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Banking Hell, Tuesday, January 12, 2010
As I have stated throughout all of last year, the macro, fundamental and
political headwinds facing banks make them good shorts and risky
investments. They faced a good run in this recent bear market rally,
but the spirits have cursed them for the medium term. In addition,
these guys act as if they have never heard of PR and strategy, ex. this
bonus thing.
Recap in the news:
- Major Banks Being Targeted for Higher Fees, Taxes
- FDIC Floats Plan to Boost Fees
- Obama Going Where Money Is
- FDIC Wants to Shift Burden to Banks Taking Risks: Bair
These fees are coming when banks are not really making the money
that it seems like they are making. The big profits stem from the fact
that the government gave the "OK" to lie about the credit losses on the
rotten assets. These profits are fake if netted out against credit and
asset losses. Hence, the bonuses are fake too. If the bonuses get paid
out against the backdrop of increasing credit losses and still
deflating asset values held with significant leverage on the balance
sheet, you would have let the last horse out of the barn.
These proposed fees will just make things worse for the banks. I see
bonuses being reduced simply by the mere fact that they are given out
as stock at the top of a mini-bank bubble!!!
I seem to have been one of the very few was bearish on Goldman and
Morgan Stanley in early 2008 (see links at the bottom of this post as
well as Get Your Federally Insured Hedge Fund Here, Twice the Price Sale Going on Now! and It appears as if the patina on Goldman's Stock is fading... and The Riskiest Bank on the Street).
As illustrated to subscribers in the 
Morgan Stanley Forensic Outlook: Q1 2010 2010-01-05 04:20:36 504.53 Kb,
the bulk of the valuation increase for the big investment banks stems
from the peer group bear rally premium of the last 9 months. If, or
more accurately, when that premium dissipates, the whole sector will
drop in fundamental value. I don't believe the banks are worth what
they are trading at now, but comps are comps. Let's take a look at the
comp trend.
As you can see, thanks to the bear market rally, the enire I bank peer
group has enjoyed a big bump in valuation - one that I believe will
prove to be transient, to say the least.
If I am right, then these I bank stocks will collapse for the value
drivers just aren't there to drive the valuation. Nearly all business
units are trending down save a bump or two, FICC and trading arbitrage
can't last forever (some analysts say the party is over already), and
eventually the credit losses and asset devaluations on the balance
sheet will come a knockin', despite the "get 4 quarters' worth of free
mark to market lies" from the powers that be. Residential real estate
is resuming its downtrend (see If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...) as credit loses resume their uptrend (seeThe Truth! The Truth? Banker's Can't Handle the Truth!!! andResidential Lending Credit Losses Worsen as Unstainable Government Support Proves... Unsustainable).
Check out Goldman Sachs today, and for the last 30 days.
More of Reggie on Goldman Sachs
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Free research and opinion
- Reggie Middleton on Goldman Sachs' fourth quarter, 2008 results
- Goldman and Morgan losses in the news, about 11 months late
- Blog vs. Broker, whom do you trust!
- Monkey business on Goldman Superheroes
- Reggie Middleton asks, "Do you guys know who you're messin' with?"
- Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis
- Reggie Middleton on Goldman Sachs Q3 2008
§ As Reality hits, the Masters of the Universe are starting to look like regular bank employees
Reggie Middleton's Goldman Sach's Stress Test: Breaking Ranks with the Crowd Once Again!
Who is the Newest Riskiest Bank on the Street?
More Goldman Premium Stuff!
Goldman Sachs Report June 21, 2008 2008-10-20 16:48:01 361.18 Kb
Reggie Middleton on Goldman Sachs' fourth quarter, 2008 results
Goldman Sachs - Buffet's strategic investment and public offering 2008-09-26 02:29:15 895.36 Kb
GS ABS Inventory 2008-02-25 06:48:56 1.22 Mb
Goldman Sachs Valuation Model updated for PPIP - Retail 2009-04-04 19:50:51 388.04 Kb
____________
On Morgan Stanley - The Riskiest Bank on the Street
The latest update for all subscribers: Morgan Stanley Forensic Outlook: Q1 2010 2010-01-05 04:20:36 504.53 Kb
Free Research: The Riskiest Bank on the Street
Doesn't Morgan Stanley Read My Blog?
Wall Street is Back to Paying Big Bonuses. Are You Sharing in this New Found Prosperity?
Historical Subscription Research
Morgan Stanley_final_040408 2008-08-30 06:37:54 1.38 Mb
MS Simulated Government Stress Test 2009-05-05 11:36:25 2.49 Mb
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The problem is what doesnt appear on balance sheets
"As I have stated throughout all of last year, the macro, fundamental and political headwinds facing banks make them good shorts"
wtf ?!?!?!?
