Banking Industry

And the best banks are...

Jim Kim — Wed, 03 Jun 2009 08:32:29 -0400

Banking industry awards, as of late, have taken on an unwittingly humorous dimension. Bank of America CEO Ken Lewis was named banker of the year last year, just as his bank was starting to tank. Angel Mozilo, of Countrywide infamy, was honored with a lifetime achievement award as the ship started to tip. Says the Economist: "Trying to work out which banks are the world's best is a bit like awarding the prize for prettiest war-torn village."

But the conventional wisdom is that big banks are segregating themselves a bit. The winners globally, according to the magazine, include JPMorgan, Goldman Sachs, Credit Suisse, BNP Paribas of France and Banco Santander of Spain, based on stock prices anyway. Barclays also made the list. But the two that have survived in the best form are JPMorgan and Credit Suisse, the winners of the "grand prize." These days they may want to downplay such "honors."

For more:
- here's the article

Be wary of rosy bank earnings estimates

Jim Kim — Wed, 27 May 2009 15:11:26 -0400

The Federal Deposit Insurance Corp. has reported that the banking industry earned a $7.6 billion profit in the period from January to March--an ostensibly big rebound from the record loss of $36.9 billion in the fourth quarter. It would be easy to conclude that improved trading results and lower borrowing costs are really lifting the industry. But I think most people are wary. Big banks were the main show in the first quarter, and their showy results, as we've noted, may not be replicated in the second quarter.

There are lots of accounting headwinds that will make an analysts job that much tougher. The FDIC reports also noted that the number of troubled banks leaped to 305 in the first quarter. That's the highest since 1994, during the savings and loan crisis and up from 252 in the fourth quarter, notes the AP. In my mind, the key wild cards are potential credit card losses and commercial real estate related losses.

For more:
- here's the article

Private equity to the rescue?

Jim Kim — Wed, 06 May 2009 12:52:47 -0400

You might have thought the private equity industry wanted nothing to do with banks, given some big losses, notably the bath TPG took on Washington Mutual. But some firms, notably J.C. Flowers and the Carlyle Group, are bent on putting their funds to work in the banking industry.

Flowers has already bought First National Bank of Cainesville, one of the smallest national banks, reports the New York Times. Using that bank, he aims to build. He had to buy the bank with his own money, however, because the Fed will not allow private equity investors to control banks. There's an effort underway to persuade it to change its mind. The Fed certainly welcomes additional investment, but I doubt it will go so far as to let private equity firms control banks. Some argue that the standard private equity business model doesn't fit the industry well. The Times notes Flowers never even visited Cainesville. We'll see how the Fed responds.

For more:
- here's the article

More analysis of Tim Geithner

Jim Kim — Mon, 27 Apr 2009 13:16:01 -0400

Is the bailout effort by the U.S. government--despite some tough talk on bonuses and the like--overly generous to the banking industry? That's the premise of an interesting New York Times article, the talk of the blogosphere right now, that suggests Treasury Secretary Tim Geithner has taken pains to align his actions with those of the industry and has forged "unusually close" relationships with top bankers. He was even given the chance to be CEO of Citigroup. One could easily paint him as an extensions of "The Club." But he begs to differ.

He tells the Times that any attempt to get credit flowing again will inherently be of benefit to the industry. Still, some think he was too much of an insider to really make a difference. "For all his ties to Citi, Mr. Geithner repeatedly missed or overlooked signs that the bank--along with the rest of the financial system--was falling apart. When he did spot trouble, analysts say, his responses were too measured, or too late." Consider the CDS clearing nightmare. One could argue he was onto the right problem but was late and timid with his solution. The issue of bank capital adequacy has also stoked some criticism. For other reasons, Steve Forbes is calling for Geithner to resign.

For more:
- here's the article

High stakes in the bonus battle

Jim Kim — Sat, 21 Mar 2009 09:08:04 -0400

The banking industry is fighting back in Washington, pressing its case that onerous bonus restrictions would be bad for the industry and the economy. But Congress remains in a "fever pitch," according to the Washington Post, about the unfortunate move by AIG to pay out $165 million in bonuses. The special taxes under consideration have spooked the industry, though some would argue that use of TARP funds for lobbying activities are untoward. The issue is boiling over at a sensitive time. The industry is arguing that the government's attempt to create more liquidity to buy more troubled assets might be thwarted if big investors balk.

