Barclays sees Citi, JPM among big winners of govt moves 17:09 March 26 (Reuters) - Barclays Capital on Thursday named banks that may benefit the most and those who may gain the least from the slew of recent government actions to prop up the financial markets. According to Barclays estimates, Citigroup Inc and JPMorgan Chase & Co are among banks that will emerge the top winners, while regional banks, like Fifth Third Bancorp , may see the least benefit. The report by Barclays analyst Jason Goldberg looked at factors including the Public-Private Partnership Investment Program and proposed accounting changes, as well as negatives including stress tests and asset quality problems. The list below shows the ranking assigned by Barclays, and more detail on methodology is below: BANKS BENEFITING THE MOST Bank of New York Mellon Corp Citigroup Inc JPMorgan Chase & Co Northern Trust Corp PNC Financial Services Group State Street Corp Wells Fargo & Co MIDDLE Bank of America Corp Comerica Inc First Horizon National Corp M&T Bank Corp TCF Financial Corp U.S. Bancorp Zions Bancorp BANKS BENEFITING THE LEAST BB&T Corp Fifth Third Bancorp KeyCorp Marshall and Ilsley Corp Regions Financial Corp Synovus Financial Corp SunTrust Banks Inc More on methodology: The report scored banks based on positives and negatives. Each bank was given a score ranging from 0 (no impact) to 3 (above average impact) for each of the positives and negatives. The scores were then totaled and used to rank banks. Potential positives include: *Public-Private Partnership Investment Program (securities and loans) *Proposed FASB changes for fair value accounting and other-than-temporary impairments *Strong mortgage environment *Capital markets *Net interest margins *Possible early TARP payback *The launch of TALF Potential negatives include: *Deterioration of assets *Capital *Stress test uncertainty *Market activity
As I understand the program can help the pricing of some securities(1/3 of big banks books) by lifting the ABX. They seem to be only allowing triple A securities because the fed is behind private investors/treasury and they are not allowed to take credit risk But so far even the triple A ABX is stuck at near lows The other 2/3s are loans held to maturity(that are at marked at 95c according to goldman sachs) and securities where management chooses writedowns(and they seem optimistic on unemployment and house price declines)
Hussman wrote a interesting article about debt reestructuring being needed http://www.hussmanfunds.com/wmc/wmc090330.htm As I understand that total outstanding bank debt is around $2T(this figure could be wrong), they were mostly issued by the big banks, they are also the banks that are the least capitalized by tangible common equity. If the government were to wipe $1T to create equity, the banking system would be properly capitalized tomorrow and barring any major economic collapse they would be able to handle losses without public funds, so that is great. However since there is no free lunch, about $1.5T+ in losses overnight(since one wipeout will signal to markets the debt is not worth much and uncertainty takes over) will amost certainly bring down other players(since a lot of them assume these bonds are low risk), CDS triggers, risk premiums rising, volatility rising, further down leg on risk taking. So its a roll of a dice that risks unthought consequences and big unforseen problems, is it worth to have all these bad things in the name of a sound banking? Probably but it depends what alternatives there are, if congress wont commit further funds and bondholders dont volutarily swap for equity as in GM's case then its the only alternative and its work the risk. Indeed Geithner is seeking authority to seize non-bank firms, he is using the Lehman excuse to get this but this could provide him a backdoor to 'create' capital in the big banks by seizing them
The problem is, how can he seize Citigroup Holding Company when their banking subsidiary report 11% tier 1 capital?If reported regulatory capital is deemed as phony even by the government this means that ALL big banks are at risk and no one will know which banks are safe, XLF would be cut in half so quickly Dick Bove head would spin There are however some legal chalenges here, as I understand the FDIC seizures need to be justified by the Capital adequacy ratio(lower than 2%). Indeed the FDIC is being sued by WM bondholders for improper use of their powers
The figure is $2.8T according to the FDIC in loans,debt,subdebt TO banks. Will Obama and Geithner have the courage to push the $2T+ in losses overnight button and send many (unknown)players into bankruptcy, tank the stock market big(like its happening right now in a threat of 2 bankruptcies) and create widespread fear?It could be the right thing do to IF there is no possible alternative but I dont think they have run out of options. GM bankruptcy seems like the only way and they are still taking their time
Are you sure about the markets tanking big time if BKs are widespread allowed? Maybe a reaction, yes. But other money groups may feel it is finally the end and the start of a new period and buy in aggresively.
I believe the market would tank a lot in all likelyhood. If you wipeout two trillion that people think its money good then nobody knows exactly what will happen in terms of other failures, CDSs, animal spirits, ripple effects, final unemployment rate, not me, not Hussman, not any free market pundit, its a big roll of the dice that could go anywhere, but if there is no other real banking solution then you just ought roll the dice with government assisted receiverships But I believe the market will do what it does when confronted with uncertainty, bid for treasuries and compress stocks PE PB ratios
It seems that a lot of people are saying that private investors will overpay for bank assets because of the non-recourse loans. What they forget is that Lone Star-Merryl Lynch 'super senior' AAA CDOs deal last year http://macrospeculations.blogspot.com/2009/03/bad-program-for-bad-assets.html
Some writers for the WSJ apparently agree that hitting bondholders is a 'nuclear option' that no one knows what could be the result http://blogs.wsj.com/economics/2009...tion-the-real-geithner-plan-a-nuclear-option/ http://baselinescenario.com/2009/03/31/will-the-real-geithner-plan-please-stand-up/#more-3127 However its doubtful the Obama administration would have the courage to do something like this. The hussman claim that 'there is no other way' is not correct since a equity injection that pays off debt has the same end result as a debt to equity swap or haircut, a bank with a lower leverage. His main concern is about taxpayers footing the bill but taxpayers are already footing the bill now as the fdic is guaranteeing bank debt ever since WM was taken over, their debt was wacked and bank debt markets got shutdown. Deposit guarantees were raised also helping fund banks and prevent failures So at this point it looks more likely Geithner will expand his XLF portfolio rather than become a multibank CEO