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Goldman Cuts 2011 Bank EPS And Price Targets By 7% On Fears That "We Are Turning Japanese"
Goldman's Richard Ramsden has cut his Price Targets and EPS estimates virtually across the board for his coverage universe, while keeping ratings the same, on increasing concerns that loan shrinkage at banks, and portfolio run offs will pressure bank Net Interest Margins/Income, in what he dubs as the "Turning Japanese" syndrome. The primary culprit - lack of loan growth as not only are banks squeezed by declining LT rates, but by an increasing lack of willingness by US consumers to borrow: "Loans were down 1% this quarter, with chargeoffs remaining a big source of shrinkage. We analyze the economic factors driving loan growth and conclude that year-over-year growth will not turn positive until 2011. Run-off portfolios which account for 10% of system wide loans will drive a further 3% shrinkage in 2011." Ramsden rhetorically asks: "Shrinking loan levels and low interest rates have prompted many to ask if we are headed down the same path as Japan in the late 1990s." And while the banking analyst is contractually obligated to answer every question bullishly (no matter if real or rhetorical), we are confident that particular question has only one correct answer, and it is most certainly not "No."
Below is a summary table of Ramsden's 'before and after' opinion on Goldman's key peers. The net result of the newfound bearishness is a 7% reduction in both Price Targets and 2011 EPS estimates for the coverage universe.
While Ramsden discusses the various nuances of his negative view on the financial sector in the attached presentation (something those with a very bullish bent on financials will likely not be too happy about), the key point can be summarized by his concern that the US is increasingly turning Japanese.
The collapse of an enormous asset bubble, a banking and credit crisis, zero interest rates, central bank balance sheet expansion, and massive fiscal stimulus have caused some people to question whether the scenario here could continue to play out like Japan, where loans declined for eight years after the peak and interest rates remained near zero. When it comes to loan growth, the US and Japanese experience look remarkably similar, with loans falling by about 10% from the peak over the subsequent eight quarters (see Exhibit 21). NIMs have been very similar as well, with margins increasing initially despite loan declines as deposits re-priced faster, driving funding costs lower (see Exhibit 22).
Yet being a sellside analyst who by definition is forbidden from saying the outright deflationary truth, Ramsden's response is sufficiently well telegraphed.
But that being said, the size of the policy response, faster loss recognition and subsequent recapitalization should help US banks avoid a Japan-like scenario.
Some more on the tried and true excuse of a lightning response, which now has the same veracity as the whole discredited money on the sidelines fallacy. The simple observation all these permabulls ignore is that by stepping in to provide trillions of monetary (and fiscal) stimuli overnight, all the Fed and the administration did was to create a rapid and dramatic bounce, which will be all the more vicious and fast when it does the inevitable mean reversion acrobatics (unless of course double the dose of the initial stimulus is injected, and so forth at an exponential rate). In other words, what went up, is about to come crashing down: while Japan's pain has been prolonged, gradual and chronic, ours is about to be extremely painful and acute.
Then again, maybe Ramsden is right:
However, there are many differences as well. Japanese banks notoriously took a long time to recognize losses and raise capital, which US banks have been much quicker to do. Also, while the housing bubble in the United States was large, by some metrics it was even greater in Japan, and also was combined with an equity bubble (see Exhibit 23). Perhaps the most dramatic difference is the policy response. The Bank of Japan took more than a year to cut rates and more than seven years to expand its balance sheet. On the other hand, in the first 18 months of the crisis, the Federal Reserve cut interest rates 500 basis points, instituted numerous liquidity facilities, and announced plans to purchase assets worth 9% of GDP to further ease monetary policy (see Exhibit 24). Fiscal stimulus was also much faster in the United States than in Japan.
These policies have helped US capital generation and pre-provision operating profits perform much better than Japan. Perhaps
most notable is the difference between the capital generation between the two regions. As Exhibit 25 shows, tangible common
equity ratios were much lower in Japan heading into the crisis and never really recovered in the two years following. In the United
States, on the other hand, US banks were able to re-capitalize fairly quickly as investors gained confidence as a result of the stress
test and took some comfort in the fact that the banks were quick to realize losses. Profitability was also much better in the United
States (see Exhibit 26), driven by a strong operating environment for business, which thrives in a low rate environment (i.e., Fixed
Income and Mortgage origination).
Only time will tell just how much off the mark the Goldman analyst may be.
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http://www.youtube.com/watch?v=y1ehMrK3itM
I must be old...like Tyler. I think he was referring to this one -
http://www.youtube.com/watch?v=kWAwrMFtSvM
"I'm a soul man
Got what I got, the hard way
and I'll make better, each and every day
So honey, hey, don't you fret
'cause you ain't seen nothing yet
I'm a soul man"
Lots of us on ZH are ready and some are not. Got to have that rural escape land. It will happen so fast, no one will know what to do. We are at the apex. Thanks ZH, Karl D, Shanky, TraderMark and etal.
