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Goldman Takes Axe To Bank Earnings On FinReg, Sees Higher Mortgage Rates Coming
From Goldman's Richard Ramsden. Incidentally, as Mr. Ramsden can not downgrade Goldman Sachs itself, feel free to extend his logic to his own firm.
Banks: While there are still many aspects of the legislation that are uncertain as they require interpretation and implementation by regulators, and there is still the risk that there will be additional regulation in coming months and years (ie TARP tax, GSE reform, Basel III), we believe that passage of this bill represents an important milestone that will go some way to alleviating the uncertainty that has been weighting on the sector. Specifically, we believe that investors will be more inclined to focus on the rapid improvement in credit costs, the significant levels of capital generation (which should eventually be returned to shareholders) and the attractive valuations, particularly for the large cap names.
We have updated our estimates of the potential hit to normalized earnings framework to take into account the proposed legislation.
The main changes include:
1. We assume 75% of the $19bn cost for introducing the bill will be passed onto the banks based on asset size.
2. Previously we estimated debit interchange fees would decline to 55 bps – we revise this to 80 bps considering that fraud and fraud prevention costs can be considered in setting the fee.
3. We re-assess the impact of the derivatives legislation given that the magnitude of the swaps spin out is smaller than initially thought.
4. Based on these changes, we now forecast that the large banks could see a 13% hit to normalized earnings while the regional banks could see a 5% reduction in normalized earnings.
Ultimately, we believe that some of the increased regulatory and legal burdens will be passed on to customers either in the form of annual fees or higher spreads on lending. As an example, conforming mortgage rates are currently 90bps above MBS yields vs. a historical average of 20bps. This implies that banks are not passing on the full benefit of low rates and the Fed MBS purchase program because on the other side they are concerned about losses such as GSE repurchase requests. Hence, we believe the impact that we have estimated on normalized earnings could prove to be too high over time.
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This guy should talk to Dick Bove
I have a 5.2% 30 year fixed rate mortgage with plenty of years left on the clock. But I made sure I purchased a mortgage that was assumable. I suspect when mortgage rates are 16% again (yes boys and girls, again as in they were once that high in the 70's) I might be able to sell my home easier because of the mortgage.
Who knows what will happen in the bizarre world that's just around the corner. Yes, more bizarre than what we're experiencing these days. The fun has only begun.
In a Bizarro world - one does not predict the future - just deals with the present. And, if you have a mortgage - you still don't "own" you have a right to "own" in the future which is effectively worthless because the future cannot be foretold.
Thank you for the lecture.
And please point out where I say I "own" anything. I said I purchased a mortgage. I did not say I purchased a home. My comment was purely hypothetical. Get over yourself. Light up a joint and relax.
16% mortgage rates? Yikes. I'd like to see existing homes sales data when we are at 16% rates. I think we would need a home buyers credit of $100,000 by that time.
We will more than likely be looking at 21% rates, or in that ballpark.
I think I want Sean Penn's character from "I am Sam" to be in charge of all of us. The big lie. Unravelling all around us. Wonder what everyone will do if the methane is in the air so bad that people lighting cigarettes self-combust. Back to martini lunch. None of this even matters anymore.
In other words, get ready for a lot more monetizing.
After hearing countless times how well did Mr Byrd knew the rules of the senate I conclude that one of the finest burocrats has passed. RIP Mr Byrd
Based on the amount of Tax Payer funds he spent, I'd say Roast in Hell!
This is not "Goldman Sachs" opinion, this is Richard Ramsden's opinion.
It would seem that Goldman is the whipping boy, "evil vampire squid" and "ripping off old widows that take care of homeless puppies", excepting of course when one of their analysts or economists has a note that comports with the general narrative (of this blog), at which point Goldman Sachs becomes a highly credible and insightful analytical resource.
Me, I just take what Goldman Sachs' individual analysts say with a grain of salt, just like I would from any financial resource, and I recognize that they are just people with opinions and there is no "Goldman Sachs opinion" or "conspiracy"
Correct. Just as "Goldman" is bullish on Europe, uber bullish on Spanish liquidity, and has a EURUSD target of $1.15. Although presumably since you disagree with the take on this report, you believe that finreg reform is benefical to fins? yes?
Speaking of Spanish liquidity:
http://globaleconomicanalysis.blogspot.com/2010/06/spanish-debt-maturiti...
I don't disagree with Ramsden's view on FinReg.
I'm just pointing out that "Goldman Sachs" does not have opinions or points of view. Individual analysts, traders, economists, portfolio managers that work at Goldman Sachs have points of view (plural), but they are not necessarily (ever) in agreement.
The public has been fed this perception that there's a "man behind the curtain" (Lloyd?), like the Wizard of Oz, pulling levers and twisting knobs under a billowing smokey cloud to make money for the "Great Vampire Squid". It makes for comical imagery, but it's silly and incorrect.
By the way, nice job creating one of the few intelligent places on the internet, seriously.
Customers will always be taken to the cleaners to ensure bankster bonuses remain on an upward trajectory. Socializing regulatory charges and economic impacts is status quo.
Good work Congress - mortgage rates are about to go up...
Bull farking shit. You bond bears craqck me up. How many years in a row do you have to be wrong before you give up crying that the sky is falling? Rates will be lower this time next year. Book it.
good on you for putting your money where your mouth(s) are..I have total recall too..."Mind the GAP!"
Rates...no mas! If folks aren't signing mortgages at 4.75%, what makes anyone think the situation will improve by raising rates?
It's always interesting to note the times when Durden thinks Goldman's words are garbage and when Durden all the sudden thinks they are prescient. Durden can't have it both ways and he needs to make his F_cking mind up.
