David Kirkpatrick

April 6, 2010

The bailout ROI

I dissed the entire bailout move and have now been proven beyond wrong. Who knows how we got to this point, but the return-on-investment has been dramatic.

From the link:

U.S. taxpayers earned an annualized 8.5 percent return from the government’s bailout of 49 financial firms, underscoring efforts by the industry to speed up repayments and warrant repurchases, according to a report by SNL Financial.

Firms such as Citigroup, (C) which still has common shares held by the U.S. Treasury Department, and rivals that have made partial redemptions were excluded from the analysis, SNL Financial said in a statement on Monday.

Proceeds from Troubled Asset Relief Program (TARP) warrant repurchases and auctions led to a surge in returns through March 30, SNL said. So far, since the start of the program in late 2008, 64 institutions have fully repaid government aid.

March 17, 2009

Credit card defaults way up

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 4:11 pm

Way up as in at a twenty-year high. Ouch. Expect a lot more of this type of news for the next while.

From the link:

U.S. credit card defaults rose in February to their highest level in at least 20 years, with losses particularly severe at American Express Co (AXP.N) and Citigroup (C.N) amid a deepening recession.

AmEx, the largest U.S. charge card operator by sales volume, said its net charge-off rate — debts companies believe they will never be able to collect — rose to 8.70 percent in February from 8.30 percent in January.

The credit card company‘s shares wiped out early gains and ended down 3.3 percent as loan losses exceeded expectations. Moshe Orenbuch, an analyst at Credit Suisse, said American Express credit card losses were 10 basis points larger than forecast.

In addition, Citigroup Inc (C.N) — one of the largest issuers of MasterCard cards — disappointed analysts as its default rate soared to 9.33 percent in February, from 6.95 percent a month earlier, according to a report based on trusts representing a portion of securitized credit card debt.

“There is a continued deterioration. Trends in credit cards will get worse before they start getting better,” said Walter Todd, a portfolio manager at Greenwood Capital Associates.

January 8, 2009

Banks still aren’t lending

Remember that big ‘ole bailout of the financial sector, that little exercise in corporate socialism, that was supposed to thaw the credit freeze and get money flowing freely once again? Like pretty much every move taken by an inept Fed, our tax dollars are sitting in the coffers of banks and not flowing anywhere.

We may be in uncharted waters economically, but the bailout ought to be a public outrage. Our money, really our future, was taken from us forcefully by an incompetent government agency and handed to banks which are now doing nothing more than hoarding the dollars.

Nice.

From the link:

Despite all the government’s best efforts in recent months, big banks still aren’t lending money freely. One sign of the crunch: New loans to large companies slumped 37% in the three months ending Nov. 30 from the preceding three months. “Banks are being extremely cautious,” says Edward Wedbush, chairman of the Los Angeles brokerage Wedbush Morgan Securities.

The industry is getting flak for hunkering down. After all, the Treasury has injected $187.5 billion into the nation’s largest banks, including Citigroup (C), Bank of America (BAC), and JPMorgan Chase (JPM). The recipients of taxpayer money, say critics, should be required to open up their coffers. “The bad news [is] Treasury has no way to measure whether taxpayer funds are being used to increase lending,” Representative Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said in December. “The much worse news [is that Treasury] does not even have the intention of doing so.”

Banking chiefs defend their position. They argue that the government funds are designed to shore up capital and support lending, but that they have no obligation to make new loans. “It’s not a one-to-one relationship,” says BofA CEO Kenneth D. Lewis. “We don’t write $15 billion in loans because we got $15 billion from the government.”

Right now there’s little financial incentive to make fresh loans. In the current unease, new corporate loans are immediately marked down to between 60¢ and 80¢ on the dollar, forcing banks to take a hit on the debt. It’s more lucrative, then, for them to buy old loans that are discounted already.

January 6, 2009

Total bailout cost heading toward $8T

Yep, you read that right — eight trillion dollars. Corporate socialism to the tune of eight trillion dollars. Obama’s plan looks to be in the $700 billion range.

The system, the markets and capitalism have failed on a massive scale. This might simply be a correction in the markets — a correction we are circumventing with this massive bailout — but it’s hard not to place at least some blame at the feet of the economic policies (and lack thereof) of the Bush 43 regime.

There’s a reason Congress feels the need to look into the incompetence of the SEC of the last several years. Instead of competent smaller government, Bush seems to have pressed for bloated government at every step (Department of Homeland Security, anyone) and increasing incompetence across the board with each stride.

With the ongoing financial crisis and this bailout, it really feels like Main Street is full of flaming bags of shit and the taxpayers are being forced to start stomping.

From the first link way up there in the first graf:

Sitting down? It’s time to tally up the federal government’s bailout tab.

There was $29 billion for Bear Stearns, $345 billion for Citigroup. The Federal Reserve put up $600 billion to guarantee money market deposits and has aggressively driven down interest rates to essentially zero.

The list goes on and on. All told, Congress, the Treasury Department, the Federal Reserve and other agencies have taken dozens of steps to prop up the economy.

Total price tag so far: $7.2 trillion in investment and loans. That puts a lot of taxpayer money at risk. Now comes President-elect Barack Obama’s economic stimulus plan, some details of which were made public on Monday. The tally is getting awfully close to $8 trillion.

Obama’s plan would combine tax cuts with infrastructure job creation efforts. Economists say it could serve as an integral piece to the government’s remaining economic recovery puzzle.

“This plan will be the first direct tool to make additions to disposable income,” said Lyle Gramley, an economist with Stanford Group and former Fed governor. “None of the other efforts have done that directly.”

December 31, 2008

Back to 2002

So to speak. I don’t want to be all doom and gloom here on the last day of the year, but this is some sobering news — 2008 saw the loss of six years of market gains. They’ll eventually come back, but the shocking part of this loss is the speed it happened and how it happened across the board.

