Posts Tagged ‘balance sheets’

Banks Recruit Investors to Oppose Honest Valuation of Assets; Just how Unprepared are Banks for Major Losses?

Banks Recruit Investors to Oppose Honest Valuation of Assets; Just how Unprepared are Banks for Major Losses?

Courtesy of Mish 

Reader "Henry" has a question on the loan loss provision chart I posted in Former Fed Vice Chairman vs. Mish: Is the Fed Out of Ammo?

Henry writes …

Hello Mish,

Thanks for writing and sharing your wonderful column. It has been very informative and educational.

Could you please help us mere mortals decipher the ALLL/LLRNPT chart in a follow up post?

I have difficulty reconciling the units, and I suspect I’m not the only one. Exactly what does that chart depict?

Thanks.

Henry

From my previous post …

Assets at Banks whose ALLL Exceeds their Nonperforming Loans

The ALLL is a bank’s best estimate of the amount it will not be able to collect on its loans and leases based on current information and events. To fund the ALLL, the bank takes a periodic charge against earnings. Such a charge is called a provision for loan and lease losses.

One look at the above chart in light of an economy headed back into recession and a housing market already back in the toilet should be enough to convince anyone that banks already have insufficient loan loss provisions.

That is one of the reasons banks are reluctant to lend. Lack of creditworthy customers is a second. Quite frankly would be idiotic to force more lending in such an environment.

To further clarify, the chart depicts the ratio of loan loss provisions to nonperforming loans across the entire banking system (all banks). There are 33 ALLL charts by bank size and region for inquiring minds to consider. The above chart is the aggregate.

The implication what the chart suggests is that banks believe nonperforming loans are NOT a problem (or alternatively they are simply ignoring expected losses to goose earnings).

The implication what I suggest is banks earnings have been overstated. Why? Because provisions for loan losses are a hit to earnings. I believe losses are coming for which there are no provisions.

The chart depicts a form of "extend and pretend" and overvaluation of assets on bank balance sheets. The Fed and the accounting board ignore this happening (encourage is probably a better word), hoping the problem will get better. With more foreclosures and bankruptcies on the horizon, I suggest it won’t.

Magnitude of the Problem

The above…
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All You Need To Know About Bank Balance-Sheet Fraud

All You Need To Know About Bank Balance-Sheet Fraud

Courtesy of Karl Denninger at The Market Ticker 

Cash Card Fraud

I am constantly amused by those people who claim there is some vast "conspiracy" in this country when it comes to banks, balance sheets, and fraudulent lending and accounting.

There is no conspiracy.

It is, in fact, "in your face" fraud.

The FDIC does us the courtesy of explaining it virtually every Friday night, right on their web page.

I am simply going to take last night’s bank closures, which numbered four.  One of them has no "deposit insurance fund" estimated loss available, because they didn’t find someone to take the assets – they’re just mailing checks.  But the other three do.

  • Waterford Bank, Germantown MD: $155.6 million in assets, $156.4 in insured deposits.  They were "underwater" by $800,000, right?  Wrong: Estimated loss, $51 million.  That is, the assets of $155.6 million were overvalued by approximately 30% at the time of seizure.
     
  • Bank of Illinois, Normal IL: $211.7 million in assets, $198.5 million in deposits.  They were "underwater" by $13.2 million (which is why they were seized), right?  Wrong: Estimated loss $53.7 million.  That is, the the assets of $211.7 million were overvalued by more than 25% at the time of seizure.
     
  • Sun American Bank, Boca Raton FL:  $535.7 million in assets (so they claimed anyway), $443.5 million in total deposits.  Heh, why did you seize them – they have more assets than liabilities?  Oh wait: Estimated loss: $103.8 million, so the actual assets are worth $443.5 – $103.8, or $339.7 million.  That is, the assets of $535.7 million were overvalued by a whopping 37% at the time of seizure.

This isn’t new, by the way.  In August of 2009 I went through Colonial Bank’s failure based on BB&T’s presentation to its shareholders on the "merger" – and gift it was given by the FDIC.  It too showed that Colonial had been carrying assets on their books at a ridiculous 37% above where BB&T ultimately marked them as a whole.

Folks, your bank is being assessed deposit insurance premiums to pay for these losses.  You are paying these losses through increased fees and interest expense on your credit cards and all other manner of borrowing.

You are paying for outrageous, pernicious and endemic balance sheet fraud.

There is no conspiracy.  It is right under your nose.  One of these three banks, based on their balance sheet, wasn’t…
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Another Day, Another Bail-Out

Another Day, Another Bail-Out

Courtesy of John Rubino at Dollar Collapse

Basket Case

With a bail-out of Greece apparently imminent and everyone drawing parallels between the PIGS countries and the Wall Street firms that nearly cratered the global economy in 2008, this might be a good time to ask why each year seems to bring a new set of financial basket cases requiring taxpayer cash.

The answer, of course, is easy money. When governments create too much credit, borrowing gets easier at the margins and the less intelligent, moral, and wise end up borrowing far more than they would normally be able to. When they inevitably implode, the world gets another chance to behave rationally by letting them go, accepting the resulting short-term pain, and learning the relevant lessons. But beginning in the 1990s with the Mexican and Russian defaults and the self-destruction of Long Term Capital Management, the strong economies have chosen to avoid the pain and bail out the losers.

This lack of adult supervision produces two results:

First, the credit created by each new bail-out finds its way into other weak hands, further impairing their balance sheets and requiring more bail-outs. Now we’ve graduated from banks to governments, and apparently a borrower as inconsequential as Greece (with foreign debt of less than $400 billion) can bring down the entire global financial system.

Second, the balance sheets of the strong countries get progressively weaker. As the U.S. took on Fannie and Freddie’s trillions, so will Germany absorb Greece’s billions. And the new wave is just getting started. Greece is the worst case, but just barely. Portugal, Spain, California and Illinois all owe more than they can ever hope to pay, and will, by the current standard of everything being too big to fail, have to be bailed out in the coming year. Their debts won’t be wiped out, but will migrate to Germany, France, or Washington. At some point those countries’ rock-solid bond ratings, already fictitious, will start to drop, making future bail-outs both harder and more necessary.

So 2010 will be the year of sovereign bail-outs at the periphery, which is bad enough. But next year, once several trillion more dollars and euros have been loaded onto large country balance sheets, the bailout profile will ratchet up to the next level, with one of the superpowers finding it impossible…
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We’re Speaking Japanese Without Knowing It

We’re Speaking Japanese Without Knowing It

Courtesy of John P. Hussman, Ph.D.
All rights reserved and actively enforced.
Reprint Policy

Anna Karenina, stage production“Tolstoy famously begins his classic novel Anna Karenina with “Every happy family is alike, but every unhappy family is unhappy in their own way.” While each financial crisis no doubt is distinct, they also share striking similarities, in the run-up of asset prices, in debt accumulation, in growth patterns, and in current account deficits. The majority of historical crises are preceded by financial liberalization. Perhaps the United States will prove a different kind of happy family. Despite many superficial similarities to a typical crisis country, it may yet suffer a growth lapse comparable only to the mildest cases. Perhaps this time will be different as so many argue. Nevertheless, the quantitative and qualitative parallels in run-ups to earlier postwar industrialized-country financial crises are worthy of note. For the five most catastrophic cases (which include episodes in Finland, Japan, Norway, Spain and Sweden), the drop in annual output growth from peak to trough is over 5 percent, and growth remained well below pre-crisis trend even after three years. The United States looks like the archetypical crisis country, only more so.”

Reinhart C. and Rogoff K., NBER Working Paper 13761, January 2008
[As of the second quarter of 2009, the cumulative drop in GDP during the recent downturn has been -3.9%.]

If one seeks analysis about the recent financial crisis, and what most probably lies ahead, it would be wise to place particular weight on the views of economists who saw it coming (and ideally those who provided careful analysis rather than hyperbole). I’ve cited a paper by Reinhart and Rogoff above, which was published by the National Bureau of Economic Research in January of 2008. At a speech at the Princeton Club last week, economist Carmen Reinhart reiterated that by propping up unhealthy banks, the U.S. is unwittingly committing the same mistakes as the Japanese did in their decade-long stagnation, saying, “These are not zombie loans. They’re just non-performing. We’re speaking Japanese without knowing it.”

