2009-09-18-The Fat Lady Clears her Throat:

They say it ain’t over until the fat lady sings. Well, she’s clearing her throat.

In order to sort through the disaster that is Wells Fargo’s (quote: WFC) commercial loan portfolio, the bank has hired help from outside experts to pour over the books… and they are shocked with what they are seeing. Not only do the bank’s outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank.

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2009-09-17-Snake Eating Its Own Tail:

So you wonder how Wells Fargo manages two positive quarters in a row during the greatest credit crisis of all time?  It’s easy.  They have a ready-made buyer for any crap they want to sell at any price.  Don’t believe it?

This borrower couldn’t pay and thus stopped doing so.  This should generate a “NOD” (Notice of Default) and ultimately lead to foreclosure, right?  It should result in an impaired asset which might be sold to some other company (at a discount), right?

It got sold all right – right at the “120 day” late point where Wells counts a loan as “defaulted.”

But look at who it got sold to…..

2009-09-14-The Party is Over:

The party is over for at least one ex-Wells Fargo senior vice president, at least for now.

Wells Fargo & Co has fired a senior vice president after investigating reports she held lavish parties at a foreclosed beachfront Malibu house owned by the bank.

The fourth-largest U.S. bank said in a statement on Monday that it had terminated one employee, senior vice president Cheronda Guyton, who it found had violated its policies.

The policy she violated was the one that said don’t get caught. Do you think the bank would have fired her otherwise? No? I didn’t think so.

2009-09-11-Crass:

It’s “dog eat dog” and “to the victors go the spoils” as the winners at Wells Fargo party in the forclosed homes of  Madoff’s victims.

Bernard L. Madoff’s massive fraud stunned some of the wealthy denizens of Malibu Colony, especially when a couple devastated by the scheme surrendered their oceanfront home to Wells Fargo Bank.

But some neighbors say the real shocker came when they saw one of the bank’s top executives spending weekends in the $12-million beach house and hosting eye-catching parties there. What’s more, Wells Fargo spurned offers to show the property to prospective buyers, a real estate agent said.

So Wells Fargo, a bank demed too important to the world wide financial infrastructure to fail, goes on with business as usual. They play, you pay.

2009-09-01-Classless Action:

Wells Fargo is feeling the blow back of angry borrowers in Los Angles County where the bank has been accused of discriminating against minorities. A class action lawsuit has been brought against Wells Fargo and the suit will stand as such.

A lawsuit filed on behalf of minority mortgagors against Wells Fargo ( will proceed as a class action case after a Los Angeles Superior Court judge certified it as such.

The suit alleges Wells Fargo discriminated against as many as 10,000 borrowers in minority communities by charging more for loans than borrowers paid in other parts of Los Angeles County. While Wells Fargo branches in some parts of the county were given access to a software product that allowed loan officers to provide discounts to customers, that same software, and in turn, the discounts, was not available to branches located in minority communities, according to a statement from the office of the law firm representing the class.

2009-05-07-Stress Release:

Wells Fargo reportedly passed the FED’s stress test to see if it was adequately capitalized, but regulators said it needed another $13.7 billion to be adequately capitalized. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital. But that’s the official word. So, if you pay no attention to the $13.7B, Wells Fargo passes its stress test.

2009-01-28 Q3 Earnings:

Wells Fargo laid a $2.5 billion egg in fourth quarter 2008, but the bank would have had $11.2 billion more worth of yolk in its face if it included the Wachovia offer they couldn’t refuse. But the bank did record a huge write-down of Wachovia’s rotten eggs in December. Better sooner than later!

Write-downs for the quarter break down as $37.2B related to Wachovia’s balance on December 31, $473M in other-than-temporary-impairment charges,  $413M in write-downs on mortgages and $294M ripped off by Madoff.

1. Tally for Write-Downs/Charge-Offs: $6.25B +$37.2B + $473M + $413M +$294M = $44.636B
2. Tally for cash raised TARP: = $25B
   
3. Tally for cash raised NON-TARP:=$12.6B [stock sale in Nov]
4. Current level of Level3 Assets at $34.7B [use 10-Q, wait for the 10-K]
   
5. Current level of loan/credit loss reserves at $8.1B for Wells + $13.7B for Wachovia = $21.7B

We now sum all the distresses to get a lower bound Well Fargo’s current Pain Factor: > $103.94 B

2008-12-08 Blowback:

The bailout of Wachovia was disguised as a buyout by Wells Fargo, but that little scam has blowback for the rest of the financial world and offers a new business model/MO for future scams.

2008-10-23 Steel Delivers:

Well, former Treasury Undersecretary and Goldman Sachs alum Robert Steel certainly has proved his worth.  By getting Wells Fargo to buy worthless Wachovia at a premium to Citigroup’s offer, Steel completed his mission, to use his connections and government influence to bring Wachovia a bailout disguised as a buyout.

2008-10-16 Q3 Earnings:

Wells Fargo booked a $1 billion increase in non-performing loans in the third quarter compared to the previous quarter, then cut its loan-loss reserve by $500 million. Magic? Yup, the magic of accounting rules (made to be bent, if not broken, apparently)!

1. Tally for Write-Downs/Charge-Offs: $726.5M +$5.5266B= $6.2565B
2. Tally for cash raised: = $0.0
   
3. Current level of Level III assets at $34.7B [page 65 of 10-Q]
   
4. Current level of loan/credit loss reserves at $ $8.0B

We now sum all the distresses to get a lower bound Well Fargos current Pain Factor = $49.0 B

2008-10-03 The Graduate:

Just like a petulant school girl changing boyfriends every weekend, Wachovia is now pushing Citi out and welcoming Wells Fargo as the new honey du jour.

2008-07-16 Q2 Earnings:

In a first quarter 2008 reporting redux, Wells Fargo came out with all their guns smoking so badly that investors could hardly see a thing. Now they beat estimates again, and if you listen and sniff just long enough, I’ll bet all that sh!t will start to smell like a rose. So far we have Q2 current data for 2.-4., but surprisingly cannot find the exact write-downs number for the quarter.

Post script :see 1. no writedowns for the 2nd quarter, see 1.

1. Tally for Write-Downs/Charge-Offs: $2.9 B +0 $? = (That provision included total charge-offs of $1.5 billion)
2. Tally for cash raised: = $0.0
   
3. Current level of Level III assets at $23.0 B
   
4. Current level of loan/credit loss reserves at $7.52 B

We now sum all the distresses to get a lower bound Well Fargos current Pain Factor > $27.4 B

2008-06-21 Mickey Mouse Assets:

Wells Fargo said that 4% of total assets were valued by level 3 accounting methods. In other words, by no method at all. From the first-quarter 2008 10Q:

We use fair value measurements to record fair value adjustments to certain financial instruments and determine fair value disclosures. (See our 2007 Form 10-K for the complete critical accounting policy related to fair value of financial instruments.)
Approximately 23% of total assets ($136.7 billion) at March 31, 2008, and 22% of total assets
($123.8 billion) at December 31, 2007, consisted of financial instruments recorded at fair value
on a recurring basis. At March 31, 2008, approximately 83% of these financial instruments used
valuation methodologies involving market-based or market-derived information, collectively
Level 1 and 2 measurements, to measure fair value. The remaining 17% of these financial
instruments (4% of total assets) were measured using model-based techniques, or Level 3 measurements. Substantially all of our financial assets valued using Level 3 measurements consisted of MSRs or investments in asset-backed securities collateralized by auto leases. In first quarter 2008, $1.1 billion of mortgages held for sale were transferred into Level 3 from Level 2 due to reduced levels of market liquidity for certain residential mortgage loans. Approximately 1% of total liabilities ($6.2 billion) at March 31, 2008, and 0.5% ($2.6 billion) at December 31, 2007, consisted of financial instruments recorded at fair value on a recurring basis.
Liabilities valued using Level 3 measurements were $408 million at March 31, 2008.

2008-06-11 It Stinks:

Reggie Middleton has put out a good analysis of Wells, with a price target of about $16 — roughly 38% below the current price. A great in-depth read extending and adding to our points below.

2008-04-16 Q1 Earnings:
The financial media reported Wells Fargo’s fiscal first quarter earnings today to the favorite old familiar tune of “they beat estimates.” But the spin could not confuse the clear, unmistakable implication that the easy money corner has been turned and the future is grim. And don’t be confused by the fact that the bank still turned a profit — even an investor jumping from a window is above the ground until he hits it. Some of the particulars include:

Net charge-offs, the cost of bad loans that won’t be fully repaid, jumped to $1.53 billion from $1.21 billion in the fourth quarter. Charge-offs for consumer loans, which include credit cards, home-equity lending and automobile financing, rose 26 percent to $1.21 billion.

It is the $1.5B in write-offs that we write down, to bring the bank’s running total from $1.4B to $2.9B.

2008-04-08:

New Liquidity Drains Threaten Bank Lending

To be considered a “well-capitalized bank” by U.S. regulators, an institution can’t have more than 10 times its capital in risk-weighted assets. More than 99 percent of American banks qualify as well capitalized. But bond downgrades are going to throw a monkey wrench into that machine and threaten to bring it to a grinding halt.

2008-02-19 Hype, Hope, Hurrah!:

Several (very vocal) bullish opinions on Wells have surfaced in the past week. Most notably, Barron’s expects at least 15% upside from here (about $30 today), and Buffett has apparently increased Berkshire Hathaway’s stake to 9.4%.

These calls all appear to be based on the dubious thesis that Wells has “escaped the subprime mess.” While that might be technically true (so far), we find it to be of little comfort given that it is now beyond painfully obvious that the problems in the mortgage market and credit markets extend far beyond subprime. As we covered in our earlier analysis (below), Wells sits on vast holdings (about $141B) of questionable sorts of loans, including $24B or so of subprime, second-lien and Alt-A loans. Approximately 1/3 of its overall exposure is in California.

Indeed, Wells has only taken a $1.4B write-down on a $12B sub-portfolio of third-party second-lien loans. There may be billions more in write-downs lurking in that pile alone.

Some of us here at BankImplode.com are short Wells, and we can’t figure how these bullish calls are anything more than self-delusion. If this indeed produces a rally (as any actual or rumored move of Buffett tends to do), we suspect it will be of the “sucker’s” variety.

Wells (and its proponents) seem to be gambling that much of the mortgage market collapse is due to exotic financial vehicles, rather than to a genuine decline in ability-to-pay. Thus, the logic would presumably go, if Wells holds most of its exposure in its own long-term investment portfolio, it won’t be impacted by faltering intermediaries and a collapsing secondary market, and the crisis will blow over. But the root problem is in inability to pay; Wells’ delinquencies are rising along with everyone else’s, and mortgage securities are therefore unlikely to ever come back all the way in value. Ever. So they can run, but they can’t hide. The result (we predict) will be write-downs and earnings disappointments for years to come.

2008-02-04 Initial Writeup:

Wells Fargo, the fifth-largest US bank by assets, and the second-largest mortgage lender, has begun to feel the heat of the economic slowdown and the credit crunch in the fourth quarter 2007. As of yet, it has taken (we think) only a $1.4B charge against a special liquidation portfolio (see below for details). But most of the impact to date has been in general charge-offs and increases in loan loss reserves (which have tripled). Despite these issues, the bank still returned a profit in the latest quarter (though it fell sharply; by 38%).

If that were the end of the story, Wells would be sitting pretty. Unfortunately for them, the closet contains more skeletons. Friedman Billings noticed this, and downgraded the bank, writing:

Wells Fargo has $141 billion in residential real-estate loans, with about a third of that located in California, Friedman wrote in a note to clients. The firm cited a report from Downey Financial which suggested that its non-performing assets rose 150% during the fourth quarter, and 35% in December, when compared with November.

“We believe that Wells Fargo is not immune to industry weakness,” FBR wrote.

We don’t think they’re immune either, especially when major projections are now putting price declines in California in the 30-50% range. Further, the bank retains approximately $24B in subprime loans, according to late-2007 Deutsche Bank data.

While banks such as UBS, Citigroup, and Morgan Stanley may be in the eye of the storm (or further), Wells has just barely begun to feel the first sprinkles.

In fact, Wells has recognized the looming issues and is attempting to front-run the problems by carving out some of the worst junk in its portfolio for liquidation. MortgageDaily reported back in November 2007 that the bank has started by moving $11.9B of third-party-originated second-lien (home equity) loans into a separate bundle, on which it planned to take (has taken?) a $1.4B charge.

We see two problems with this strategy. The first is the assumption that the losses on these assets will only be around 10%. From what we’ve seen, these sorts of assets may fetch bids as low as ten cents on the dollar in today’s paranoid fixed income markets. But the paranoia is somewhat justified: against falling values, second liens are essentially worthless in a huge fraction of cases (especially recent vintage, which characterizes this special Wells portfolio). In other words, if you wanted to go with more of a “mark to market” impairment on this portfolio, the write-down would need to be more like $8.3-10.7B.

The second problem is the assumption that the rest of Wells’ $141B hoard is pristine. But just because Wells originated these, doesn’t mean their underwriting was that much better (see below), or that borrowers aren’t facing tough circumstances as we enter a recession (with unemployment already rising), or that collateral values falling don’t hurt everyone. So there will be write-downs (and/or markedly higher loan loss reserves) on the other $130B or so of loans. Mark our words.

Finally, the bank has the dubious honor of being the only lender sued by the city of Baltimore for reverse red-lining. And it is also a defendant in a similar suit by the city of Cleveland, along with 20 other banks and lenders.

Should these municipalities win anything back, they will likely inspire countless imitators across the country, manifesting as significant “litigation impairments” on Wells’ balance sheet for years to come. But you won’t find this kind of risk accounted for in the current financials.

Goldman Sachs passed the FED’s stress test to see if it was adequately capitalized, with no need to raise any more cash. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital. We will see what happens, but that’s the offical word.

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2009-06-17 Goldman buys back TARP:

Goldman Sachs said it repaid the $10 billion of government money it recieved under TARP. Goldman Sach did not say it would not impinge on the taxpayer to bail it out of future wreckless miss-adventures it gets into and apparently no one in the corporate controlled financial media bothered to ask.

The Goldman Sachs Group, Inc. (NYSE: GS) today announced that it has repurchased from the United States Department of the Treasury the 10,000,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series H, that were issued to the Treasury pursuant to the U.S. Treasury’s TARP Capital Purchase Program. The aggregate
purchase price paid by Goldman Sachs to the U.S. Treasury for the Preferred Stock (including accrued dividends) was approximately $10.04 billion. The repurchase includes a one-time preferred dividend of approximately $425 million which will be reflected in our second quarter results. This is expected to reduce reported diluted EPS for the quarter
by approximately $0.77 per share.

2009-04-14 / Q1 Earnings:

Goldman Sachs tried to fool the market by  posting a $2 billion gain on its fiscal Q1 earnings. But  when the bloggers and financial media were done stripping the report to bare bones they found only a siphon, a conduit and orphaned offspring of various losses as the only hook on which Goldman could hang its meat:

Goldman took write-downs of $1 billion on junk assets and another $625 million on commercial real estate in its fixed income, currencies, and commodities (FICC) unit according to page 10 of the earnings report. They also report losses of $1.3 billion before taxes, $800 million after the tax benefit,

We will be conservative and give them the tax break, but we will not pretend December didn’t happen, so Goldman took write-downs for the quarter of $1.625B and lost another $800M.

The conduit referred to above is AIG. We low-balled the benefit that Goldman got from the bail out of AIG as $3B, but we now add $10B to it as we find that a total of $13B flowed throught the AIG pipeline to GSax.

Additional cash-raising involves the $28B the bank raised by issuing its own debt — taxpayer protected of course.

Goldman Sachs is preparing to return $10 billion in taxpayer funds as fast as the ink can dry on the check. But the bank, and a number of others, is quietly holding on to other forms of public support that come with virtually no strings attached.

The program has allowed Goldman to issue $28 billion in debt over the last six months.

The banksters have successfully nixed the SFAS 157 fair value of junk assets or level 3 accounting.  For now we will use the last recorded level 3 number as an estimate. With that said lets add up:

1. Write-Downs/Charge-Offs: $8.775B + $1.625B +$0.8B = $11.2
2. Cash Raised: $13.75B +$28.0B = $41.75B (from AIG rescue+bond sale)
3. TARP: $10B
   
4. Level III assets: $66B
   
5. Loan Loss Reserves: $0.0

We now sum all the distresses to get Goldman’s current Pain Factor of  $128.95B

2009-03-25 / Cash Raising Again:

Goldman Sachs is at it again, raising cash in its own unique way, moving in and out of the shadows funnelling public money to its coffers through conduits, willing or otherwise.

2008-12-02 / Q4 Earnings:

It looks like someone over at Goldman Sachs figured out that posting a profit while taking $10 billion from the peons would not look good for the bleachers, so the company bit the bullet and cooked the books to show a fourth-quarter loss.  But the Golden gangster is still too vain to admit to a yearly loss.

