Bank Bailout Videos CNBC: The Banking Oracle Speaks: Complete Interview Of Meredith Whitney On Squawk Box. Broadcast March 17th
Weighing in on consumer credit and why mark-to-market will not really help banks, with Meredith Whitney, Meredith Whitney Advisory Group CEO.
A surge in borrower defaults, credit card writedowns, growing problems in commercial real estate and worsening unemployment will make 2009 a worse year for banks than 2008.
From CNBC:
"I don't think this year is going to look any better than last year," Whitney said in an interview Tuesday on CNBC. "In fact it will look worse because there's so much credit coming out of the system."
She predicted "breakups and M&As on a grand scale" as the industry seeks to remake itself in the face of all its capital pressures.
Whitney, a former analyst at Oppenheimer who recently opened her own firm, is renowned for calling out the problems with banks' toxic assets before the issue became widespread.
As some have been predicting the worst may be over for the banking sector, Whitney countered that many of the statements about some of the big banks showing profits ignore the burden that additional writedowns will pose through the year. In particular, she said Citigroup's statement that it had turned a profit the first two months of 2009 might came back to haunt it once a fuller picture was presented.
Consumers also will face pressure as unemployment grows and banks and credit card companies start calling in credit lines to avoid getting stuck with even more bad debt.
"The probability of more people going into default is higher, so the banks are going to have a tough time," she said.
As a solution to some of the banking system's woes, Whitney said the government should focus less on ever-changing rescue plans and instead start helping smaller institutions ramp up their community lending to local businesses and homeowners.
"You can re-energize the local lending scene and then supercharge those banks," she said. "You supercharge those so they're able to gain critical mass and start getting loans on a super-regional basis to businesses, to homeowners that qualify. At least that mitigates some of the capital that's surely going to come out of the market."
Whitney predicted that some of the largest institutions will be remade this year in a way not seen before. Those mergers and acquisitions will see companies come together to create unique syynergies--she used a blending of Citi and American Express as a hypothetical case where one business' strength could compensate for another's weakness.
"You're going to have some growth vehicles that come out of it but they're not going to look anything like today's version of these gobbledygook banks," she said.
In addition to the natural activity that will take place, Whitney said banks also will need help from Washginton. She urged policy makers above all to be consistent.
"Any game that you want to plan as a corporation, the rules are changing all the time," she said. "You can't function as a business operator if the rules are changing."
Displaying leadership and managing expectations will be the key.
"They need to show leadership by saying, 'OK, what's the world going to look like in five years?' and look backwards from that," Whitney said. "In five years you know that the big banks are going to have a lot less control and power than they have now. We have to disaggregate, dislodge that market share dominated by five main players."
"Let's invigorate and supercharge some of the smaller players to get them to a medium-enough size so they can start making loans and they can start moving the needle."
And she called on government leaders to harness the American spirit to rebuild the economy, similar to the way so many people come together to wear the color of the Irish on St. Patrick's Day.
"There's a spirit that can't be dislodge by the economic turmoil," she said. "Now is a great opportunity to capture that spirit as opposed to set expectations too high which is what (Treasury Secretary Timothy) Geithner did with the original plan and then just disappoint. People will give you the benefit of the doubt until you keep disappointing them."
Problems with Credit Cards and Commercial real estate still await us.
Washington may be too understaffed to handle fixing the financial crisis. Two minute clip.
Mar 17, 2009 at 2:36 PM
Reader Comments (20)
March 17 (Bloomberg) -- Grupo Financiero Banamex SA, the Mexican unit of Citigroup Inc., contributed 11 percent to its parent’s total sales in 2008 after doubling profits the previous six years. The good times for Banamex and its Mexican rivals may be ending, according to Fitch Ratings.
“The party for the Mexican banks is over,” said Peter Shaw, an analyst at Fitch in New York. “Profit will not be the same as the last two or three years.”
Mexican lawmakers and bankers meet this week in Acapulco at an annual banking conference amid mounting speculation revenue from the local units of international lenders is set to tumble as Latin America’s second-largest economy shrinks.
March 17 (Bloomberg) -- Coca-Cola Co. is fleeing commercial paper for the safety of long-term bonds.
The world’s largest soft-drink maker joins a growing number of borrowers reducing their dependence on the debt this year as the market sinks to its lowest since seizing up after Lehman Brothers Holdings Inc. collapsed in September.
