Infinite Unknown

Pedestrians are reflected in the window of a Citibank branch in Hong Kong’s financial Central District November 18, 2008. REUTERS/Bobby Yip

(Reuters) - The U.S. financial system still needs at least $1 trillion to $1.2 trillion of tangible common equity to restore confidence and improve liquidity in the credit markets, Friedman Billings Ramsey analyst Paul Miller said.

Eight financial companies — Citigroup Inc, Morgan Stanley, Goldman Sachs Group Inc, Wells Fargo & Co, JPMorgan Chase & Co, American International Group Inc, Bank of America Corp and GE Financial — are in greatest need of capital, he said.

“Debt or TARP capital is not true capital. Long-term debt financing is not the solution. Only injections of true tangible common equity will solve the current crisis,” he said in a note dated November 19.

Currently, the U.S. financial system has $37 trillion of debt outstanding, he noted.

Combined, these eight companies have roughly $12.2 trillion of assets and only $406 billion of tangible common capital, or just 3.4 percent, the analyst said in his note to clients.

Miller said these institutions need somewhere between $1 trillion and $1.2trillion of capital to put their balance sheets back on solid ground and begin to extend credit again, given their dependence on short-term funding and the illiquid nature of their asset bases.

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Tags: AIG, Bank of America, Banks, Citigroup, debt, Economy, financial crisis, Goldman Sachs, Government, JPMorgan, Liquidity, Morgan Stanley, Politics, U.S., Wall Street, Wells Fargo & Co.

(Recasts; adds Thain comments, share prices, byline)

NEW YORK, Nov 11 (Reuters) - Merrill Lynch & Co (MER.N: Quote, Profile, Research, Stock Buzz) Chief Executive John Thain said the global economy is in a deep slowdown and will not recover quickly, and the environment recalls 1929, the advent of the Great Depression.

Speaking Tuesday at his bank’s annual financial services conference, Thain said he was “cautiously optimistic” about the outlook for the industry. But he said credit remains constricted and asset prices generally are still falling.

“The U.S. economy is contracting very rapidly,” creating uncertainty “at least over the next few quarters,” Thain said. “We are going to be in a very difficult economic environment for a significant period of time.”

Conditions deteriorated as the U.S. housing market collapse mushroomed into a more general crisis of confidence.

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Tags: Bank of America, Economy, financial crisis, Great Depression, Merrill Lynch, Recession, Stock Market, U.S., Wall Street

Traders work on the floor of the New York Stock Exchange in New York, Nov. 5, 2008. Photographer: Ramin Talaie/Bloomberg News

Nov. 5 (Bloomberg) — The stock market posted its biggest plunge following a presidential election as reports on jobs and service industries stoked concern the economy will worsen even as President-elect Barack Obama tries to stimulate growth.

Citigroup Inc. tumbled 14 percent and Bank of America Corp. lost 11 percent as the Standard & Poor’s 500 Index and Dow Jones Industrial Average sank more than 5 percent. Nucor Corp., the largest U.S.-based steel producer, slid 10 percent after bigger rival ArcelorMittal doubled production cuts amid slowing demand. Boeing Co., the world’s second-largest commercial planemaker, lost 6.9 percent after UBS AG forecast a 3 percent drop in global air traffic next year.

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Tags: Bank of America, Citigroup, Credit Crisis, credit crunch, Economy, financial crisis, mortgage crisis, Mortgages, Recession, S&P 500, Standard & Poor's, Stock Market, U.S., Unemployment, Wall Street

Oct. 27 (Bloomberg) — Five straight quarters of losses and a 70 percent slide in its stock this year haven’t stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.

Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.

The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won’t deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.

“Critical producers and critical managers will be retained with the same bonus they had last year,” said Robert Sloan, head of U.S. financial-services recruiting at Egon Zehnder International, a New York-based executive-search firm. “The others will see sharp cuts.”