The good folks over there said in their financials that they want us to use the level 3 count from their third-quarter 2008 10 Q as an estimate of this quarter’s level 3.  Okay but note that their  level 3 tide is rising fast so it’s probably a low ball estimate.

Here’s the tally thus far:

1. Write-Downs/Charge-Offs: $7.275B + $1.5 B = $8.775B
2. Cash Raised: $3.0B +$5.75B + $5b=$13.75B (from AIG rescue+stock sale+Buffett)
3. TARP: $10B
   
4. Level III assets: $66B
   
5. Loan Loss Reserves: $0.0

We now sum all the distresses to get Goldman’s current Misery Index of  $98.525B

2008-12-02 / Con-man:

Goldman Sachs has stayed hard at it,: reapin huge rewards by  rippin off it’s own clients. This time every taxpayer in the state of California donated to the Golden billionaire boyz club, from teacher and rail road worker to movie star, one and all. Except for the movie star Govonator, who may have had a bit role in the production.

2008-10-02 / Rescue:

Warren Buffett to the rescue of Glodman Sachs, sounds weird, to be true, but it is.

Warren Buffett agreed today to invest $5 billion in Glodman Sachs via a purchase of preferred stock.

Berkshire also will get warrants to buy up to $5 billion of Goldman common shares.

2008-09-29 / Stock Sale:

Goldman Sachs followed through on it’s announced stock sale for $5B.

Goldman Sachs  on Wednesday priced a $5 billion public offering, doubling the amount of common shares it said it would sell the night before. The firm plans to sell 40.65 million common shares at $123.00 per share.

2008-09-25 / Resurrection:

As we wrote last week, the bell rings for Goldman Sachs too. This time it may have chimed for the very last time for Goldman Sachs as an investment bank. After years of burning the leverage candle at both ends the white hot profits of the investment doom have been pushed to the scrap heap of history and the new king of the mountain is deposit-banking. It is in the image of this new king that Goldman Sachs has been resurrected. <>

2008-09-17 / Q3 Earnings:

Here’s the new tally far:

1. Write-Downs/Charge-Offs: $6.175B + $1.1 B = $7.275B
2. Cash Raised: $0.0
3. Level III assets: $68B
   
4. Loan Loss Reserves: $0.0

We now sum all the distresses to get Goldman’s current Misery Index of  $75.275

2008-08-25 / Robin-Hooded:

Goldman Sachs has been forced to cough up cash to repurchase some of its own junk, specifically auction rate securities. Goldman was stung by a $22.5M fine and must buy back about $1.5B in auction rate notes.

2008-06-17 / Q2 Earnings:

Goldman Sachs reported credit-related write-downs of less than a billion dollars as they once again low balled estimates and then easily beat them. The write-downs that Goldman reported were $775M and hedging and other losses. They did not raise capital or even put a cent into provisions for loan losses, according to their financial statement. But the illiquid Level 3 toxins are seeping through the bank to the tune of $78B. Watch:

Goldman Sachs appears serenely above the fray, but don’t forget that at May this year its “Level 3″ assets were $78 billion, more than twice its capital.

Here’s the tally thus far:

1. Write-Downs/Charge-Offs: $5.4B + $775M = $6.175B
2. Cash Raised: $0.0
3. Level III assets: $78B
   
4. Loan Loss Reserves: $0.0

We now sum all the distresses to get Goldman’s current Misery Index of $81.175B.

2008-06-13 / Touchable:

There are some preliminary write-down estimates coming out for the big brokers for fiscal second quarter 2008, and Goldman Sachs is in the $3B to $6B range.

2008-05-22 / Write Downs Count of a Different Sort:

We have been keeping a running tally of write-downs and other credit-related distress taken by the major banks since 2007. But here comes a write-down count of a different sort: how much in write-downs and credit losses firms have written off per wholesale banking employee.

Goldman Sachs – $4.1B in write-downs, 30,000 employees, $133,667 per employee

2008-05-14 / Sisyphus and Leveraged Loans:

In the hey day of the credit bubble and the carry trade, Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers took in mountains of money making loans for leveraged buy outs. Banks make money by lending money so fewer loans usually translates to less profits. But in the topsy turvey aftermath of the credit bubble all loans are suspect and leverage loans among the most toxic, which is why the WSJ is reporting that, banks are trying to rein in their balance sheets:

…, Lehman Brothers and Goldman Sachs are the most exposed to higher-yielding, and riskier, loans as of the first quarter: Over one-third of Lehman’s loan book is in high-yield. Goldman’s book is about half high-yield. Lehman leads the pack among its rivals with $28.7 billion of exposure to leveraged loans as of the first quarter. Goldman chopped its exposure to $27 billion from $43 billion last quarter.

2008-05-08 - Sleight of 2008-05-08 - Not Quite “On The Level”:

Minyanville reports that Goldman’s level three assets have reached 191.56% of shareholder equity. For those that have bought into the current financials rally, are you feeling better about your Goldman purchase yet?

2008-04-14 / Goldman Sachs Gives Deep Discount to Relieve Debt:

And now even Goldman Sachs is running out of steam, running out of options, and just plain trapped by the credit crisis. So, with its veneer of invincibility wearing thin, Goldman is giving deep discounts on its debt saying ”take it, just make it go away.”

2008-04-09 / Goldman Sachs Level 3 Assets Surge:

What does Goldman Sachs do when it wants to beat the street by a penny, nickel or a billion dollars? They use the magic of level 3.

2008-04-07 / Goldman’s leverage ratio continues to go up:

With the financial industry scrambling to de-leverage their entanglement with debt securities, mostly held with borrowed money, Goldman Sachs is going the other way with its leverage ratios. Defiant or desperate, we will have to wait to see.

2008-03-21:

Mish points out something provocative about Goldman’s earnings:

“… commercial real estate loans that were moved from Level 2, where assets are valued in part using market prices, to Level 3.”

Goldman has $873 billion in assets. That means Goldman moved $8.73 billion in commercial real estate loans from Level 2 “Mark To Model” to Level 3 “Mark To Fantasy”. Something tells me Goldman did not like the answer their model was giving them.

That’s one bullet temporarily dodged with the usual disingenuous legerdemain. You can run but you can’t hide, boyz.

2008-03-18:

Goldman Sachs low-balled its earnings estimate, then reported that its income was halved from the year before. The hits included subprime mortgage related losses to the tune of $2B:

The bank made a net loss of $1bn on residential mortgage loans, a result of the ongoing sub-prime mortgage crisis. It also made a loss of another $1bn on some low-grade investments.

Immediately after that, the Golden one got (are you sitting down?) handed an upgrade from analyst Alexander Protsenko of Wachovia Securities. You can forgive for asking what Alex was paid for it, but that’s normal business procedure Wall Street:

…the company has a superior capital position among its peers and its AUM business is well positioned for either risk markets or liquidity. The exclusion of Bear Stearns from the competitive marketplace is expected to benefit Goldman Sachs going forward, the analyst adds.

No one knows anyone’s capital position. That was part of the original scam, Alex. And the take down of Bear Stearns, rather than aiding Goldman Sachs, portends the fate of it.

2008-03-17:

And the bell tolls too for Goldman Sachs. Today the planet’s greatest two-timing inside trading financial powerhouse just saw the monster of its making (and others) get $3B closer.

The bank’s $3bn write­down will be based partly on the declining value of its 4.9 per cent stake in Industrial & Commercial Bank of China (ICBC), which is held separately on Goldman’s balance sheet.

The $3B will almost certainly be followed by bigger and better write-downs. Whether or not it was supposed to, the steroid-injected investment house is slowing down, like an open field sprinter running out of gas. The weight of a $3B write-down doesn’t imply that the credit crisis will take down the bank, but the pack is catching up, and if they can catch Goldman Sachs who can they not catch?

The $3B in new write-downs updates the running total to $5.4B.

2008-03-11:

For Goldman Sachs, the downgrades keep coming. Last month it seemed that it would take a specialized volatile investment vehicle or a VIE to take down the Golden Godfather, but now it looks like the usual suspects will make a good showing for themselves:

The firm expects Goldman to report inventory mark downs totaling almost $5B in in the 1st half, including $3.5 billion in Q1, due to leverage loans, CMBS, and principal investments, including ICBC and SMFG and other equity investments.

What we are really interested to see is the exposure Goldman has due to the leverage on its own balance sheet. Is it reasonable or does it more closely resemble the 40 to 1 nature of Lehman? We will have to wait until March 18 to find out.

2008-02-27:

Bloomberg points out another reason Goldman’s nose is likely not as clean as you might think based on their write-downs so far:

VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn’t had any of the industry’s $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments.

…

Goldman, which earned a record $11.6 billion in the year ended in November 2007, said it avoided writedowns by setting up trades that would profit from a weaker housing market. Now the threat is $18.9 billion of CDOs in VIEs, the firm said in a regulatory filing on Jan. 29. Goldman spokesman Michael DuVally declined to comment.

VIE’s are yet another alphabet-soup three-letter-acronym that simply stands for “off-balance-sheet vehicle” (and hence, liability). We talk more about them over at our Citigroup entry.

Mish also has a nice rant on this subject and the above article.

$11.1B in losses from these plus some 20% losses on $26B of leveraged loans would come to an additional (approximately) $16B in further write-downs.

Numbers like that would easily wipe out Goldman’s ‘07 earnings. Entirely.

So, yeah, we’re not exactly ready to go long the Golden boys of finance just yet.

2008-02-20:

Investment banks now face around $197 billion in exposure to leveraged loans used to back big buyouts in 2007, adding inestimable stress to their efforts to extricate themselves from the credit crunch. Was it worth it?

Not for Goldman Sachs. In addition to the $2.4B we now see they have a whopping estimated $26B exposure to leveraged Loans they made during the bubble binge.

2008-01-29:

Goldman is an “interesting” case. The firm has only written down about $2.4B related to subprime, a number which was supposedly larger on a gross basis, but which was effectively reduced by hedging. Deutsche Bank figures there are remaining exposures of $1.8B in subprime CDOs, and $2.9B in subprime RMBS.

The bank’s own Q3 10K figures give $2.9B for CDO exposure.

In counterparty-risk land, Goldman reportedly has in excess of $23B in exposure to AA-or-lower counterparties. That comes to about 70% of tangible equity according to Dec. 2007 figures. Thus we reckon we have yet to see most of how the roiling of insurers and tottering of other counterparties involved with mortgage securitization has impacted Goldman Sachs.

The Company operates in three segments: Institutional Securities, Global Wealth Management Group and Asset Management.

Breakdown of the three business segments:

Institutional Securities

Institutional Securities includes capital raising; financial advisory services, including advice on mergers and acquisitions, restructurings, real estate and project finance; corporate lending; sales, trading, financing and market-making activities in equity and fixed income securities and related products, including foreign exchange and commodities; benchmark indices and risk management analytics, and investment activities.

Global Wealth Management Group

Global Wealth Management Group provides brokerage and investment advisory services covering various investment alternatives; financial and wealth planning services; annuity and other insurance products; credit and other lending products; cash management services; retirement services, and trust and fiduciary services.

Asset Management

Asset Management provides global asset management products and services in equity, fixed income, alternative investments, which includes hedge funds and funds of funds, and merchant banking, which includes real estate, private equity and infrastructure, to institutional and retail clients through proprietary and third-party distribution channels. Asset Management also engages in investment activities.

2009-09-10- John Mack one Foot Out The Door:

Even keeping his $40 million bonus for 2006 alone and the big bang pop of histories largest credit bubble and Morgan Stanley can only get one greedy fat foot John Mack’s out the door.

You can now be sure that the Obama administration mini bubble is fully inflated and set to pop. Morgan Stanley Chief Executive Ass Wipe, John Mack,  is stepping down, signaling the end of the ponzi crash dive.

Oh my kingdom for a banana peel.

2009-05-07-Stress Release:

Morgan Stanley reportedly passed the FED’s stress test to see if it was adequately capitalized, but regulators said it needed $1.8 billion to be adequately capitalized. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital.

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2009-04-22-Earnings-Q1:

For Morgan Stanley the writedowns march on as the bank took $2 billion of writedowns on financial securities and for an improvement in the firm’s commercial paper. The bank didn’t raise any new capital as far as we could find, undoubtedly waiting for the Stress Test results to do that. But held commercial paper of $1.0 billion and long-term debt of $23.7 billion, outstanding, both under the TLGP, as of March 31, 2009. The company lowered it’s level 3 to $67.4 billion, as of March 31, 2009.

Generally the bank prospered from one time trading gains, but still was unable to lower it’s pain total.

Morgan Stanley’s Tally:

1. Tally for Write-Downs/Charge-Offs:  $7.88 + $2.0B = $9.88B
   
2. Tally for cash raised Non TARP: $9.0B
3. Tally for cash raised TARP: $10 B
4. Tally for cash raised TGLP: $24.7B
5. Current level of Level III assets at $67.4
6. Current level of loan loss reserves at $??? M

Misery Index $121.0B

2008-12-18-Earnings-Q4:

Morgan Stanley dropped a bomb on it’s fourth quarter earnings report confessing that without $19B cash raising effort it would be well on it’s way to the pink sheets.

Morgan Stanley’s Tally:

1. Tally for Write-Downs/Charge-Offs: $5.58 B + $2.3B = $7.88
   
2. Tally for cash raised Non TARP: $9.0B
3. Tally for cash raised TARP: $10 B
4. Tally for cash raised TGLP: $6.0B
5. Current level of Level III assets at $78.4 B <–use the Q3 # until the 10 K>
6. SFAS 159: $2B <– From a gain from the falling value of of it’s own debt
7. Current level of loan loss reserves at $??? M
   

Misery Index $113.28B

2008-12-04 Morgan Raises $475M:

WOW grabbing $5.25B under the TLGP was so easy the first time Morgan Stanley decided to get another half a billion, the way you take a late night snack from your refrigerator.

Morgan Stanley on Thursday sold another $475 million of notes backed by the Federal Deposit Insurance Corp, according to IFR.

The bank sold $475 million of 2.25-year floating-rate notes, after increasing the offer from an original $350 million, said IFR, a Thomson Reuters service.

The notes were priced at par for a yield spread of 3-month London interbank offered rate plus 57.5 basis points. The bank acted as sole lead manager on the deal.

Last week, Morgan Stanley sold $5.25 billion of debt in a three-part deal backed by the FDIC. The sales are part of the government’s Temporary Liquidity Guarantee Program, which offers guarantees on debt issued by financial institutions with a maturity of no longer than three years.

That’s a big fat $6.0B snack from your refrigerator in eight easy days.

2008-11-26 Morgan Raises $5.25B via TLGP:

Cash raising from the government has become Morgan Stanleys most profitable business line these days and the bank is getting good at it and good at hiding it from public view. What appears to be an ordinary issue of $5.25B in commercial paper,

“The bank will offer $2.25 billion of 2-year fixed-rate notes, with price guidance indicating a range of midswaps plus 80 basis points, said IFR.

It will offer a second tranche of $2.5 billion of 3-year fixed-rate notes, expected to be priced at midswaps plus 85 basis points. The bank will offer a third tranche of $500 million 3-year floating-rate notes at the 3-month London Interbank Offer Rate plus 85 basis points.”

reveals itself under x-ray to be a bailout in drag.

The TLGP, which we’re pronouncing as Tillgup, is a huge government bailout of our banking industry, albeit one that has gotten very little attention. Under the Tillgup, the Federal Deposit Insurance Corp will guarantee new debt issued by a bank, which allows them to raise money at something close to a risk-free rate.

How big will the Tillgup be? No one knows

It’s the “no one knows” part thats has us affraid, very affraid!

2008-10-28 Morgan Raises $10B:

Morgan Stanley took$10B of your money under the TARP today. It was one among the nine big banks to divy up $250B.

Morgan Stanley was among the eight large U.S. banks to receive the Treasury Department’s initial round of capital investments — money described by Treasury officials not as a bailout, but rather as funds to help bolster “healthy” banks in tough times.

If Morgan Stanley is considered healty after a $10B transfussion you have to wonder what would be considered a sick bank.

2008-10-13 Morgan Raises $9B:

You can tack on $9B in cash raising to Morgan’s fourth quarter. We will not be surprised to see that tally move even further up from here. <>

2008-09-26 Hedge Funds Run:

Morgan Stanley had barely finished becoming a retail bank when it experienced a run by depositors, big-moneyed hedge fund depositors that is.  It was quite a punch in the nose for a bank just coming out of the gate.

2008-09-23 Resurrection:

Morgan Stanley reported is fiscal third quarter, settled with officials over auction rate securties and then quietly imploded as an investment bank. After years of burning the leverage candle at both ends, the white hot profits of the investment doom have been pushed to the scrap heap of history and the new king of the mountain is deposit-banking. It is in the image of this new king that Morgan Stanely has been resurrected.

