Financials in Trouble, Part 1
Bank failures could total $850 billion.
Yet another crisis confronts us, as we'll have to deal with the aftermath of a rather large number of bank failures over the next year, which are likely to overwhelm the ability of the FDIC to insure your bank deposits. The banking system, the FDIC, and Freddie and Fannie aren't pretty to look at, but as realists we must know what we're facing.
If you're one of their clients, you can go to their website and drill quite deep into all aspects of every bank in America. And they've come up with various metrics to compare how well-capitalized a bank is, how much risk it's taking and what kind of losses (or profits) it can expect. It's a one-of-a-kind firm, and the data gives Chris a very special perspective on the US banking system.
And they're going to need more capital, as they have writedowns in their future due to the slowing economy. Any common issue would have to seriously dilute existing shareholders to almost nothing.
There are circumstances in which they can survive, but it would take a remarkable recovery for the US economy - which isn't likely. Maybe management can pull a rabbit out of the hat, but it will need some strong magic to get the capital they need at a cost they can live with.
The FDIC will have to cover only a small percentage of the $850 billion, as some of those assets will surely be good. But if they have to cover 10%, then the FDIC would need another $50 billion. Does that sound like a lot? Chris thinks a more conservative number for planning purposes would be 20% to 25% potential losses - and you just hope it doesn't get there.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter