After Citi, is Bank of America Next?
November 28th, 2008Via: Reuters:
A government rescue plan has eased investors’ concerns about Citigroup Inc, but mines lurking in the balance sheets of rivals including Bank of America Corp could still tempt short-sellers.
Bank of America, the No. 3 U.S. bank by assets, has loaded up on mortgages as the world’s largest economy wrestles with the worst housing market since the Great Depression.
The Charlotte, North Carolina-based bank further heightened its exposure to home loans by acquiring Countrywide Financial Corp, the largest U.S. independent mortgage lender and agreeing to buy Merrill Lynch & Co, which owns the world’s largest retail brokerage.
If losses on mortgages and other debt securities mount significantly, the bank may see the ratio of equity to risk-weighted assets, known as Tier-1 capital, dwindle to alarmingly low levels.
“I would expect there are more banks who are in dire straits and more who can expect to be helped,” said Michael Farr, president of investment management company Farr, Miller & Washington in Washington, D.C. “The share price makes it look like Bank of America might be next in line,” he said.
Before Monday’s stock market rally, Bank of America shares had lost 52 percent in November alone, making them the second biggest decliner for the month in the KBW Banks index after Citigroup.
Analysts at independent research company CreditSights forecast that in a scenario where the commercial and residential real estate markets really tank beyond banks’ expectations, Bank of America would have a Tier-1 capital ratio of 7.15 percent.
The minimum that regulators seek to consider a bank “well capitalized” is 6 percent, but any ratio near or below 7 percent tends to spook investors.
Bank of America declined comment.
…
Bank of America, through its acquisition of Countrywide, has more than $250 billion in residential mortgages and while it has stopped offering some of the most toxic types of mortgages, chargeoffs in the portfolio are increasing.
Wells Fargo inherited a portfolio of more than $260 billion in consumer loans when it acquired Wachovia, and JPMorgan Chase & Co acquired exposure to some of the most risky classes of mortgages, in addition to its own large consumer loan portfolio, when it bought Washington Mutual Inc.
Still, there are big differences. Critically for Citigroup, investors lost confidence in the company and its management after it failed to buy Wachovia Corp, thereby losing an important potential source of deposit-based funding, analysts said.
“The difference between Citi and the other three is that Citi clearly had more suspect management,” said Mal Polley, chief investment officer at Stewart Capital Advisors in Pittsburgh. “They had not done enough to take the fat out of the system and right the ship,” he added.
But management at Bank of America and Wells Fargo, and even JPMorgan, widely regarded as the bank that has best survived the credit crisis to date, will need to allay investors’ concerns about their capital position as financial conditions worsen.
And if their losses are big enough, or investors fear they will be big enough, Bank of America and Wells Fargo could turn to the same place Citigroup did: the U.S. government.
“I definitely think other companies will need this help,” said Paul Miller, analyst at Friedman, Billings, Ramsey & Co in New York.
Research Credit: Lagavulin
Countrywide Home Loans may not be *offering* those ‘toxic’ (adjustable rate) loans any more, but they’re still holding tons of them, right?
…This article led me to dragging out my old Sitel (telemarketing) notebooks to see the old Countrywide scripts and notes again, looking for anything to convey the aggression of the campaign. (Like the extensive ‘Rebuttals’ screens we were urged to use.)
http://zuma.vip.warped.com/sitel/IM000483.JPG
http://gigabyte-jones.livejournal.com/8258.html
These photos don’t show the hundreds of cubicles, or the round-the-clock nature of the effort, or the good pay, or the massive VoIP dialer machine, or the end of the hour lull when we changed time zones which reminded me of the extent of the geography we tackled every day.
This job was the only non-farming work I could find in Caribou, Maine. (It was actually in nearby Limestone, at the old Loring Air Force Base.) Many have heard of Caribou, Maine, and so one is surprised to learn it actually has a small population of 9,000 or so. figure a good 3% of that population worked for Sitel (as they employed hundreds). There is no shortage of job applicants. When Loring closed 10 years ago or less, it hurt the local economy something fierce. The way that desperation was exploited was despicable -these are awesomely beautiful people up there. What became of their efforts and what was revealed of it’s actual nature must have soured more than a few good hearts. Broken a few too I bet.
*** an aside on Loring:
There’s virtually an underground town beneath it, with roads and everything. One road heads east a good 10 miles I was told by several.
That gigabyte-jones link holds links to Loring pages.
It was a major munitions spot with lingering radiation questions.
The only link to it all I ever saw was the mysterious door in the men’s bathroom (in what was once the base commissary).
There’s also a famous UFO incident related to Loring, but I’m convinced the russian helicopter ‘cover story’ was likely true.
Addendum: What remains now for employment in that area, outside of growing potatoes and broccoli, is DFAS, the accounting agency for our military. That wasn’t part of the base and so was left untouched.
***
It’s a weird corner of the country, about as far north as you can get in the lower 48. It gets seriously cold there in the winter and the days are incredibly short. And absolutely everything has to get trucked in from the south. But it’s beautiful there, just beautiful.
I hope people working for Sitel there feel better about what they sell nowadays… I know for myself it was a black spot. And an education.