Kenneth Rogoff, a Harvard economist and former chief of the IMF, noted elsewhere “The banks have been allowed to take these huge gambles, particularly problematic is their very short-term borrowing. And they always have to roll it over all the time and any time they can’t…
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Zero Hedge

Hedge Funds Have Never Been More Concentrated Into The Same Handful Of Stocks

Courtesy of ZeroHedge View original post here.


Sun, 05/24/2020 - 15:25

Six years ago, back in 2013, we presented what we then viewed (and still view) as the best trading strategy of the New Abnormal period, when we said that buying the most shorted names while shorting the names that have the highest hedge fund concentration and institutional ownership is the surest way to generate alpha, to wit:

... in a world in which nothing ...



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Phil's Favorites

A doctor shares 7 steps he'll review to decide when and where it's safe to go out and about

 

A doctor shares 7 steps he'll review to decide when and where it's safe to go out and about

The Inn at Little Washington in Washington, Virginia, shown May 20, 2020, plans to use mannequins in its dining room to enforce social distancing when it reopens at the end of the month. Olivier Douliery/AFP via Getty Images

Courtesy of William Petri, University of Virginia

As we return to some degree of normalcy after weeks of social distancing, we all need a plan. As an immunologist, I’ve given this a lot of ...



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Biotech/COVID-19

A doctor shares 7 steps he'll review to decide when and where it's safe to go out and about

 

A doctor shares 7 steps he'll review to decide when and where it's safe to go out and about

The Inn at Little Washington in Washington, Virginia, shown May 20, 2020, plans to use mannequins in its dining room to enforce social distancing when it reopens at the end of the month. Olivier Douliery/AFP via Getty Images

Courtesy of William Petri, University of Virginia

As we return to some degree of normalcy after weeks of social distancing, we all need a plan. As an immunologist, I’ve given this a lot of ...



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Chart School

Is this your local response to COVID 19

Courtesy of Read the Ticker

This is off topic, but a bit of fun!


This is the standard reaction from the control freaks.








This is the song for post lock down!







What should be made mandatory? Vaccines, hell NO! This should be mandatory: Every one taking their tops off in the sun, they do in Africa!

Guess which family gets more Vitamin D and eats less sugary carbs, TV Show



...



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ValueWalk

Hazelton Capital Partners 1Q20 Commentary: Long Renewable Energy Group

By Jacob Wolinsky. Originally published at ValueWalk.

Hazelton Capital Partners commentary for the first quarter ended April 30, 2020, discussing their current portfolio holdings Renewable Energy Group, Apple and Berkshire Hathaway.

Q1 2020 hedge fund letters, conferences and more

Dear Partner,

Hazelton Capital Partners, LLC (the “Fund”) returned -23.8% from January 1, 2020 through March 31, 2020. By comparison, the S&P 500 returned -19.4% during the same quarter.

Before reviewing the 1st quarter of 2020 and Hazelton Capital Partners’ portfolio, my sincere hope is that everyone, their family, friends, a...



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The Technical Traders

Gold Stocks Are Overbought. You Don't Want Prices to Go Straight Up

Courtesy of Technical Traders

Bill Powers of MiningStockEducation.com talks with a professional trader and market commentator Chris Vermeulen says gold stocks are overbought and need a breather which would be good for the overall upward trend.

Chris shares how he has and is trading the junior gold sector. He called the recent February 24th top in the gold stocks before the March crash. And now he is warning to a top in some gold-stock positions during an expected pullback.

Chris also addresses whether a lot of the gap-up’s in many gold...



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Kimble Charting Solutions

Doc Copper Counter-Trend Rally Could Peak Here, Says Joe Friday

Courtesy of Chris Kimble

Could ole Doc Copper be sending an important message about the overall health of the global economy and the stock market in the next couple of weeks? It appears it could!

This chart looks at Copper futures on a weekly basis over the past 7-years. Doc Copper looks to have double topped in late 2017 and early 2018. After the double top, Copper has continued to create a series of lower highs, which sends a bearish divergence message to stocks.

Numerous highs and lows have taken place along the line (1) over the past 5-years. The rally off the March lows ...



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Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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