Bloomberg does its own burying, not revealing the tidbit that 44 percent of Bank of America’s home-equity loans are in California, Nevada, Arizona, and Florida until the twenty-second paragraph. Good luck collecting those. Yet the bank says just 2.5 percent of them may be “uncollectible” this year. And wait until it takes over Countrywide in the third quarter.
“The first quarter was much worse than our expectations three months ago,” (CEO Kenneth) Lewis said on a conference call. “It’s too early to strike up the band and say that happy days are here again.”
Reading the Nat City tea leaves
The WSJ on C1 says the $7 billion recapitalization of National City shows that some private-equity firms think banks are a buy, though the paper says it could take “several years for the banking industry to dig out of its current mess” and growth is likely to slow anyway because they’re reining in themselves.
This is no widows-and-orphans investment, of course. National City said yesterday that delinquencies and write-downs will only continue to rise.
As the Times notes:
Part of the problem within the banks is that the people who bought and sold mortgage and other bonds in recent years no longer know what they are worth. As banks prepare their quarterly earnings, each division tallies up its investments. They are supposed to mark them to a price based on what they could sell them for, but sales of many types of assets have ground to a standstill.
It mentions that all this fresh capital may help banks avoid write-downs by saying the plan to hold certain distressed assets instead of sell them—something the Journal pointed out yesterday.
Level with us
The Journal’s Dennis Berman in a C1 column looks at how all the cash sloshing around the globe so far has helped save the financial system from catastrophe. Check out these paragraphs on National City:
No one dared speak out over the past few weeks, for fear of stoking panic. But people involved in the auction described the situation as very, very serious.Another potential bidder was less diplomatic, saying that absent rescue capital, National City was “going doughnuts”—a term used when a stock drops to zero.
That raises a point we’ve been pondering. This information is new to us, at least in how it’s stated point-blank. You’ve had to read pretty deep between the lines to figure this out. So is the press complicit in trying to avert a panic, and if so is that appropriate? We’d like to know exactly what we’re facing.
Berman does this here by striking the right tone in warning of potentially dire consequences, but also spelling out how we can avoid them.
Bloomberg also notes the “abundance” of capital available to banks and says U.S. financial companies may need to raise $12.4 billion more, which seems awfully low to us. Was that supposed to be $124 billion?
Sympathy from Sir Fred
Bloomberg and the FT say that the Royal Bank of Scotland is raising a whopping $24 billion in new capital to offset credit losses and acquisitions. The bank’s shares have lost about half their value in a year, and the new capital will heavily dilute their holdings, but it’s nice to know its leader—whom the FT calls “Sir Fred”— has pity for his employers in our Pathetic CEO Quote of the Day:
“I’m 100 percent focused on the future and taking the business forward,” Goodwin said. “I can well understand this is not easy for shareholders. It is not easy for me.”
The Associated Press reports that RBS took $11.7 billion in losses.
Fuel-efficient cars how novel
The federal government will today propose to increase car gas mileage by 4.6 percent a year by 2015, increasing average miles per gallon for cars and light trucks to 31.8 from 26.7 last year, says The Detroit News. The paper says that’s faster than Congress requested.
The NYT says on C2 that the move “would force auto companies to speed up their development of lighter, more fuel-efficient vehicles.” Clearly.
Let’s talk about farm subsidies