2008-09-18 Earnings-Q3:

Morgan Stanley reported Wednesday and finally put its Q3 2008 10-Q online and there we found in the table on page 5 provisions for loan (consumer) loss of $472 million. Also from the New York Times we can get that the Level 3 assets grew from $69.2 billion last quarter to $78.4 billion at the end of Q3. Also the conditions of the auction rate securties settlement from page 113, state:

On August 13, 2008, the Company reached an agreement in principle with the Office of the New York State Attorney General and the Office of the Illinois Secretary of State, Securities Department (on behalf of a task force of other states under the auspices of the North American Securities Administrators Association) in connection with the proposed settlement of their investigations relating to the sale of auction rate securities (“ARS”). The Company agreed, among other things to: (1) repurchase at par illiquid ARS that were purchased by certain retail clients prior to February 13, 2008; (2) pay certain retail clients that sold ARS below par the difference between par and the price at which the clients sold the securities; (3) arbitrate, under special procedures, claims for consequential damages by certain retail clients; (4) refund refinancing fees to certain municipal issuers of ARS; and (5) pay a total penalty of $35 million. A separate investigation of these matters by the SEC remains ongoing.

That (1) is what will cost the bank $4.5 B.

1. Tally for Write-Downs/Charge-Offs: $1.08 B
   
2. TWrite-Downs/Charge-Offs for ARS: $4.5B
3. Tally for cash raised: $0.0
4. Current level of Level III assets at $78.4 B
5. Current level of loan loss reserves at $472 M
   

Misery Index $84.462 B

2008-08-15 Morgan Stanley Settles:

Morgan Stanley will buy back $4.5B of its peddled junk and pay a fine of $35M for dumping without license. It’s the kind of thing that happens every day, and you don’t feel bad about it unless you get caught. Morgan Stanley feels bad.

Morgan Stanley agreed to buy back $4.5 billion of debt and pay a $35 million fine,…

Regulators say brokerages misled investors into believing that auction-rate debt, which has rates that reset in periodic auctions, was safe and the equivalent of cash. Much of the $330 billion market has been frozen since February, when brokerages abandoned their traditional role as buyers of last resort.

Our twin tallies for Pain and ARS-Buyback now stand at $19.5B and $4.5B.

2008-06-19 – Cut Down:

The sleight of hand continues by Morgan Stanley. The bank has confessed to just $1.7B in credit-related write-downs. Page 16 of the Q2, 2008 10-Q shows a nice little graph of level 3 assets declining as a percent of total assets, but of course total assets are in decline as well. On page 19 it is clear that the ratio has not changed very much at all. Never the less we take the Level III number to be $1.031 B as advertised. So far we have been unable to discover the loan loss provisions amount for the company. Maybe they think they don’t need any. We think otherwise.

Here’s the tally thus far:

1. Tally for Write-Downs/Charge-Offs: $23 B
   
2. Tally for cash raised: $0.0
3. Current level of Level III assets at $1.031 B
4. Current level of loan loss reserves at $??

Misery Index > $24.0 B

And while they continue to avoid any mention of their radioactive Level III assets, they have managed to spin their second quarter 2008 results into a profit, Morgan has a lot of practice at this deception, but now each rabbit pulled from the deception hat seems noticeably smaller. Me thinks they are running out of time, options and hats. <>

2008-06-02 - Cut Down:

Morgan Stanley, the second-biggest U.S. securities firm by market value, was cut to A+ from AA- by S&P today in a move that may foretell more serious write-downs and credit-related losses to come.

2008-05-22 Write Downs Count of a Different Sort:

We have been keeping a running tally of write-downs and other credit-related distress taken by the major banks since 2007. But here comes a write-down count of a different sort: how much in write-downs and credit losses firms have written off per wholesale banking employee.

Morgan Stanley – $12.6B, 38,050 employees, $331,143 per employee

2008-05-14 – Sisyphus and Leveraged Loans:

In the hey-day of the credit bubble and the carry trade, Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers raked in mountains of money making loans for leveraged buy outs. Banks make money by lending money so fewer loans usually translates to less profits. But in the topsy-turvy aftermath of the credit bubble, all loans are suspect and leveraged loans are among the most toxic, which is why the WSJ is reporting that banks are trying to rein in their balance sheets. But it is not always so easy–

Morgan Stanley, for instance, has grown its loan commitments by about 45% a year since 2001, and shaved only 9% off its loan book in the first quarter.

Morgan Stanley still has $16B exposed to high risk loans.

2008-05-08 – Sleight of Hand:

In a Ponzi finance global economy the accounting method is by sleight of hand. In the preceding link, Minyanville reports that Morgan Stanley has the “honor” of being in the top ten of financial companies with more level 3 assets than shareholder equity. In MS’s case, they come in second, with a ratio of 234.88%. Congratulations Morgan Stanley!

2008-03-19:

The financial media sycophants keep tripping over themselves to promulgate the notion that Morgan Stanley didn’t lose revenue — they rather “beat estimates.” Leading the Pravda pack are MarketWatch.com and Bloomberg:

Morgan Stanley Net Beats Estimates on Equity Trading

When they finally did get around to reporting some numbers it turns out that “better than expected” still includes billions in WRITE-DOWNS:

• Subprime mortgage related write-downs of $1.2 billion
• Leveraged loans as well as closed and pipeline commitments mark downs of $1.1 billion
• In asset management, the firm reported a pre-tax loss of $161 million for the quarter as the unit lost money in real-estate investments and securities issued by structured investment vehicles.

And the company mentions just in passing that it took hits from the Fed’s credit crack pipe:

Morgan Stanley said it borrowed from the Fed’s new lending facility for primary dealers, which allows firms that deal directly with the central bank to borrow funds at the so-called discount-window rate available to commercial banks.

“We have tested the window because we want to remove the stigma from the window,” Chief Financial Officer Colm Kelleher said in an interview. “It’s meant to be there for normal business. It’s not meant to be there as a last-recourse thing.”

Or maybe they “tested” the discount window because they’re effectively broke, like the rest of Wall Street?

So JPM’s tally just increased by $1.1B + 1.2B= $2.3 B.

2008-02-21:

Oppenheimer analyst Meredith Whitney estimates Morgan Stanley could take additional write-downs of as much as $20B due to leveraged loans that it used to back big buyouts in 2007.

We will also have to follow the company’s accounting with regard to financial accounting standard rule FAS 159 which could allow the bank to report the widening of the credit spreads in its own debt as income. I’m not making this up. Speaking of FAS 159, take a look for yourself:

While the rule is clearly a boon to investment banks, it’s problematic for investors already reeling from multi-billion write-downs [...] on complex assets whose underlying values remain a mystery.

2008-01-30:From the structured investment vehicle (SIV) desk of our “off-balance-sheet-impact” department comes this bit about Morgan Stanley:

Morgan Stanley, the second-biggest U.S. securities firm, wrote down $169 million after helping its money funds by taking on bonds issued by structured investment vehicles.

Morgan Stanley bought $1.06 billion of SIV bonds, including $160 million since Dec. 1, the New York-based firm said in a filing yesterday with U.S. Securities and Exchange Commission.

Banks and money managers bailed out money funds that bought debt from SIVs after losses caused by the collapse of the U.S. subprime mortgage market threatened to push their value below 100 cents on the dollar, known as “breaking the buck.” SIVs, which use short-term borrowing to invest in higher-yielding securities, have cut their holdings by more than $100 billion from a peak of $400 billion last year, according to Moody’s Investors Service.

…

Morgan Stanley bought $900 million of SIV debt from money funds in the year ending Nov. 30, booking losses of $129 million on the notes, according to the filing. The firm wrote down $40 million on notes it bought since then.

Note that this appears to be booking losses on SIVs not owned by Morgan Stanley — in other words, they are eating the loss to protect their clients. That is probably a smart move.

This begets the question of who this SIV’s owners are – and who would not make good on the holdings. We don’t see any details to indicate that.

It looks like the above write-downs are in addition to any already reported in the bank’s main financial filings.

And of course, if the value of the assets falls further (or any more such funds remain to be rescued), these write-downs could increase. If anyone has more specific information, please let us know.

2008-01-29:

According to Morgan Stanley’s Q4/Annual report(for the quarter/year ending Nov. 2007) , the company wrote down $2.4B of subprime securities in the third quarter and $9.4B in the fourth. It also reported $1.7B in losses due to downgrades of bond guarantors, and $1.9B due to bond insurer ACA Capital in specific.

This brings the total losses to $13.7B for the year (barring retroactive revisions upward). That is about half of net revenue and more than five times Morgan’s $2.5B net income for the year. The company reports $3.6B remaining in net subprime CDO exposure, $2.7B in subprime RMBS, and $600M in direct subprime lending. Exposure to ACA Capital is reported at $700M and change. However, the company reports hedges of $5.1B which allegedly cancel much of this exposure, bringing it to $1.8B net, overall.

We have no figures on exposure to other sorts of questionable mortgage securities (such as Alt-A, seconds, Pay Options, etc.) at this time.

Below-AA credit derivatives exposure at the company is reportedly in the range of $18B (which would be about 58% of “tangible equity”).

Total derivatives exposure is to the tune of $40B.

Stay tuned.

Sun Trust has passed the FED’s stress test to see if it was adequately capitalized, but regulators said it needed $2.2 billion to be adequately capitalized. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital. So, if you pay no attention to the $2.2 billion, SunTrust passes it’s stress test.

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2008-07-22:

SunTrust’s profits are improving following a 22 percent decline in the first quarter 2008. They only fell 21 percent in the second quarter. Let’s cheer for them:

SunTrust Banks‘ profit fell 21 percent in the second quarter due to high credit costs, even after it sold a big stake in the Coca-Cola Co.

The Atlanta-based bank holding company had net income of $535.3 million and earnings of $1.53 a share, compared with net income of $673.9 million and earnings of $1.89 a share in the second quarter of 2007. Second quarter revenue rose 2.6 percent, to $2.6 billion.

In what could be deemed a cash raising-event, the bank sold 10M shares of Coke stock and wrote down to zero or had charge-offs of $323M. According to the bank’s 1Q 2008 10Q, Sun Trust has just shy of $48M of Level 3 waste on its balance sheet along with a healthy $343.3M increase in loan loss reserves, $448 M from $104.7 million in the second quarter of 2007. There was no capital raised other than the stock sale. Don’t worry, that goes straight to the tally.

1. Tally for Write-Downs/Charge-Offs: $718.7M + $323M = $1.41B
2. Tally for cash raised: $0.0
3. Current level of Level III assets at $47.966M
   
4. Current level of loan loss reserves at $448M

We now total all the distresses to get Sun Trust’s current Misery Index of $1.967B

HOORRRAHHH!!!

2008-04-22:

The credit crunch caught up to SunTrust in last year’s second quarter; since then, the bank has reported three quarterly profit declines. So, without skipping a beat, SunTrust wrote down another $163.7M for first quarter 2008:

SunTrust also had $163.7 million in net valuation losses during the first quarter, mostly from mark-to-market valuation adjustments on trading assets and loan warehouses, and certain asset-backed securities classified as available for sale.

With the value of of residential real estate eroding from underneath itself, the bank increased its loan loss provisions:

SunTrust set aside $560 million for credit losses, up. Net charge-offs nearly quintupled to $297.2 million,

Then the bank beefed up its ability to take a punch by ratcheting up its Tier-1 capital ratio, which measures its ability to cover losses:

… rose to 7.25 percent from the fourth quarter’s 6.93 percent, but remains below its 7.50 percent target. Regulators say 6 percent reflects a “well-capitalized” bank.

We recorded $555M in write-downs and distresses for them in all of 2007. For first quarter 2008 we add

• Write-downs of $163.7M
• Net charge-offs of $297.2M
• Loan loss provisions of $560M

This brings the write-down total to $718.7M and the total including all new distress to $718.7M + $297.2M + $560M = $1.5B

2008-04-13:

SunTrust wrote down an additional $555M in its fiscal fourth quarter, brining full year 2007 write-downs to $777M. Most of the fourth quarter write-downs were actually accounted for in the third quarter, but as the credit crunch set in and asset values crumbled, the money gap widened. So, in the fourth quarter, Sun Trust more than doubled its write-downs and related funding.

According to the bank’s fourth quarter presentation, the write-downs are due to an off-balance sheet, multi-seller asset-backed commercial paper (ABCP) program established in 1999: “Three Pillars” ($145M), “Affiliated Mutual Fund” ($250M) and a Private Placement ($116M), plus a few odds and ends.

2008-01-31:

SunTrust wrote down a tiny $13M related to subprime loans in the second quarter of 2007, seeming to get away fairly unscathed. However, in the third quarter this figure jumped to $209M. While still small compared to the hits mega-banks have been taking, the sum is relatively large for mid-sized SunTrust (whose annual net income in 2006 was just over $2B).

Deutsche Bank estimates that SunTrust has another $1.7B in direct subprime lending exposure that has not been written down (Jan 2008 figures).

The Company’s activities are organized into six business segments: Investment Bank, Retail Financial Services (RFS), Card Services (CS), Commercial Banking (CB), Treasury & Securities Services (TSS) and Asset Management (AM).

Its wholesale business comprises the Investment Bank, Commercial Banking, Treasury & Securities Services, and Asset & Wealth Management.

Its consumer business comprises Retail Financial Services and Card Services. It also has a corporate segment, which includes Private Equity, Treasury and Corporate operations.

Breakdown of the six business segments:

Investment Bank

The Investment Bank’s clients are corporations, financial institutions, governments and institutional investors. The Company offers a range of investment banking products and services in many capital markets, including advising on corporate strategy and structure, capital raising in equity and debt markets, risk management, market-making in cash securities and derivative instruments, and research. The Investment Bank also commits JPMorgan Chase’s own capital to investing and trading activities.

Retail Financial Services

RFS, which includes the Regional Banking, Mortgage Banking and Auto Finance reporting segments, serves consumers and businesses through bank branches, automated teller machines (ATMs), online banking and telephone banking. RFS serves customers through more than 5,400 bank branches, 14,500 ATMs and through relationships with more than 16,000 auto dealerships and 4,800 schools and universities. More than 21,400 branch salespeople assist customers, across a 23-state footprint from New York and Florida to California.

Card Services

CS is a credit card issuer. It has more than 168 million cards in circulation and $190 billion in managed loans. Customers used Chase cards for over $368 billion worth of transactions during the year ended December 31, 2008. Chase Paymentech Solutions, LLC, a joint venture with JPMorgan Chase and First Data Corporation, is a processor of MasterCard and Visa payments.

Commercial Banking

CB serves more than 26,000 clients, including corporations, municipalities, financial institutions and not-for-profit entities. In partnership with the Company’s other businesses, it provides solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.

Treasury & Securities Services

TSS is engaged in providing transaction, investment and information services. It also offers cash management and global custodian services. Treasury Services provides cash management, trade, wholesale card and liquidity products and services to small and mid-sized companies, multinational corporations, financial institutions and government entities. Treasury Services partners with the Commercial Banking, Retail Financial Services and Asset Management businesses to serve clients Company-wide. Worldwide Securities Services (WSS) holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and manages depositary receipt programs globally.

Asset Management

Asset Management (AM) offers investment and wealth management services. AM clients include institutions, retail investors and high-net-worth individuals in various markets throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity, including both money market instruments and bank deposits. AM also provides trust and estate and banking services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM’s client assets are in actively managed portfolios.

2009-07-17 – Q2-Earnings Report:

J.P. Morgan had a profitable fiscal second quarter 2009. The bank was extremely busy on both fronts, it’s business front based on Wall Street and its influence peddling front based on K street. And as banking and lobbying converge J.P. Morgan emerges along with out the competition of Lehman Brothers and Bear Stearns.  But even as Morgans subprime writedowns abate the bank takes a $478 million hit in its prime mortgages, as charge-offs climbed to $1.3 billion, and credit cards lost $672 million compared to 250 million in the second quarter last year.

We tally it up below.

1. Tally for Write-Downs/Charge-Offs: $18.442B + $2.45B = $20.89B
2. Tally for cash raised Non Gov:                 $10.0B-$10B = 0.0
3. Tally for cash raised for TARP:                 $25.0B
4. Tally for cash raised for Gov Non-TARP:  $5.9B
5. Current level of Level III assets:               $145.3B<—(pg 78 of 10-Q)
6. Provision for credit losses                       $8.5B     <—(pg 3 of 10-Q)
7. Provision for loan losses $8.6B      <—(note 15 of 10-Q)

Pain Total is $221.742

2009-06-16 Pay Back (TARP):

In an effort to get out from under TARP restrictions on exectuive bonous and the hiring of foreign workers JP Morgan repaid the TARP funds today that it accepted in October 2008.

