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U.S. Treasury Secretary Timothy Geithner last week proposed a series of programs, totaling $1.5 trillion, to bail out the U.S. banking system. Of course, Geithner hasn't told us precisely how he plans to spend the money, or identified which banks require such an enormous outlay.
So I thought it was worth looking at the United States' 12 largest banks to see where the problems might be and identify which banks might need big infusions of government cash. I perused the financial statements of all 12 banks, and also looked at their market valuations.
Unlike when the Troubled Assets Relief Program (TARP) was proposed in September – when the projections for potential losses were largely financial conjecture – we now have important concrete data on the banking system's troubles; namely, each of the bank's annual financial reports for 2008.
I'm finding that I'm a late arrival to the apparently long line of people who find Martin's work knowledgeable, insightful and balanced . Great article, thank you Martin.
I agree that giving taxpayers money away, escpecially to large corporations is only delaying the inevitable. At which point we will lose all investment. just like the Auto industry. The money needs to be put into the hands of the people who will need to spend it. Small businesses and individuals. I am not talking about 3- 6 hundred either. Psolpe are not going to put hard earned money into anything if tey think they may not have a job next week. I personally will not purchase anything major such as a car even though mine is more than six years old. For one the vehicles need to be more fuel and energy concious and the oil industry needs to be reeled in. With the rising prices of everthing people are having trouble just making it from week to week. giving money to these large corporatians is not creating any jobs or even helping to keep the status Quo.
Will AIG be a good investment at this time? I understand that except for a couple of grey areas, the company is otherwise solid.
thanks
Are you kidding me about BB&T "gladly [taking] more taxpayer money"? You are an idiot if you don't the former and present CEOs' philosophy? Does Ayn Rand ring a bell? Do some more research.
*don't know
JP Morgan is a major short seller of gold and silver on the COMEX. Its silver shorts are more likely "naked" and illegal (even if the CFTC seems incapable of doing anything about it).
In spite of the short selling, the price of gold and silver has risen, presenting the possibility of a major short squeeze, a default, or God knows what else. Billions could be lost in this questionable operation, not to mention future criminal investigations.
Hi
I want to ask you with all these ZOMBIES walking around any of us that have saving limitted below amounts coverd by FDIC can get hit? if yes how and why does FDIC have fund to cover and would our GOVROMENT let this banks sink?
[…] Bank / Mortgage BailOut Increased to $1T… Or Maybe $2T Banks / Mortgages $1T Banks / Mortgages $1.5T Banks / Mortgages $2T US BudgetWatch on Stimulus, BailOut and Rescue Measures Looks Like Far More […]
Know that American taxpayers are LENDING to banks (whether 'healthy' or distressed) at an interest rate of 0%! (ZERO percent !) Require those banks to structure every new loan and restructure every existing loan at a 2% to 4% interest rate (based upon income).
2% interest rates would save the average mortgagee
about $600 every month, to spend as they will. This would 'free up' and cause the flow of $50,000,000,000 of 'extra spending money' into the American economy every month. The inherent byproduct of the resulting commerce is employment. This will also recreate housing demand and lead to restoring home values.
It is high mortgage rates which are exacerbating our stressed economy, creating foreclosures, and causing us toward a DEPRESSION.
If we do not create economic relief of this magnitude, 'domino effects' will soon devastate our entire economy with anarchy as the consequence.
Excellent analysis and article, very informative.
What is the status of First National Bank of Omaha and HSBC?
Sharon
Since you have analyzed the top 12 banks in the US, why do you not take a look at foreign banks that operate in the US. For example, 4 of the big 5 Canadian banks operate through subsidiaries in the US and consistently make money. They also have high dividend yields and do not need either TARP or bailout money.
And what about Morgan Stanley, it seems to be ignored by the press including this article?
Some of your 'hidden gems' and so-called solid banks like USBank did participate in the TARP and would be unlikely to shell out their promised dividends. Plus they may be severely limited by the current administrators punitive stance re: TARP funds.