That's right. All you have to do is look at the balance sheets. Many people have very, very short term memories. Look at a chart of the banks over the last three years and tell me if they made good shorts. I have trounced the S&P (up over 300 to 400% vs S&P down over 10%) by studying balance sheets.
There will be drawdowns, and some of them will hurt and hurt bad. At the end of the day, math is still math, and 1+1 does not equate to 27.8!
Take a look at the charts of the past
year and a half and the gaps in the
bank charts. (Gaps inevitably get filled..
if the entity survives long enough.)
The banks are actually going to revisit
the lows. When? Your guess is as good
as mine, but I'd take the under on two
years. Makes some sense....99.9% of
everyone now thinks the bank problems are
solved.
Timing is a bitch, years from now we will learn that there were even additional under-the-table bailouts that we didn't hear about, in addition to the Fed propping up the market.
However, Reggie is right, the headwinds are now against the banks. I wouldn't leverage, and I don't enjoy swimming with sharks, but I would short the financial institutions here by buying precious metals (since the banks are short metals)
Vote with your wallet -
www.moveyourmoney.info
Take your money out of the corrupt system.
Regional banks and credit unions a less likely to become financial suicide bombers.
Much more convenient than trading gold bullion, wives and goats -
Last year, the Congress pushed FASB to change mark-to-market to mark-to-model (a.k.a as mark-to-cook-the-books or Enron style accounting). How long do you think the banks will be able to hide their insolvency with mark-to-model before the sand hits the fan?
My Ex Bank (Regions)
They finally emptied and are seeking new Lease holders for thier own second floor in the building that they once fully occupied.
To me that is a clear signal that the bank needs cash to keep going.
REGGIE / If we can indulge you a bit... do you have a recent link to some recent research you have produced on PNC Bank. We do not like the company, or stock at all at this level (57+). We believe (from our Midwest sources) that their CRE holdings are/have deteriorated significantly. Do you have any opinion or insight on this thesis. Granted, the stock may still retain some bid through this Friday (the 15th) since they announced a recent increase in their dividend for holders at the close of the 15th. Thank you for your time.
Below is an abbreviated result of a search of "PNC" on my site. I have a decent amount of work performed on them. If you have info that can be substantiated and is credible, I will gladly offer you the higher level forensic analysis in return. I can be reached here: Reggie's direct email.
If it is something that is truly significant, I will rerun my models with the new CRE inputs. I ran my own stress tests on PNC and at the rate CRE is devaluing, I am sure it wouldn't take a whole lot to demend a significantly larger capital infusion.
1. For those that didn't notice - Reggie Middleton on PNCl Q3-09 Results
(Reggie Middleton's Boom Bust Blog/MyBlog) PNC has reported strong accounting earnings for Q3-09 and lower charge-offs as well as lower 90 day lates. The press and the blogs were all over it as a news search in Google reveals: Tuesday, 27 October 2009
2. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 5 - PNC Bank
(Reggie Middleton's Boom Bust Blog/MyBlog) ... Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 4 - Wells Fargo Enter PNC Financial, the "off the books" edition!!! Unconsolidated VIE (Variable interest entities) ... Wednesday, 21 October 2009
3. You've Been Bamboozled, Hoodwinked and Lied To! Here's the Proof. What Are You Going to Do About It?
(Reggie Middleton's Boom Bust Blog/MyBlog) ...ly, except for the two links that have public-lite and public excerpt included! Let's walk through the PNC free data, in light of how misleading their latest quarterly report was (see For those that d... Friday, 06 November 2009
4. At What Point Does Accounting Gimmickery Become an Outright Lie? Let's Ask PNC
(Reggie Middleton's Boom Bust Blog/MyBlog) ...ention who those blogs are (hint, hint), but just want to throw the challenge out there as I show how PNC may have possibly pulled the wool over the collective media, sell side and market's eyes.... Tuesday, 27 October 2009
5. The Truth! The Truth? Banker's Can't Handle the Truth!!!
(Reggie Middleton's Boom Bust Blog/MyBlog) ...re carrying those loans anywhere near their actual value. A good example of this is PNC Bank. They were running a 41% loss rate in Wisconsin (according to our birds-eye view calcula... Sunday, 29 November 2009