JPMorgan Chase & Co. (NYSE: JPM) announced today that it repaid in full the $25 billion preferred stock investment it accepted through the Troubled Asset Relief Program (TARP). In addition to this principal amount, JPMorgan Chase has paid the U. S. Treasury an aggregate of $795,138,889 in dividends on the preferred stock, including dividends that had accrued through the redemption date. The company will also notify the U.S. Treasury today of its intent to repurchase the 10-year warrant issued to the Treasury in connection with the preferred investment.

The bank had to take a $1.1 million charge for it’s efforts. The real battle is brewing now over repayment of the warrants which were sold to the government along with the stock shares.

2009-06-16 Dividend Declared:

The Board of Directors of JPMorgan Chase & Co. declared a quarterly dividend on the outstanding shares preferred shares today.

– 6.15% Cumulative Preferred Stock, Series E – $3.075 per share (equivalent to $0.76875 per Depositary Share)

– 5.72% Cumulative Preferred Stock, Series F – $2.86 per share (equivalent to $0.715 per Depositary Share)

– 5.49% Cumulative Preferred Stock, Series G – $2.745 per share (equivalent to $0.68625 per Depositary Share)

The dividends for the Preferred Stock Series E, F and G are payable on July 15, 2009, to stockholders of record at the close of business on June 30, 2009.

2009-05-19 A Scarlet letter:

On October 28 J.P. Morgan excepted a $25 billion bailout from the federal government, today Jamie Dimon in his speech before shareholders called the handout a scarlet letter and vowed to pay it back.  We won’t argue with Mr. Dimon’s characterization, but in the speech it is clear he really thinks it’s an albatross of government restrictions.

The TARP comes with limits on executive compensation, which have many banks already angling to exit the program. Indeed, because it took part in the TARP, JPMorgan has to give its shareholders a nonbinding vote Tuesday on executive pay.

However, Mr. Dimon’s speech focused on a different aspect: The TARP’s restrictions on the hiring of foreign workers through the H1-B visa program, which he called a “complete and utter disgrace.”

In essence, the TARP legislation requires participating banks to show that they will not displace an American from a job filled by an immigrant.

How typical for Wall Street, Mr. Dimon wants the free lunch and you to pay for it.

2009-05-07 Stress Release:

JP Morgan reportedly passed the FED’s stress test to see if it was adequately capitalized, with no need to raise any more cash. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital.

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2009-04-16 - Q1 Earnings:

JP Morgan used it’s fiscal first quarter earnings reporting session to ingratiated itself back into investor good graces with a combination of self promotion and propaganda (promogate). Did it work? No one knows, but the bank is certainly no healthier after one time gains on trades and it still needed FDIC to guarantee is it’s bonds that would otherwise be junk.

The bank claimed $147.7B of level 3 assets, but subtracted $3.4B for which it claims on exposure leaving $145.3B as the reported level-3 number, representing 7% of total assets. It’s a good thing for Morgan that there is a push to lossen fair value and mark-to-market accounting standards.

1. Tally for Write-Downs/Charge-Offs: $18.14B + $302MB = $18.442B
2. Tally for cash raised Non Gov:                 $10.0B
3. Tally for cash raised for TARP:                 $25.0B
4. Tally for cash raised for Gov Non-TARP:  $5.9B
5. Current level of Level III assets:               $145.3B<—(pg 78 of 10-Q)
6. Provision for credit losses                       $8.5B     <—(pg 3 of 10-Q)
7. Provision for loan losses $8.6B      <—(note 15 of 10-Q)

Pain Total is $221.742

2009-01-15 - 2008-Q4 Earnings:

JP Morgan’s pedegriee delivered praise for the surprise fourth-quarter $1.3B profit the reported, but any child of a lesser God would have been unceremoniously kicked back to earth, with the market  seeing through the loser.  For JP Morgan our tally ramps up.

1. Tally for Write-Downs/Charge-Offs: $15.24B + $2.9B = $18.14B
2. Tally for cash raised Non Gov: $10B
3. Tally for cash raised for TARP: $25B
4. Current level of Level III assets at $7.3B,<—(use Q3 # as an estimate)
5. Current level of loan loss reserves at $3.81B + $4.4B = $8.29B

Pain Total is $68.73B

2008-11-13 Loan Mod Feeding Frenzy:

Morals are of no matter when profit and survival are on the line. The feeding frenzy on mortgage borrowers and taxpayers never ends, and JP Morgan has just joined the fray. <>

2008-10-17 Q3 Earnings:

JP Morgan said today it sold $10 billion of shares at $40.50 apiece to raise capital.

1. Tally for Write-Downs/Charge-Offs: $11.0B + $4.24B = $15.24B
2. Tally for cash raised Non Gov:     $10.0B
3. Tally for cash raised for TARP:     $25B
4. Current level of Level III assets at $6.0B + $1.3B = $7.3B
   
5. Current level of loan loss reserves at $3.81B
   

Adding 1.-4. we get the Misery Index = $*** B

2008-10-28 JP Morgan Crawls Under TARP:

JP Morgan got it’s greedy hands dirty with your money by  crawling under TARP for $25B. Did you hear any thank yous?

2008-08-25 Fannie & Freddie Bite:

Now we know the real reason Treasury Secretary Hank Paulson engaged in such a full sprint to prop up Fannie and Freddie before the Olympics. It wasn’t just to save the Chinese. Let’s take a look:

JP Morgan Chase estimated that its holdings of Fannie Mae and Freddie Mac preferred stock lost about half of their value the third quarter now underway, according to a regulatory filing with the Securities and Exchange Commission. JP Morgan says it owns preferred shares of Fannie and Freddie with a $1.2 billion par value that has been written down by $600 million.

It’s nice to see that Paulson is still in business taking care of his buddies on Wall Street. The Street certainly takes care of its own, but so far all the kings men can do little but catch a falling knife. Since the write-down has already been taken according to a regulatory filing, we’ll add $600M to JP Morgan’s total pain, bringing it to $20.1B.

2008-08-15 Morgan Settles:

JP Morgan will buy back $3B of peddled junk and pay a fine $25M for dumping without license. It’s the kind of thing that happens every day, and you don’t feel bad about it unless you get caught. JP Morgan feels bad.

JPMorgan agreed to buy back $3 billion of debt and pay a $25 million fine.

Regulators say brokerages misled investors into believing that auction-rate debt, which has rates that reset in periodic auctions, was safe and the equivalent of cash. Much of the $330 billion market has been frozen since February, when brokerages abandoned their traditional role as buyers of last resort.

Our twin tallies for Pain and ARS-Buyback now stand at $19.5B and $3B.

2008-08-12 Falling Faster:

It wasn’t JP Morgan that took down Bear Stearns. Rather it was the credit crunch, and now that same merciless disaster follows Morgan’s every move. In just two months, the bank has already exceeded its second quarter write-down total.

JPMorgan Chase & Co. had its biggest decline in six years after reporting a $1.5 billion loss on mortgage-backed assets in less than two months.

Could it be that the credit crisis offers no reprieve, not even to those whose CEOs squat at the Federal Reserve Board meetings? <>

2008-07-23 Q2 Earnings:

JP Morgan took $1.1B of write-downs due mainly to mortgages and leveraged buyout loans gone sour. The company reported earnings of over $2B in the second quarter, along with a sundry of write-downs and distresses which included a $1.25 billion increase in loan loss provisions. Using the company’s numbers of $1.1B as a low ball estimate of write-downs taken for its fiscal second quarter 2008, let’s do some math.

1. Tally for Write-Downs/Charge-Offs: $9.9B + $1.1B = $11.0B
2. Tally for cash raised: = $0.0
3. Current level of Level III assets at $6.0 B
4. Current level of loan loss reserves at $1.25 B + $1.25B = $2.5 B
   

Adding 1.-4. we get the Misery Index = $19.5 B

2008-06-23 Is Morgan in Trouble Again?:

JP Morgan devoured Bear Stearns in March, and was then spurned by Washington Mutual. Now the bank is making another high profile move, this time to acquire Wachovia.

2008-05-22 Write-Down Count of a Different Sort:

We have been keeping a running tally of write-downs and other credit-related distress taken by the major banks since 2007. But here comes a write-down count of a different sort: how much in write-downs and credit losses firms have written off per wholesale banking employee.

JPMorgan Chase – $9.8B, 25,000 employees, $392,000 per employee

2008-05-21 – Leaving London:

It is probability the best thing, maybe the only thing, JP Morgan can do, but now there is one less subprime lender in the UK. In fact, all the banks including JP Morgan have severely limited credit flow to all borrowers. Thus spreads a contagion.

2008-04-17: On The Sly

At its earnings release, JP Morgan CEO Jamie Dimon said the credit crisis is almost over, but then did something to make it seem like it’s just got off the ground. Like a politician seeking bribes, Dimon went with hat in hand in an attempt to collect $6B. Maybe it’s just for a rainy day? We are not making this up. As for the earnings reported, they included $2.6B in first quarter write-downs:

The New York-based bank set aside $4.42 billion for loan losses and took about $2.6 billion in write-downs tied to mortgages, loans to fund corporate buyouts and tight credit markets. Its allowance for credit losses rose $2.52 billion from the end of 2007 to $12.6 billion.

The company also set aside $1.1B in the first quarter for future home equity loan defaults, up by $395M from the fourth quarter of last year. Counting the loan loss provisions as a distress, we get

$3.7B + $5.1B +$1.1B = $9.9B

2008-04-16: JP Morgan Earnings Cut in Half

Don’t look now, but JP Morgan just gobbled up another $5.1B in write-downs.

JPMorgan Chase & Co., the third- biggest U.S. bank, said profit fell 50 percent after $5.1 billion of writedowns and provisions linked to subprime mortgages, bad home-equity loans and financing for leveraged buyouts.

Thats almost double the prior $3.7B to which we add.

$3.7B + $5.1B = $8.8B

2008-04-15 : Bear Stearns Pukes as Earnings Fall 79%

JP Morgan may have a bit of indigestion after swallowing whole Bear Stearns and its rotting balance sheet.

2008-04-13 : Leader of the Pack?

It may be that JP Morgan is sprinting to catch Goldman Sachs as the leader of the Wall Street pack. If they catch up, things will play out the old fashion way: buyouts. One thing is certain: Morgan has already surpassed Barclay’s in one important measure.

2008-03-26 (2):

Don’t look now, but Bloomberg reports in a long article on credit lines that JP Morgan has about $251B of undrawn credit line commitments (or at least, they did at year-end 2007). This is much worse a fact than it would seem in isolation, since now more than at any other time in living memory, borrowers need to draw down those credit lines (which is the main point of the article).

2008-03-26:

In “Grim Outlook for JP Morgan,” Yves Smith picks up a thread from Institutional Risk Analytics and discusses how JP Morgan is hardly bulletproof, despite their role as would-be savior of Bear Stearns and presumably of the financial economy by extension:

JPM is far from a financially strong institution. It has the highest gearing of any of the three large US banks (and remember, that includes the CDO-laden, walking wounded Citigroup) and by their measures, also has the highest level of economic risk per their metrics. JPM’s chickens have not yet come home to roost because its book is heavily weighed toward corporate business, and those problems are coming to the fore later….

Although IRA does not say so explicitly, the reasoning appears to be that the Fed pushed Bear into JPM’s arms as a way to shore up JPM. If asking a firm to take on a $13 trillion derivatives book, of which only $2 trillion is exchange traded, is a favor, I’d hate to see what punishment looks like.

Smith goes on to compare the current implicit consolidation strategy with a “martingale” gambling strategy. That’s nearly as bright as it sounds. God help us all.

Some more, quoted directly from IRA:

To understand the grim outlook for JPM, start the analysis with derivatives. Because of its huge market share in all manner of OTC derivatives, JPM represents a “super sample” of overall OTC market risk. In terms of total size vs the bank’s balance sheet, JPM’s derivatives book is more than 7 standard deviations above the large bank peer group.

Because of this huge OTC derivatives book, the $1.6 trillion asset bank can tolerate just a 15bp realized loss across its aggregate derivatives position before losing the equivalent of its regulatory Risk Based Capital (RBC). And much like the GSEs, JPM’s positions are too big to hedge – despite what Mr. Dimon may say to the contrary about laying off his bank’s risk. And note that we have not even mentioned subprime assets yet.

…

At the end of 2007, JPM aggregated 97bp of gross loan charge offs, 1.25 SDs above peer, and produced a Loss Given Default of 85%, likewise well above peer. The Exposure at Default calculated by the IRA Bank Monitor using data from the FDIC was 202%, more than 2 SDs above peer.

With Bear Stearns included, JP Morgan now has a $90T (yes, that is Trillion with a “T”) book of derivatives. Only $2T of Bear’s $13T were exchange-traded.

2008-02-20:

The beat goes on.

JP Morgan Chase was the bookrunner for $217B of US leveraged loans last year, has $26.4B of exposure to show for it, and came away with $1.3B in fees. But JP Morgan would have had to write down $1.5B of its leveraged loans if they had fallen at the same rate as the market.

We will have to see how much they write down and when or if they sweep it off their balance sheet in some shady accounting trick.

2008-02-04

JP Morgan has written down very little so far: $1.3B in the fourth quarter, and $2.4B in the third (due to subprime). However the money center bank still managed to turn a profit of almost $3B, leaving its stock to hold out better than most of its competitors (though most are rallying thanks to aggressive Fed rate cuts — which as we all know will solve all of the problems documented on this site!).

But according to pre-fourth quarter Deutsche Bank data, JP Morgan still has about $12B of subprime loans on its books, and $6.8B of subprime CDOs. They may also have considerable exposure to otherwise risky non-subprime mortgage loans (and other sorts of consumer loans). One area in specific is home equity loans, which falter as market values drop (per the article linked above):

Dimon and his team have underestimated the losses on the bank’s $95 billion portfolio of home equity loans.

Late last year, Dimon said home equity losses would be $250 million to $270 million per quarter over the next several quarters. On Wednesday during a conference call, the company said the losses could be $100 million more per quarter than its earlier forecast.

Home-equity losses also contributed to the 38 percent decline in fourth-quarter profit at Wells Fargo & Co, the first decline in more than six years.

Wow! That $95B is a huge source of write-down risk.

This certainly will not be helped by the trends of a recession (prime borrowers losing their jobs or failing to get raises and becoming unable to pay), inflation and people simply walking away from their homes when they are underwater. Home equity loans, as second liens, quickly become worthless in depreciating markets combined with short-sale or foreclosure situations.

We’d wager that the write-downs JP Morgan has taken so far will be dwarfed by the ones they take on these and other shaky consumer loans still on their books.

US Bancorp reportedly passed the FED’s stress test to see if it was adequately capitalized, with no need to raise any more cash. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital.

<> 

2008-22-10 Q3:

US Bancorp reported third quarter results, which show that the bank is much better off than most others in this credit crisis, meaning that it’s sinking slowly instead of like a rock.

Update:

1. Tally for Write-Downs/Charge-Offs: $1.6B + $498M = $2.098B
   
2. Tally for cash raised: = $0.0
3. Current level of Level III assets at $1.7 million
   
4. Current level of loan loss reserves at $748 million
   

We now sum all the distresses to get the current Misery Index of $3.016 B

2008-07-15:

US Bancorp reported Q2 2008 results today and was greeted with an immediate downgrade from Deutsche Bank. Net charge-offs in the second quarter of 2008 were $396 million, compared with net charge-offs of $293 million in the first quarter of 2008, bringing the write-downs tally from $1.2B to $1.6B.

The bank just adopted SFAS 157 to price derivative at fair market value and they have already taken the charge against earnings.

…a $62 million unfavorable impact in first quarter of 2008 related to the adoption of
Statement of Financial Accounting Standard No. 157 “Fair Value Measurements” (“SFAS 157”) on the
valuation of certain derivatives.

On its 2008 Q2, the bank lists as significant items include

…provision for credit losses, losses, which exceeded net-charge-offs by $200 million. Provision for credit losses for the second quarter of 2008 was $596 million, an increase of $111 million over the first quarter of 2008 and $405 million over the second quarter of 2007. This represented an
incremental increase to the allowance for credit losses of $200 million in the second quarter of 2008 and $192 million in the first quarter of 2008.

Update:

1. Tally for Write-Downs/Charge-Offs: $1.2 B + $396 M = $1.6 B
   
2. Tally for cash raised: = $0.0
3. Current level of Level III assets at $0.0
4. Current level of loan loss reserves at $596 M
   

We now sum all the distresses to get the current Misery Index.

Misery Index = $2.2 B

2008-16-04:

First there was no housing bubble, then there was not going to be a recession and now thankfully there is not going to be Armageddon under any circumstances, according to US Bancorp CEO Richard Davis. So why is his bank setting aside $485M for credit losses, up from $177M a year earlier? For that matter, I would like to know why

• Net charge-offs rose to $293 million from $177 million, and nonperforming assets rose 45 percent to $845 million.
• And why are there $253 million of write-downs from buying complex debt from money market funds managed by an affiliate.

