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Regions Financial's $22.8 Billion Dollar Sink Hole
Jonathan Weil over at Bloomberg is on to something this morning, pointing out the dramatic disparity not only between Regions Financial loan portfolio Carrying Value (at what value the firm has them marked on the balance sheet) as opposed to their disclosed Fair Value Estimate (i.e., what the real value of all those toxic loans is). The math: the bank has overvalued its loan portfolio by $22.8 billion dollars: with a June 30 carrying value of $90.9 billion and an estimated fair value of $68.1 billion. Compare this real $22.8 billion shortfall between mark-to-myth and reality and the firm's $5.9 billion market cap, or to its disclosed June 30 shareholders' equity amount of $18.7 billion: by all measures RF should be either bankrupt or in conservatorship. From RF's recent 10-Q (page 37):
More alarmingly is what caused the substantial drop in FV estimates for its loans in the past 6 months: RF's loan book has declined from $79.9 billion to $68.1 billion: a 15% drop, yet the market and all talking pundits are claiming the economy is in such better shape now than it was on December 31. Just who is handing out these infinite blue pills that the American population and investing public are ever so eager to gulp down in size each and every day? Just because Obama is willing to mortgage everyone's future in order to keep forms like BAC, C and RF alive today should be cause for celebration? Enough with the blindfolds already.
RF is not unique: all the major banks have comparable massive shortfalls between what the auditors allow them to mark their toxic loan portfolios at, and what the real worth of such portfolios is - feel free to check them out:
WFC - page 120: $34.3 billion
C - page 162: $32.5 billion
BAC - page 79: $64.4 billion
The obvious question arises: why on earth is Regions Financial still allowed to exist and sucker more investors into believing it is anything even remotely close to a viable entity. In fact, as Weil points out, the government continues to classify Regions as “well capitalized." Indeed, lax accounting rules keep propping this zombie alive compliments of the FASB, while some trigger happy joystick-mongers who only care about exchanging Tweets what their overcaffeinated, 19 year old friends and making sure that all end up on the same side of the trade (especially since the SEC is roughly 8 decades behind the curve and has no idea what this Twitter gizmo is) buy the stock.
Weil chimes in:
If nothing else, today’s fair-value gaps highlight the arbitrariness of book values and regulatory capital. Banks already have the option to carry loans at fair value under the accounting rules. For the vast majority of loans, most banks elect not to, on the grounds that they intend to keep them until maturity and hope the cash rolls in.
Consequently, the difference between being well capitalized and woefully undercapitalized may come down to nothing more than some highly paid chief executive’s state of mind.
Fair-value estimates in the short-term can be a poor indicator of an asset’s eventual worth, especially when markets aren’t functioning smoothly. The problem with relying on management’s intentions is that they may be even less reliable.
At the end of the day, Weil is correct that at least now these zombie financials make available the data that investors can use on a quarterly basis (if the latter were so inclined, of course) to uncover just how ugly the real picture below the surface for all these firms is. But why care, when you have every major media outlet blasting soothing elevator music and Cramer's garbled and rasping monolog on how if Paulson is buying BAC, things are all good (last time we checked the balancing side of a relative value strategy, i.e., the not so long one or, heaven-forbid, something based in uber complex OTC products such as CDS, does not have to be disclosed, but why would that matter when one has a clearly defined agenda of nothing but spin).
One can only hope that the FASB doesn't get a call from Steve Rattner in the next few months (from whatever position he currently occupies somewhere/anywhere), and is forced to promptly change its mind on expanding the rule on Fair Value Accounting, which would force all these toxic zombie nightmares to converge on the massive difference between Fair and Carrying Value. Of course, if that happens, looks for Obama to promptly start preparing the public for the inevitable and much needed round 2 of TARP. I, for one, can't wait.
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If they don't mark to mendacity, then the FDIC would be poofed out of existence. They are already pretending that GFG, CORS, and CNB can keep going. Any one of those three going into receivership would more than wipe out the last of the FDIC reserves...which is why they have done nothing. FDIC needs more $$$ than was put into TARP. By about tenfold.
right. Anyone notice the lack of FDIC fridays lately? They're broke!
Does MTM mean Mark To the Moon?
really? they closed three banks last friday, five the week before, and four the week before that...
