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Even More Bad News from the Banks
August 19, 2008 6:07 PM
ABC News’ Bianna Golodryga reports: It's 4 p.m. on Wall Street. And for anyone not on vacation this week, Goldman Sachs came out with a nasty end of the workday report. A downgrade of virtually every major bank on the street. JPMorganChase, Lehman Brothers, Morgan Stanley and Merrill Lynch. The quiet before the storm?
As traders take the last two weeks of what has been a pretty gloomy summer off, what they're expected to face upon their return will quite possibly look worse than just two weeks before. There's another storm brewing on Wall Street, and it's not the one out in the gulf. Just when many on the street were hoping that the worst for the financials was behind them, comes word that another wave of write-downs is about to shake the street.
After what was "thought" to be the bottom for the market and the decline in financial stocks, rumblings about continued write-downs at Merrill Lynch began surfacing. The brokerage giant's CEO John Thain reiterated that "the firm is very well capitalized" in an Aug. 4 Interview he gave to CNBC. But he also didn't rule out continued write-downs going forward. This after the firm wrote down $5.7 billion in the third quarter. Merrill recently sold it's 20 percent stake in Bloomberg for more than $4 billion.
Then there's Lehman Brothers. Having some of largest exposure to the subprime market collapse, it has long been considered to be the least stable or liquid of the major brokerage firms. Following the Bear Stearns collapse, the firm is making waves again. JP MorganChase reported that Lehman may write down about $4 billion in credit-related for the third quarter. For weeks, there has been speculation that the firm was shopping its asset management business (Neuberger Berman) to a variety of private equity funds. Late this afternoon CNBC's Charlie Gasparino reported that Lehman is considering a deal in which it would sell 70 percent of it with a provision for a buyback opportunity down the road. Not that they are expected to get that cash back anytime soon. Goldman Sachs' downgrade of the firm now predicts that Lehman will lose not $2.75 a share for 2008 but rather more than $9 a share.
So what's to be made of all of this? On the one hand, financials are priced at lows not seen in years, if even. That's got dealmakers buzzing that many firms are ripe for the picking, and Wall Street matchmakers are already envisioning marriages between firms like Bank of America and Merrill. Wells Fargo, U.S. Bancorp and Wachovia are also being talked up. But on the other hand, there will be more shoes to drop. Which ones? How big? Well, according to one big name bear, Washington Mutual, Fannie Mae and Freddie Mac, will all be acquired by the U.S. government by this time next year.
There will be a recovery, there will be a bottom. There always is. But that day appears to be later rather than sooner. For now, these banks are still hurting, still bleeding. And still in triage. More than $400 billion of write-downs have been tallied so far. And by all accounts, that figure is nowhere near peaking.
You wanna know what those inside of the banks are saying? Here's a well known Wall Street blog from a Merrill Lynch employee.
August 19, 2008 | Permalink | User Comments (20)
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Seriously? Any analyst who didn't see this coming needs to find a new profession immediately. Of course it's bad. These are the repercussions of the abhorrent greed that the banking industry has fed on for years. If you really want to fix the economy? Stop letting financial institutions and creditors abuse customers in any way they see fit.
Posted by: Tom G | Aug 19, 2008 6:39:53 PM
We are not going to recover until all of the governments that raised taxes to "replace lost revenue" due to the gas prices reduce their taxes. We are grossly overtaxed. When you count the taxes passed on in product prices, almost all Americans are paying taxes at about 73 percent.
Greedy government is the cause.
Posted by: Larry Robinson | Aug 19, 2008 6:44:43 PM
According to Nouriel Roubini, professor of economics at NYU, maybe a third of the regional banks won’t make it and bailouts by the FDIC will add hundreds of billions to our massive federal debt. And who finances that debt? China, Russia and Arab states.
Posted by: Idahogirl | Aug 19, 2008 7:05:33 PM
No one is going to do a damn thing for any of us down here in the trenches. The government that we look so longingly to for help in owned by the financial institutions, the energy companies, the tobacco companies and the like. That includes the two presumptive buffoons that are now crisscrossing our nation campaigning for the office of head thief. The slaves will receive nothing and have to be happy with it. It's time for millions of really angry "regular" Americans to stand up, once and for all and do something for themselves by finally flushing that smelly overflowing toilet known as Washington DC. *giggle* I can't wait to see how the retailers do come this joyous Holiday Season.
Posted by: Floyd | Aug 19, 2008 7:11:29 PM
put your money in real estate. soon.
Posted by: rj | Aug 19, 2008 7:14:04 PM
?? MIddle class Americans don't have any money... just debt ??
