Dead Banks Walking? (August 25 – Minyanville – Bennet Sedacca)
Are there corporations that are "dead men walking"?
When I first started in the industry in 1981 I was worried but about
just one company, the Chrysler Corporation. Prior to that, Continental
Illinois was in the forefront. Later in my career, in 1998, it was Long
Term Capital Management, the hedge fund founded by John Meriwether,
that captured my attention. Then we had Enron/WorldCom, and by early
2008 Bear Stearns became a worry and then a problem that needed fixing.
All of these events were isolated and dealt with, often with
either direct assistance from Uncle Sam or an effort coordinated by
America’s benevolent/socialist government financial authorities.
Markets would become unnerved, fear would grow, and then the government
stepped in to make sure that the systemic risk that had finally come to
the surface didn’t melt the entire planet.
But this is where
it’s "different this time" – not only is it different, I think it may
be unprecedented in nature. When I look at my Bloomberg monitor each
day that contains my 100 most important indices, companies,
commodities, bonds, bond spreads, preferred shares, etc., I shudder.
The reason for my concern is that my screen doesn’t have just one
"problem child." It looks like a screen that contains many "dead men
walking."
This is your
“must read” article of the day. Bennet Sedacca has become one of my
very favorite writers on this unfolding credit mess.
In this
article, he details the process by which denial and then deception are
used, how they can be spotted, and which companies are pretty much
cooked. For those without time to read it, here’s the lists.
Cooked:
Zions Bancorp (ZION), KeyCorp (KEY), Fifth Third Bank (FITB),
Washington Mutual (WM), National City, Regions Financial, General
Motors/GMAC (GM), Ford/Ford Credit (F), Wachovia (WB), CIT Group (CIT).
Probably OK:
Bank of America (BAC), Bank of New York (BK), JP Morgan Chase (JPM),
Northern Trust (NTRS), State Street (STT), US Bancorp (USB), ABN Amro ,
Deutsche Bank (DB), BNP Paribas, Royal Bank of Scotland, Barclays
(BCS), Allianz (AZM)
He closes
with this: As I stated earlier, when we have just one or two firms with
issues, we can deal with it. But when we add rising unemployment,
explosive debt growth in recent years, and non-performing assets to
many hobbled financial institutions with trillions of dollars of
exposure, it’s hard not to be concerned.
For this
reason, I remain cautious towards credit, and I expect a hard sell-off
in stocks into 2010, consolidation in the financial services industry,
and some pain, like it or not. I’m just not sure where the capital will
come from to bail everyone out simultaneously. And even if the capital
showed up, it would likely come at a cost that is uneconomic and would
be dilutive for many years to come.
It’s why I expect much
lower-than-consensus earnings across the board and lower stock prices
ahead. In the meantime, I sit with my historically cheap GNMA’s at the
widest spreads in 20 years and continue to add to that position.