6. The difference between a professional investor and a professional reporter is...
(Reggie Middleton's Boom Bust Blog/MyBlog) ... Case in point (in terms of lying, that is) is the recent article in the Wall Street Journal regarding PNC Bank - Jun. 29 PNC Waits to Repay TARP Funds: Some banks have repaid their T... Thursday, 09 July 2009
7. PNC plus CRE = Doo Doo hitting the Fan
(Reggie Middleton's Boom Bust Blog/MyBlog) To highlight more of the damage to be done to TARP recipient banks such as Wells Fargo and PNC, I know turn my attention to the commercial mortgage sector (see the previous post BoomBustBloggers appea Tuesday, 28 July 2009
8. Rating Agencies Attempting to be as Accurate and Reliable as Blogs???
(Reggie Middleton's Boom Bust Blog/MyBlog) ...tess Test Model Assumptions and Stress Test Valuation 2009-04-22 07:55:17 339.99 Kb PNC SCAP Results recast using FDIC and NY Fed data - Pro 2009-05-15 07:31:21 455.37 Kb ... Tuesday, 01 December 2009
9. BoomBustBloggers appear to be pressuring PNC
(Reggie Middleton's Boom Bust Blog/MyBlog) ...bscriber has made it into the news with a large option trade - STOCKS NEWS US-Bears flock to PNC Financial put options PNC Financial Services fell 4.33 percent to $35.79. It repor... Sunday, 26 July 2009
10. The Official Reggie Middleton Bank Stress Tests
(Reggie Middleton's Boom Bust Blog/MyBlog) ...y on his input for the base case scenario. Below is the link for the stress test results of PNC Bank including the acquisition results of National City, an interesting taxpayer funded combi... Monday, 13 April 2009
11. Recent research results as earnings roll out
(Reggie Middleton's Boom Bust Blog/MyBlog) ...rse for this company, and they have clearly admitted it, yet they are able to ride beta higher. PNC was the trainwreck that we all saw coming, several times over: PNC Stress Test ... Thursday, 23 July 2009
12. The PNC Stress Test Analysis update is now available
(Reggie Middleton's Boom Bust Blog/MyBlog) ...ins, in detail, the assumptions behind the modeling and an updated book valuation engine. PNC Stress Test update - Retail 2009-04-21 15:53:52 777.50 Kb - 9 pages PNC Stress Test u... Tuesday, 21 April 2009
13. A new look at the leverage on PNCs books
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog) Monday, 19 May 2008
14. And the banks that need to raise capital are...
(Reggie Middleton's Boom Bust Blog/MyBlog) ...ne could expect from the government in the upcoming days. The Scenario Analysis Summary for PNC Bank Capital to be Raised Assuming the government requires a 4% minimum tan... Tuesday, 05 May 2009
15. The Doo Doo 32, revisited
(Reggie Middleton's Boom Bust Blog/MyBlog) ... 373% Bank of America 371% PNC 359% Sandy Spring Bancorp 311% ... Monday, 24 August 2009
REGGIE / Thank you very much for all the links above. I did not expect you to provide this extensive of a list. Like us, you're passionate about your work, and engaged. Thank you...
Reggie, dude you're the best
AR...Reggie had a piece on PNC on ZH and I am pretty sure has more extensive stuff on his site. PNC as you would know took over NCC which was a pile of crap. I will tell you this: somebody is keeping a bid under this regional, I watch the ticks on this one fairly close.
haven't seen you around much AR and always find your posts interesting. good luck for 2010!
DH / Missed your missives too. I sent our friend CD a note yesterday. 2009 was a decent year for us (frustrating from July through November, but good overall). Every year I try to take a 3-4 week break. Have learned it tends to put some "balance & perspective" back in my assessments of markets. One of the things we all suffer from, is micro analysis, while sometimes missing the bigger picture (i.e. real profitibale set ups of positions). I told CD, family, children, health, and cancer are truly important. Everything else we have to keep a healthy perspective on. In other words, knowing and deliniating what "seems to be important, and that which really is important" (like those things mentioned above). Anyway, you take care, and keep your focus, balance, and perspective. Stay POSITIVE. This year, stock volatility will increase. I believe we'll get back to more normal markets providing us better balanced opportunities to make money. As always, thanks for your imput and thoughts DH. Be well our friend.
The below is hypothetical...
As a muni trader, my bonus is derived directly from my P/L which is accrued over the quarter and kept in a separate account. It does not go into the firms bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account incase I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50mm for the year my bonus is $5mm
What does my bonus have to do with the MBS trader who's sitting on losses? Did I or did I not show a profit of $40mm to the firm’s bottom line?
I dedicated a whole post to this comment.
The below is hypothetical...
As a muni trader, my bonus is derived directly from my P/L which is accrued over the quarter and kept in a separate account. It does not go into the firms bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account incase I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50mm for the year my bonus is $5mm
What does my bonus have to do with the MBS trader who's sitting on losses? Did I or did I not show a profit of $40mm to the firm’s bottom line?