Posted by: Floyd | Aug 19, 2008 7:16:10 PM
Ahhh, the absolute breathtaking beauty of the collapse of Corporate America. It'll be rough for a little bit but once the dust settles, we'll all be much better off. I love watching the Corporate Controlling Elite squirm. They deserve every bit of hell they're facing.
Posted by: Troy | Aug 19, 2008 7:17:23 PM
"Stop letting financial institutions and creditors abuse customers in any way they see fit." How about CUSTOMERS living within their means? I know it's a crazy idea but if you can't afford that size a mortgage, then buy a smaller home in the first place.
Posted by: Jeff | Aug 19, 2008 7:25:23 PM
Goldman Sachs is Net Shorts on stock...isnt it a conflict of interest...
Posted by: GS | Aug 19, 2008 7:27:41 PM
Don't worry, they are "too big to fail". Remember: private profits & socialized losses is the motto.
Posted by: John Kovacs | Aug 19, 2008 7:29:02 PM
Can anyone say, "The Next Great Depression?"
Posted by: George | Aug 19, 2008 7:40:52 PM
a way to generate revenue is legalize all gambling. since there is limited gambling at this point:
a) lottery/lotto
b) non indian casinos here in california that have table games only(poker, blackjack, etc)
c) race tracks/satellite wagering
I say, legalize the whole thing. the tax revenue generated at a fair percent, say 5%, would wipe out the state and federal deficit and think of all the new jobs it would create.
Posted by: jason boyd | Aug 20, 2008 3:47:30 AM
So this Author says round two is about to start. Another ABC reporter says we're climbing out of the woods.
Pandering to readers isn't the way, WAKE UP! Something more (like facts) would be helpful. Perhaps the right and left don't speak?
What ever happened to good jounralism?
Posted by: DAVID NH | Aug 20, 2008 7:43:14 AM
I have been listening to Peter Schiff (Ron Paul's financial advisor) for quite some time. He predicted all of this mess years ago, not that it wasn't that hard to predict. The amazing thing is that many analysts still said everything was great. Remember Bush bragging about how a record number of Americans have a house. Oh brother!
Posted by: Ben Straub | Aug 20, 2008 12:22:30 PM
One bank might fail?? Just wait. Our entire system is founded on quicksand. All fiat currency (paper-based money) fails because it has no intrinsic value (except as toilet paper or tinder) and every government succumbs to the urge to print or electronically conjure-up infinite quantities. The "Federal Reserve Notes" have lost 95% of their value already and the M3 quantity of this money is growing by 16% per year right now. Furthermore, banks are perpetrating a kind of fraud because every bank is inherently insolvent and will collapse immediately if enough customers attempt to withdraw their money.
Posted by: asdfasdf | Aug 20, 2008 2:10:05 PM
The financials were the ones giving out mortages, loans, credit cards to unqualified people. What did they expect? The Gov't gave tax breaks for business to move jobs out of this country and leave workers high and dry, what did they expect? There's just no replacement for common sense!
Posted by: No Fool | Aug 20, 2008 10:39:08 PM
Jp Morgan Bank help me get a story out about them closing on a loan without a certifcate of occupancy on new construction and I had a right of recession and they ignored it. Anyone out their who will do a story on this. Please respond to me
Posted by: aj | Aug 21, 2008 6:56:18 AM
All these comments about the economy really make me feel mad, cause in New York, the job market just sucks for everyone. You have to have experience to have a job, and how do you get experience when you've never had one? Get a job! What a sorry loop of BS. And the food companies and gas stations are ripping us off as well. The dollar's been on the drop for a month now and prices are still going up, and there's the recent stories out that they are sneaking less food in the packaging. This is totally criminal and no one knows it cause we're all working like dogs just to scrape by. You guys want to know the causes of this global food, gas, oil, plane ticket, and all the other stuff. Read this. It'll get you real mad, though. Just warning you.
http://warofillusions.wordpress.com/2008/06/02/how-to-manufacture-a-global-food-crisis/
Posted by: Ques | Aug 23, 2008 10:54:13 PM
Wow, Ron Paul Not So "Crazy" After All.
Wish More People Had Debated Him Rather Than Dismissed Him.
Better help out with "The Campaign For Liberty" or some other "Reduce The Government Control" Group.
This is going to get ugly. The worst is yet to come. The Plunge Protection Team is in full effect and still we are going down.
The Peasants Are Restless.
Posted by: PainfullyAware | Aug 24, 2008 8:15:57 PM
PainfullyAware,
Ron Paul was right!
Posted by: Huh | Aug 26, 2008 11:29:39 AM
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