That's up to us!!!
i have cookies!
Pretty simple really. Whenever they are selling you something, run away. Ramsden has yet to change any rating or opinion as a result of his research.On the other hand, feel free to take the data and do with it as you wish.
Durden,
Does that selling me something include when Goldman AND/OR YOU are trying to sell me that financial regulation is bad????
Absolutely
One can be against Goldman from a moral/ethical standpoint, and still find the information Goldman presents to be relevant to the markets they're involved in. Just to spell it out for you a bit more, if you figure out why they're saying the things they're saying, you can trade on that information.
As I posted a few weeks ago, the bankers have been behind closed doors for a few months now dreaming up how they will re-coup earnings losses from the Fin Reg bill. The accounts lady at the bank told me one of the first things they are going to do is charge everyone to even have an account open at the banks. It's not IF, it is WHEN, they do this everyone needs to close their accounts, refuse direct deposit, start getting dollars in their hands instead of numbers in a computer. Refuse to do business with these crooks and shut their doors. Get their hands out of your pockets.
There is no telling what these crooks are going to dream up, but one thing we can be sure of, is that it will not benefit the customer/consumer. They want their bonuses and will dream up ungodly ways to ensure you pay for it.
It's called a Credit Union. Transfer your account and don't forget to tell your banker to F_ck off and you're not paying his golf fees anymore when you walk out the door.
Agree with you , I transferred everything last year away from BofA into local C/U.
"Things are going to be tough on the banks!"
Boo fucking hoo.
Dont worry about the banks. There is a $4 Trillion backstop written into the FinReg bill for the criminals the next time they create a financial melt down.
$4 fu*king trillion. This is preapproved. No need for a vote. If Geithner or Bernanke say the banks need $4 trillion or "the world will end", they will get it.
I cant believe there isn't more being said about this.
It's because they know another bailout is going to be needed. For the quadrillion globally in derivatives. What is it 600 trillion in the US only?
Meanwhile, the utter collapse in yields resumes...
COUPON MATURITYDATE CURRENT
PRICE/YIELD PRICE/YIELD
CHANGE TIME 3-Month 0.000 09/23/2010 0.13
/
.13 0.008 / .008 13:05 6-Month 0.000 12/23/2010 0.2
/
.20 0.01 / .010 13:38 12-Month 0.000 06/02/2011 0.26
/
.27 -0.003 / -.003 13:05 2-Year 0.625 06/30/2012 100-00
/
.62 0-01½ / -.024 13:00 3-Year 1.125 06/15/2013 100-10+
/
1.01 0-04 / -.043 13:33 5-Year 1.875 06/30/2015 100-05½
/
1.84 0-09½ / -.062 13:36 7-Year 2.500 06/30/2017 100-00+
/
2.50 0-15½ / -.076 13:37 10-Year 3.500 05/15/2020 103-29½
/
3.04 0-19 / -.071 13:38 30-Year 4.375 05/15/2040 106-04½
/
4.02 0-24+ / -.043 13:37
The coupon on the 10y is closer to 3.05%, those prices are over a month old.
4. Based on these changes, we now forecast that the large banks could see a 13% hit to normalized earnings while the regional banks could see a 5% reduction in normalized earnings.
I know, I gasped too! I mean, 13% of a gazillion would be quite a hit! How WILL they survive?!
By selling even more derivatives to suckers who want to hide the debt on their balance sheets, like European regional/local govts.
Oh wait, am I allowed to say that? I don't have a PhD in finance nor economics, nor a permission slip from the Fed.
Perhaps someone can explain to me why it is legal or moral for banks to not offer a floating mortgage rate at a margin of, say 100 bps above Fed Funds or 90-day LIBOR of what 0.75%?
I see the GS fellow complaining that the margin of 0.9% above MBS pools v an average of 0.2%, providing an indication of the continued mark up that is not being passed on to the consumer of 0.7%
Don't forget this works out at 0.7% times the average 30 year mortgage duration of 7 years times say a 10 million pool = lay down misere structuring gain of 4.9% or almost 1/2 million per 100 mill. (Try multiplying that number by the 2 trillion Fraudy and Funny book to guage how much of the consumers lunch thebanking pigs have eaten up to now!) Poor bastards, this isn't enough for them to pay their fat bonuses. We know the game is up for Fraudy and Funny. Why isn't the game up for these jokers who don't offer a floating rate above their own cost of (Fed) funds!
They can do whatever they want, hooligan - credit cards at 30% APR for example - because they own the government.
Barry Sotero is owned by Wall Street, as is his entire administration. The mechanism used, principally, is the Fed - where the parasite banks create money out of nothing and make decisions about economic policy to benefit themselves.
Time to nationalize the Fed and announce a Jubilee on ALL money owed to bailed-out banks.
Housing crash with rates up there. Volume to 0
Nice rant.
"The audacity of cluelessness! And the hilarity of "next time."
Earth to President Obama: there isn't going to be a next time. This time was enough to git 'er done. Wall Street - in particular the biggest "banks" - packaged up and sold enough swindles to unwind 2500 years of western civilization. You simply cannot imagine the amount of bad financial paper out there right now in every vault and portfolio on the planet. Enough, really, to sink any company even pretending to trade in things more abstract than a mud brick or an hour of labor. What's more, the cross-collateralized obligations between them are so vast and intricate that all the standing timber in North America could not be fashioned into enough pick-up sticks to represent the hideous death-dealing tangle of frauds waiting for the wing-beat of a single black swan to come crashing down. http://kunstler.com/blog/2010/06/say-what.html