A portion of the plan is set to be announced this week. Legislating pay issues is not a good idea in general, especially when it is designed and adopted quickly. But AIG really forced a knee-jerk reaction from the government. Congress felt it had to do something. Is there still time for a compromise? Yes. AIG needs to recover the money and give it back. And the industry needs to propose some voluntary guidelines governing incentive pay at all levels--retention, pay for performance, and other. This can't be business as usual.

For more:
- here's the article

Time for Wal-Mart to take on Bank of America?

Jim Kim — Tue, 17 Mar 2009 13:23:04 -0400

Recall that two years, Wal-Mart's application to create an industrial loan company galvanized opposition--from the Federal Deposit Insurance Corp., rival banks and the many populist Wal-Mart critics. But that was then. Nowadays, you can't blame people for proposing that some new entrants into the banking industry, even at the retail level, might be a good idea.

This columnist makes a case in the Seattle Post-Intelligencer. Certainly, the economy could use some fresh lending. A new bank, presumably well financed, could be starting from strength, and it certainly does not have the age-of-excess overhead that saddles the big banks. There would, no doubt, be a huge fight from little banks and big ones, but if Wal-Mart and Target, or anyone else wants to enter the industry, now might be the time to pounce.

For more:
- read the SeattlePI.com article

More banks seek TARP funds

Jim Kim — Sun, 16 Nov 2008 08:27:04 -0500

So far, 62 banks have been approved (some on a preliminary basis) to receive about $173 billion from the Troubled Asset Relief Program; another 48 have applied for $6.5 billion. More banks likely met the Friday deadline. With so many banks lining up for funds, it raises the issue of just how successful the program has been so far. It's fair to say that solvency fears have abated, but it's also clear that the funds are by no means a panacea. They do not represent the answer to the crisis. The fact is that credit markets have shown only marginal improvement, and the total credit picture is looking bleak. There may yet be another leg down for mortgage-related securities, even as other forms of credit start to creak. So it remains to be seen how long taxpayers will be large owners of the banking industry. It will likely be many years.

For more:
- here's an AP article

Related Articles:
TARP News from FierceFinance

How to transition your career with grace

Jim Kim — Mon, 27 Oct 2008 15:12:15 -0400

Chances are you know a lot of hurting people right now. The industry is in one the worst down cycles of the past 20 years, and it's going to get worse before it gets better. Most of you do not have time to sulk, but hopefully you've been wise with your money and given yourself some time. Let's face it, not everyone will be able to find work in the same field. You may have to move on.

Jenny Hourihan Bailin, a former senior investment banker who lost her job, was given only a few hours to clear out and leave the industry behind. In the end, the change was a blessing. After 26 years, she was ready to move on. She landed in the non-profit world and couldn't be happier.

For more:
- here's her story

Picking winners and losers in the banking industry

Jim Kim — Tue, 21 Oct 2008 16:30:15 -0400

We've suggested here that the trickiest part of the entire TARP is the price at which the Treasury will buy specific assets. But the asset picking seems to have been put on the back burner in favor of direct investments in banks, which seems to be a good idea. Business Week suggests that the Treasury still has some tricky picking to do. It must decided which banks it will invest in, and which it will let die. Not every bank that applies will receive aid. The regulators have jointly come up with some objective criteria--embodied in a uniform application. Business Week notes there are other actions the Treasury could take. It may push some toward mergers. It may invest in some merged banks. The application deadline is Nov. 14.

For more:
- here's the article

Related Article:
TARP details emerge

Jamie Dimon speaks at Harvard

Jim Kim — Tue, 14 Oct 2008 14:11:58 -0400

Is Jamie Dimon--who benefited greatly from the crisis; he's now seen as the government's go-to guy--trying to ward of more regulation? It's been suggested that a new Sarbanes-Oxley-like set of rules is coming, which is cause for consternation among some. Speaking at Harvard Business School, Dimon railed against the idea, saying government too often proposes solutions that appeal only to "the madness of the crowd" while letting complex issues such as energy policy go unresolved, the AP reports. "We've seen this consistently--an oversimplifying and casting aside of issues and facts." It's fair to say that for now, all the focus is on the bailout package. But you can bet that the issue of regulation will come up next year. It will be quite a fight.

For more:
- here's the article