Goldman, the biggest and most profitable Wall Street firm until it opted to become a bank holding company last month, has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee, down 32 percent from $339,400 a year ago. Morgan Stanley, the second-biggest securities firm until it also converted to a bank, has $6.44 billion for bonuses, or $138,700 per person, down 20 percent from last year. Both firms accrue a fixed percentage of their revenue for compensation, so the decline in bonus pools matches the drop in revenue.

Merrill’s Compensation

The money Merrill has set aside for bonuses equates to an average $110,000 for each of its 60,900 people, up from $108,000 a year ago because more than 3,000 jobs have been cut.

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Tags: Bank of America, Banks, Economy, financial crisis, Goldman Sachs, JPMorgan, Merrill Lynch, Morgan Stanley, Stock Market, U.S., Wall Street

Oct. 25 (Bloomberg) — Alpha Bank & Trust in Alpharetta, Georgia, with $346 million in deposits, was seized by regulators and closed as the collapse of the housing market and loan defaults claimed a 16th U.S. bank this year.

Alpha, with $354 million in assets, was shut by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corp. sold the deposits to Stearns Bank N.A., of St. Cloud, Minnesota. Alpha’s two offices north of Atlanta will open on Oct. 27 as branches of Stearns Bank, the FDIC said yesterday.

Regulators have closed the most banks in 15 years, and the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. were among the biggest in history. About 4.4 percent of Alpha’s assets were defaulted real-estate loans it took back on its balance sheet, quadruple the total for most U.S. banks, based on data compiled by Charlottesville, Virginia-based SNL Financial.

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Tags: Bank of America, Banks, Bear Stearns, Citigroup, Economy, FDIC, Goldman Sachs, JPMorgan, Merrill Lynch, Morgan Stanley, Treasury, Washington Mutual, Wells Fargo & Co.

Related article: Banks Hoard Cash as Credit Card Defaults Rise

“We have to be prepared that it gets a lot worse,” J.P. Morgan chief executive Jamie Dimon said about the overall economic outlook.
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Oct. 21 (Bloomberg) — Bank of America Corp., the largest U.S. consumer bank, lost money in its credit-card unit for the first time since its January 2006 purchase of MBNA Corp. as more borrowers missed payments amid the slowing economy.

Card services, which includes unsecured loans, lost $373 million in the third quarter, compared with a profit of $1.04 billion in the same period last year, the Charlotte, North Carolina-based company said today in a regulatory filing. Defaults on cards, consumer loans and home mortgages contributed to a 47 percent decline in operating profit at the consumer and small-business division.

Bank of America provided more details on its third-quarter results today, two weeks after reporting a 68 percent decline in profit. Those earnings, released early as the bank announced plans to raise $10 billion by selling common shares, were worse than analysts expected. The world’s biggest financial companies have disclosed $661 billion in losses and raised $634 billion in fresh capital.

“Credit cards have typically been among the most profitable parts of Bank of America’s business,” said Jim Campen, executive director of Americans for Fairness in Lending, a Boston-based nonprofit that studies the credit card industry. “As we enter the biggest financial crisis since the Great Depression, more people aren’t going to be able to pay their credit cards.”

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Tags: Bank of America, Banks, Credit Card, Economy, financial crisis, Stock Market, U.S., Wall Street

Oct. 20 (Bloomberg) — Merrill Lynch & Co. Chief Executive Officer John Thain said he expects “thousands” of job losses from the bank’s $50 billion takeover by Bank of America Corp.

Most of the cuts will fall in information technology, operations and “corporate functions,” Thain, 53, said in a Bloomberg Television interview in Dubai today. Jobs in the fixed income and commodities divisions won’t be eliminated after the deal, he said.

“We haven’t mapped it out in terms of actual number of people, but we are committed to saving $7 billion across the combined platforms, and that will be a challenge,” Thain said. “Between our two companies it will be clearly thousands of jobs.”

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Tags: Bank of America, Banks, Economy, FDIC, Fed, Federal Reserve, Merrill Lynch, mortgage crisis, Mortgages, Recession, Stock Market, Treasury, U.S., Unemployment, Wall Street

America’s leading banks continued to announce hefty losses yesterday as Citigroup reported a further writedown of more than $13 billion (£7.5 billion) for the third quarter and Merrill Lynch took another $9.5 billion hit.