Coca-Cola, health-insurer WellPoint Inc. and more than 30 other companies are issuing bonds and using the proceeds to repay their short-term IOUs, according to data compiled by Bloomberg. The amount of commercial paper outstanding shrank 16 percent since Jan. 7 to $1.48 trillion last week and daily issuance dropped to a four-year low, according to the Federal Reserve.
Please say it isn't so. Will someone rise to challenge this idiot.
March 17 (Bloomberg) -- This is a bulletin for those following Governor Sarah Palin’s meteoric political career, from mayor of a small Alaskan town to vice presidential candidate. In January, Palin formed SarahPac, which allows her to travel the country on unofficial business. Last week, the Draft Sarah Palin 2012 Committee held its first fundraising event and signed up 40 organizers and 100 volunteers. In June, she will headline the biggest Republican fundraiser of the year.
Palin says she isn’t running for president, but that if God should open the door to the White House, she will prayerfully pass through. With a dearth of Republican talent and party leadership up for grabs, Palin remains a hot commodity. In one recent Rasmussen Reports poll, 55 percent of Republican voters wanted their party to become more like Palin.
Very interesting. Spitzer's starting to make noise again.
By ELLIOT SPITZER
The Real AIG Scandal It's not the bonuses. It's that AIG's counterparties are getting paid back in full.
Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?
For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.
http://briefingroom.thehill.com/2009/03/17/bunning-on-bernankes-60-minutes-sit-down-ugggghh/
Sen. Jim Bunning (R-Ky.) continued his streak of weekly conference calls with Kentucky repporters in which the endangered incumbent proves himself unafraid to speak his mind, this week going after CBS news.
Bunning saved some words for Federal Reserve Chairman Ben Bernanke's interview with "60 Minutes" on Sunday.
"If I see one more puff piece on Ben Bernanke — ugggh," the Kentucky senator groaned with disgust. "Well what do you expect out of 60 minutes and CBS news? When somebody's in trouble, they prop 'em up."
Bunning wryly suggested that his political fortunes must also be doing well, considering he hasn't been interviewed by the CBS newsmagazine lately.
"By the way, they haven't come to see me lately — I guess they don't think I need propping up," he added.
Bunning said that the Secretary of the Treasury — both Tim Geithner and his predecessor, Henry Paulson — should be held accountable for the poor management of aid to AIG, resulting in the controversial bonuses at the company.
Short animated bailout comedy video.
The Leprechaun Bailout.
Very well done.
Reuters via CNBC.
By: Reuters | 17 Mar 2009 | 12:15 PM ET
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The Federal Deposit Insurance Corp said Tuesday it is phasing out a program to guarantee certain bank debt and approved surcharges to replenish the agency's deposit insurance fund until the program ends.
It also voted to extend the debt portion of the voluntary Temporary Liquidity Guarantee Program (TLGP) by four months.
The surcharges, ranging from 10 to 50 basis points, would be targeted at institutions that take advantage of the extension of the program.
"The TLGP has been effective in improving short-term and intermediate-term funding for banking organizations, but liquidity in financial markets has not returned to pre-crisis levels," FDIC Chairman Sheila Bair said.
For the record, Albert is a buddy and he reads The Daily Bail and WE were the first to jokingly suggest sending financial execs to Guantanamo Bay. Yesterday.
Nice, angry editorial from Albert Bozzo.
Declare War On Greed—It Worked With Terror:
If the terror attacks of 9/11 represented a life-threatening blow to the American system, then we should certainly consider placing the current economic crisis in the same category.
This will allow the President to declare a war on greed, much like his predecessor did with terrorism , and help us solve all sorts of problems, starting with the financial wizards at AIG [AIG 0.9231 0.0931 (+11.22%) ] whose exorbitant bonuses are driving the country to madness, if not vengeance.
Forget about contract law, threats or moral persuasion. The war approach would allow President Obama, our commander in chief, to order people deemed to be dangerous captured and held without trial. They can sit in Guantanamo Bay and think about it.
Hedge Fund Manager John Paulson goes long gold.
Congress is pushing hard for the reinstatement of the uptick rule.
Good. Hurry up and do it. Then watch how it doesn't help.
It will create huge headaches to implement and will not cure the market. The problem is not short sellers. The problem is shrinking profits.
Senators Push for Rule Against Short Sales
By DIANA GOLOBAY
March 17, 2009 12:23 PM CST
Sen. Ted Kaufman, D-Del., in his first bill proposal since being sworn in to Congress in mid-January, submitted to the Securities and Exchange Commission on Monday a bipartisan legislation that aims to reinstate the so-called “uptick rule” that prohibited short sales from the Depression era until its repeal in mid-2007. “Abusive short selling is tantamount to fraud and market manipulation and must be stopped – now,” Kaufman said on the Senate floor late Monday. “The uptick rule should have never been repealed. To permit people to sell shares they don’t have and won’t be able to deliver turns investment into pure speculation. The time has come for this practice to stop.”