(might double check me on that, but its close enough)
This is true. Rock meet hard place.
To save everybody the trouble, the BAC 10q states that they have a negative 1.6 trillion net adjustment and the fair value of all their derivatives is only 101 billion, vs a level 1 value of 4.4 billion, level 2 value of 1.7 trillion and level 3 value of 34.7 billion.
It almost doesn't seem possible for it to be this low.
excellent information, particularly for those of us who follow the banks.
i would like to add that karl denninger talks about this frequently and like others, deserves credit for bringing these dark matters to light.
props to Mr. Weil as well who covers these matters well.
i'm wondering when someone in the gov't complex (i'll include the private Fed as well, and exclude Elizabeth Warren's COP) is gonna start acknowledging this information and concede that the "stress tests" were a phucking joke.
It was funny yesterday how this poster (milk something) kept saying that the accounting standards hadn't changed. What a disingenuous effort THAT was!
Well... if the markets keep going up in spite of this new sort of transparency (banks showing what they're really not worth), combined with data releases that show foreclosures increasing ... then we have truly entered an unprecedented bizarro world.
I love reading Denniger - but I'm afraid he's going to blow a gasket soon, out of pure frustration about the disconnect from fundamental principles. I guess I don't blame him & his sense of urgency. There probably is a point of no return somewhere.... but we've probably already crossed it, though.
IE...the accounting standards from last nite's discussion is the first thing I thought about as well.
here you on Karl...love the guy, he is very bright, worried about him blowing a gasket. I do hope he runs for Congress
That's an excellent question to ponder, deadhead.
My sense is that the "acknowledgement" will happen when we start approaching much lower levels in the SPX.
Our government leaders would have been in a better position disclosing all this to the American sooner rather than later, but they will enter the land of unintended consequences on that at a later date. Perhaps it may involve some individuals fleeing the country to avoid the pitchforks.
Stock markets in flight, afternoon delight!
maybe we wil get a selloff on this news...30 billion is a lot of money
RF up 8% today.
http://blogs.wsj.com/economics/2009/08/13/unemployment-rate-could-take-d...
His message was being spread and gaining even more support...therefore he needed to be censored.
Until we have guys like Black back as regulators nothing will change. We just
good articles; my newest bookmarked finance site ..http://www..
hat tip: finance news & finance opinions
Just who is handing out these infinite blue pills that the American population and investing public are ever so eager to gulp down in size each and every day?
I have asked that question everyday, since 2006. And i still have no fricking clue.
Alas, if you don't acknowledge the problem than you don't have to acknowledge the consequences of the problem. As long as the band-aid holds (courtesy of bernanke, geithner, summers and accounting bullshit) the blindfold remains firmly in place.
Conspiracy of optimism.....
http://www.reuters.com/article/governmentFilingsNews/idUSBNG40532420090813
UPDATE 1-Bank of America sues Colonial for $1 bln in loans, cash
TD: what's on pg 67? re:BAC
this is dotcom time again. Don't need no earnings, don't need no business, don't need no company, just an imaginary thought and you get paid billions and your stock soars in price
Earnings for S&P500 is $6.86 compared to $60.39 last year
+ the shit, sorry investment vehicles, that are off-balance. I don´t remenber if by semptember-october they should be included except the rule was delayed again or abandoned. that´s really bullish, isn´t it? (ironic)
BTW Paulson probably got a "backstop" from the FDIC/Treasy.
Hence the F bombs last week.
Just a guess that this is the start of the Hedge fund and good banks movement. Question is when will the bad bank show it's Joker face?
I can't remember ... how is common equity treated when a bank gets carved into good/bad?
I don't remember, thought it was a wipeout for Shldrs
I think it's safe to say TARP 2 has already happened: the recapitalization of banks via suckers following robot created trends.
TARP 3 will come this fall. Bama's masterplan: H1N1 virus rebranded as crisis (i.e. get his healthcare deform passed); market meltdown in september (i.e. robots trend short).
It's all too obvious...
Reason for mark to farce? Through the eyes of this humble blogger it would appear that economic dominance is the battle that is clearly defined and a future that the Federales will try to invent. After all the desire to live a prosperous life is a theme that unites all peoples. Diplomatic, legal, cultural and political consent is most easily manufactured from a populace that is succored by material comforts. To win the world's hearts and minds will necessitate the inculcation of American exceptionalism by the sharing not of material riches but rather the acceptance that attainment of such is the end goal of our 'collective' aspirations. Soft power? Smart Power? No rather the pablum narrative of shared power when in fact all that is shared is the groupthink that the American economic model is a shared aspiration. Both the battle and the outcome would seem to be wholly counter-intuitive given the ongoing financial crisis. Methinks the Federales see this inflection point as an opportunity to establish a new Financial Imperium. The sham stress test is Round 1, the manufactured outcome is temporary and/or stealth nationalization. Round 2 will be absorption of smaller banks by the anointed few.
Moin from Germany,
here is a "SHOCKER".....
Guess who purchased 35 million shares of Regions Financial Corp., taking the No. 2 shareholder spot behind State Street and ahead of Barclays, and 17 million shares of Capital One Financial Corp., becoming that bank's fifth-largest shareholder.......
The hedge fund run by John Paulson
http://www.finreg21.com/news/paulson-fund-buys-168m-shares-bank-america
In a telling recap of Paulson’s initial experiences betting against the bubble, the Wall Street Journal notes: “Housing remained strong, and the fund lost money. A concerned friend called asking Mr. Paulson if he was going to cut his losses. No, 'I’m adding’ to the bet, he responded, according to the investor. He told his wife, ‘It’s just a matter of waiting,’ and eased his stress with five-mile runs in Central Park.”
he took a hunk of FITB as well, which is another piece of shit.
it's from Q2.
since the beginning of August he keeps selling in size
yep it´s bullish XLF +1,7% hohoho... porca miseria :D
You know in the rational and ultra-efficient market of today all of the facts and research presented in this post boil down to one thing and one thing only. Now is the time to go long RF or get left behind.
Regions Bank is not just allowed to exist, it is apparently regarded by the FDIC as one of the relatively healthy banks. It took over the branches and deposits of the inappropriately named Integrity Bank in the Atlanta area after it was closed by the FDIC on 8/29/08.
The market has confirmed that Weil's story is old news by pushing Regions' stock price up 8.5% today.
The best part of about all of this is John Paulsen buying up BoA... even the legendary bears doubt themselves now.... although BAC did just complete a bull flag.
paulson bought RF which is driving it -- liokley takeout candiate of course with you the taxcpayer bearing the losses and BBT,JPM other profiting from the yield curve reach around courtesy of the fed
FASB may expand mark-to-market rules: report BOSTON (MarketWatch) -- The Financial Accounting Standards Board is considering expanding mark-to-market accounting rules to more types of assets, a move that could force banks to book bigger losses, The Wall Street Journal reported Thursday. Any accounting change would likely meet stiff resistance from banks, according to the story. FASB discussed the plan in July and is scheduled to revisit the issue on Thursday, although a formal proposal from the board on the matter isn't expected until late 2009 or early next year, according to the newspaper. Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.
although BBT CEO and his randian leanisng scan;t play well in Dc - save for maybe Shiela out of spite
Usually the market has a tendency of marking these things and doing the discounting itself regardless of the ink on the books. For some odd reason, the market is ignoring these facts.
I don`t believe that the FED or GS can manipulate the markets to that extent.
Who determines the so called estimated fair value for these loans? They seem awfully high for the amounts of defaults and price decreases we have seen. WFC is carrying 799B of loans with a fair value of 764B? Only 5% difference?
WFC and its auditors determine "fair value" for the loans on its books. When you take a look at WFC's loans by category (home equity, option ARMs and commercial real estate in particular) that fair value looks even more dubious.
WFC talks about how more than half of their option ARMs are current on payments. Of course they are, when you're making the minimum payment on an option ARM, as 90%+ of them are, the payment is in most cases less than rent on an equivalent house. So you pay it until the loan resets (WFC proudly reports that a lot of them don't reset for many years) and the payment explodes, then you hand them the keys. Virtually all the option ARMs on Golden West's books, which went to Wachovia and then to WFC were originated in 2004 or later and are heavily weighted toward California. The vast majority of them have to be far underwater and will ultimately default. I'd be surprised if the ultimate default rate isn't 80% or more with a severity rate of 60% or more. I suspect that WFC is carrying the option ARMs that are current at the full amount of the loans even though nobody in their right mind would pay anything close to that for them. Not only that, but WFC books the unpaid interest (negative amortization that gets tacked onto principal) as income every quarter even though they don't collect it.