Petroleum is way down despite the efforts of OPEC. Hedge funds? Investment banking?  Commodities? The only happy folks are those who shorted everything under the sun for the last half of the year.

From the link:

When the New York Stock Exchange closes later this afternoon, virtually anyone with money in stocks will have felt the punishing drop in the market.

The markets were headed for a higher close Wednesday, but overall, it was a very bad year to own stocks, any stocks — indeed, one of the worst ever. The Dow Jones industrial average will end the year down more than 34 percent, the worst year for the index since 1931, and the broader Standard & Poor’s 500-stock index more than 38 percent. Blue-chips like General Motors, Citigroup and Alcoa lost more than 70 percent of their value.

All told, about $7 trillion of shareholders’ wealth — the gains of the last six years — will be wiped out in a year marked by violent market swings.

But what is striking is not just the magnitude of the declines, staggering as they are, but also their breadth. All but 2 of the 30 Dow industrials, Wal-Martand McDonalds, fell by more than 11 percent. Almost no industry was spared as the crisis that emerged in the subprime mortgage market metastasized and the economy sank into what could be a long, gray recession.

October 23, 2008

Credit remains tight

I hate to be so doom-and-gloom on the economic picture today, but the news is bad, very bad and worse. The little exercise in corporate socialism known as the “bailout.” Let’s call that one a failure so far since the entire purpose was to open inter-bank credit to help prop up ailing financial institutions.

How did that turn out?

The title from the link:

U.S. Banks Still Aren’t Lending

Despite the federal government’s best efforts, banks are hoarding cash. It may be 2010 before the credit climate improves

And from further into the article:

The defensive crouch that Dorner and other bank executives have adopted is creating a quandary for Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and other Washington policymakers who are trying to get credit flowing freely across the economy. The government is reaching deep into its pockets to stimulate the credit markets, most recently with a plan to inject $250 billion into big banks. But while there are small signs of improvement—notably a modest drop in the rate banks charge one another to borrow money—the initiatives are being blunted by banks’ reluctance to loosen their purse strings. Right now the modest uptick in lending is coming mostly from panicked companies drawing down existing lines of credit rather than new loans.

Simply put, banks are hoarding cash, and the influx of government money won’t necessarily change their plans. That’s the case with Citigroup (C), which has shrunk the size of its balance sheet by 13% over the past year and plans to cut even further. “We’re not going to treat [the money from the government] like a windfall and back off of the measures that we have under way to get the company fit,” Citigroup Chief Financial Officer Gary Crittenden told analysts recently.

The industry may be hunkering down for a while. In a recent survey by data firm Reuters LPC, 40% of lenders and loan investors said they didn’t expect the credit climate to improve significantly until 2010, after the worst of the recession has passed. “Lending won’t start until everyone agrees the bottom has been reached,” Richard M. Kovacevich, chairman of San Francisco-based Wells Fargo (WFC) told BusinessWeek in an interview with Maria Bartiromo.

October 3, 2008

Move over Citi, Wells Fargo buys Wachovia

In an update to this post from Monday, Wells Fargo pushes Citigroup aside to purchase Wachovia for more than $15 billion.

From the second link:

In an abrupt change, Wachovia said Friday it agreed to be acquired by San Francisco-based Wells Fargo & Co. in a $15.1 billion all-stock deal that trumps Citigroup‘s plan to acquire Wachovia’s banking operations and avoids government assistance.

The Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp., but the Wells Fargo deal for Wachovia will be done without it. Shares of Wachovia and Wells rose in morning trading, while Citigroup shares fell.

“This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support,” Robert Steel, Wachovia’s president and chief executive, said in a statement.

The Wachovia-Wells deal, announced Friday, comes in a turbulent time for banks and financial firms as they grapple with the ongoing credit crisis, which led to the recent bankruptcy of Lehman Brothers Holdings Inc. and the failure of Washington Mutual Inc.

September 18, 2008

Possible merger for Washington Mutual and Morgan Stanley

I think that would be something like making an omelet with two rotten eggs.

From the link:

It wasn’t too many years ago that some federal regulators fretted about the dangers of letting commercial banks merge with the big investment houses on Wall Street. But in the current financial crisis, those mergers might be the only thing that saves some of Wall Street’s most storied firms, such as Morgan Stanley (MS) and a troubled lender like Washington Mutual (WM).

Update — the Wall Street Journal is reporting a possible deal between Morgan Stanley and Wachovia.

From the link:

A Wachovia deal would unite two large American financial companies and potentially placate investors who believe investment banks need to be joined with deposit-taking institutions. But Wachovia’s own mortgage exposure could be a sticking point in completing a deal, and some analysts have questioned whether Wachovia is the right partner for Morgan Stanley.

Morgan Stanley’s Mr. Mack appeared at the regularly scheduled quarterly town hall meeting at 8:30 a.m., speaking to a packed audience at the company’s Times Square headquarters. The CEO, joined by Chief Financial Officer Colm Kelleher and fellow co-presidents Walid Chammah and James Gorman said the company is exploring many options including the Chinese investment and a Wachovia tie-up.

Sounds like Morgan Stanley is really in deep. Parts of the article not excerpted covered potential deals with Citigroup and China Investment Group. Mack is in contact with the SEC and the White House to try and stop shorting of Morgan Stanley stock. I think we’re getting to a point where some these collapsing companies need to be allowed to crater.

Here’s another list of potential partners for the failing investment bank:

Morgan Stanley has other potential international and domestic partners, including HSBC Holdings PLC of the U.K., Banco Santander SA of Spain, Japan’s Nomura Holdings Inc. or Bank of New York Mellon Corp.