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On a day when financials are again weak, Richard Bove at Ladenburg Thalman provided his clients with a long (70 pages!) note outlining the problem with the banking industry.
The positives:
- Banks have more capital, more liquidity, more deposits, more loans, better margins, higher net interest income, improving non-interest income, and the likelihood of improving expense control.
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The overwhelming problem, Bove notes, is bad loans: "They are explosive and they show no sign of subsiding."
He notes that non-performing assets are increasing: of 34 banks surveyed in the second quarter, non-performing assets were up by $54 billion, or 189 percent, year-over-year.
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The problems are primarily in the real estate sector but the bad credits are now extending out to both the consumer (autos, credit cards) and the commercial sectors.
How bad will it get? His hope is that job loss is relatively moderate in this downturn, and home prices stabilize.
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Financials in the news:
- Citigroup [C
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- JPMorgan [JPM
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- Merrill Lynch [MER
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- Wachovia Bank [WB
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- Bank of America [BAC
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