WFC also has a big home equity loan portfolio. When there is a foreclosure on the underlying first mortgage, the HELOCs tend to have 100% severity.
http://www.ft.com/cms/s/0/a8e71670-8777-11de-9280-00144feabdc0.html
short the Shiti
Let the eat your own begin:
NEW YORK (Dow Jones)--Bank of America Corp. (BAC) filed a lawsuit against Colonial BancGroup Inc. (CNB) to protect its claim on Colonial loans in the face of the Alabama bank's struggle to survive.
Bank of America, of Charlotte, acted as trustee for parties that provided funding for Colonial's mortgage business, which is deeply entangled with Taylor, Bean & Whitaker Mortgage Corp., a Florida home-loan provider that ceased most operations last week.
In a complaint filed Wednesday with the U.S. District Court of the Southern District of Florida, in Miami, Bank of America said Colonial received from Freddie Mac (FRE) proceeds in excess of $1 billion from loans funded with the help of Bank of America.
At the heart of Bank of America's complaint is Taylor Bean unit Ocala Funding LLC. Ocala holds residential mortgages that are sold to Freddie Mac, and Bank of America is Ocala's custodian, indenture trustee, and collateral agent.
Give the doubts about Colonial's ability to fend off bankruptcy protection, Bank of America demanded the Ocala loans, financed through Colonial, as collateral for the proceeds Colonial allegedly didn't pay. Colonial has so far refused to provide the loans, the complaint alleges.
Bank of America isn't looking for cash, but wants to secure the loans as collateral in case of Colonial's bankruptcy. "We are doing our job as trustee," a Bank of America spokesman said.
Lisa Free, Colonial's director of investor relations, refused to comment.
Bank of America alleges, among other claims, breach of contract, unjust enrichment, and civil theft against Colonial and 10 individuals collectively referred to as John Doe.
Colonial is crucially short of capital, facing criminal charges by the Department of Justice, and acting under cease-and-desist orders from its regulators, which are deciding whether the Federal Deposit Insurance Corp. should take the bank into receivership.
Over the past decade, Colonial grew from a small regional bank to one of the nation's largest provider of funds for real estate loans originated by other banks and mortgage firms. It forged a close relationship with Taylor Bean, which earlier this year was willing to provide Colonial with a capital infusion. The deal fell apart, and last week Taylor Bean closed its mortgage-lending business.
Colonial shares were down 2 cents at 50 cents around midday Thursday in New York. Bank of America shares were up 4.8% at $16.69 amid a general increase for banking sector stocks.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com
And all the while Banks continue to fail. Last weekend 3 more died according to the FDIC. Weeeee....Green shoots everywhere you look!
Cash flow ultimately wins out. They can play these games for awhile, but non-performing loans have a way of piling up, especially in an environment such as ours. I realize the Fed has engineered virtually free money for these zombies, but free money doesn't help if your assets aren't paying and you have overhead to cover.
Cramer is an asshole
And Geithner is an idiot. Dont know the fuck these people are doing. Obama has changed nothing
His message was being spread and gaining even more support...therefore he needed to be censored.
Until we have guys like Black back as regulators nothing will change. We just
good articles; my newest bookmarked finance site ..http://www..
hat tip: finance news & finance opinions
hmmm, who to side with, Paulson or a bunch of bloggers who are bearish everything for ever? Tough one.
When you can't analyze for yourself that's the kind of choice you have to make. Never mind that reports suggest that Paulson has some hedges (short financial ETF, long gold) against the bank positions or that he might not even own them any more since the news is based on a 6/30 filing. Jump right in there with him. Good luck.
CNBC is waiting for you, lemming
Didn't TD hint that we are only seeing one side of Paulson's positions.. the one's that must be reported and who knows what arb/hedge/dark pool activity he is building that isn't being reported ?
Tyler,
That is why the Fed is keeping rate where it is so that these zombies can earn their ways out of these big gaps. Delay the writedowns long enough for new earnings to cover them up.
have you ever been to Japan?
