Bank Shares Take a Beating, and It May Not Be Over Yet

[alp227]

Source: The New York Times

Michael Scanlon is tempted by bank stocks, truly he is.

They are cheap — selling at near their lows for the year, and trading at well below the valuation of other large companies. But Mr. Scanlon, who helps oversee $7.5 billion for the John Hancock family of mutual funds in Boston and specializes in financial companies, is not about to give in and buy more shares.

“It’s just not going to be a smooth ride,” he said. “You wake up every day and there’s a new headline and a new concern.”

Bank stocks took another tumble late last week after Moody’s, the credit rating firm, warned it might downgrade the debt of giants like Bank of America, Citigroup and Wells Fargo as the government eases back on support for the sector. Even as the market absorbed that news, reports that Goldman Sachs had been subpoenaed in an investigation by the Manhattan district attorney further unnerved investors, and sent that giant investment’s bank’s shares sinking.

Read more: http://www.nytimes.com/2011/06/06/business/economy/06bank.html?partner=rss&emc=rss&pagewanted=all

[hobbit709]

1. Aw! ain't that just too bad.

[dorksied]

2. Good. "Too big to fail" was epicly stupid.

[unkachuck]

3. it now appears....

....they're, "Too big to succeed."

[bhikkhu]

4. This doesn't really fit with the "official narrative":

that the government, with Obama at the helm, is being run by and for the banking industry. If the government is broke and we're all broke because the banks have all our money, how could they possibly be doing poorly! This doesn't make sense!

[Lucky Luciano]

5. One word: Leverage. nt

[Ghost Dog]

12. Banks may need more cash to clear derivatives

LONDON, June 5 (Reuters) - The world's top 14 derivatives dealers may need extra cash to handle a surge in transaction clearing, especially in choppy markets, the Bank for International Settlements (BIS) said. Clearing is being favoured by regulators because it is backed by a default fund that ensures a trade is completed even if one side goes bust, as with the collapse of Lehman Brothers during the financial crisis. World leaders have agreed that chunks of the $600 trillion off-exchange derivatives market must be standardised and cleared by the end of 2012 to broaden transparency and curb risk.

...

Central clearing covers about half of $400 trillion in interest rate swaps, 20-30 percent of the $2.5 trillion commodities derivatives, and about 10 percent of $30 trillion in credit default swaps. The G14 dealers comprise Bank of America-Merrill Lynch, Barclays Capital, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, RBS, Societe Generale, UBS and Wells Fargo Bank. BIS said they could face a cash shortfall in very volatile markets when daily margins are increased, triggering demands for several billions of dollars to be paid within a day.

/... http://www.guardian.co.uk/business/feedarticle/9681226

Leveraged derivatives.

The rulemaking around Dodd-Frank is far from over, but one area of new regulation drawing a lot of attention is what to do about over-the-counter derivates trading. It is a huge market – some $600 trillion at the end of last year – and dominated by interest rate contracts, where the notional value is $465 trillion. Just a little perspective – the entire value of the S&P 500 is $12 trillion. If even a portion of this trading moves to a quasi-exchange structure, it will require significantly more collateral than is currently used to support this market. That is strongly bullish for sovereign debt, should these changes come to pass. This dynamic got us wondering what “good collateral” really means anymore. U.S. dollars and Treasury securities are the bedrock of trading collateral, but those assets might not work as well for this function in the next financial crisis as they have in the past. The reason is that sovereign debt is increasingly losing its “risk-free asset” status as developed countries – not just the U.S., mind you – issue more debt to stimulate their economies and avoid taking the pain for previous mistakes. - The Real "Margin" Threat

[No Elephants]

13. How much of a bailout did you get?

[ixion]

6. “It’s just not going to be a smooth ride,” he said

well, that's the understatement of the decade.

[customerserviceguy]

7. Maybe people are wising up

and avoiding the biggies. Of course, I don't see that in my job, many of the payments I take over the phone with a checking account are run through the big banks. On the other hand, the service that we use charges a $5 'convenience' fee for paying your bill that way, maybe all I'm seeing are the people stupid enough to think it's OK to get nickel and dimed to death with fees.

[Dawson Leery]

8. The few TBTF "banks" need to fail.

They need to be washed out of the system as they are parasites killing off legitimate business.

[davidwparker]

9. +1

[defendandprotect]

10. kr

[aquart]

11. Tell me now: those bastards lose money when the stock is low, right?

Because that would make my day.

[No Elephants]

14. Depends.

[Lucky Luciano]

18. Usually. Most hold stock that needs to vest.

[dballance]

15. Couldn't Happen to a Nicer Set of People

I hope they go fricken broke. Those assholes.

[sendero]

16. If all of the big banks..

... had to mark their "assets" to market, they would be insolvent.

They will remain so until housing prices recover, which is to say probably forever.

They should have been unwound, shut down, back in 2008. Shareholders would have been wiped out, bondholders would have gotten pennies on the dollar and banksters would have learned that if you drive your company over the cliff there is no taxpayer bailout.

A person can dream can't they :)

[Corruption Winz]

17. Considering that we now hold their fate in our hands....

it would appear, you would hope that the politicians who tell you they will fight for you will use this as a great opportunity. Hopefully, that's something that can be exploited.