Posts filed under “Finance”

Is Wells Fargo “Sugarcoating” Balance Sheet?

NY Post quotes a trader fearful of SEC reprisal on

When Wells Fargo reported third-quarter earnings last week – which beat
Wall Street expectations by a few pennies – investors cheered, and
watched the bank’s shares keep most of the 9 percent gain they had
pocketed the previous day.

But banking and mortgage-sector analysts cast a wary eye on the San Francisco-based bank. That’s because Wells Fargo, despite booking a near $1 billion increase
in non-performing loans in the third quarter compared to the previous
three-month period, cut its loan-loss reserve by $500 million. The slick accounting moves, while perfectly legal, gave a false
impression of just how strong Wells Fargo’s balance sheet actually was,
the analysts said in separate interviews and reports last week.

"Wells Fargo are pretenders," said a trader at one top hedge fund, who
spoke on condition of anonymity because he is afraid of trouble from
the Securities and Exchange Commission, in light of the regulatory
body’s recent threat to prosecute short sellers.

The trader said trimming the loan-loss reserves had the effect of boosting profits, which in turn boosted its share price, which in turn made it easier for the bank to successfully move forward with a move it announced this week to raise $20 billion of capital."

Note that earlier this year, Wells Fargo increased its definition of non performing loans, from 120 delinquent to 180 days. This made their balance sheet appear stronger than it was.

Analysts fearful of SEC reprisal for doing analysis — that is the net result of the ruinous tenure of the worst SEC chair in decades — Christopher Cox.

click for larger graphic:

Bus037a_2

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Source:
THE PRETENDERS: ANALYSTS SAY WELLS FARGO SUGARCOATS BALANCE SHEET
TERI BUHL
NYPost, October 19, 2008 4:00 am
http://www.nypost.com/seven/10192008/business/the_pretenders_134253.htm

See Also:
The Invisible Man
SEC Chairman Cox has often been missing in action during the financial crisis, even while Treasury Secretary Paulson and Fed Chairman Bernanke tread on his turf
Jesse Westbrook and Robert Schmidt
Bloomberg Markets, November 2008   
http://bloomberg.com/news/marketsmag/mm_1108_story2.html

Category: Data Analysis, Finance, Financial Press, Legal

Laid Off By Lehman: One Broker’s Story

Speaking of anecdotal sentiment indicatorsWhat does a Lehman Brothers’ broker do with his days now? Untucked Films found out. Directed by Chuck Divak and Jonathan Emmerling.

OMG, this is hysterical:

Perfect entertainment for a quiet Friday —

Hat tip: themessthatgreenspanmade

Category: Credit, Finance, Markets, Psychology, Video

Bank Earnings Are Fugly !

Category: Earnings, Finance

Will the US Fashion a Smarter Bailout Plan?

So far, we in the US have had an ad hoc, half-assed, on-the-fly approach to resolving the credit and financial crisis.

The smartest bailout approach to date has been the British/Swedish/Buffett approach: Inject capital at a corporate capital structure level by buying preferred stock, rather than at the balance sheet level by buying bad assets.

Now, we read that the Treasury is considering following these other, smarter approaches:

"Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

The Treasury plan was still preliminary and it was unclear how the process would work, but it appeared that it would be voluntary for banks.

The proposal resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares. It also would provide a guarantee of about $430 billion to help banks refinance debt."

Sure its a year late, and a trillion dollars short. Yes, this would have saved most of the firms that went belly up.

Better late than never . . .

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UPDATE: October 9, 2008 2:18 pm

The way we have the government buys into a cop-any via prefereds is to match any private sector investment into banks on the same terms. So GE and Goldman Sachs get double the capital injection, and since Warren did it on those same terms, we know Uncle Sam isn’t getting ripped off.   

If you cannot raise dollar one, Uncle Sam doesn’t waste any good money on you.

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UPDATE 2: October 9, 2008 2:40 pm>

Greg Mankiw discusses a similar approach:  How to Recapitalize the Financial System 

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Previously:
5 Historical Economic Crises and the U.S. (February 09, 2008)
http://bigpicture.typepad.com/comments/2008/02/5-historical-ec.html

Global Financial Crises, Part II: Norway 1987 (February 10, 2008)   
http://bigpicture.typepad.com/comments/2008/02/global-financia.html

Sources:
U.S. May Take Ownership Stake in Banks
EDMUND L. ANDREWS and MARK LANDLER
NYT, October 8, 2008
http://www.nytimes.com/2008/10/09/business/economy/09econ.html

 

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Category: Bailouts, Corporate Management, Credit, Derivatives, Finance

Did JPM Cash Call Bring Down Lehman ?

Winston Munn

Category: Bailouts, Credit, Finance

Fair-Value Accounting & FASB 157

“Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming himfor telling you that you are sick.” -Dane Mott , JPMorgan Chase & Co. > The debate on fair value accounting, FASB157, and transparency continues apace. If you want to understand why this is…Read More

Category: Credit, Finance, Investing, Legal

OTS Puts WaMu into Recievership; JPM Buys Assets

WaMu is now toast, forced into the waiting arms of JPM.

Here are the specifics from the Office of Thrift Supervision:

Receivership – With insufficient liquidity to meet its obligations, WMB was in an unsafe and unsound condition to transact business.  OTS placed WMB into receivership on September 25, 2008.  WMB was acquired today by JPMorgan Chase.  The change will have no impact on the bank’s depositors or other customers. Business will proceed uninterrupted and bank branches will open on Friday morning as usual. 

Ots_pdf

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See also:
WaMu Fails, Is Sold Off to J.P. Morgan
Biggest Banking Collapse in U.S. History; Government Arranges a Deal to Safeguard Huge Thrift’s Deposits Branches
ROBIN SIDEL, DAVID ENRICH and DAN FITZPATRICK
WSJ, SEPTEMBER 26, 2008
http://online.wsj.com/article/SB122238415586576687.html

JPMorgan Buys WaMu’s Deposits as Thrift Is Seized
Ari Levy and Elizabeth Hester
Bloomberg, Sept. 25 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=av8gIaGIF6EY&

Read More

Category: Bailouts, Credit, Derivatives, Finance

A Simple Explanation of What Went Wrong

Category: Credit, Derivatives, Finance, Real Estate

Berkshire to GS: “I Got $5 Billion, but Its Gonna Cost Ya”

Bloomberg:

Goldman Sachs Group Inc. will raise at least $7.5 billion from Warren Buffett’s Berkshire Hathaway Inc. and public investors in a bid to quell concerns that pushed up the Wall Street firm’s borrowing costs and hurt its stock.

Berkshire is buying $5 billion of perpetual preferred shares, New York-based Goldman said today in a statement. Goldman, which this week transformed itself from the biggest U.S. securities firm to the fourth-largest bank by assets, also plans to raise at least $2.5 billion by selling common stock in a public offering.

Goldman Chief Executive Officer Lloyd Blankfein is turning to Buffett, the billionaire investor and second-wealthiest American, to boost market confidence even though Goldman hasn’t reported a quarterly loss since it went public in 1999. The bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 have fueled fears about firms that rely on bond markets for funding.

Category: Corporate Management, Credit, Finance, M&A, Psychology

Writedowns vs Underwriting Scorecards

Category: Credit, Finance, Psychology, Quantitative