All this site does is spin conspiracy theories, boring. Goldman this, Fed that, FDIC is broke, OMG.
Recent reports by mainstream media outlets indicate that FDIC will be broke or very close to it after it takes losses to close zombie banks Colonial, Guaranty Trust and Corus. They must be part of the conspiracy.
Of course, all the FDIC being broke means is that Treasury will have to provide them with "emergency" funding and issue more debt to cover it. Nothing to worry about.
Just an fyi for Tyler - I think your figure for Citi might be incorrect as stated. I have no axe to grind here, but I pulled up 10Q's for the 3 megabanks you mentioned - your figure on Wells appears correct at $34.3B, but for your Citi $32.5B it appears you are taking the difference in the Long Term Debt line in the liabilities table. This reflects where Citi's debt is being marked on the balance sheet vs. where it is being traded in the market (the insane side effect of last year's MTM rules was that liabilites as well as assets were MTM; of course, you still have to pay back 100 cents on the dollar on your debt at maturity, but banks were allowed in MTM to book their liabilities at depressed levels, as if they have a short position in their own debt, and thereby display a MTM gain as their financial condition deteriorated!). In this case it appears Citi is actually marking their debt at par, or at least well north of where their credits trade publicly.
The problem with your $32.5B figure is you need to look at the Asset table, specifically Loans and Investments differences. Here Citi is actually not so bad - ~$6 bln shortfall on where assets are being carried vs Fair Value.
Finally, BofA doesn't provide a handy table comparison like Wells or Citi do, and quite frankly I don't understand how the megabanks are each holding hundreds of billions in loans and leases, yet BofA's balance sheet on pg 67 says they only have $6.9B of loans being carried at Fair Value. It's possible BofA is not carrying loans at FV either because their loans available for sale figure is higher than Wells or C (so they are classifying differently), or that their problematic FV loans were largely shoveled onto the US taxpayer via the guarantees of the Treasury late last year and are now being accounted for somewhere else on the balance sheet.
Anyone who claims that they can truly make sense of a megabank's balance sheet is either god, or lying.
You're doing great work Tyler, I'm just humbly trying to make sure the math stays correct.
sure, broke, nobody gets it except you guys. Repeat ad nauseum. You are the reason why financials stocks have exploded higher, keep selling!!!!
keep buying, lemming
sure, lemming. You'll be right someday
Oh, and just wait until commercial real estate implodes. Any day now, just wait, and wait, and wait.
Printer Benny reapointed,.stocks up 20% across the board!
Printer Benny apointed for life,.stocks up 30%
Printer Benny promissed to live to be 140,..stocks surge 200%
"News headline in 2020",.."At last America is down to having just 5 banks, well capitalized with over 900 trillion each, and not a single loan on their book"
And unemployment finally hit 0,..due to suicide!
I what geniuses are having deposits at these banks now?
Because, when FDIC eventually will start asking for funding from the Treasury to seize these banks, you'll see closed doors at these banks for a long time, to prevent bank-runs.
get your money while you can.
Note that there is a mistake for Citigroup (C). It is their own long term debt that they are carrying at $32.5 billion more than the fair value, presumably because of default risk. By the same argument you should say that they have $32.5 billion more book value than what is shown on the balance sheet. Their loan portfolio is carried at only $1.3 billion more than fair value, for a $600 billion loan portfolio it is almost immaterial.
This just shows that forcing fair value accounting in all circumstances is just a problematic as mark-to-model.
Also note that BAC is also carrying its long term debt at $23.3 billion more than fair value.
OK so John Paulson (the hedge fund) is a buyer of RF, BAC, and GS.
Let's not forget than Alan Greenspan is a paid advisor to Paulson.
http://www.marketwatch.com/story/greenspan-to-advise-new-york-based-hedge-fund-paulson-co
correction: was a buyer in Q2(6/30).
Good point Anon. For all we know he could be short today.
Could be short??? Bahahahaha, took his $1 in RF and spun around and got short. You guys are brainless.
no not short, rumor has it he is the seller in size since the beginning of this last pump.
like Bove said Q3 and Q4 for finco's will be ugly
Oh well if Dick Bove says so I'm in. Citi was the "buy of a lifetime" at $28. Bawhahahahah
actually, the real rumor has it that he was a size buyer today
and...... Another conspiracy?
sigh......crammer on TV recommending Regions.
