves alive)

Wed, 10/13/2010 - 15:53 | 647097 doolittlegeorge
doolittlegeorge's picture

no

Wed, 10/13/2010 - 15:44 | 647064 George Costanza
George Costanza's picture

the Fed/Treasury backstop is supporting the bank stocks.  If that wasn't there, they would already be getting crushed.    The bailouts continue, and that is why I am voting against all incumbents.   In office, you are fired.

Wed, 10/13/2010 - 15:53 | 647096 Jake Green
Jake Green's picture

- 435
- 100
- 1 (chief executive)

Wed, 10/13/2010 - 15:53 | 647099 doolittlegeorge
doolittlegeorge's picture

no

Wed, 10/13/2010 - 15:47 | 647074 earnyermoney
earnyermoney's picture

Time for CM and WB to "suck it up." LOL

Wed, 10/13/2010 - 15:49 | 647078 packman
packman's picture

"As we pointed out earlier, when JPM stock was still up for the day, look for this credit weakness to spill over more into stocks as Fed-frontrunners realize that the Fed, with even a $4 trillion balance sheet, where it will be in a year, will be unable to keep all the moving parts on the banks' $15 trillion liabilities in check (not to mention the $18 trillion in shadow liabilities)."

No need for the Fed to keep the banks' liabilities in check - the foreclosure freeze is doing that already.  If you have no REO, then you have no writedowns based on those REO - or am I missing something?

In other words - the banks' liabilities are mostly irrelevant.  Regardless of their size - they will be realized only very, very slowly over time as they allow foreclosures to trickle through (at higher prices, thanks to the freeze-induced shortage), and offset by inflation.  That is what appears to be the plan.

(All brought to you courtesy of FASB mark-to-fantasy rule changes)

Wed, 10/13/2010 - 15:51 | 647092 jmac2013
jmac2013's picture

Things are just too centralized, too correlated.  One domino falling can bring all of them down.

 

Wed, 10/13/2010 - 15:52 | 647095 wiskeyrunner
wiskeyrunner's picture

A pull back from the highs into the close almost guaranties a rise overnight in the index futures.

Wed, 10/13/2010 - 16:00 | 647128 doolittlegeorge
doolittlegeorge's picture

geo political risk

Wed, 10/13/2010 - 16:03 | 647138 HelluvaEngineer
HelluvaEngineer's picture

yeah, plus it's Wednesday

Wed, 10/13/2010 - 15:58 | 647119 kaiserhoff
kaiserhoff's picture

More great news for mortgage insurers.  Reggie Middleton nearly breaks his arm, patting himself on the back, but he did a nice piece on the net recovery from foreclosures last week, 30-40% and falling.  This can't help.

Wed, 10/13/2010 - 16:03 | 647139 ATG
ATG's picture

FAZ biches

Wed, 10/13/2010 - 16:15 | 647185 Bear
Bear's picture

XLF up again today. Will wonders never cease.

Wed, 10/13/2010 - 16:24 | 647221 George Costanza
George Costanza's picture

how can anyone trust the market when XLF is up, while the mortgage mess is brewing.   That is irrational and stinks of manipulation.

Wed, 10/13/2010 - 16:25 | 647225 George Costanza
George Costanza's picture

the sane move is to buy FAZ, but who dares to go short.  Short = suicide.

Wed, 10/13/2010 - 17:49 | 647476 Minion
Minion's picture

All signs of a significant top forming.  When the market "ignores bad news" it's because it's already been one hell of a party........

Wed, 10/13/2010 - 16:47 | 647306 wjs90
wjs90's picture

Anything with mtg putback risk got torched today in CDS.  RESCAP got drilled along with BAC & Wells.  Think HRB getting it too is due to their fin sub Block Financial has mortgage exposure.

Wed, 10/13/2010 - 17:58 | 647446 virgilcaine
virgilcaine's picture

Financials are leading the way... Lower.  They led the way in 07-08.  Just a friendly reminder all is not well.

The Fed is going to have to deal with a tbtf that did f.

 

There are around 2% bulls on the USD.. an all time low.  Even cnbc is on the commodity bandwagon.

Wed, 10/13/2010 - 18:08 | 647537 Minion
Minion's picture

So it seems Mr. Bernanke is determined to follow in the footsteps of Japan and keep rates low indefinitely, and POMO the markets forever.  Japan's central bank couldn't prevent the Nikkei from losing 90% of its value over the past 20 years, during the "yen carry trade" when traders borrowed yen for 0% and speculated.  So it goes.......... "primary dealers" in the US borrowing money to either hold cash or juice equities in 2010. 

It's not different this time.  When the brick and mortar economy will no longer support the profiteers and primary dealers get another bout of margin calls, POMO isn't even going to move the needle. US does not own its own debt as did Japan.  Foreigners might soon begin to cut their losses (as they are not measured in dollars, but the equivalent basket of commodities) since they can't seem to win the currency war.  The trump card is the ability of our opponents to liquidate assets that we depend on maintaining value.......  if rates go up the deficit is going to create a deflation problem no one will be able to ignore.  In that case, POMO to the sky = print to oblivion.  If FED is this stupid (or intentionally trying to ruin the US economy), we will still have deflation in jobs and credit as confidence is completely lost and the IMF saves the day.......

Wed, 10/13/2010 - 21:14 | 648013 treemagnet
treemagnet's picture

Todd Harrison at Minyanville summed it up best - he made the analogy of a virus that spreads only to those whose defenses are weakest - the most vulnerable.  Once the virus takes hold, it mutates unchecked by a patient that denies its true condition and denies treatment (ok-that last bit was me).  Anyway, a good way to look at "it".

Thu, 10/14/2010 - 00:50 | 648414 HungrySeagull
HungrySeagull's picture

Bye bye 401k's It will probably be modified by the Fed to provide you with a wonderful annuity many years from now. You will no longer need to worry about the 401k, they kindly have taken control so you can rest and enjoy less financial stress worrying about what will be your money should you live to a certain age.

That should provide the oil necessary to lubricate the engine for a little while longer and fluid to cool it and keep everyone happy while they still have the air conditioning as they sit in traffic on wall street.

Thu, 10/14/2010 - 10:18 | 649106 still kicking
still kicking's picture

ahhh, I will miss airconditioning if things do end getting as bad as we all suspect.

Tue, 11/16/2010 - 10:55 | 730682 daniel
daniel's picture

Really this is a great post from an expert and thank you very much for sharing this valuable information with us.
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