I am constantly amazed at the willingness of some very smart people on Wall Street to follow the herd, even over the proverbial cliff. How can we believe in rational markets when so many investors are sticking their heads in the sand?  The people buying bank stocks  on “value” fall into this camp, IMHO.  More on this lemming phenomenon in our comment next week.

In a client comment today, we said the following:

“To us, four questions must be asked of any name before you can really embrace a long-term bull view of particular financials:

1) what is your plan for repatriating SPEs by year-end 2009 and the post-repatriation TCE ratios? In the case of WFC, that means a potential increase in total assets of nearly 80%;

2) what are your plans and timeframe to reverse repo transactions with the FRBNY? What is the M2M adjustment on this collateral?

3) When are you ending participation in the FDIC debt guarantee program? What is the blended cost of funds projected for bank?

4) What is the peak level loss rate for the bank and how much TCE must be on hand to repay TARP and stay in good graces with regulators? That is, is 5-6% TCE enough?”

Martha White writes a very nice summary of #1 in, of all places, Slate today under the title “Holy Sheet: Why we have all just woken up to what goes on banks’ books”

http://www.thebigmoney.com/articles/explainer/2009/05/20/holy-sheet#comment-1178

She quotes your blogger in a good summary of the mess:

“The FASB’s new edict isn’t without risks: Institutional Risk Analytics speculated in a recent client newsletter that the ruling could lead to another capital deficit for the big banks, which could spark a scramble for more money to shore up their reserve bases when the FASB ruling kicks in at the start of next year.”

Questions, questions:

1) Did the government stress tests for the big banks take into account the repatriation of OBS assets at the end of 2009 under FAS 140?

A: NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO.

2) Did your salesperson from XYZ broker dealer tell you about the FAS 140 issue before letting you in on the opportunity to buy WFC or BAC new issue equity?  What a deal.

A:  NOOOOO.

3) Did you make a mistake by going long financials this week?

A: LOL.We’ll find out.

Another fine operation by Tim Geithner and Ben Bernanke.

Category: Credit, Markets, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “Holy Sheet: Slate Article on FAS 140/OBS Assets; Long and Wrong Big Banks??? Duh!”

  1. dead hobo says:

    CW — Thank you.

  2. clawback says:

    BR writes:

    “3) Did you make a mistake by going long financials this week?

    A: LOL.We’ll find out.”

    Classic post, BR. I did LOL when I read that last answer! In fact, that should be the answer to just about everything Geithner and Bubbles have gotten us tangled up in:

    Is the Fed’s balance sheet beyond repair?
    LOL. We’ll find out.

    Will FDIC need more than a $500B line of credit?
    LOL. We’ll find out.

    Does Turbo have any idea what he’s doing?
    LOL. We’ll find out.

    Someone call Cafepress, this should be on a t-shirt.

  3. Bob_in_MA says:

    Chris,

    CR quoted this from the Stress Test report:

    The supervisors conducting the credit analysis worked closely with accounting specialists in the agencies to ensure that the firms’ projections were consistent with existing accounting standards.

    Additionally, supervisors evaluated the potential impact of proposed changes to FAS 140 and FIN 46(R) which are expected to be finalized in May 2009 and implemented in January 2010. The agencies’ accounting specialists discussed the amendments with FASB members and staff and other experts to assess the reasonableness of firm estimates of assets likely to be brought on to the balance sheet starting in 2010 as a result of the amendments. The on‐boarding of assets were also factored into our assessment of risk‐weighted assets and the associated ALLL needs.

  4. leftback says:

    Nice one. Johnny Retail will be buyin’ em again on Tuesday after those stories at the Memorial Day barbecue.

  5. Pat G. says:

    “I am constantly amazed at the willingness of some very smart people on Wall Street to follow the herd, even over the proverbial cliff.”

    Pushers and pimps will say anything to sell their product and make a buck. Haven’t you learned this yet?

  6. Bob_in_MA says:

    Chris,

    CR quoted this from the Stress Test report:

    The supervisors conducting the credit analysis worked closely with accounting specialists in the agencies to ensure that the firms’ projections were consistent with existing accounting standards.

    Additionally, supervisors evaluated the potential impact of proposed changes to FAS 140 and FIN 46(R) which are expected to be finalized in May 2009 and implemented in January 2010. The agencies’ accounting specialists discussed the amendments with FASB members and staff and other experts to assess the reasonableness of firm estimates of assets likely to be brought on to the balance sheet starting in 2010 as a result of the amendments. The on‐boarding of assets were also factored into our assessment of risk‐weighted assets and the associated ALLL needs.

  7. Cursive says:

    “I am constantly amazed at the willingness of some very smart people on Wall Street to follow the herd, even over the proverbial cliff.”

    CW, if they are smart, and they probably are, doesn’t that make them part of a RICO conspiracy? Seriously.

  8. R.D. says:

    short swings with FAZ

    A=1

  9. clawback says:

    Correction to earlier post: Classic post, CW.

  10. F. Horne says:

    There are 6+ months til repatriation. Lots of time. Can’t believe Mr. Geithner is planning a debacle, with so much time on the clock. Could it be that the threat of repatriation is what is going to cause the owners of bad paper to sell this paper into the Treasury’s toxic assets buyout program (forget its initials) wherein the banks and the private buyers enjoy a guaranteed payday at the expense of the taxpayer?

    Alternatively, or in addition, repatriation could have its stinger pulled someway, just like mark to market did.

    C’mon, the banks are fat city. If they can hit their ass with either hand, they’re good.

  11. Whalen,

    It is stuff like this, your post, that makes you one of the Best..

    this: “what are your plans and timeframe to reverse repo transactions with the FRBNY?” is something that everyone doesn’t mention..

    and, this: “What is the blended cost of funds projected for bank?” As if! one would get a straight answer to that one~

    RICO, is, too, long Overdue..good thing (bag)Holder is AG, no worries from his Office..

  12. Cursive says:

    Another notch on the belt for the kleptocrats:

    http://zerohedge.blogspot.com/2009/05/bankunited-closed-fdic-named-received.html

    The bank will be “sold” to Carlyle, Blackstone and WL Ross. But why should Carlyle et al “pay up” for the asset when they can get Sheila Bair to use taxpayer money to backstop the entire sale for them. And when we are talking $12.8 billion in assets, it surely is much better to get Joe Q. Sixpack to make sure you (Wilbur Ross et al) don’t have any risk exposure. After all, it worked so well for WaMu and JPM. The immediate cost to the FDIC will be $4.9 billion (and up to $10.7 billion based on the loss-sharing arrangement), which means that at this point the FDIC’s DIF is negative with almost 100% certainty. Robbing from poor Peter to pay rich Paul continues.

  13. usphoenix says:

    The Carlyle thing is really ugly. Resolution Trust Corporation all over again. Carlyle is one of the biggest and dirtiest enterprises on the planet. For them to be involved this early in the bankruptcy really smells like a wonderful Mafia deal. All we need now is for Dan Brown to write a book about it that includes the Vatican. But I suspect the Carlyle group is Anglican. He can start a new theme.