But of course it’s not our place to ask why, but rather how much. Let’s just count the write-downs of $253M and remember that net charge-offs rose to $293M, bringing the tally to 1.236B from $690M.

2008-16-02:

U.S. Bancorp, the parent of U.S. Bank, posted net income of $942M, for its 2007 fiscal fourth quarter – a 21 percent drop from a year earlier. Meanwhile, full-year 2007 net income was $4.3B, down from $4.7B a year ago. The quarterly results ‘include a nine-cent charge related to litigation involving Visa ($215M – wow!) and a four-cent loss on securities bought from some money-market funds ($107M – ouch).

According to its Q4 earnings release the bank astoundingly suffered no serious write-downs directly related to the subprime mortgage debacle. However, net charge-offs in the fourth quarter were $225M, up from $199M in the third quarter of 2007 and $169M in the fourth quarter of 2006.

The increase was attributed primarily to credit cards, and somewhat higher commercial loan net charge-offs. The commercial and commercial real estate loan net charge-offs increased to $46M in the fourth quarter of 2007, but represent only 0.23% of average loans outstanding. We should note that liability from nonperforming assets is creeping upward. Again, from page 16 of the fourth quarter earnings release:

‘Nonperforming assets at December 31, 2007, totaled $690 million, compared with $641 million at September 30, 2007, and $587 million at December 31, 2006. ‘

This clearly represents a risk from the change in credit conditions as we barrel into recession, and the bank raised the provision for credit losses from $26M from the third quarter to $225M in the fourth quarter. In fourth-quarter 2006, the number was $56M.

All in all, U.S. Bancorp seems infinitely better suited to navigate the credit crisis than some of it’s rivals, but things change fast and there are no guarantees for anyone. So it was that on February 13 “The chairman, president and chief executive of US Bancorp exercised options for 135,918 shares of common stock, according to a Securities and Exchange Commission filing…”:

Happy Valentine’s day!

Bank of America happily paid a dime on the dollar it owed the US and me taxpayer. Where have you gone Judge Rakoff  an helpless nation turns it self away, again.

Thus, taxpayers were owed $4,427 billion for the guarantee. They got $425 million. That is less than 10 cents on the dollar. Just because you don’t burn down your house, the insurance company will not give you a ninety percent refund of the premiums.

2009-09-16- Cumo and Board to Talk:

Just a day after Judge Rakoff has rejected the settlement deal between the SEC and Bank of America, Andrew Cuomo wants to have a little yikittie yack session with the Bank of America board over the disclosure related to Merrill bonuses.

Bank of America’s board of directors will be hauled into the New York Attorney General’s office to explain what happened as the bank struggled to close its acquisition of Merrill Lynch.

2009-09-15- 2009-The Judge Says No Deal:

No sooner had the cozy little deal cut by the lapdog SEC and Bank of America just got nixed today by Judge Rakoff,

Judge Rakoff has rejected the settlement deal between the SEC and Bank of America. He clearly wasn’t happy with it to begin with, and subsequent briefs from the two parties did nothing to allay his concerns. At the end of the day, he hated the idea that B of A shareholders, on whose behalf the SEC actually brought the case, would end paying the fine for executives’ wrongdoing.

than did Andrew Cuomo start salivating for headlines.

The attorney general is preparing civil charges against some of the Charlotte, North Carolina-based bank’s executives, including perhaps “some of the very highest-ranking,” according to a person familiar with the probe.

“Individuals are at the heart of what the attorney general’s investigation is looking at,” according to the person, who requested anonymity because the probe is ongoing.

Shows that one self agrandizing New York State attorney general, trumps an entire federal lapdog agency.

2009-07-17- Q2-2009 Earnings Report:

Bank of America lumbers with the twin loads of mortgage rot from Countrywide Financial and Merrill Lynch, but with a number of one off items still managed to $3.2 billion second quarter profit. There were no direct writedowns to mention, but there were several other distresses. The home loan and insurance unit lost $725 million, card services swung to a $1.62 billion loss, corporate loans declined $7.8 billion and assets no longer collecting interest rose to $30.98 billion. Debts the bank doesn’t expect to be repaid jumped to $8.7 billion.

The banks are becoming more sophisticated with their cash raising and Bank of America is no exception benefitting from the shadow bail out system issuing more than $40B in Federal Reserve backed debt.

Start with the old total $72.1B: Add

1. Write-Downs/Charge-Offs: $22.5B + $725 M + $1.62B= $24.85B.
   
2. Cash Raised:                        $1.9B +$5.3B  = $7.2B                (both from selling China Corp)
3. TARP:                                   $45B                  (As of Q1 2009)
4. Gov non-TARP:                    $20B
   
5. Previous Cash Raised:          $151B
6. Level III Assets:                    $59.41B <—-table pg 171 0f 10-K
7. SFAS 157:                             $2.2B    (Merril Notes)
8. Provision for Credit Losses: $13.9B
9. FED Baced Debt Issued        $40.0B

Our sum will not include number 8 since the bank can still repay it, but we don’t count on that.

We now sum 1-7 to get $251.9B

2009-05-07-Stress Release:

Bank of America reportedly passed the FED’s stress test to see if it was adequately capitalized, but regulators said it needed another $34 billion to be adequately capitalized. The bank quickly claimed it could meet the $34 billion requirement.

In acknowledging the need to meet regulators’ demands, Bank of America said the government overestimated the bank’s potential losses and underestimated its potential earnings power. The government estimated Bank of America, which has total assets of $2.3 trillion, could sustain losses of $136.6 billion in 2009 and 2010 in a more severe downturn, but cautioned that number wasn’t a projection but a “what-if” scenario.

“Frankly we think that scenario unlikely and looking like less and less of a possibility every day,” Lewis said in a conference call with analysts, adding he believes the economy has hit bottom.

Frankly we have heard truths and lies from Ken Lewis before, and they usually come in the same breath.

<>

2009-04-21- Q1-2009 Earnings Report:

Bank of America reported in the theme of the credit bubble past, namely focus on the profits, and burn the losses, but when the the smoke clears what’s left for fiscal Q1 2009, is a booked profit of $4.2B on mixed in with a $7B writedowns. The profits however are unsustainable coming as they do from old familiar sources, stock sales,an  SFAS 157 accounting gain on the decrepid debt of Merril Lynch.

What the profits are related to is one time profits on trading gains, proceeds from costly and divisive acquisitions of Merrill Lynch and Countrywide Financial. The bank dumped $2 billion worth of it’s holding in China Construction Bank, Countrywide contributed mortgage refinancing volume and Merrill Lynch tacked on another $2 billion by seeing the value of it’s structured notes take a beating.

The banks are becoming more sophisticated with their cash raising and Bank of America is no exception benefitting from the shadow bail out system issuing more than $40B in Federal Reserve backed debt.

Start with the old total $72.1B: Add

1. Write-Downs/Charge-Offs: $15.5B + $7.0B = $22.5B
   
2. Cash Raised Current Quarter:                             $1.9   B                           (from selling China Corp)
3. Previous Cash Raised:                                            $176 B
4. Total Cash Raised:   (3+4)                                   $177.9 B
5. TARP:                                                              $45B    + $0.0              (As of Q12009)
6. Gov non-TARP:                                           $20B    + $0.0
7. Level III Assets:                    $59.41B <—-table pg 171 0f 10-K
8. SFAS 157:                             $2.2B    (Merril Notes)
9. Loan Loss Reserves: $8.5B + $6.4B = $13.9B
10. FED Baced Debt Issued        $40.0B

Our sum will not include number 8 since the bank can still repay it, but we don’t count on that.

We now sum 1-7 to get $251.9B

2009-01-17 2008 Q4 Earnings Report:

Bank of America reported a fourth-quarter loss but full year 2008 profit which did not include $15 billion in losses from its newly acquired albatross Merrill Lynch. In more pedestrian matters, the bank charged off $5.54 billion of loans as uncollectable and increased loan-loss reserves to $8.5 billion. The bank now acts as a cash conduit from the Treasury to  Merrill Lynch, whose buyout is nothing more than a bailout in drag we reckon.  When that bailout began to drag the bank down, Bank of America pushed back.

Now the largest U.S. bank by assets, Bank of America posted a fiscal fourth-quarter 2008 loss of $1.79 billion last week, its first since 1991, and received $138 billion in emergency government funds in addition to $3 billion from the sale of China Corp. shares.

Start with the old total $72.1B: Add

1. Write-Downs/Charge-Offs: $9.96B + $5.54B  = $15.5B
   
2. Private Cash Raised:              $10.0B + $3B       = $13B           ($3B from selling China Corp shares)
3. TARP(CPP):                                        $25B + $20B     = $45B
   
4. Gov non-TARP:                                                  = $118 B
5. Total Cash Raised                                             = $176
   
6. Level III Assets: $??B <—-table pg 171 0f 10-K–
7. Loan Loss Reserves: $8.5B.

We now sum 1-4 +6+7 to get The Bank of America’s  current Pain Factor > $200B

2009-01-16- Bank of America gets Bailed Out Again:

The Treasury gave Bank of America another $20B of TARP funds to help it digest the Merril morsel it swallowed on Jan. 1. Then the FDIC joined the bail-out party.

Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value.

2009-01-09- $10B More Bail-Out Bucks via Capital Purchase Program (CPP) under TARP:

Bank of America got another $10B taxpayer gift as the government bought $10B worth of preferred stock and warrants.  This money was originally designated for Merrill Lynch, which Bank of America acquired and brings the banks take to $25 billion. The $25B big ties the bank for the lead with Citigroup, JP Morgan and Welss Fargo.

2009-01-07 Cashing Out China Construction Bank:

Bank of America  kicked the new year off right, raising capital and dropping $3 billion bomb on China Construction Corp.

2009-01-01- Merrill Lynch a Done Deal:

The Bank of America and Merrill Lynch shotgun wedding became official today. From the Bank of America news release.

Bank of America Corporation today completed its purchase of Merrill Lynch & Co., Inc. creating a premier financial services franchise with significantly enhanced wealth management, investment banking and international capabilities.

“We created this new organization because we believe that wealth management and corporate and investment banking represent significant growth opportunities, especially when combined with our leading capabilities in consumer and commercial banking,” said Bank of America Chairman and Chief Executive Officer Ken Lewis. “We are now uniquely positioned to win market share and expand our leadership position in markets around the world.”

Well they probabily created this new orginization because the Fedral Reserve held a gun to the banks head, but for better or worse the deal id done the dammage is coming.

2008-12-10 Enemy at The Gate:

In what could be the first flash point of the credit crisis, Bank of America is facing down angry peons whose job the bank threatens and whose paychecks the bank pilfered via TARP.

2008-12-03 Bailout Bonanza:

Bank of America took its bailout bucks and used them to retain its employees, as advertised. Just kidding — in reality Bank of America cut 30,000 jobs and picked up $14.5 billion of sinking China Construction Bank.

2008-11-13 Loan Mod Feeding Frenzy:

Morals are of no matter when profits and survival are on the line. The feeding frenzy on mortgage borrowers and taxpayers never ends, and Bank of America has just joined the fray.

2008-10-28- TARP (CPP):

The Capital Purchase Program (CPP) was no sooner open today when the nine biggest banks began tapping on it, hard. Bank of America was no different, hitting it for $15 billion.

Treasury created the Capital Purchase Program (CPP) in October 2008 to stabilize the financial system by providing capital to viable financial institutions of all sizes throughout the nation.  With a strengthened capital base, financial institutions have an increased capacity to lend to U.S. businesses and consumers and to support the U.S. economy.

This is of course a cash raising event.

2008-10-09 Option Arms Settlement:

Bank of America has agreed to settle claims regarding risky option adjustable-rate mortgages loans originated by Countrywide Financial. The deal, which will cover nearly 400,000 borrowers, will apply to borrowers who took out loans with adjustable or fixed interest rates as well as those with option adjustable-rates serviced by Countrywide.

2008-10-07 Q3 confession:

Bank of America finally started to tell some truth if only because in the face of a 68% profit dive and halving of the dividend it can be denied no longer. The bank couldn’t even play the beat the Street by a penny scam as it held its hand out for $10 billion in the face of $4.36 billion, and jump in loan loss reserves of $2 billion.

Start with the old total $51.3B: Add

1. Write-Downs/Charge-Offs: $5.6B + $4.36B = $ 9.96 B
   
2. Cash Raised:                                                    $10.0B  <————-Stock Sale
3. TARP:                                                               $0.0
4. Gov non-TARP:                                                $0.0
5. Level III Assets: $?.?B
6. Loan Loss Reserves: $6.45B up from $5.83 billion in the second quarter 2008.

We now sum all the distresses to get Bank of America’s current Pain Factor > $72.05B

2008-09-15-Gobbles Merrill Lynch:

Gobbles up or is force fed Merrill Lynch

Bank of America has confirmed it has sealed an agreement to take over Merrill Lynch in a deal worth around $50 billion.

In a statement issued Monday Bank of America said it would exchange 0.8595 shares of its stock, equal to $29 a share based on Friday’s closing price, for each share of Merrill Lynch.

It’s the second forced feeding of Bank of America since the credit bubble burst, the first one was the Countrywide protfolio of toxic crap.

2008-08-14 options ARMs Explode:

Bank of America got rocked by a $24B big one dropped on them by Countrywide’s option ARM time bomb. If they still think they are going to flip a profit on Countrywide this year, then someone over there needs therapy.

2008-07-21 Level With Me for Q2:

Bank of America reported second quarter 2008 results that excluded $2.3B in losses and $3.7B in credit-related write-downs stemming from its merger with CountryWide. The bank reported that its net income fell 41 percent to $3.41B, down from $5.76B a year ago. Write-downs also fell substantially:

The corporate and investment bank earned $1.75 billion, a 3.2 percent increase from a year earlier. Writedowns on securities fell to $645 million from $1.47 billion in the first quarter.

So the bank is reporting second quarter write-downs of $645M due to CDOs and $575M to investment banking, totaling $1.2B in write-downs sans CounrtyWide for the quarter.

So the write down tally excluding CounrtyWide is $4.4B + 1.2B = $5.6B.

We are unaware of any capital raised in Q2 $0.0

According to the company’s May 2008 10Q, total level 3 assets are currently $39.7B

Let’s keep in mind that Bank of America tripled its loan loss provisions to nearly $6B.

Bank of Americas Pain Factor is $5.6B+ $0 + $39.7B + $6B = $51.3B

2008-07-08 Level III With Me:

Bank of America, bloated with toxic assets of its own, will soon be reporting earnings with the added boulder of CountryWide around it’s neck. It will be interesting to see how the bank reports the extra baggage. All we know that according to the company’s May 2008 10Q, total level 3 assets equaled $39.7B with total level 3 liabilities at $11.4B for a net total of $31.4B of level 3 assets on the books.

2008-07-01 Done Deal:

Bank of America, you own it now. For better or worse, Countrywide’s problems are yours:

Ken Lewis, BofA’s boss (pictured above), has admitted that things are worse than expected. But he insists the bank left plenty of room for error and that the deal remains “compelling”. It has a cushion of around $13 billion: the difference between the purchase price and Countrywide’s tangible book value. It remains confident losses will be within sight of that number. If so, it will get the franchise for a song and not have to raise more equity (on Countrywide’s account, at least).

2008-05-28 Thrown overboard:

The wedding hasn’t even happened and already the honeymoon is over, as Bank of America has thrown a top Countrywide exec overboard.

2008-05-22 Write Downs Count of a Different Sort:

We have been keeping a running tally of write-downs and other credit-related distress taken by the major banks since 2007. But here comes a write-down count of a different sort: how much in write-downs and credit losses firms have taken per wholesale banking employee.

Bank of America – $14.8B, 20,000 employees, $740,000 per employee

2008-05-18 – Too Much Too Late:

Bank of America is in a full-blown crisis of it’s own making, but too much is being done too late. First, they stopped making the loans they never should have made and now they are drawing in the HELOCs that never should have been sent out.

2008-05-05 – Shotgun Wedding:

Bank of America just announced that the bailout wedding to Countrywide is still on.

2008-05-02 – Unsettling:

In case you didn’t know, the buyout of Countrywide by Bank of America was designed to bail out to Mozilo and Friends, not to help the badly-swindled Countrywide debt holders. The plan is going off quite smoothly.

2008-04-30 – Weighed Down Countrywide:

Bank of America’s ever burgeoning buyout of Countrywide is weighing it down. The deal was probably intended to insure that the continuous stream of mortgage payments flowed uninterrupted to the CDOs and SIVs of Wall Street’s Ponzi pool. The result is that $40B of troubled mortgages must now be dealt with.

