Banking Industry Vulnerable?
Mike Larson discusses how vulnerable regional and super regional banks are right now. In this issue of Money and Markets, Mr. Larson takes a closer look at these banks in specific.
Jupiter, FL (PRWEB) July 20, 2008 -- Mike Larson discusses how vulnerable regional and super regional banks are right now. Mr. Larson takes a closer look at these banks in specific.
The massive exposure most banks have to souring assets has just begun to be revealed. And the rally that recently took place is minuscule in contrast to the huge declines that have been seen over the past 18 months. The KBW Bank Index, for example, representing a basket of 24 banks, reached a peak of 121.16 in February of last year. Here is where it stands today:
| | - Even after a few days of dramatic rally, this all-important index still closed on July 17 at 62.19, down 48.7% from its February peak.
- The index is still trading below its bear market low of 2002.
- The index also corresponded to the depths of the Long Term Capital Management crisis in 1998.
- The KBW Bank Index erased every penny of gains going back to October 1996.
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According to Larson, what's being seen now is a major selling opportunity for investors still stuck in U.S. bank stocks. Among the most vulnerable right now are the regional and super-regional banks.
Buffalo's M&T Bank has announced a $100 million loan loss provision, more than triple the $30 million of a year earlier. Net charge offs of bad debt surged to $99 million from $22 million. Second quarter profits dropped 25% year over year, widely missing its estimates.
Cleveland's National City lost $171 million in the first quarter, a huge swing from its year earlier profit of $319 million. The company had to offer big enticements to investors in order to raise $7 billion in capital earlier this year. And Larson believes even that large infusion is not likely to be enough.
Both Washington Mutual and Wachovia were also forced to issue statements pointing out their capital status and liquidity in the past few days after their share prices tanked. The problem is that the companies have hundreds of billions of dollars in mortgage exposure; with a disproportionate share of that exposure in states that are getting hit the hardest.
"Already, we have seen IndyMac taken over by regulators. With assets of $32 billion as of March 31, it was the second-largest institution to go down in U.S. history. Resolving the failure won't be cheap, either. The FDIC estimates the cost at anywhere from $4 billion to $8 billion. If capital market conditions continue to deteriorate and loan losses continue to rise sharply, as I expect they will, we're going to see more large failures over the next two years," Larson states.
To read this issue online, please visit:
http://www.moneyandmarkets.com/Issues.aspx?Bank-stocks-rally-Great-selling-opportunity-1983
About Mike Larson and Money and Markets
Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.
Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com, where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.
Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.
Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC. Mr. Larson holds B.A. and B.S. degrees from Boston University.
Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.
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