"It will happen so fast, no one will know what to do."
I was a youngster and my father woke me up at 7:30 am telling me that tanks are in the streets. No transportation. No TV. No radio, other than military music. In essence, it was an overnighter.
I expect a Chavez style take over.
The average US Soldier would refuse the order.
Yeah. They would have to bring in foreign soldiers. UN troops or something, and that wont happen.
When disenchanted French citizens were attempting to storm the Bastille, many of the soldiers began to break ranks and desert when the fighting got violent. Its hard to shoot at your own countrymen.
Interestingly, the French did have some Swiss soldiers there, but obviously not enough.
Keep telling yourself that my friend and you will feel better. And then you will be surprised when it happens. We are being conditioned as we speak to welcome troops in the streets. They now regularly show up during natural and man made national disasters and emergencies. One of the first things done after the government publicly woke up to the GOM disaster was ........wait for it......send troops. Remember that? Few do so maybe you need to go look at some April copies of the NYT or WSJ or WaPo. It's there folks. Don't take my word for it. Look for it. And troops now regularly "train" with border patrol and with state police. And so on.
Of course, you're assuming that the order will come out of the blue and sound crazy. This will not be the way it happens. Some type of "event" will be staged, twisted or warped to provide the political and social cover for martial law, though I promise you it won't be called that. Instead it will be called some pretty or logical name in order to be accepted by the cowed and frightened. "Daddy, tell me another lie so I can believe it's the truth."
And while the majority of the grunts in the military (and a significant number of officers) won't like what they're doing, the perception will be carefully stage manged so that they will "feel" it's necessary. "Well, we have no choice but I still don't like it. Let's make it for as short a time as possible and then leave." Yeah, just like we did with Iraq and Afghanistan.
Folks, we need to wake up and adjust our beliefs and perceptions of what can and cannot happen more towards day to day reality. We need to stop staying just in today and think some of this through to it's conclusions. If you think the USA and the rest of the world is headed to some kind of economic collapse, either entirely or partially, why would you think there would NOT be troops in the streets at some point when the shit hits the fans and social order begins to deteriorate.
Exactly when have your leaders not lied and twisted facts to suit their agenda. Isn't that what the Ponzi is all about? So you think they will limit themselves in other areas? If the people become frightened or angry because the currency is crashing or massive layoffs evolve, do you really think the threatened powers that be will do nothing in order to maintain their power and control? Really? Honestly? And if the people aren't sufficiently frightened, I promise you the fawning corporate media will do it's best to whip the people into a frothing panic. Of this I have no doubt.
Just like you can't be a little bit pregnant, there can't just be a little bit of Ponzi. They are in all the way. They have pushed all their chips to the center of the table. They have committed to doing anything and everything needed, ugly, illegal or immoral as it may be. So you think they will stop at putting troops in the streets? Wake up people. Reality is knocking on your door whether you want to answer it or not. Full frontal fascism is here and it's here to stay. The longer we remain in denial over this and the more we complain there's nothing we can do, the worse it's going to get.
Oh no, I agree, something will happen. The Bastille fell, and many who were fighting against the crowds ended up having their heads hoisted in the air on stakes.
Today, modern society is violent. Kids these days aren't plowing fields, they are playing 'harmless' video games that glorify killing and brutality, and many of these kids are already adults. These aren't french farmers were looking at, but a population that is mentally primed and psyched up for violence. The political establishment and the military will have to turn to propaganda in order to keep the soldiers aligned for their cause. I however don't think it will be enough, I think if we see anything like that, it will be a self destructive conflagration.
Before that happens though, they certainly will have to deploy troops all over and enforce curfews because of the rioting and disorder a collapsing economy will bring. By that time, it is too late to turn back.
So far, I don't see any resolve in them to really fix things. The only resolve they have is saving the ultra rich, saving the banks and maintaining status quo instead of letting them default and fail for their own ineptitude, and they will keep fleecing everyone else until its too late.
Then the rampage begins.
I was actually responding to the comment above you. It all started with someone saying......
The person you and I responded to said........
To which you responded.....
But now you are saying......
So which one is it? Do you think the average US soldier in large enough numbers to make any difference (not a few here and there) would refuse the order to take up positions in US streets to support the financial coup that has already taken place (or whatever cover story they come up with) or do you think they will accept the order and be deployed all over?
As I proposed, there will be a cover story or event that's twisted to create the perception that troops are needed, even desired, on the streets. Show me one time when US soldiers in large numbers refused orders. US Troops deployed on US soil at the beginning of the civil war to force the southern states back into the union.
And contrary to popular belief, the civil war started out being about states rights, not about freedom for slaves. Lincoln moved the goal post when he realized he could rally public support in the northern states if he could posistion the war as a moral issue, meaning the southern states are bad, evil and immoral and the northern states are good and just and noble.