2008-04-21 – Melt-Down:

Just as Bank of America is saddled with Countrywide, the bank reported its third straight quarterly profit decline, a 77% hyper-decline. The hit was on write-downs to subprime mortgage-backed CDO’s, and loan loss reserves. What else?

Results included $1.31 billion of trading losses compared with income of $1.66 billion a year earlier. This was driven primarily by $1.47 billion in write-downs of collateralized debt obligations, a security often backed by subprime mortgage loans, and $439 million for loans to fund leveraged buyouts. Trading losses were $5.15 billion in the fourth quarter of 2007.

Bank of America said the $3.3 billion increase in reserves was part of a $4.78 billion increase in provisions, to $6.01 billion, “due to rising credit costs — particularly in the home equity, small business and homebuilder portfolios.”

Net charge-offs, loans it doesn’t think are collectable, jumped to $2.72 billion.

The new total including write-downs and net charge offs comes to $1.47B + $2.72B = $4.39B, but there is another running total mounting up:

The world’s biggest banks and brokerages have disclosed $288 billion of writedowns and credit losses since June because of collapsing prices in U.S. mortgage markets. They’ve raised more than $160 billion to replenish capital, with Bank of America tapping public investors for at least $13 billion after writedowns and credit losses that totaled at least $8.2 billion before today, according to data compiled by Bloomberg.

And still this ailing bank remains dangerously exposed to further subprime write-downs.

But the bank still has a lot of the toxic stuff left on its books, which could require it to put away even more capital. It still has over $13.4 billion in leveraged loans, nearly $12 billion in mortgage-backed securities, and nearly $9 billion in CDO’s left on its books. Those may need to be written down further if the economy flounders.

Gee I wonder what would make the economy do that?

2008-04-20- Decimated Earnings Result in Continued Liquidity Drains:

When Bank of America reports tomorrow morning, it is expected to show $5.44B in fourth-quarter trading losses. We will be on the lookout for $2B more in write-downs to subprime mortgages.

Bank of America’s profit tumbled 95 percent in the 2007 fourth quarter, in part because the bank was forced to write off $2 billion in bad loans.

2008-04-08- New Liquidity Drains Threaten Bank Lending:

To be considered a “well capitalized bank” by U.S. regulators, an institution can’t have more than 10 times its capital in risk-weighted assets. More than 99 percent of American banks qualify as well capitalized. But bond downgrades are going to threaten to bring that machine to a grinding halt.

2008-03-26:

Bloomberg reports in a long article on credit lines that Bank of America has about $406B of undrawn credit line commitments (or at least, did at year-end 2007). They are second only to Citigroup, which weighs in at a hefty $471B. Anyway, this is much worse a fact than it would seem in isolation, since now more than at any other time in living memory, borrowers need to draw down those credit lines (which is the main point of the article).

2008-02-21:

The world’s largest banks have unveiled write-downs and credit losses of at least $195B since the beggining of 2007, and next week Bank of America will reportedly take provisions to drop another $6.5B on the pile:

Bank of America Corp., the second biggest U.S. bank by assets, may take a record $6.5 billion provision in the first quarter to cover possible future losses in its home equity and mortgage portfolios, Punk Ziegel and Co. analyst Richard Bove wrote.

2008-02-21:

On top of getting saddled with Countrywide, the paltry $12B of estimated leveraged loan write-downs would probably not keep senior management of the bank up at night, so we will watch it for you.

2008-31-01:

Bank of America is in the thick of the present financial turmoil. In the company’s fourth quarter 2007 results released Jan. 22, the bank’s income plummetted 95% on the various write-downs and ratcheting-up of loss reserves. Quoting from the linked article:

Trading-account losses totaled $5.44 billion in the latest quarter. In the same period in 2006, trading-account gains were $460 million.

Provision expenses increased $1.74 billion in the latest quarter, largely because of a $1.33 billion addition to BofA’s reserve for credit losses. BofA’s provision for credit losses was $3.31 billion, up from $1.57 billion in the fourth quarter of 2006.

Write-downs on collateralized debt obligations totaled $5.28 billion in the latest quarter, which BofA says reduced its trading profit by $4.5 billion and other income by about $750 million.

For the full year, BofA earned $14.98 billion, or $3.30 per diluted share last year. That’s down from earnings of $21.13 billion, or $4.59 per diluted share, in 2006.

For the record, subprime-related write-downs at BofA were about $1.8B in the third quarter, and fourth-quarter guidance was for about $3.9B in further write-downs. Clearly, the bank “blew past” that level, much to the dismay of shareholders.

Remaining exposure (as per estimates prior to Q4) is about $16B for subprime CDOs, $2.8B in MBS, and $17.3B in direct subprime lending. That is not chump change, and certainly does not leave us bullish on the stock.

Other factors additionally sully our view on the retail mega-bank. Famously, they have agreed to buy Countrywide, but the deal has not been consummated and resistance remains from shareholders and consumer groups. Countrywide also failed to return to profitability in fourth quarter 2007, dashing the projections of CEO Angelo Mozilo (who would never lie to boost his company’s stock, of course).

Assuming the deal goes through, Bank of America will find themselves the proud owners of about $90B in questionable loans, including about $30B in Pay Option ARMs (most of which borrowers are making only the minimum payments on). The rest is a mix of second lien loans. And then there are creative new forms of off-balance-sheet liability popping up in HELOC securitization, as HousingWire reports:

Buried in Countrywide’s $831 million fourth quarter write-down of residual interests, Moody’s said, was a $704 million charge related to “rapid amortization” on home equity line securitizations:

.. in those situations where losses on the loans in the securitization result in claims on the insurance policies supporting the securitization above a certain threshold or duration, the priority of payment shifts. In this situation Countrywide is reimbursed after the trust note holders, insurance providers and other parties to the securitization receive the cashflows to which they are entitled. This is referred to as rapid amortization.

The charge of $704 million represents a liability for losses on estimated advances Countrywide could be required to make on securitizations that have entered or are expected to enter rapid amortization status.

Oh, and by the way, Countrywide self-insured some unknown percentage of its mortgages with a product called “TAMI” (Tax-Advantaged Mortgage Insurance). This product allegedly (we’re not sure if this bore out in reality) shielded borrowers from some or all of the impact of PMI (normally needed when borrowers don’t have at least 20% down), generated increased commissions for brokers, and gave Countrywide more revenues to pocket. A win-win-win!

But it looks like the means of achieving all this was rather shady: they nominally eliminated PMI in favor of a higher loan APR (which is normally tax-deductible for the borrower), then essentially provided IOUs to themselves, thereby effectuating “insurance” on these loans.

One question apparently not examined very seriously when this scheme was hatched was what the impact would be to Countrywide if that insurance were to actually be needed (in the case where, normally, a third-party PMI company would provide payouts). So we wouldn’t be surprised to see “surprise” write-downs related to this product in the near future (if anyone has further details on the company’s TAMI-related exposure, please let us know).

We’re not sure why Bank of America would want all this exposure, but CEO Ken Lewis did say they did the “mother of all due diligences” on this deal, so perhaps they know something we don’t. To us, it looks an awful lot like the company’s chieftans are letting visions of world domination get the better of their good judgment. Maybe they’ll find something in the above they can use to invoke the $160M cancellation clause on the deal (that’s a freebie, guys)!

In terms of job impact, BofA laid off about 3,000 people last year (around 500 of which were from corporate and investment banking). 650 more jobs were cut on Jan. 15, 2008 (mostly related to structured products), and 20 or so analysts were let go around Jan. 24. More details here.

Fifth Third Bancorp reportedly passed the FED’s stress test to see if it was adequately capitalized, but regulators said it needed another $1.1 billion to be adequately capitalized. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital. But that’s the offical word from officaldoom. So, if you pay no attention to the $1.1B, Firth Third passes passes it’s stress test.

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2008-10-28 -Bailed Out:

Fifth Third Bancorp is raising cash the newfangled way, from the taxpayer. From “the bailout package,” FTB will take a negligible $3.45B. That will not go unnoticed in our pain count when they report next quarter, if they’re around that is.  

2008-07-22 -Crushed:

Fifth Third Bancorp was crushed yesterday as investors deprived of shortselling abilities unloaded the stock until it hurt once the bailout legislation failed to pass in the House of Representatives.

2008-07-22 -Deadly Omen:

By increasing loan loss provisions, Fifth Third says loud and clear that it thinks things will get worse. The ocean was pretty rough in the second quarter as the bank lost $202M. Compare that with net income of $376M in the corresponding period a year earlier. The bank’s write-downs and charge-offs ballooned to $344M as adoption of FAS 159 added an initial amount of $25 million to that expense.

Effective January 1, 2008, the Bancorp adopted FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (”FAS 159″) for valuation and treatment of origination costs related to mortgages originated for sale. The revenue impact of this adoption in the first quarter of 2008 was an increase of approximately $25 million.

There was no capitial raised this quarter so we add 1.-4. below

1. Tally for Write-Downs/Charge-Offs: $155M +$344M = $499M
2. Tally for cash raised: = $0.0 + $2 B = $2 B
   
3. Current level of Level III assets at $25 M
4. Current level of loan loss reserves at $121 million + $598 M = $719 M
   

The Misery Index is $3.648 B

provision for loan losses:

2008-06-18 -Time is Running and Running Out On You :

With losses and write-downs mounting, Fifth Third Bancorp is taking actions that boldly state it’s just a matter of time before investors no longer answer your rights placements; just a matter of time until depositors seek higher yields; just a matter of time before large institutions sell the bank off and then sell short.

In short, it’s just a matter of time before the market stops tolerating the bank’s insolvency. And time is running out.

We begin our tally of capital raised with the anticipated $2B, but it’s just a band aid. You can bet it’s not meant to cover the $155M in write-downs through Q1.

2008-05-20 - Falling:

When it rains it pours and everything that was once right goes sourly wrong. With the get-it-any-way-you-can mentality of the credit bubble, Fifth Third Bancorp tried to profit by taking out life insurance on their employees. These polices, known as Bank-Owned Life Insurance (BOLI), now face losses because the policies held the same types of investments that have gotten killed in the credit crunch. And guess what? They’re still getting killed.

2008-05-02 - No Alt-A Today:

Or tomorrow. Or the next day either. You can bet that someone at Fifth Third Bancorp wants to be around a while. By dropping Alt-A like a bad habit, the implication is clear. No more raiding the company cookie box for the sugar high today while leaving the crumbs for the next guy to pick up tonight.

2008-02-22:

That the credit crisis caught up to Fifth Third Bancorp (FITB) in the fiscal fourth quarter of 2007 is not as newsworthy as how it happened. The bank announced a profit of $292M for the quarter vs $359M for the same period a year ago. So which hole did the $68M shortfall raise it’s ugly head from? Well it wasn’t a CDO or SIV or any of the usuall suspects, not directly anyway. It came from the bank’s bank-owned life insurance (BOLI). The insurance fund invested in the same acidic assets as the rest of the subprime losers and got torched like them as well.

The bank in fact mentions very little about subprime in its statement and describes it’s operating results as “relatively strong.” But then it goes on to include a charge for the year of $155M, attributed to BOLI.

Results included a non-cash charge of $155 million to write down insurance assets because of illiquidity in the asset-backed securities market, which has reduced the value of investments backing life insurance for its employees. Fifth Third disclosed the issue last month.

In preparation for more bad subprime mortgage-related write-downs to come, Fifth Third Bancorp also increased its loan loss reserve for the fourth quarter $284M — from $107M in the same period 2006 — and more than double the $139M in the previous quarter.

Since we are only counting the write-down numbers for now, we arrive at $155M for the present total.

On December 5, 2008, the Company completed the sale of German retail banking operations to Credit Mutuel. On July 31, 2008, it sold CitiCapital, the equipment finance unit in North America, to GE Capital. On July 1, 2008, Citigroup and State Street Corporation completed the sale of CitiStreet, a benefits servicing business, to ING Group. On June 30, 2008, Citigroup completed the sale of Diners Club International (DCI) to Discover Financial Services. During the year ended December 31, 2008, Global Cards sold substantially the entire Upromise Cards portfolio to Bank of America. During 2008, the Company sold its interest in the Citigroup Global Services Limited (CGSL) to Tata Consultancy Services Limited (TCS).

Breakdown of the two business segments:

Citicorp

Citicorp is a global bank for businesses and consumers, which has two primary underlying businesses: the Global Institutional Bank and Citigroup’s regional consumer banks. Global Institutional Bank serves corporate, institutional, public sector and private banking clients. Citigroup’s regional consumer banks provide traditional banking services, including branded cards, as well as small and middle market commercial banking.

Citi Holdings

Citi Holdings is primarily comprised of the Company’s brokerage and asset management business, local consumer finance business, and a special asset pool. Citi Holdings focuses on risk management and credit quality.

2009-05-07 Stress Release:

Citigroup reportedly passed the FEDs stress test to see if it was adequately capitalized, but regulators said  it needed $5.5 billion more to be adequately capitalized. You have to wonder what kind of test it was when all 19 insolvent banks passed, some even needing more capital. But that’s the official word, and if you pay no attention to the $5.5B shortfall, Citi passes it’s stress test.

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2009-04-17 Q1 Earnings:

Citigroup employed the usual various and sundry accounting techniques and a one time trading gain to pull a $1.6 billion profit out of the hat in its fiscal first quarter 2009. The first quarter is in the book as the $300 billion bombshell ticks on.

Citi’s tally now reads as below:

1. Write-Downs/Charge-Offs: $88.9B + $5.62B = $94.52B

2. Cash Raised: = $36B

3. TARP: $25B + $20B = $45B

4. Taxpayer Non-TARP: $125B

5. Level III Assets & SFAS157 : $X.X +$413M + $2.7B??

6. Loan Loss Reserves >$6.1B1.

Misery Index > $309.7B

2009-01-20 Q4 Earnings:

Citigroup reported a fourth-quarter loss of $8B on write-downs of $5.6B. This is fairly pedestrian for this type of bank. By now, even the $6.1B buildup of loan-loss reserves could be met with a yawn, but selling its profitable Smith Barney unit to Morgan Stanley indicates that Citigroup will likely split into two.

In  the process it becomes our misery leader.

Citi’s tally now reads as below.

1. Write-Downs/Charge-Offs: $83.3B + $5.6B = $88.9B
2. Cash Raised: = $36B
   
3. TARP: $25B + $20B = $45B
4. Taxpayer Non-TARP: $125B
   
5. Level III Assets = $??
6. Loan Loss Reserves  >$6.1B

Misery Index > $301B

2009-01-08 Crammed Down :

Citigroup agreed to allow judges to change the terms of mortgages for at risk borrowers. Wait and see.

2008-12-04 Crime Time:

Robert Rubin, Chuck Prince and other Citi insiders cashed out with hundreds of millions of dollars while other not-so-well-connected investors lost trillions of dollars as the stock price crashed. Strangely, those investors think something stinks and have filed suit in federal court.

2008-11-25 More on The Non-TARP Guarantee:

Now we come to the the matter of valuing the $(306-29)(.90) billion stealth capital injection from the taxpayer to Citigroup. The arithmetic come out to $249.3B, but we will say $250B for government work,  which this is anyway. For now we will estimate the probability of a collapse to near zero of the $306 billion to be 1/2, then the expectation is that the taxpayer will give up another $125B.

Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses. After that, remaining losses will be split between Citigroup and the government, with the bank absorbing 10% and the government absorbing 90%. The US Treasury Department will use its $700 billion TARP or Troubled Asset Recovery Program bailout fund, to assume up to $5 billion of losses. If necessary, the Government’s Federal Deposit Insurance Corporation (FDIC) will bear the next $10 billion of losses. Beyond that, the Federal Reserve will guarantee any additional losses. The measures are without precedent in US financial history. It’s by no means certain they will salvage the dollar system.

So the tally now reads as below.

1. Write-Downs/Charge-Offs: $83.3B + $14.2B = $83.3B
2. Cash Raised: = $36B
   
3. TARP: $25B + $20B          = $45B
4. Taxpayer Non TARP: $125 B
   
5. Level III Assets = $??
6. Loan Loss Reserves = $2.5B + $3.9B + previous > $6.1B

Reader beware: more losses are on the way.

2008-11-21 Panic:

It’s getting to be that time, panic time. The once-stoic Citi has droped all pretense and moves now with desperation to prevent its inevitable collapse.

2008-11-24  $20B of TARP:

Citi has just been covered by another $20B layer of TARP.

The federal government announced that it was investing an additional $20 billion in Citigroup under the Troubled Asset Relief Program (TARP). This is on top of an initial infusion of $25 billion in October.

Here are the grusome details of  this stealth capitial injection.

Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses. After that, remaining losses will be split between Citigroup and the government, with the bank absorbing 10% and the government absorbing 90%. The US Treasury Department will use its $700 billion TARP or Troubled Asset Recovery Program bailout fund, to assume up to $5 billion of losses. If necessary, the Government’s Federal Deposit Insurance Corporation (FDIC) will bear the next $10 billion of losses. Beyond that, the Federal Reserve will guarantee any additional losses. The measures are without precedent in US financial history. It’s by no means certain they will salvage the dollar system.

The problem with putting a number on this is we don’t know if all $306B worth of assets will go to zero. If that is the case, then the government would pump $250B into the the Citi. If none of the assets falls to zero the bank gets zilch, so our capitial raise number is between $o and an eclilipsing $250B. We need a estimate for the probability that the pool becomes wothless. This acturial type of valuation is the way leve;l 3 assets should be marked ie level 3 should be valued on an acturial basis. I think I know why they don’t do it that way!

2008-11-17 Falling:

With write-downs and losses piling up and earnings nowhere to be found, Citigroup is cleaning 50,000 jobs off the balance sheet before Christmas.

2008-11-13 Loan Mod Feeding Frenzy:

Morals are of no matter when profits and survival are on the line. The feeding frenzy on mortgage borrowers and taxpayers never ends, and Citigroup has just joined the fray.

2008-10-28  $25B of TARP:

Citibank is friends with the devil and rolling in the fruits of taxpayer toils with the its acceptance of $25 billion under TARP? The TARP injection was announced on 10-14-2008, but the date on the Transaction Report is 10-28-2008. The 10-28 date kicks off the banks Q4 cash raising  so we will add it to the  $36B already in the heavy hat.

1. Write-Downs/Charge-Offs: $83.3B + $14.2B = $83.3B
2. Cash Raised: = $36B
   
3. TARP:            = $25B
   
4. Level III Assets = $??
5. Loan Loss Reserves = $2.5B + $3.9B + previous > $6.1B
   

The Misery Index is > $295.2B

2008-10-16 Q3 Report:

Citigroup reported Q3 results and they were the same for the fourth straight time. Another loss!

1. Write-Downs/Charge-Offs: $83.3B + $14.2B = $83.3B
2. Cash Raised: = $36B
   
3. Level III Assets = $??
4. Loan Loss Reserves = $2.5B + $3.9B + previous > $6.1B
   

The Misery Index is > $270.2B

2008-07-16 The Graduate:

Just like a petulant school girl changing boyfriends every weekend, Wachovia is now pushing Citi out and welcoming Wells Fargo as the new honey du jour.

2008-10-02 Citi Swallows Wachovia:

Beleaguered and digging out from under the mountain of subprime debt it created, Citigroup was just force-fed a heaping helping of Wachovia’s undigested Golden West portfolio. 

2008-08-07 Citi Settles:

Citigroup has reached a settlement in the auction rate securities claim against the bank. All told, Citi will cough up $19.5B in two big chunks: $7.5B to charities and small businesses under a settlement with New York State, and then another $12B to 2600 different institutions holding instruments.

Our twin tallies, Pain and ARS-Buyback, now stand at $144.5B and $19.5B.

2008-07-29 Write downs Outed:
The big Citi soft balled its second quarter write-downs to beat the Street. Now they have to cough the remainder up in chunks before third quarter reporting.

2008-07-15 Q2 Earnings:

Citigroup reported its second quarter earnings today, but since everyone knows there are no real profits at the bank, all eyes were focused on the write-downs and distresses.

Write-downs primarily included $3.4B of sub-prime related direct exposures and another $2.4B tied to exposure to now-downgraded monoline insurers, Citigroup said. Credit costs included $4.4B in net credit losses and a $2.5B charge to build loss reserves.

So, the bank was less than spectacular, even in that department, but that is the one you don’t want to “beat the street” in.

1. Tally for Write-Downs/Charge-Offs: $69.1B + $14.2B = $83.3B
2. Tally for cash raised: = $36B
3. Current level of Level III assets at $22.7B
4. Current level of loan loss reserves at $2.5B + $Previous
   

The Misery Index is > $144.5B

2008-07-15 Dark Profits:

Citigroup engages in the shadow accounting of credit world derivatives and dark assets held off the balance sheet. Do they think we are all blind and sitting on the STUPID bench?

2008-07-07 Crashing:

Citigroup has crashed into its fiscal second quarter 2008 earnings report just like the bank demolished the last three. As the bleeding continues, Citi is missing earnings just like every other bank. But desperate times require desperate measures, not ineffective ones.

2008-06-25 Level III:

The losses and write-down numbers for Citi are staggering, but as of March 31, 2008, you could easily lob another $22.7B on the mountain. That’s because of the FAS 157 rule requiring banks to list their level 3 or junk assets. From the banks first quarter 10Q

Citigroup’s CDO super senior subprime direct exposures,
$22.7 billion at March 31, 2008, are Level 3 assets and are
subject to valuation based on significant unobservable inputs.

If Citi were able to sell this stuff, they would have long ago. If they didn’t have to make it public they wouldn’t. But if you think these assets will recover anytime soon or at all, I have a house I want to sell you at its 2006 listing price. So our level III tally comes to a cool $22.7B.

2008-06-24 Write Downs Count of a Different Sort II:

The cost of write-downs per employee counted just went up as Citigroup chops 10% of it’s investment bankers.

2008-05-22 Write Downs Count of a Different Sort:

We have been keeping a running tally of write-downs and other credit-related distress taken by the major banks since 2007. Here comes a write-down count of a different sort: how much in write-downs and credit losses firms have written off per wholesale banking employee.

Citi – $40.9B, 30,000 employees, $1,363,333 per employee

2008-05-21 – Leaving London:

It is probably the best, and possibly the only, thing the bank could do, but now there is one less subprime lender in the UK. In fact all the banks including Citigroup have severely limited credit flow to all borrowers. Thus spreads a contagion.

2008-05-20 – Falling:

It’s hard to say whether the real story here is the nosedive of Citi’s Falcon fund or the type of life insurance polices banks routinely purchase on directors, officers and employees. Of course, the banks own and are the beneficiaries of the policies, known as bank-owned life insurance (BOLI). In either case Citi is left wide open to possible law suits and even further write-downs.

2008-05-19 – Off Balance:

Banks are not writing down their write-downs and getting away with it. Instead they are writing them down in the balance sheet.

As for our friends in the Citi, they skipped $2B from the income by putting it to the balance sheet in a quarterly filing without telling a soul.

Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed.

Well we will have to see about that. We have Citi write-downs and disasters at $67.1B and we do believe that a $2B adjustment will balance things out nicely.

New distress number –drum roll– $69.1B.

2008-05-08 – Sleight of Hand:

Minyanville reports that Citigroup’s level three assets have reached 125% of shareholder equity. That is a fantastic figure considering the tens of billions the denominator has increased in the past few months, as Citi has been frantically “raising capital.”

2008-05-07 – Citi Mortgage and Citi Residential retail collapse:

And another part of Citi bites the dust as Citi Mortgage and Citi Residential are gone.

2008-04-29 – Citi Gets More Than it Wanted:

Citigroup’s self-dilutive stock sale went so well they got $1.5B more than they originally asked for.

Citi originally said Tuesday that it would raise $3 billion in a stock offering, but increased that amount by $1.5 billion after demand for the new shares exceeded its original offer. The banking giant said the offering priced at $25.27 per share, with the transaction totaling more than 178 million shares.

So they coughed up $4.5B this trip, leaving no doubt that there are more fools out there than we thought.

Goldman however was not impressed by the $4.5B raised. Perhaps the Golden Boyz are right this time — was the initial asking price a low-ball to create the illusion of an onslaught of investor demand in the ailing bank?

2008-04-29 – Citi Wants More:

Only a week after selling $6B in preferred stock, Citigroup said give me more, more, more. The largest US bank by assets said it will sell at least $3B in common stock. Short sellers will be out in force.

This brings Citigroup’s cash raised total to over $36B.

2008-04-29 – Crimes in the Citi:

The laundry list of Citigroup’s questionable dealings just got two hedge funds longer. As the bank spirals down to bankruptcy, bailout or the pink sheets, it is difficult to tell if it is doing everything it can to survive or attempting to take the rest of the world down with them.

2008-04-19 – Abysmal Earnings:

Citigroup begins 2008 the same way it finished 2007. The bank reported a worse-than-expected first quarter loss of $5.1B, but it was the monstrous write-downs totaling $15.1B that terrified investors. Even after burning over $46B of toxic trash in 2007 and giving its kitchen sink “mea culpa” in Q4, the first quarter 2008 write-down was a monster hit even by Wall Street standards. And our ever-near-a-CNBC-camera Meredith Whitney is already contemplating another dividend cut call. For the present, Citigroup’s fiscal first quarter 2008 was bad:

$6 billion in write-downs on collateralized debt obligations, $3.1 billion on leveraged loans, $1.6 billion on Alt-A mortgages, $1.5 billion on auction-rate securities, another $1.5 billion tied to downgrades of key monoline insurers, and — lastly — $212 million linked to off-balance-sheet debt coming back to haunt the bank.

In other words, there were a lot of write-downs; and many were tied to ongoing weakness in the mortgage industry.

Mish has a post summing up all the slings and spears of Citigroup’s misfortune.

So is the $15.1B the last bomb — the kitchen sink? Doubt it!

As this blog documents below, Citigroup had a near-death February weighted down by a litany of troubled subprime-related assets that are exposed to write-down risk. The write-downs won’t quit until the exposure ends, and neither will our tally, which now stands at $46.6B + $15.1B = $ 61.7B.

2008-04-09 – Seller Concessions:

And as more information comes out, we quote Mish with the anti-spin:

The deal was made in this manner specifically to muddy the waters. It appears that Citi is setting up a con game in which they may pretend they got 90 cents on the dollar when they really didn’t. That 20% indemnification clause in the sale is like a PUT option. That option has a value and it’s a huge mistake to pretend otherwise.

“Mistake” puts it lightly. We might use the term “lie”.

Bloomberg wants you to think everything will be rosy for Citigroup once the bank is able to sell $12B of loans at a loss to Apollo Management, Blackstone Group and TPG. But as long as Citigroup and friends keep lying about valuations, there will be problems down the road.

This all reminds us of the still-popular “seller concessions,” used to prop up home values (and of course Realtor and lender commissions), in the process severely damaging markets.

2008-04-08 – New Liquidity Drains Threaten Bank Lending:

To be considered a “well capitalized bank” by U.S. regulators, an institution can’t have more than 10 times its capital in risk-weighted assets. More than 99 percent of American banks qualify as well capitalized. But bond downgrades are going to throw a monkey wrench into that machine and threaten to bring it to a grinding halt.

2008-03-26 (2):

Bloomberg reports in a long article on credit lines that Citigroup has about $471B of undrawn credit line commitments (or at least, did at year-end 2007). As the article points out, this fact is much worse than it would seem in isolation, since now more than at any other time in living memory, borrowers need to draw down those credit lines.

And they are — the article headlines by noting that even Porsche and Sprint are hitting the credit lines hard.

It’s a thousand cuts for Citigroup and its uberbank brethren; you can add this to them.

2008-03-26:

Meredith Whitney at Oppenheimer expects Citigroup to write down roughly another $13B for the first quarter. Whitney earlier gained street creds by correctly predicting C would slash its dividend.

She’s been wrong about the extent of write-downs recently… most notably for Lehman and Goldman, but frankly, we suspect that means the banks are wrong, not Whitney.

Incidentally, Institutional Risk Analytics also has some foreboding words and analysis on Citigroup:

We hear in the risk channel that the internal situation at C is going from bad to worse as veteran Citi bankers are in near-mutiny against the new, two-headed management team imposed by regulators. Meanwhile, former CEO Chuck Prince, who is a consultant to C, is leading the discussions with regulators on behalf of the bank and is, in effect, acting as shadow chief executive of C. One insider predicts that the C annual meeting in several weeks time will be “very messy” and notes that acting Chairman Robert Rubin is nowhere to be seen.

Keep in mind that C, JPM and many other large banks are still trying to get their arms around the full dimension of the risks facing their institutions, this even as bank loan default rates remain well-below long-term averages. All of the subsidiary banks of C, for example, reported 127bp of charge offs in 2007, a full 2 SDs above peer but well below 1991 loan loss levels.

They believe Citigroup needs about three times current capital just to shore itself up against a more normal level of charge-offs. The 1991 recession was “mild” — this one won’t be.

Oh, and then there’s this: Citigroup to Pay $1.66B To Settle Enron Litigation. That can’t help the capital position right about now. However, since this is due to the last bubble, we won’t add it to our tally.

2008-03-12:

Citigroup has got caught up in the suddenly volatile municipal bond market. In what’s becoming a common event, the plunging prices of municipal bonds are forcing prime brokers to issue margin calls:

The move to inject $600m, and pledge $400m more, to shore up the funds, which had capital of $2bn and total assets of about $15bn, is another sign of Citigroup’s difficulties in dealing with the credit squeeze.

This adds another $1B to the tally.

2008-03-07:

We are warming up the calculator as Citigroup has announced more losses on the way:

Citigroup said Thursday it will reduce its mortgage assets by $45 billion over the next year and will streamline its remaining mortgage operations in an attempt to lower expenses by $200 million during the same time period.

We will have to see how the bank spreads out the writing-down. One thing for sure is that the buyers won’t be lining up around the block.

Another potential source of losses comes as the result of a somewhat desperate effort to raise cash. Forbes is reporting the bank will issue $2.5B in bonds. But because of the toxic nature of Citi’s paper they will have to underwrite most of it themselves, which could leave them holding a bag of their own unsold junk. It could easily be a large portion of the $2.5B.

We will keep our eyes open for possibly a large chunk of that $47.5B turning up in the dead pool.

2008-03-06:

The rift between reality and fantasy is widening at Citigroup and for the analysts that promote them. Six months ago, analyst Robert Olstein said:

Cititigroup Inc. won’t cut its dividend further or raise more capital and the shares may double over the next two years, investor Robert Olstein said.

That’s the dyslexic analysis; in the reciprocal period, its share value has been cut in half. Meanwhile back in the real world, actions speak louder than words and the bank

has started shedding clusters of U.S. branches in places where the bank lags far behind larger rivals.

Citi CEO had a message for employees to be ready to pack up at any time.

In a memo to Citigroup employees, Mr. Pandit wrote: “We anticipate that divesting some of our peripheral businesses will further contribute to our capital base.” He added that Citigroup remains “financially sound” despite more than $20 billion in losses last year on loans and investments.

We say about $16.6B more and counting.

2008-02-27:

A potentially bombshell revelation about Citigroup’s remaining risk exposure is tucked in this Bloomberg piece. Witness:

Citigroup, which has incurred $22.1 billion in losses from the subprime crisis, has $320 billion in “significant unconsolidated VIEs,” according to a Feb. 22 filing by the New York-based bank. New York-based Merrill Lynch, which recorded $24.5 billion in subprime writedowns, has $22.6 billion in VIEs, according to CreditSights.

What are these VIEs and why are they a threat? The article has a brief primer:

The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. …

…

VIEs, known as special purpose vehicles before Enron Corp.’s collapse in 2001, finance themselves by selling short-term debt backed by securities, some of which are insured against default.

…

Predictions for losses vary widely because banks aren’t required to specify the type of assets being held in the VIEs or how much they are worth, said Tanya Azarchs, managing director for financial institutions at S&P.

“The disclosure on VIEs is hopeless,” Azarchs said. “You have no idea of the structure or how that structure works. Until you know that you don’t know anything. It’s like every day you come into the office and another alphabet soup.”

Ah yes, these shadowy vehicles figured prominently in the Enron fraud and collapse, but its OK folks, they were renamed from “SPVs” to “VIEs.” Problem solved!

Obviously, not really. Remember how Citigroup had about $80B in SIVs? And remember how that was already disaster enough, with the “re-consolidation” of those off-balance-sheet vehicles resulting in Citigroup’s greatest earnings disaster and capitalization emergency in its history? Remember complete pieces of the company being sold off to Arab Shieks and Communist governments around the world?

Oh, great. We remember too. And, well, the company has another $320B in that kind of exposure.

Call them SIVs, SPVs, or VIEs; call them rutabagas or Flying Elvises if you want — its all the same thing: ethically fraudulent concealment of risks using off-balance-sheet vehicles to dodge regulatory capital requirements. There’s nothing new here, except the size of the numbers at stake.

We can’t wait to see the write-downs that come out of this monumental trash heap. A hint of the extent those might reach also comes from the article:

The securities in the VIEs may be worth as little as 27 cents on the dollar once they’re put back on balance sheets, according to David Hendler, an analyst at New York-based CreditSights. Hendler based his estimate on the recent sale of $800 million of bonds by E*Trade Financial Corp.

That would represent a haircut of more than $230B on the VIEs. Wow.

