Isn’t it meaningless to look at the inverse floaters in isolation? To assess risk, shouldn’t we look at the entire portfolio held by Freddie Mac?
Wonder why nobody trusts bank numbers, and why US financial institutions trade at some fraction of book value? The chart below should explain a big part of it. As can be quite vividly seen, of the $28 billion in pre-tax net income from continuing operations "generated" over the past two years, exactly half, or $14 billion, has been due from a simply accounting trick, namely the release of loan loss reserves, which have been positive for 8 quarters in a row, and which in the just completed quarter amounted to more than the actual pretax number, confirming EPS would have been negative absent accounting trickery (source). One wonders what happens to Citi Net Income once the world openly re-enters a recession, and releases have to become builds again... And for those who enjoy the myth of reported numbers, and are trying to reconcile the resurgence in bank stocks with abysmal earnings, yet wish to understand why Citi has let go the well known Rohit Bansal, and Chris Yanney, who headed the bank's distressed and HY trading respectively, below is also a chart showing the dramatic collapse in the bank's Securities and Banking revenue which just came at the lowest in the past two years, with Norta American top line in particular being decimated.
Following last week's Easter egg by JPMorgan, the misses by financials continue, with Citi crapping the bed following a big miss in both top and bottom line after reporting $17.2 billion and $0.38 EPS on expectations of $18.5 billion and $0.52 per share. The biggest hit to the top line was the DVA adjustment courtesy of tightening CDS spreads, which while adding to top and bottom line in Q3, took out $1.9 billion in Q4 - of course like everything else it was also priced in. And while we are confident the full earnings presentation will be a labyrinth of loss covering, the first thing to realize is that absent a $1.5 billion in loan loss reserve releases, the bank would have reported negative net income, which was $1.364 billion pretax. Yet there is no way to explain the absolute bloodbath in the Securities and Banking group, which saw revenues implode by 53% from $6.7 billion to $3.2 billion Y/Y, and down 10% Q/Q. Notably, Lending revenues down 84% from $1 billion to $164 million. RIP Carry Trade.
Wonder why all bank earnings over the past 3 years are fake? Wonder why few if any banks ever dare to take major write offs and represent the true nature of their financials? Wonder no longer: Bloomberg's Jonathan Weil explains.
Morgan Stanley's Exposure To French Banks Is 60% Greater Than Its Market Cap... And More Than Half Its Book ValueSubmitted by Tyler Durden on 09/22/2011 10:07 -0500
With French banks now a daily highlight in the market's search for the next source of contagion, and big, multi-syllable words such as conservatorship and nationalization being thrown about with increasingly reckless abandon, perhaps it is time to consider the downstream effects of a French bank blow up. And we are not talking French sovereign troubles, which are about to get far worse with the country's CDS once again at record highs means the country's AAA rating is as good as gone. No: banks, as in those entities that are completely locked out from the dollar funding market, and which will be toppled following a few major redemption requests in native USD currency. Which in turn brings us to...Morgan Stanley, the little bank that everyone continues to ignore for assumptions of a pristine balance sheet and no mortgage exposure. Well, hopefully we can debunk one of these assumptions by presenting the bank's Cross-Border Outstandings, which "include cash, receivables, securities purchased under agreements to resell, securities borrowed and cash trading instruments but exclude derivative instruments and commitments. Securities purchased under agreements to resell and Securities borrowed are presented based on the domicile of the counterparty, without reduction for related securities collateral held." We'll leave it up to readers to find the relevant number.