He was joined in the effort by Sen. Johnny Isakson, R-Ga., who announced Tuesday his co-sponsorship of the bill and who said he has since last fall been calling for reinstatement of the rule.
“Senator Kaufman has introduced a piece of legislation that is right for America, it is right for America’s investors, and it is right for our stock market as it still languishes today somewhere down near what we hope is the bottom,” Isakson said during a speech on the Senate floor. “One way to ensure that bottom exists is to stop rewarding those who would feed off of it and instead reinstate good discipline that ensures good practices and allows the market to restore itself back to a good equilibrium.”
http://blogs.abcnews.com/politicalpunch/2009/03/gop-senator-aig.html
GOP Senator: AIG Execs Should Follow Japanese Model -- Suicide or Apology
March 16, 2009 7:55 PM
In an interview with Cedar Rapids, Iowa, radio station WMT-AM today, Sen. Chuck Grassley, R-Iowa, ranking Republican on the Senate Finance Committee, said executives of AIG should consider following what he described of the Japanese model of shamed corporate executives: apology or suicide.
"The attitude of these corporate executives and bank executives, and most of them are in New York, that somehow they're not responsible for their company going into the tank," he said.
"I suggest, you know, obviously maybe they ought to be removed, but I would suggest that the first thing that would make me feel a little bit better towards them [is] if they would follow the Japanese example and come before the American people and take that deep bow and say I'm sorry and then either do one of two things: resign or go commit suicide."
Grassley added, "In the case of the Japanese, they usually commit suicide before they make any apology."
Spanish doldrums
I’m in Yurp for a week, spending some time on other peoples’ problems (although in a way it’s all part of the same problem.) And one has to say that Europe has gotten itself into one heck of a mess, worse even than ours — because they have intractable adjustment problems on top of the general crisis.
The poster child for these adjustment problems is Spain, where I’m currently sitting.
For much of the past decade, Spain had a huge construction boom, financed by vast inflows of capital:
FASB Acts!
By LINDA LOWELL
March 17, 2009 2:57 PM CST
At last week’s House hearing on mark-to-market accounting, representatives from both sides of the aisle blamed accounting standards for skewering bank balance sheets and demanded, as Congressman Paul Kanjorski (D-PA) put it, that “the Financial Accounting Standards Board and the Securities and Exchange Commission to do the jobs they are required to do. Emergency situations require expeditious action, not academic treatises. They must act quickly.”
The most irate committee members asserted that, if FASB didn’t act, Congress would. That was Thursday, March 12, and FASB did not call their bluff. By end of day Friday the 13th, FASB had sent notice it would be discussing fair value measurement and other-than-temporary-impairment first thing March 16 (yesterday morning).
http://www.law.com/jsp/article.jsp?id=1202429132330
In the first ruling of its kind, a bankruptcy judge held the city of Vallejo, Calif. has the authority to void its existing union contracts in its effort to reorganize, holding public workers do not enjoy the same protections Congress gave union workers at private companies.
Municipal bankruptcy is so rare that no judge had yet ruled on whether Congressional reforms in the 1990s that required companies to provide worker protections before attempting to dissolve union contracts also applied to public workers' union contracts
Decisions made during the final months of the Bush administration created an environment in which the most politically connected investment banks, Goldman Sachs and Morgan Stanley, not only flourished, but saw their competitors laid waste, with firms like Lehman in bankruptcy, and others, like Merrill Lynch and Bank of America, forced to merge in desperate hope of surviving.
Two recent news stories raise some interesting questions about Goldman Sachs. In the opaque world of investment banking and federal regulation, these reports shed light on the difficulty of determining where to draw the line between routine complex financial transactions and problematic conflict of interest and favoritism.
By ROBERT REICH
The real scandal of AIG isn't just that American taxpayers have so far committed $170 billion to the giant insurer because it is thought to be too big to fail -- the most money ever funneled to a single company by a government since the dawn of capitalism -- nor even that AIG's notoriously failing executives, at the very unit responsible for the catastrophic credit-default swaps at the very center of the debacle -- are planning to give themselves $100 million in bonuses. It's that even at this late date, even in a new administration dedicated to doing it all differently, Americans still have so little say over what is happening with our money.
This week in political cartoons.
So was I.