I am watching and in my head i keep hearing " killing me softly" (thank you tyler).
Lets see, bad news (according to you guys) and the stock soars. What does Cramer know? Keep selling guys.
So you must be having a very busy day as the self appointed conspiracy patrol person on ZH.
If you have a fundamental reason why you believe Tyler is wrong and Cramer is right (other than JP having once bot the stock) i would be all eyes.
Otherwise, you are just a troll attempting to police commentators on a website you have no interest in.
Trading 101, RF is smashing trhu your suppossed negative news. Period. Thats it. Nothing to argue about.
I thought we were talking about trading not self-fulfilling prophecies.
Trading 101 must have been the remedial class?
U lost me Tizzy, I'm not so smart
Exactly. Finally somebody who gets it. If a stock goes up, it must be worth it. Just like when Mary Meeker was pounding the table on Yahoo! at $275. That one worked out great all around, right? No doubt RF will perform as well in the long term. Hey, who you going to believe, some bitter fool on ZH or someone like Mary who was paid $30 million a year to shill dot.com's? And Cramer, forget about it...man's a genius. I mean, he has his own show. That's got to tell you something.
I'm bagging this site, man, and going back to the Yahoo! boards where folks in the know play.
What did Cramer know when he was pounding on the table bullish on 10/31/07, the day the S&P 500 peaked at 1565? What did he know when he gave his "Winners of the New World" speech on March 10, 2000, the day the Nasdaq peaked at over 5000?
Booyah!
Cramer tells you what Goldman wants you to hear,..translation...give me your money stupid sheep, give me your money stupid sheep, give me your money,.
more conspiracy
short IYR XLF heavy
Here's a forecast, they will be shoved up inside your rectum by the close. Anybody notice how stocks are higher, despite retail sales. Thats a bull market ladies. Bawhahahahahhah
here's another forecast, you'll need a colostomy bag pretty soon
me?
Heavy? New highs for BAC. Buckle up.
keep buying, John Paulson thanks you.
uh oh
I think this bizarre trend ("the market can remain irrational longer than you can remain solvent") will go on till just after Labor Day. Why Labor Day and not Freedonian Independence Day (the storming of the Schlemiel)? Because the market may need a Major Catalyst like the back-to-school-and-work aftermath of an important U.S. holiday to galvanize its ass into proper gear. The Players (GS, JPM?) et al. meantime are taking advantage of this expectation to drive the market up to its parabolic (ya-hoo I'm ridin' the Bomb!) top. Whereupon reaching it circa Sept. 8th, they'll happily drive it right down again.
totally agree, the market is controlled by the Freemasons and the Trilateral Commission. Bawhahahaha. "They," losing traders always blame "them"
I was more around Sept 15th, but now we are just splitting hairs. Bawahahahahaah
I object to "sink hole" in the title. 10 figures is the new chump change. Anything under a $ trillion is just a yawn.
Don't forget that some hedge funds are buying regionals to use their liquidity to finance their LBOs in chapter two from the fin crises. but the jury is still out as Bair is still the empediment to that plan. Hence the fallout with timmy in their famous(or should I say infamous)Friday meeting. So Jhn might very well be long the bank. The other alternative, he is long cds (short the bank loan)and long the stocks as a call.
Take your money out of these banks and.....put it where? Where? where? Where? Where? Treasuries? Physical? Stocks? It has to go somewhere.
Look at at that, another almost 5% for RF this morning. Goddamn BofA, in on the conspiracy with Cramer, Goldman. Bahawhahahahahaah. Leaving skid marks all over you guys. Yeaaaahhhhh Tizzy36.
I totally agree there is a capital shortfall, but there is a new Treasurer in town at Regions.
He might actually believe in using observed market spreads [north of 700bps over swaps] in order to assign loss-adjusted net present values on the non-securitized loan portfolios. His previous employer has moved away from market spreads and now relies on a spread [way south of 700bps] to assign FAS107 marks each quarter...Sooner or later, [more] honest financial statements at banks will become relevant again.
Yippee Kay Yay Mother....