When is the banking system going reboot? Start listening below at 10:40 to about 12:45 (or the whole thing if you want to hear how the Justice Department should take the bad banks down), then read on...
From American Banker:
'Yet Another Bank': One week after New York Attorney General Eric Schneiderman filed a civil case against JPMorgan Chase alleging fraud in how Bear Stearns packaged and sold mortgage-backed securities, Wells Fargo finds itself being sued by the government for nearly a decade's worth of "reckless" mortgage lending. U.S. prosecutors (not affiliated with Schneiderman's mortgage task force, though he has promised more suits are on the way) are seeking "hundreds of millions of dollars" in civil damages from the bank on behalf of the Federal Housing Administration, alleging Wells "made false certifications" about the condition of their mortgage loans so that the government agency would insure them. FHA then had to foot the bill when the bank's alleged "mortgage factory" — Dealbook's interpretation of the complaint — output went belly up. "Yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," United States attorney in Manhattan Preet Bharara said in a (perhaps obvious) statement.
The Times notes the lawsuits are being filed amidst public criticism of the Justice Department's lack of actual criminal action against banks and their executives regarding the housing boom.
Get the f2*k out of here! Really!!!???
Meanwhile, the Post notes the case is particularly problematic for Wells, which "has been hit with a series of civil actions" related to its mortgage business in recent years (and we would add, unlike JPMorgan, can't blame Bear Stearns for its latest problem). The bank is denying the most recent allegations, saying it acted in "good faith and in compliance" with federal rules.
This stress is real, and is already causing losses in the condo construction and sales markets, retail malls and now office buildings. Please see my primer and series on the Commercial Real Estate Crash and ongoing series of financial shenanigans and excessive debt issues of General Growth Properties for additional information.
Sizeable Real Estate loans exposure in troubled markets: Wells Fargo had $148 bn loan in 1-4 Family Mortgages (WFC has a high correlation to industry-wide losses) which represented nearly 38% of the banks’ total loan. Out of these loans nearly 51% comprised junior lien mortgage loans (much higher probability of total loss and no recovery). After C&D loans, real estate loans have highest NPAs as proportion of total loans. In 4Q2007, real estate 1-4 family first mortgage NPAs to total loans stood at nearly 1.91% of total loans with total NPAs of $1.4 bn. In terms of geographic exposure, real estate loans from California and Florida comprised 33% and 4% of total real estate loans (i.e 13% and 2% of WFC’s total loan portfolio).
This research and more is available to all paying subscribers here, with a full set of charts, tables and graphics: WFC 1Q10_Review. Pro subscribers can also reference the full forensic report here: WFC Investment Note 22 May 09 - Pro. Retail subscribers should access it through the subscription content link in the main menu, under commercial and investment banks.
The latest Q2 qualitative observations for JPM are now available for all paying subscribers to download: JPM June 20 2012 Observations. This document contains a few interesting tidbits that, of course, you will get from nowhere else. For instance, did you know that the Q1 2012 financial results have many hidden secrets? We have looked at the Bank’s Q1 2012 financial results and have the following observations:
- The Bank reported Q1 2012 revenues of $26.7 billion , an increase of $1.5 billion , or 6% , from the prior-year quarter. That sounds decent for a big bank in tough recessionary times, eh? However, the increase was primarily driven by a $1.1 billion benefit from the Washington Mutual bankruptcy settlement. Excluding this benefit, the revenues were almost the same as that in Q1 2011. With flat revenues like these, just imagine what could happen to the bottom line when a multi-billion dollar trading loss occurs.
- The Bank had booked a loss on fair value adjustment of Mortgage Service Rights (MSR) in Q1 2011 of $1.1 billion. Hey, you know they just don't make those ephemeral, totally contrived 2nd order derivative products like they used to, eh?
Excluding the effect of the MSR loss along with the impact of gain from Washington Mutual bankruptcy, the bank’s Q1 2012 revenues actually decreased compared to Q1 2011.
Combine these secrets, derivative trading (oops, I mean hedging) losses and that bland ZIRP sauce that sucks profits in an increasingly expensive compensation landscape and you'll get one hell of a safe return for your 401k, right Mr Bove, et. al.?
From the 2009 BoomBustBlog "I told you so" archives...
To wit regarding JP Morgan, on September 18th 2009 I penned the only true Independent Look into JP Morgan that I know of. It went a little something like this:
Click graph to enlarge
Cute graphic above, eh? There is plenty of this in the public preview. When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM's derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 35.4% while the same stood at 17.0% for Bear Stearns (February 2008) and 9.2% for Lehman (May 2008). We all know what happened to Bear Stearns and Lehman Brothers, don't we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know who". Now, I am not saying JPM is about to collapse, since it is one of the anointed ones chosen by the government and guaranteed not to fail - unlike Bear Stearns and Lehman Brothers, and it is (after all) investment grade rated. Who would you put your faith in, the big ratings agencies or your favorite blogger? Then again, if it acts like a duck, walks like a duck, and quacks like a duck, is it a chicken??? I'll leave the rest up for my readers to decide.
This public preview is the culmination of several investigative posts that I have made that have led me to look more closely into the big money center banks. It all started with a hunch that JPM wasn't marking their WaMu portfolio acquisition accurately to market prices (see Is JP Morgan Taking Realistic Marks on its WaMu Portfolio Purchase? Doubtful! ), which would very well have rendered them insolvent...
... You can download the public preview here. If you find it to be of interest or insightful, feel free to distribute it (intact) as you wish. JPM Public Excerpt of Forensic Analysis Subscription 2009-09-18 00:56:22 488.64 Kb
Recent Articles on JPM
In the meantime and in between time, here's a subscription dump of our archives for JPM to placate the insatiable thirst of the BoomBustBlog paid subscriber: