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    Daily Digest – Feb 18

    by Davos

    Tuesday, February 17, 2009, 11:22 PM

  • Bank Leverage Stats, 12/31/08 (Hat Tip CM, Check Out GE)
  • The Case for Nationalization (Chart)
  • Top 20 banks receiving US aid are lending: Treasury 
  • Frontline, Inside the Meltdown PBS
  • Cashing in on Trading Down (Video, Humor until 1:28 minute point, 2,500 shopping centers closing)
  • "Worst Is Yet to Come:" Americans’ Standard of Living Permanently Changed (Hat Tip Ron S)
  • Median Family Net Worth Down ~1/3 
  • Stimulus Watch
  • S&P Loss 4Q [1:01 Minute Point]
  • Four Bad Bear Markets, Update
  • GM asks for $16.6 billion, to cut 47,000 Jobs 
  • California Kills Its Part Of The Federal Stimulus Program 
  • More…

  • The Curious Case of the US Dollar
  • In-Depth Look – Eastern Europe Collapse Continues
  • Switzerland threatened with bankruptcy 
  • Kansas budget crisis: State tax refunds on hold 
  • The Self-Destructing Economy (Hat Tip Christopher Peters)
  • S&P sees new systemic risk in CLO defaults 
  • U.S. regulators accuse Houston fund firm of fraud
  • Big Lessons in Finance From a Little Bank You’ve Never Heard Of (Hat Tip Steve S)

Economy 

Bank Leverage Stats, 12/31/08 (Hat Tip CM, Check Out GE) 

As you can see, Morgan Stanley and Goldman have cut their leverage significantly. Citi is in worse shape. BofA and Chase are treading water. 

GE is the scary one. I mean, is Timmy Geithner going to stress test them too? I’m pulling balance sheet data from their quarterly earnings release, which doesn’t offer any detail on shareholders’ equity. I’m assuming that the published equity figure of $104.7 billion includes the $3 billion preferred investment that Warren Buffett announced on October 1st. I’m deducting that amount from tangible common equity in order to get GE’s leverage ratio. If I have that incorrect, hopefully a better-informed reader will let me know.

December 30th’s was the first balance sheet the banks have published since they received TARP capital. Common shareholders are still in a first-loss position relative to the government, however, because TARP investments were in the form of preferred shares. So I have backed these out in order to arrive at the tangible leverage ratios above.

One BIG caveat with this calculation is that these companies carry "other assets" on the balance sheet, some of which might be intangible in nature. Also, each has significant risk exposure via off-balance sheet entities. The point is, even though these leverage calculations seem high, they actually understate the risks facing common shareholders… 

The Case for Nationalization (Chart)

Top 20 banks receiving US aid are lending: Treasury 

Some 400 banks in 47 states have participated in the program since it began in October. 

Frontline, Inside the Meltdown PBS

Cashing in on Trading Down (Video, Humor until 1:28 minute point, 2,500 shopping centers closing 4:20 pt)

"Worst Is Yet to Come:" Americans’ Standard of Living Permanently Changed (Hat Tip Ron Shimshock)

Median Family Net Worth Down ~1/3 

Using data from the Survey of Consumer Finances, Baseline Scenario attempts to compute a "composite picture of the median family": 

For each asset or liability, I include it if more than 50% of the families in the middle income quintile have it; in that case, I record the median amount held by families who hold that asset. This isn’t the median family, but we might call it a "typical" family.

Click for larger image 

Stimulus Watch

S&P Loss 4Q [1:01 Minute Point]

[video:http://www.youtube.com/watch?v=tUO0j3BiAMQ&eurl=player_embedded]

Four Bad Bear Markets, Update

GM asks for $16.6 billion, to cut 47,000 Jobs 

General Motors Corp. on Tuesday said it will need as much as $16.6 billion in additional aid from the U.S. government and could run out of money as soon as next month if it doesn’t receive at least some of that funding. 

[GM] … laid out a plan to close more factories, eliminate thousands of dealerships and slash 47,000 jobs this year around the world.

GM, however, said it failed to strike critical deals with the United Auto Workers union and bondholders to reduce labor costs and shrink its $47 billion debt load. Negotiations with both parties are expected to continue. 

