1/11/13…banking on it!

From The Friars Club Encyclopedia of Jokes: “Sign above a bank teller’s station: To err is human, to forgive isw not bank policy.” And…

“The banks have a new image. Now you have a ‘friend.’ Your friendly banker. If the banks are so friendly , how come they chain down the pens?” Ka-ching!

Bloomberg Quote of the Day: “I have not failed. I’ve just found 10,000 ways that won’t work.”  – Thomas A. Edison

Bloomberg Top Stories:

*Wells Fargo Reports Record Fourth-Quarter Profit as Bank Expands Mortgages

*Trade Deficit in U.S. Unexpectedly Widens on Pre-Holiday Surge in Imports

*Commodities Fall as China Inflation Quickens While Europe Stocks Pare Drop

*Bondholders in Crosshairs as Merkel Travels to Cyprus Amid Bailout Talks

*American Express Cuts 5,400 Jobs as Technology Transforms Travel business – !!!

 *Euribor Maturities to Be Pruned in EU Step to Restore Trust in Benchmark

*Best Buy U.S. Holiday Sales Halt Drop, Bolstering Schulze’s Takeover Bid

*Bankers’ Bonus Limit Proposal Won’t Be Scrapped, Leading EU Lawmaker Says

*Central-Bank Ties to Stocks Gains Seen Affirmed in Japan – permanent gains? Uh no!

*London’s Wealthiest Homebuyers Undeterred by Tax Rise on Luxury Properties – another Tea Party myth debunked…history shows this is true everywhere: for wealthy!

*Condos to Casinos Replace Newsrooms as U.S. Papers Put Properties on Block – jobs?

*Boeing 787 Dreamliner Faces Extensive FAA Probe After Japan Airlines Fire

*Obama Tees Up Second-Term Cabinet That So Far Leaves Women Awaiting Turn

*Osborne Hardens Threat of U.K. Exit From Europe, Saying Union Must Change

*Flu Spread in U.S. Opens Hospital Wings as Patients Flood Emergency Rooms     

Two up sessions that negated the two down days with the Dow closing at its highest since  October 18th! All indices were up led by NYSE Financials which posted a 1.2% gain – BofA wa most active stock gaining 3.1%! Total NYSE volume rose again to 4.06B shares vs 3.63B – highest of the last six trading days and a solid number just shy of the 4.2B share day on January 2nd! Trades executed on the floor of the NYSE also rose but to a still weak 727M shares vs 672M also highest since January 2nd’s 859M shares. Advance/declines and Breadth were moderately positive at about +1.9x/+3.4x on NYSE and +1.4x/+2.3x on Nasdaq. New 52 week highs hit 713 on Jan. 2 and rose yesterday to 486 vs 440 vs 314 vs 316 vs 428 vs 437 while new lows finally rose to a weak 20 from 12. After closing at 22.70 on 12/28, the S&P VIX volatility measurement was little changed at a near 12-month low (13.32 on 8/17) slipping to 13.49 -.32.

Global stocks missed after two up days with modest changes except Japan +1.4% . U.S. stock futures also little changed trading in a narrow range overnight: DOW -9; SPX -0.90; ND! -0.75..

The bond market closed slightly weaker yesterday and is slightly weaker overnight. The 10 yr note is 1.92% vs 1.90%, and the 30 yr 3.10% vs 3.10% – well above the old 3% high set on 12/18! TIPS steady at 0.45% vs 0.45% – but back from the 0.22% record low set on 12/6! Reverse Repo rate continues to be a low 0.17%! Libor is starting to slip at 0.304%, 3 months, and 0.496% six months. Foreign bond rates are mixed again with Germany, U.K., and France slightly higher while submerging markets FELL yet again : Italy 4.08% -6; Spain 4.81 -6; Portugal 6.01% -9; Greece steady at 11.52%.

Gold staged a rally to $1678.00 + $22.50, finally ending the string of four straight days below the 200 day m’a with huge resistance remaining at $1700! The $1636 low on 12/21 – lowest since 8/21 is critical support. It is still weak at $1672.70 -$5.30. Crude up slightly  for a fifth day after breaking above $92 on 1/2, closing at $93.82 +.72 – but the highest close since Sept. 18! Support at the 40/50 day (88.78/88.21) and the 200 day: $91.50. Overnight it is weaker at $96.21 -.61.

…there is so much hype about banks that TB decided to lead off with it. Wells Fargo reported record 4th quarter earnings today…but that ignoes ‘one-time charges’ of about $2.5 billion…or halving the results. What kind of fools do they think we are? Also, do you really believe that this is the end to those charges?…or the stupidity of JPM which lost $5 billion in the first quarter due to bad London trades.

