The Institutional Risk Analyst looks at the “political battle building for the mind of Barack Obama on how to resolve, or not, the largest, most profoundly troubled US banks.”
The term “bad bank” is being tossed around Washington dinner tables this week, a sign that the situation facing the largest banks is reaching a boiling point. It is amazing to us to see how little people understand the choices facing us with the big banks, how narrow those choices truly are and how the numbers in terms of losses are so BIG that they will ultimately force us to do the right thing. A couple of points:
First, IRA’s estimate for accumulated bank charge offs for 2009 is in the neighborhood of $1 trillion vs. $1.5 trillion in Tier 1 Risk Based Capital at all US banks today. Good news, though, is that 2/3 to 2/4 of that loss number comes from the top 4 – Citigroup, Bank of America, JPMorganChase and Wells Fargo, in that order of risk profile…
The Good Bank/Bad Bank debate is really a political battle between the large banks listed above plus Goldman Sachs and Morgan Stanley et al among the Sell Side survivors in NYC vs. the rest of the industry and the US economy. In preparing their plans for review by the White House, we hear that the Fed and OCC are supporting further bailouts for the larger banks, while the rest of the industry is being resolved and recapitalized a la Washington Mutual and Lehman Brothers…
Remember that the entire banking industry stands in front of the taxpayers in terms of loss absorption at the FDIC, so you can understand why the smaller banks in the industry are SERIOUSLY PISSED OFF at the large banks and their minions in the Obama Administration like Tim Geithner and Robert Rubin. Oh, and don’t forget Chairman Ben Bernanke and the entire Fed board of governors. These leading officials are increasingly talking the heside of the large banks in the battle over limited financial resources, a fact that is causing the community bankers to rise in anger.