California Kills Its Part Of The Federal Stimulus Program 

California has decided to demonstrate how quickly a state can dig a hole and swallow up most of the money the national stimulus package is supposed to put into its local economy through municipal aid and private sector financing. 

If the new bill to be signed by the President today is meant to save or create three million jobs, the bleeding out of the economy may simply make that impossible.

For the federal government program to work, California, the country’s most populous state, can hardly afford to watch tens of thousands of people put out of work with that number growing each day.

But, the state government is doing what it can to ruin its local economy. It will lay off 20,000 workers because of revenue shortfalls which are projected to create a $42 billion budget deficit, about 5% of the value of the entire federal stimulus program.

California will also halt all public works projects which is likely to cause lay offs in its private sector.

The California debacle shows just how hard it will continue to be to get out in front of the effects of the recession.

The Curious Case of the US Dollar 

The US Dollar has been a peculiar "risk-flight" trade throughout the credit crisis, as global investors have flocked to the currency with the belief that other sovereign nations are even worse off than the US. This comes at a time when gold is also rallying to new highs, and the US money supply is increasing at an astounding rate. 

In-Depth Look – Eastern Europe Collapse Continues

Switzerland threatened with bankruptcy 

In an interview with Swiss daily Tagesanzeiger, a well-known economist has warned that Switzerland risks bankruptcy, if the recent market turmoil centering on Eastern Europe is not contained quickly. At issue are loans made in Swiss Francs to Eastern European debtors. With many countries in the region falling into depression, currencies and asset prices are plunging. Therefore, debtors domiciled in Eastern Europe are increasingly expected to have difficulty with mounting foreign debt loads – and that spells trouble for Switzerland. 

Below is my translation of the Tagesanzeiger article. 

The Self-Destructing Economy (Hat Tip Christopher Peters)

Kansas budget crisis: State tax refunds on hold 

State tax refunds, Medicaid reimbursements and payments to local schools are all on hold because of a political showdown between Kansas legislative leaders and Gov. Kathleen Sebelius. 

The Kansas Finance Council was to meet at 1 p.m. today to vote on whether to borrow $225 million from healthy state funds to cover expected payments to schools, state workers and taxpayers. The state did the same thing last December when it ran into a cash-flow problem. 

S&P sees new systemic risk in CLO defaults 

A rating agency has flagged another systemic risk that could yet emerge from the structured credit markets. 

Investors in about €80bn ($102bn) of debt issued by complex structured loan funds could be at greater risk of losses than they realise if only a few companies default on their debt.

Standard & Poor’s has highlighted that many collateralised loan obligations – which pool leveraged loans and sell differently rated investment notes with varying risk profiles – have exposure to the same group of borrowers. The default of just one of these widely held borrowers on their debt could have a negative effect on the credit quality of the portfolios of nearly 90 per cent of European CLOs, the agency said in a report.

In fact, the debt of just 35 different borrowers appears in nearly half of the 184 CLO portfolios that S&P rates. In total, those funds hold at least €90bn in assets.

For example the debt of Ineos, the UK chemicals group, which is trying to renegotiate its debts, is held by 84.2 per cent of CLOs. Debt of Télédiffusion de France, the French broadcaster, is held by 87.5 per cent of CLOs. Amadeus, the travel distribution and software company, is held by 82.6 per cent. 

U.S. regulators accuse Houston fund firm of fraud 

The Securities and Exchange Commission accused Robert Allen Stanford, the chief of the Stanford Financial Group, on Tuesday of conducting "a massive ongoing fraud" in the sale of about $8 billion of high-yielding certificates of deposit held in the firm’s bank in Antigua. Also named in the suit were two other executives and some affiliates of the financial group. 

Big Lessons in Finance From a Little Bank You’ve Never Heard Of (Hat Tip Steve S) 

Citizens is among the stronger and more conservative banks in the Charlotte market. Despite setting aside $3.2 million last year for expected loan losses, the bank managed to post a profit of $3.1 million, down from $5.7 million the year before. Citizens never got into subprime lending or 100 percent loans, and for its caution lost a lot of business during the go-go years. Now, however, its reward is that its nonperforming loans are less than half of 1 percent of all its loans.

 

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