Bank of America has become the poster child of bad banking. The acquisition of Countrywide Financial and Merrill Lynch has cost it over $40 billion! This is not the first time this bank (the old, real, BofA founded by A.P. Gianinni) has blundered.

The first was in the 1980’s when interest rates soared and BofA was saddled with underwater…seriously underwater mortgages as they borrowed short and lent long. The bank cannot be entirely be blamed for this as they had the best customer base of any large bank in the country both in demand deposits and savings. Thus they had little ‘hot money’ to deal with as the other banks did. Not only that but they had huge excess reserves – at low cost – and were constantly a net seller of these in the Fed Funds market.

They survived this and a failed attempt to buy First Interstate (formerly Western Bancorporation and part of A.P.’s dream of BofA from coast to coast…it was subsequently acquired by Wells in a brilliant move as was their previous acquisition of Crocker Bank). But they were then acquired by the tenacious Nation’s Bank which initially allowed them some autonomy. That ended with a $1.4B loan (huge at the time – 1998 and turned by the collapse of Long Term Capital Mismanagement) to D.E. Shaw that was made by the then-CEO David Coulter acting alone. Coulter lost his job and Nations exerted its control over the bank which had been a leader in promoting women while Nations was an almost all-male bank.

Then came CEO Ken Lewis of the old Nations Bank who bought Countrywide as some have said ‘to increase the size of the bank at a big cost to shareholders.’ At the time, since Countrywide stock had fallen so far, it was considered a bargain. BofA had two weeks to examine the loan portfolio and claimed that they had done so looking at every loan on the books…a physical and practical impossibility in such a short time. THEN when their auditors examined the books they found huge numbers of bad loans made to people who couldn’t afford the payments!

Countrywide was the baby of Angelo Mozillo who as founder and CEO much in the manner of Enron’s Ken Lay and Jeffry Skilling touted the stock while selling off his own shares…causing TB to wonder what the point of Sarbanes-Oxley was because if there ever was a case for invoking it this was it! Instead he was investigated by the SEC who rather than file criminal charges (on the one man who knew the true condition of the company), they fined him In the 12 months ending in August 2007 he sold over $120 million of his stock while he had a total holding of over $400 million! Fraud? Certainly more than what Martha Stewart was convicted of!  Mozillo settled with the SEC in Oct. 2010 for a reported $67.5 million…another example where the fine still made the trades profitable! Why wasn’t he prosecuted? One reason was that several members of Congress and their relatives received favorable loan rates…we couldn’t have that come out.

The point is that despite the corruption of the big banks…JPMorganChase comes to mind as it has been fined for defrauding municipalities, a mutual fund, and various other organizations it has dealt with…and the perps remain and receive big bonuses. Jamie Dimon even had the unmitigated gall to lead the charge against banking reform. He challenged Elizabeth Warren and won that battle…but now that she is a Senator assigned to the Banking Committee things could change…or not.

So keep all this in mind…along with the pittance that is called a dividend by these beloved banks…before you buy into the hype of how great they are. They had a great run from the lows…leading all stocks…but can that continue? Time will tell.

Yesterday, TB commented on Jack Lew being nominated for Treasury Secretary. It was not directed against his competence but how the Senate will react to Obama’s chief of staff getting the nod. He is well qualified…in all areas except international banking, but that should not be major problem. He is also likable as opposed to Geithner who is abrasive and not a consensus builder. TB was opposed to Geithner but given the crisis and the problems therein…and with no book to turn to…he did an adequate or better job. In fact, former Fed Vice Chairman, lauded his performance in an extremely tough environment…although criticizing him for his lack of restraint in dealing with Congress. Hard to blame anyone for that though!  He was also critical of his handling of the mortgage crisis where almost the entire focus was on the big banks at the expense of the borrowers which resulted in horrible violations of law that the banks are now being fined for and money is being returned to those who were foreclosed on illegally. Once again though, the amounts are puny in relation to the profits to the banks and the losses to individuals. Don’t forget that it was the borrowers who caused CNBC reporter Rick Santelli to scream out on the Chicago Board of Trade: “who here wants to pay for someone else’s mortgage?” The damage caused by that single outburst cannot be overstated…it was as if all borrowers who couldn’t pay were flakes…despite most losing their jobs and the fact that it was the loan originators NOT the borrowers who for the most part falsified data…and if anyone had seriously checked they would have been refused anyway. That is what happens when you are merely originating a loan to sell, not hold. Oh, and who was the largest originator of subprime loans? Wells Fargo Mortgage. Meanwhile the bank did not hold a single subprime mortgage on its books…their loss came from the very profitable home equity and unsecured portion of the loans which they had assumed would be refied away….and they were…until they couldn’t be!

Have a great day!


. . .  – – –  . . . (SOS!)  . . .   – – –  . . .  (SOS!) . . .   – – –  . . .  (SOS!)


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