But seriously, I would like to see a more focussed Think Tank put together to target this financial meltdown. I can't believe our best and brightest would not be able to come up with better solutions??
YOU MISSED THE BIGGEST GEM!!!!!
What about Northern Trust? Has to be the strongest financial services org out there. Climbing the list of banks ranked by market cap. Incredibly high quality loan portfolio. Hello?
Your Chapter 11 solution for Citi and BAC is the first commonsense I've heard in this financial crisis. Thanks for the rest of the analysis also. Good post.
BB&T took the bailout too it seems. Arguably, as they said, to remain financially competitive.
http://philanthropyjournal.blogspot.com/2008/10/despite-joining-bailout-bb-says-it.html
Let free mrkts solve problem. Create ETFs to buy toxic-assets & u create pricing mechanism quickly. Isn't that the uncertainty that is causing road-block to a resolution of systemic problems?
A very valuable well done analysis. Suggestion for sequel: how about similar story on most and least risky brokerages.
thanks much,
I bought BAC based on your Buy, Hold, Sell column recommendation – now I'm stuck with a "Zombie".
hmm. With this article and today's news about Citi wanting to offer itself up to the government, I am convinced that we are in for a world of hurt.
I agree with Mr. Knight!!!!
The banks CAUSED this problem with a little help from the Credit Relief Act and THE BUBBLE BUILDER Himself, Alan Greenspan!!! And now the entire WORLD is suffering!!! America has caught the BLACK PLAGUE and it spread…The banks should either be ready and willing to restructure loans at 2-4% or be forced too! A little more help came from the real estate agents, the lenders and mortgage brokers to create this “Bubble” while earning fortunes in real estate sales commissions while hiding behind "CAVEAT EMPTOR." in the Life Insurance industry, there is something called a FREE LOOK PERIOD which lasts 10-20 days where a policy buyer can cancel with a full refund. Maybe the REAL ESTATE INDUSTRY should be FORCED to employ the same FREE LOOK PROVISION on real estate transactions…? That would ENSURE DUE DILLIGENCE at the AGENT LEVEL because NO AGENT would want a commission CHARGE BACK of say, $30,000 in real estate commissions because of a FREE LOOK…
The bank that offers the proactive program to its embattled mortgagors will save a fortune in manpower, time, aggravation and the actual cost of foreclosure on a macro scale. This will also prevent a further landslide of real estate prices, which could also prevent municipal bankruptcy across the country. These proactive programs will ultimately keep balance sheets healthy and make lending very profitable once again. The profits will come through in sheer quality loan volume to be kept on the books until maturity or payoff, whichever comes first.
The CEO of the bank that becomes the architect and offers this highly publicized proactive relief program to anyone of its’ existing troubled borrowers will become a national hero and own the wallet-share of the United States of America. By making the loan more attractive with a rate discount for those with a complete banking relationship and a auto-payment program from a checking account to the loan, the Bank of America (Bank of Opportunity) would become that national hero overnight and become a global banking titan with a much friendlier appeal in the eye of the nations’ masses. The balance sheet will flourish for years to come!!!!
Because of lax regulatory oversight on the federal level and Wall Streets magnificently notorious bloodthirsty greed, the American dream of home ownership has in fact become, for many responsible American CITIZENS, their worst nightmare.
Get ready for the birth of the United Socialist Republic of North America, nationalize banks, then healthcare and transportation and you have SOCIALISM….. WAKE UP BANK CEO's and smell the stench you've created, get busy and FIX the AMERICA you've all but BANKRUPTED!!!!!
[…] start by just talking about nationalization in general. If you’re a shareholder in one of the banks I christened “zombies” last week, then you’ve probably already lost 90% of your investment. You’re also not getting any […]
Thank you for this article Martin.