The below is hypothetical...
As a muni trader, my bonus is derived directly from my P/L which is accrued over the quarter and kept in a separate account. It does not go into the firms bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account incase I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50mm for the year my bonus is $5mm
What does my bonus have to do with the MBS trader who's sitting on losses? Did I or did I not show a profit of $40mm to the firm’s bottom line?
Reggie you're just too good to us! Anyone for liar's poker?
Reggie,
Love your stuff - thank you for posting it here on ZH. Quick question with regards to JPM's $80T(+) CDS expsoure - can you provide any insight into how you came to that figure as I know its not easily provided via JPM's reports.
Thx!
There is no quick answer. I have a team of analysts that pour over documents.
Figured so.. I'm involved in a huge debate with our analyst that JPM's leverage is huge (as per your analysis).. he disagrees and 'doesn't see' the same cds exposure.
*sigh*
Thx Reggie!
That's probably because JPM really doesn't want him to see the exposure :-)
JPM's real risk is counterparty exposure, which is really not accounted for in the current regulatory regime.
email me with some info about where you work and let's see if I can make you a client: Reggie
Reggie, u make a great point- due to accounting changes, these guys dont have to book losses on their assets(since they can mark-to-make believe), so their profits are way overstated, & the bonuses they end of paying b/c of their massive earnings will end up having been paid out under false pretenses. Its amazing how the 'powers-that-be' enable all of this stuff, & then beat their fists about executive comp. Its like complaining that I'm getting fat b/c I eat too much. Thats how the body works, when u eat too much, u get fat. & thats how the financial houses work, when they book massive earnings, they pay massive bonuses. forget about the fact that the gov't enabled all of this. If they didn't pay them 100 cents on AIG swaps, if they didn't allow them to borrow @ 0, lever up, & ride the carry trade, if they didn't allow them to mark @ whatever, they wouldn't have these paper profits in the first place. Its the rule makers who are enabling this stuff, the players are only playing within the rule set.
the only solace is that a lot of the bonus will be paid out in stock, & that mark they get on that stock will be around now til end of Jan. So they will suffer when their stocks crater.
I truly believe the Gubmint " powers-that-be " ......including Timmy, Ben and Team Obama.....all got hosed by the bankers with a brilliantly deceptive scheme. TARP and suspension of M-T-M requirements came with no special accountability requirements on exec comp and bonuses.
The Banksters know how deep in financial trouble they really are. They know how much a new administration wants to look good. Therefore, the only game left for them is to jiggle up their own equity valuations, rack up trading profits, subdue the noise level surrounding true losses and do all while looting as much as possible....quarter by quarter... from the virtual balance sheet " earnings " before the roof can be supported no longer.
I could be all wrong, but I think Team Obama has now discovered how brazenly they were all hoodwinked on the bonus thing. And they are now powerless to unwind the mess without worsening political consequences and outrage . So they'll slap a few levies on the banksters. However, now it must all bust out on its own.
All of this comes back to the reality that the financial titans are running the show in D.C. The electeds and other minions are puppets at the end of the string.
Surely, not. They've already bought puts and sold the calls, have in place the bear put spreads, to protect the whole, and then some, of the bonus.
You think these characters fell off a turnip truck?
At least some of the brokerage firms do not allow employees to short or buy puts on their stock.
probably the most ridiculous idea in the world, but perhaps the profits should go back into the capital account for loan loss provisioning. nah, that would be too easy.
What the hell do you think this is? A business!
amen!
Are you going to discuss sometime the FDIC's big capital delay on FASB 166/167 items? It was a pretty generous pass by Bair (naturally on instruction from her bosses)
So Reggie...any thoughts on non US banks?
You can search my site for BBVA, a spanish bank and I have some very interesting european, S and C american and asian stuff coming up.
Would appreciate your take on Canadian banks as well..
Morgan stanley's "Mr. Pinschmidt also cut his price target on Goldman’s stock to $137 from $152, but kept an “overweight” ratinng.
Yeah, "overweight" them right down to $137.
I think the Bonus' are better defined as .. Bribes.Bribes offered , by the established faction for aiding and abeting in the gig, as well as giving the illusion of excellence of management for those few individuals on the receiving end.
While all big bad banksters may go to zero hedge hell
in the long run, FAZ Point and Figure target is
currently 11.
We like QID above 18.30 on the pending SmartPhone
Dot.com style evisceration better, first target 30,
second 71, third 88, with trailing buy and sell stops...
http://www.jubileeprosperity.com/