More Good News On Financials

Wow - the hits just keep on coming for financials. Here are a few selected quotes I have seen so far today.

Avoid Financial Stocks as `Fires' Continue, Laszlo Birinyi Says

By Eric Martin

July 14 (Bloomberg) -- Investors should avoid most financial companies because their shares will probably keep declining, said Laszlo Birinyi, president of Birinyi Associates Inc.

``Stay away from these stocks and take a very low profile,'' Birinyi, who oversees more than $350 million in Westport, Connecticut, said in an interview on Bloomberg Television. ``There's an awful lot of fires that need to be put out. I'm concerned about how we get them all out.''

Treasury Secretary Henry Paulson yesterday asked Congress for authority to buy unlimited stakes in Fannie Mae and Freddie Mac, the largest U.S. mortgage companies, and lend to them, aiming to stem a collapse in confidence.

Birinyi's October warning that bank shares would fall preceded a 47 percent plunge in the Standard & Poor's 500 Financials Index. The index tumbled this year as asset writedowns and credit losses stemming from the subprime-mortgage market's collapse climbed to $410 billion worldwide, according to data compiled by Bloomberg. The index tumbled 4.7 percent today to the lowest since October 1998.

U.S. stocks fell, led by financial shares, after the government's seizure of IndyMac Bancorp Inc. and predictions of wider credit losses overshadowed the Treasury Department's plan to rescue Fannie Mae and Freddie Mac.

Then there's this from National City Bank, whose shares were halted on the stock exchange today after their shares fell 31% in 10 minutes.

National City Sees No `Unusual' Activity; Shares Fall (Update1)

By Linda Shen

July 14 (Bloomberg) -- National City Corp., whose trading was halted in New York after the stock fell as much as 31 percent, said there was ``no unusual depositor or creditor activity'' at the Ohio bank.

The company has enough capital and access to cash, according to a statement today from Cleveland-based National City. The stock was down $1.33, or 30 percent, to $3.09 a share at 12:32 p.m. on the New York Stock Exchange after composite trading resumed, and fell as low as $3.04 earlier in the day. The last time the stock sold for less was June 1984.

``As a result of our recent $7 billion capital raise, National City maintains one of the highest Tier 1 regulatory capital ratios among large banks,'' the lender said in its statement. A bank must have a 6 percent capital ratio to be considered well-capitalized.

Investors are speculating about which banks may fail after last week's collapse of IndyMac Bancorp Inc. National City was forced to raise funds earlier this year after its strategy of buying banks in Florida at the height of the real-estate boom backfired. The lender has lost more than 90 percent of its value in the last 12 months and is the worst-performing stock tracked by the KBW Bank Index this year.

Nothing unusual from depositors? Sure. Maybe it's not unusual because people have been pulling money out for months already, so today's stream of rats trying desperately to get off the sinking ship that is Nat City really isn't all that "unusual". Also, keep in mind that when ever someone comes out and says "there are no problems" what that really means "we are totally fucked."

A perfect example:

Wednesday, 7 May 2008

US Treasury Secretary Henry Paulson has said that the worst of the credit crunch may have passed.

He said the financial market turmoil that has led to massive losses at Wall Street banks had eased.

"We're closer to the end of this than the beginning," Mr Paulson told the Associated Press news agency.

Hahahahahahaha! Uh huh. Just about over, is it? Well, let's see how some of our vaunted financials stock prices have done since May 7th.

Washington Mutual: -68%
Merrill Lynch: -62%
Morgan Stanley: -32%
Wachovia: -65%

Yeah, I'd say that call was right on the money. Good god, I don't think it's possible to be more wrong than he was on this one. And remember, these guys all report earnings this week and when they report losses, not earnings, they will also say that they have to raise more capital.

Let's look at Washington Mutual, probably the most susceptible and who reports tomorrow. Their shares are currently trading at $3.50, they have roughly a billion shares outstanding, giving them a market cap (what the market thinks they are worth) of about 3.7B dollars.

Now, if they come out tomorrow and say we need to raise 5 Billion in capital, where in the hell are they going to get it? Sell stock? Not likely. That means they would have to sell 1.7 billion shares - which would completely dilute existing shareholders - and who the fuck would be dumb enough to buy that many shares when people are dumping the existing billion as fast as they can already?

Sell bonds? Not bloody likely. There are a few thing bond investors look for when buying paper and a bank that has lost almost 70% of it's market worth in 6 weeks is definitely not one of them. And even if they were able to find someone stupid enough, the interest rate on the bonds would have to be somewhere north of 15%, which would only add to the depletion of cash.

Well, maybe they could sell their loan portfolio. That seemed to work well for IndyMac, which was loaded up with the exact same type of Option ARM liar's loans and got exactly zero bids for their pile of shit portfoliom, causing them to go tits up.

Stick a fork in 'em, they are done.