[…] Almost nobody will now invest in securitization structures, and with good reason. However, as my investigative analysis of the nation's Top 12 banks last week demonstrated, most of the major U.S. banks are in better shape than we believe, and are actually making […]
If US Bank Corp goes below $10/share, like it did a week ago, I suggest you take every dime you got, and go long on it! You'll have a 4-timer on your hands in less than 2 years! This company is the best of the banking industry, and pays a great dividend in the meantime (where can you get 15% returns while 'hanging out' nowadays?)
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It is true. BofA is just a zombie. They claim there is no consumer demand for loans, but this is a lie. They are looking for any excuse not to lend.
[…] Money Morning Special Investing Research Report: The Top 12 U.S. Banks: From Zombies to Hidden Gems. […]
So what if it is a zombie. The stock price doesn't seem to be affected so much. Everybody is all of a sudden high on BAC. So, what's up with that? Martin, are you scooping up sharers of BAC as you talk it down…hmmmmm?
[…] last month, Hutchinson published an analysis on the "Top 12 U.S. banks" report. If you missed story, which enjoyed a big response when it was published last Wednesday, please […]
[…] SPDR (NYSE: XLF) Exchange-Traded Fund (ETF) since that time, one thing is clear: If you'd followed my advice you would have more than doubled your […]
[…] in February, I looked at the Top 12 U.S. banks, to determine whether it was really necessary – as U.S. Treasury Secretary Timothy Geithner […]
I know this comment is out of place and out of sink with anyone who would read this news letter but I feel it must be said.
I look at a bank has a place to operate my business and personal finances from and not a place to invest into other then where I leave a little savings. They have become incredulous over the last 20 years. To the point of criminal. Their rates, terms, fee schedules, and policy changes have cause everything we have seen in these last 9 years with help of our government leadership which had their head in the sand I believe or worst their hand out. The simplest of solutions will work best: The break up of these banks as they exist now back to the day when investment houses, insurance industries, and true banks (lenders and mortgage providers) were not allow to partner. The reinstatement of lost anti trust legislation. The revisiting of Fee limits and interest rate ceilings. And limiting foreign banks (not to mention foreign investors) which do not have the same limitations as their American counter parts. We need a strong regulatory system looking at the banks books and making it policy to have congress examine any loan or policy changes a federally insured bank makes. Imagine your mortgage rate was to change over night and their was nothing you could do. Oh basically that is why we are in this mess. But the American people did something they said FU and they are about to do the same with their credit cards debt get ready. The fact that they haven't already tells you something about most Americans. If our concern is to strengthen the American economy and we had used that same money allocated to the banks toward our infer-structure, key manufacturing industries (which have been under tremendous unfair competition by foreign propped upped competitors), first time small business low rate loans (like a student loan program) and on new or self sufficient energy resources, Which would of had a better short and long term effect on this countries economy and way of life? If we get out of this mess relatively unscathed it will be in spite of what we do to help those dysfunctional banks (and the current banking system as it stands today) and not because we saved them. Save the deposits (which in inflated dollars is about 1,000,000 per account) that is what the promise was not the investor.
In reply to Sharon Warden of Feb 19,2009, her query–"What is the status of First National Bank of Omaha?" First National Bank Omaha was DENIED TARP funds, as was National City Bank just before it collapsed.These two banks were the ONLY TWO AMERICAN banks DENIED BAILOUT FUNDS, and ask yourself WHY were they denied TARP? Financial crimes? Is it insolvent? Yes, likely reasons. The entire sector died of debt years ago, and needs the taxpayer's money to continue to exist(and exist to fee the taxpayer to death!). PS:First National Bank Omaha's credit card APR in 2007 was 33%!!!!This was the bank that helped build the zombie fraud ENRON!
Invest in Gold and Silver. Pure and simple. It's the only way you will ever see the colour of your money again in the future. Foreign countries are piling up on Gold. The currency of the Elite (the so-called top 1% of the top 1%) is GOLD AND SILVER. They laugh at the bogus fiat paper currencies of the world. Gold and Silver is the way to go. Any other investment is only worth the paper it's printed on. And, because most of it is digital these days, I should say any other investment is not even worth the paper it's not printed on.