The latest writedowns brought Citigroup’s total hit from the credit crunch to about $60 billion and left it with an overall group loss, of $2.8 billion, for the fourth consecutive quarter.

Merrill Lynch, which has clocked up about $50 billion of credit-crunch related charges, reported its fifth consecutive quarterly group loss, of $5.15 billion, for the third quarter. The group agreed a fire sale to Bank of America last month to boost its capital reserves.

Citigroup’s loss was larger than the $2.2 billion deficit the bank recorded the year before, but considerably smaller than the $3.8 billion loss analysts had collectively forecast for the period. Group revenues fell 23 per cent to $16.7 billion.

Although Citigroup’s results came in ahead of expectations, analysts were concerned that they provided further evidence that the financial crisis was spreading from Wall Street to Main Street.

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Tags: Bank of America, Banks, Citigroup, Credit Crisis, credit crunch, Economy, financial crisis, Merrill Lynch, mortgage crisis, Mortgages, Stock Market, Wall Street

Oct. 15 (Bloomberg) — JPMorgan Chase & Co., the largest U.S. bank by market value, said third-quarter profit fell 84 percent on about $5.8 billion of writedowns, losses and credit provisions.

Net income dropped to $527 million, or 11 cents a share, from $3.4 billion, or 97 cents, a year earlier, the New York- based bank said today in a statement. Shares of the company rose as earnings beat the 18-cent loss analysts predicted on average in a survey by Bloomberg.

JPMorgan took $18.8 billion of writedowns and credit costs before today, less than a third of what Wachovia Corp. and Citigroup Inc. reported. Chief Executive Officer Jamie Dimon has capitalized on the market crisis by taking over Bear Stearns Cos. and Washington Mutual Inc. as they collapsed earlier this year. JPMorgan will get $25 billion from the U.S. government under a bank rescue plan announced yesterday.

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Tags: Bank of America, Banks, Citigroup, Credit Crisis, credit crunch, Economy, Goldma, JPMorgan, Morgan Stanley, mortgage crisis, Mortgages, Stock Market, Wall Street, Washington Mutual, Wells Fargo & Co.

Treasury Chief Says Banks Must Deploy New Capital

Treasury Secretary Henry M. Paulson Jr., speaking in Washington on Tuesday morning, described the government’s bailout as “extensive, powerful and transformative.” The Federal Reserve chairman, Ben S. Bernanke, is at right.

WASHINGTON - Describing the government’s financial bailout plan as “extensive, powerful and transformative,” Treasury Secretary Henry M. Paulson Jr. said on Tuesday that the injection of $250 billion into the nation’s banks was needed to restore confidence and avoid a collapse of the financial system.

Speaking shortly after President Bush used similar terms to describe the proposal, Mr. Paulson said the Treasury would make $250 billion available to banks to help recapitalize those banks and to get them lending again, among themselves and to businesses and consumers.

“The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” Mr. Paulson said, who offered some details of the plan along with the Federal Reserve chairman, Ben S. Bernanke, and the chairman of the Federal Deposit Insurance Corporation, Sheila C. Bair.

With the proposal, the United States follows similar plans announced Monday across Europe - almost all intended to inject money into the banks and unfreeze the credit markets. Markets around the world have rebounded on news of the coordinated efforts. The Dow Jones industrial average gained 936 points, or 11 percent on Monday, the largest single-day gain in the American stock market since the 1930s, and gained more than 300 points more in the opening minutes of trading on Tuesday. European markets were up at least 5 percent on Tuesday after rising nearing 10 percent Monday. Continue reading »

Tags: bailout, Bank of America, Banks, Ben Bernanke, Citigroup, Economy, FDIC, Fed, Federal Reserve, financial crisis, George Bush, Government, Henry Paulson, JPMorgan, Merrill Lynch, Politics, Stock Market, taxpayers, Treasury, Wall Street