I would agree that they would deploy, but I think when things get violent, many would end up deserting. Its hard to shoot your own neighbor when he's facing the same problems your own family is facing. Its a little different than shooting back at the taliban.
@Cog D
Thanks for the share, as always.
Helps to know that one is not alone, that there are those that have overcome Contempt Prior to Investigation as a Result of an Awakening. That Mental, Physical and Spiritual isolation by the normies, those merely speaking, signing on as a method of venting, complaining having yet Come to Believe absent having taken Certain Actons, without firm underlying awareness, wears thin at times.
You wear yours like loose cloth.
Thank you.
Is it possible to think that the US has not been free from monetary cocaine for at least one hundred years and as such its crash will be both acute in its timeliness, magnificent in its magnitude, and prolonged in its extent.
Thus wars are being lined up for the disgruntled, who dare no think to look in the mirror when assessing "who done it."
ZH nuggets,
"" ...educational industrialization complex...Previous paradigms no longer apply...the frightening truth of peak debt and peak oil...is kind of funny considering he is a classic Jeffersonian, yoeman agrarian. The vision of our forefather's United States is now considered kooky...unchecked geometric growth led by a group of "academics"...can not print oil...etc., etc. ""
Goldman is a criminal enterprise, which feeds itself by burning its biggest clients.
In the short future, expect a bank rally of epic proportions...
SunTrust was the first one to turn off the lows:
I'm just playing the odds and taking the same trade as the casinos...
Place your bets.....
You're slipping. Where's the real chart?
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and always wants to own up to find a person dependable, however, the community who can rely on to anybody or to practical some. once the pandorawas a love, let me take three years the precious days ofour youth, i seem to it, and possessed no, can only say it was toopandora bracelets young, Not think too long, but i believe the love. three years, various kinds of contradictions and had a quarrel and validation of life with a pandora hearts's beautiful realities.
About 75% of Americans already live hand to mouth. The "crash" and mayhem worries the people with money and assets. The 75% will gladly build the guillotines and chop their heads off.
Problem is if they use the French model of retribution those who chopped got chopped as well. The mob cares little for consequences just rage for the moment.
I agree that low interest rates will hurt Banks profit.
My reasoning is that the Consumer is not a dumb as the Banks think they are. I believe that the Consumer instead of putting their Money in a Savings account at .05% they are paying off high interest loans. So, instead of putting Money in the Bank at.05% they will pay down or off their 18% Credit Card, 6% Car loan, or even principal payments agains their Mortgages. Consumers are paying down or off their Debt.
Consumers realize that by paying off a 18% Credit Card that they are actually making 18% on their Money.
The conclusion is that Banks are losing the 18% interest because of the low interest on Savings Deposits. Consumers are putting their Money where they get the biggest Bang for their Buck.
Nope...
Japarg
Japan/Argentina....would be more fitting...
......................................
Tax structure change....ie a small monthly tax on money in all accounts.....
No individual income or corporate taxes....
ie no more than 40 basis per month....would ignite entrepreneurship, innovation, jobs, and the very type of businesses that can make the US rock on....broad based, effective, and the least intrusive...progressive....no cheating and easily collected...at the depositories....govt. cannot exceed 10% of the economy (add in to prices)....
Americans get to wake up in the morning never ever having to file any sort of tax forms ever again....
.................................
The US must get rid of the Princeton Harvard Yale Club (more for me)....Their shelf life has expired....
..............................
At the moment the govt. is stealing from all savers at an unfair tax level...a 100% tax on retired savers for example....
A tax on money...would be a tax on all money in all accounts ....borrowed or not....much better than a consumption tax....checks leverage....
And the polys that can reduce it....will be the winners in the elections...thus promoting efficiency....As long as polys allocate tax favors where no one can see them.....levels will never be proper....
The "money" tax ....all out in the open for everyone to see....far better than a consumption or flat tax....and light years ahead of the current/proposed system...
The US already has a "money tax".....improperly structured....Make it proper....
Most USA denizens will not converse, face-to-face, with any strangers.
Which is kind of a necessary prerequisite for any kind of armed resistance movement.
The only thing the authorities need to do in order to assert complete control
is to turn off the cell phone network.
Heck, less than that, just let it be known that they are listening in ....
And...right on cue....they are gunning the living piss out of the futures. So, what fucking difference does it make?
Yes, Dow Futures up 54. Just goes to show that any and all theroys, Analysis, Charts, Economic conditions mean shit when the Fed has control the the pump button.
Something happened at 3:15 am EDT that dropped the futures like a rock. And something "happened" at 6 AM that rocketed the futures. Those huge egos on CNBC Squack Box actually said at one point around 6:20 that maybe they had something to do with it, that because they begin at 6 AM, information that comes out of their program might be doing it.
Unbelievable. Hell, if I had control of the pump button, I would use that as the cover story, unless I didn't care anymore about cover stories.
There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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