2008-02-26:

And the beat goes on for Citigroup as it is revealed the bank is holding about $20 billion of hard-to-value trading positions. Those hard to value positions are probably level 3 assets. That means no market exists for them, i. e. they are worthless. Technically it has to be said a market can always develop for the assets and they may be sold for a huge gain, in commercial real estate that is. I expect that we will see a write-down for theses positions too.

2008-02-23:

A Telegraph write-up contains a detail we missed in our last update: Citigroup has announced a $4B exposure to the troubled bond insurance sector. So you can throw that one on the pile.

2008-02-22:

At this rate Citigroup might not make it past the weekend. It’s been two days since Meredith Whitney made her devastating revelations about the bank, and the action has already begun. Following the usual MO of announcing bad news after the market close, the bank confessed that it once again would make the rounds, hat in hand, to cover the cost to bring their hedge fund Falcon Strategies funds onto its balance sheet (hedge fund implosion profile for Falcon here). The financial media reporting of the statement goes along the lines of the Associated Press:

Citigroup Inc. earlier this week agreed to provide $500 million in credit to one of its troubled hedge funds, the bank disclosed in a regulatory filing late Friday. The Citi-managed fund, known as Falcon, was brought onto the bank’s books, which will increase the bank’s assets and liabilities by about $10 billion.

And it’s the same at Bloomberg, Reuters, Marketwatch, and WSJ. That is $10B in assets and liabilites, but which is the greater? Well let’s see

The Falcon funds, run by Citigroup’s alternative-investments group, placed highly leveraged credit-market bets in part by using exotic vehicles tied to the mortgage market. The value of those instruments plunged in the second half of 2007. At one point last year, the funds had more than $2 billion in assets under management, including investments from some major banks.

and

Within three months, Falcon Plus, which had roughly $20 million in assets, had lost 52% of its value.

Another more recent Falcon Strategies fund was said to have lost around 50% of its value in the first three months of trading. So of the$10B in assets, possibly little more than a few hundred million is in the “assets” column. And believe it or not, things could get worse for the staggering behemoth:

The banking conglomerate also warned that further deterioration in the US housing market could lead to further write-downs in its sub-prime and leveraged loan books.

Thanks for the heads up, guys. We’ll still be keeping our own count just the same, which for distress and write-downs just went up by $10B.

2008-02-22:

If we had to pick which big bank would fail first, then we’d take Citi. In this interview Meredith Whitney, Oppenheimer & Co’s banking analyst, reveals the under-capitalized structure of Citigroup and additional write-downs of up to $70B. Here is how she sums it up:

Citi now has earnings problems, they have balance sheet constraints, they have further CDO writedowns, they have exposure to the monolines and they have the single largest concentration of exposure to high LTV [Loan To Value] mortgages.

Let’s take a look at each of these in turn:

• balance sheet constraint ——-:from $6 to $12 billion under reserve
• further CDO writedowns——-:over $29B of ABS/CDO exposure
• exposure to the monolines—–:up to $70B
• exposure to high LTV——— ver $50 billion

Excluding balance sheet constraints we get $149B in exposure, up $38B from our previous sum of $111B.

There is also a great lesson in here that actions do in fact speak louder than words. Hear ye:

Banks aren’t lending so businesses can’t grow, manufactures can’t invest, and this is a systemic issue because banks are still in denial. If these assets were truly marked to market banks would be indifferent to whether they hold them or sold them. Obviously they are not indifferent. The fact they are holding it means they have some hope that these assets will recover.

2008-02-20:

In addition to subprime lending it seems that some banks gorged themselves on a leverage buyout binge as well. From the WSJ:

The investment banks look to have put a lot on the line for relatively little payoff. Citigroup, for instance, earned only $856 million in fees from private-equity firms in 2007, even though the bank underwrote leveraged loans totaling $114.3 billion and still holds $43 billion in exposure. Oppenheimer analyst Meredith Whitney estimates Citigroup’s leveraged loan write-downs would be about $2.5 billion at the range implied by the 6% decline in the leveraged-loan focused Markit LCDX index since the fourth quarter.

If your keeping count (and we are, don’t worry) thats another $2.5B written down to the bottom line. New total write-downs including LBs come to $26.6B. For the remaining subprime related exposures, add $43B to the previously recorded $68B for a grand total of $111B.

2008-01-31

Citigroup recently reported fourth quarter 2007 net losses of $9.8B on the back of massive subprime-related write-downs. This has been bested only by UBS’s recent losses, but Citigroup’s gross write-downs and exposure are much larger.

Breaking the figures out, according to the company’s earnings report, they took a $6B write-down in the third quarter, followed by a whopping $18.1B in the fourth. This brings the year’s total to $24.1B (so far counted).

The company began “subprime reckoning season” in late 2007 with nearly $80B in off-balance-sheet SIVs and conduits tainted by subprime. They apparently decided it would be better to own up to the impact of these vehicles and brought them back onto their balance sheet in late December. This torpedoed prospects for the Treasury’s “M-LEC” SIV bailout fund in the process. Good riddance!

Citigroup successfully sold off some of the assets from these funds, contributing to the large fourth quarter net loss figure. According to the fourth quarter report, they reckon just over $29B of subprime ABS/CDO exposure remains, as well as $8B in RMBS, and about $30B in direct subprime lending.

We also have a figure of $1.7B for exposure to insurer ACA.

The total net exposure would then be about $68B for these items.

As of yet we do not have data on other forms of shaky mortgage loan exposure (Alt-A, Pay Option, etc.).

UBS’ income tax evasion scheme is coming to a head. The bank aided wealthy Americans in evading income taxes and is now rolling over on those same clients, closing their accounts and ratting them out to the IRS.

UBS, the largest bank in Switzerland, agreed on Wednesday to divulge the names of well-heeled Americans whom the authorities suspect of using offshore accounts at the bank to evade taxes. The bank admitted conspiring to defraud the Internal Revenue Service and agreed to pay $780 million to settle a sweeping federal investigation into its activities.

A sweet heart deal, actually. To a bank that has already written down $54B, $780M is a hiccup! No one goes to jail, all the insiders keep their money and the clients get a visit from the IRS.

Martha Stewart went to jail for saving $50,000 on an insider tip. What about the crooks at these banks?

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2009-02-11 -Q4 (2008) Earnings:

UBS was hit hard in its fourth quarter and the bank is now staggering toward nationalization. Unfortunately, a bigger hit will be on the nation’s taxpayers when the Goliath finally falls.

The bank’s crafty accounting allowed it to deny any meaningful write-downs and it’s clearly lost some respect.  The previously-announced $60B bailout was scaled back to $40B in the quarter, and this will lower the total for Cash Raised Gov, to roughly $40.0B from $59.2B, giving UBS a total of $80B cash raised before adding the $6B raised this latest quarter.

Cash raising is becoming a cottage industry in itself. We have to wait for the 10-K to get the level 3 number, but we can estimate it using Q3 and adding the tidy $15.8B UBS moved from its banking book to its trading book. The bank added $1.38B to its loan loss reserves.

Here’s the tally thus far:

1. Write-Downs/Charge-Offs: $50.1B + $4.4B = $54.5B
2. Cash Raised Non Gov: $41.5B + $6.0B = $47.5B
   
3. Cash Raised Gov: $40.0B
4. Level III assets: $63.42B + $15.8B = $79.22B
   
5. Loan Loss Reserves: >$7.38B
   

We now sum all the distresses to get UBS’ colossal Misery Index of $228.6B.

2008-11-16- Tax Evasion:

UBS must badly need American bail out bucks. They sure do seem pliable to roll over on their depositors for the sake of the IRS.

UBS clients have been receiving calls and letters telling them that their Swiss accounts will soon be liquidated. Those who have concealed funds from the IRS have two basic choices: They can take new and potentially difficult steps to hide the money, heightening their risk of being caught and punished severely, or they can come clean, lawyers say.

When it came to saving itself or preserving the integrity of its clients’ accounts, the letters started going out.

2008-11-05 -Q3 Earnings:

It’s official. UBS is on life support and would have imploded under the weight of its own debt, had not the working stiffs bailed out the beleaguered beast. The write-downs of $4.4B are mild by this monster’s standards, but the $60B of capital raised is staggering by any standards. Level 3 assets have increased by just over a billion dollars as well.

Here’s the tally thus far:

1. Write-Downs/Charge-Offs: $50.1B + $4.4B = $54.5B
2. Cash Raised Non Gov: $41.5B
   
3. Cash Raised Gov: $59.2B
4. Level III assets:            $73.7B<—-10 Q
   
5. Loan Loss Reserves: > $6.0B
   

We now sum all the distresses to get UBS’ colossal Misery Index of $224.6B.

THAT’S A FULL QUARTER TRILLION DOLLARS!!!!!

2008-11-12 -UBS Under Swiss TARP:

UBS crawled under the Swiss version of TARP today, the bank will get a bailout of $60 billion.  The figure eclipses all of the write-downs UBS has taken since the credit bubble burst in July of 2007.

The Swiss National Bank and UBS have reached an agreement to transfer up to $60 billion of currently illiquid securities and other assets from UBS’s balance sheet to a separate fund entity. UBS will capitalize the fund with equity of up to $6 billion.

Six to Sixty, that’s not a bad deal, but just try to get one for yourself. Taxpayers worldwide are the same, fodder for the banking elites. When it comes we’ll add the $60 big ones to the cash raised category for UBS.

2008-08-12-Q2 Earnings:

1. Write-Downs/Charge-Offs: $45.17B + $5.1B = $50.27B
2. Cash Raised: $41.5B
3. Level III assets: $$62.38B <—-10 Q
4. Loan Loss Reserves: >$900 M
   
5. ARS-Buyback         : $19.5B

We now sum all the distresses to get UBS’s colossal Misery Index of $174.55B.
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2008-08-06 -UBS Settles:

UBS AG, will buy back $18.6B worth of it’s peddled junk and pay a fine $150 M for dumping without a license. It’s the kinda thing that happens every day and you don’t feel bad about unless you get caught and UBS got caught.

UBS AG, Switzerland’s biggest bank, agreed to pay $150 million in fines and begin buying back $18.6 billion in failed auction-rate securities, the largest settlement in a U.S. probe into whether banks stuck clients with hard-to-sell bonds.

UBS will purchase $8.3 billion of the securities from its clients beginning on Oct. 31 under a settlement with New York State Attorney General Andrew Cuomo, the Securities and Exchange Commission, and a group of other state regulators, according to terms of the settlement announced today. The bank must also help its institutional clients sell an additional $10.3 billion in securities, and may have to buy back the bonds if they fail to find a market, Cuomo said.

If UBS wrties down the $18.6 B it will take the write-downs due to forced buy back to 19.5 B which equals the entire Pain total for JP Morgan.

2008-06-01 - Rights and Wrongs:

The Great Unraveling continues for UBS as it raises more cash, but confesses to yet more risk.

2008-05-22 - Hard Hit:

Hard hit and ailing UBS is in full scale rescue mode. The bank has raised $15 billion in a rights issue. The $15 billion was announced on April fools and now we addit  to our cash raised tally. Additionally UBS sold $22 billion worth of subprime and alt-A backed assets to a SIV led by Black Rock for $15 billion. They haven’t written it down yet but we can add and even subtract and when UBS eventually does face the music it will be to the tune of $7 billion.

1. $38.17B + $7.0B = $45.17B
2. $11.5B +  $15.0B    = $41.5B

Hey if the writedowns can stop here they are almost running a profit.

2008-05-21 - Write Downs Count of a Different Sort:

We have been keeping a running tally of write downs and other credit related distress taken by the major banks since 2007. But here come a write down count of a different sort, how much in writedowns and credit losses firms have written off per wholesale banking employee.

UBS - $37bn, 22,000, $1,681,818 per employee

But this ratio is subject to shoot up as the number of  UBS employees heads down.

2008-05-14 - Cover Up:

A former UBS banker has been indicted for enabling his billionaire client evade taxes. It’s not clear how deep the bank will be dragged down with him, but UBS finds itself again In the thick smoke of a criminal investigation, and you know the saying about smoke and fire going together.

The Feds opened a window onto the world of private banking at UBS, Switzerland’s biggest bank, by unsealing an indictment against a former UBS banker for allegedly helping one of the world’s richest men evade taxes. In a one-count conspiracy indictment, Bradley Birkenfeld is accused of helping California real estate magnate Igor Olenicoff evade taxes on $200 million held in Swiss and Liechtenstein bank accounts.

2008-05-05 - Cutting Bait:

In addition to the well documented write downs and losses to the US subprime market now UBS is cutting a tenth of its work force and gained approval to raise raise 15 ($14.2) billion francs in a rights offer after receiving 13 ($12.3) billion francs from investors in Singapore and the Middle East in March. That’s $38 billion written down to $12.3 billion raised plus $14.2 billion set to be raised or $26.5 billion total. At this rate cash raising may be most profitable business the bank has.

2008-04-11 - Break Up:

UBS is coming apart at its seams. The $38 billion in write-downs and 25 billion francs of losses have taken their toll on more than just the balance sheet. But what would you expect?

2008-04-01-Cash and Write Downs going Up:

UBS doubled it’s writedown total revealing another $19 billion  subprime related write downs. In response the bank hurriedly attempts to raise a CHF15 billion cash cushion to absorb the blow.  You can expect to see the $15.1 billion cash raised added tally soon.

Swiss banking giant UBS said Tuesday it will have to raise around 15 billion Swiss francs ($15.1 billion) in a rights issue to shore up its capital base after announcing new write-downs of around $19 billion.

The latest write-down came in at the top end of expectations and exceeded the $18.4 billion UBS took for the whole of 2007. In the process UBS doubles down our write-down tally for them.

So, we double up UBS’s  write-downs tally:

1. Write-Downs/Charge-Offs: $19.17B + $19.0B = $38.17B
2. Cash Raised                       : $11.5B   +     ?        = $11.5B

2008-03-24-Vote on It:

UBS is about to vote on whether to seek a $10 B capital infusion (also known to existing shareholders as a “share dilution”).

2008-03-05- Rumors:

From FT Alphaville comes “Those UBS Asset Sale Rumors“:

Specifically, $20bn of Alt-A mortgage securities to be sold to bond giant PIMCO. …

The Alt-A MBS have reportedly been sold at 70c on the dollar, which would be a massive loss, since UBS valued what looks to be the same instruments at 96c on the dollar just three weeks ago in their 2007 results.

This is rumor-level stuff, but of course, we figured this sort of dealing was going on quietly. If indeed the new level was .7, then there could be additional $5B+ of write-downs coming from UBS.

2008-02-20 Over Leveraged:

UBS may have another little hicup of a write-down due to it’s leveraged loans binge in 2007. Oppenheimer analyst Meredith Whitney estimates the bank has $11.4 billion in exposure as Q4 2007. The only question is how and when they will expense it.

*****************************************************End Fiscal 2007***********

2008-02-14- Q4 (2007) Earnings Report:

UBS has been caught low-balling its subprime related write-downs/exposure again. After first giving guidance of $1.7B for fiscal fourth quarter, the bank revised that number upward to $14.0B and eventually recorded total Q4 subprime related write-downs of $13.7B. Accompanying the write-down was a fourth quarter loss of $11.28 billion, and an annual loss which was the bank’s first ever.

UBS gave the break down for the fourth quarter write-downs as follows:

RMBS($10.8B) + Alt-A($2.0B) + CDS($871M) = $13.67B

The figure above is in line with the guidance of $14.0B previously issued. The bank also recorded losses of about $500 million and $200 million on commercial real estate loans for leveraged buyouts respectively.

But it was in the area of remaining subprime exposures that the bank was up to it’s old tricks again. After first giving a figure of $35.5B in remaining subprime exposure (according to Deutsche Bank data ca. 2008-01-10) the

‘Swiss bank UBS shocked markets with tens of billions of dollars in new exposure to risky U.S. mortgages, leveraged finance and complex securities, dramatically raising its vulnerability to the credit crisis.’

The current exposure to subprime mortgage risks is given as:

Alt-A($26.6B) + $11.4B(LBO) + US-Ref ($11.2B) + subprime($27.6B) + (more unknown).

UBS said it holds:

$26.6 billion in Alt-A mortgage (non-subprime) products; the bulk are triple-A rated; $3.8 billion in subprime reference-linked notes; and $2.9 billion to monoline insurers on RMBS CDOs, among the securities hardest hit by the subprime shakeout.’

Expectedly the stock did not react well. David Williams remarked:

‘”They are in a sorry predicament. They have by far the largest exposure of any European bank and they cannot just trade out of it. The crisis at UBS will last as long as the credit crisis lasts.” ‘

That frustration is attributable to dealing with banks who just will not come clean until they absolutely have to.

Meanwhile we tally up UBS’s write-downs so far:

1. Write-Downs/Charge-Offs: $5.5B + $13.67B = $19.17B
2. Capital Raised                    : $0.0 +   $11.5B = $11.5B

The UBS writedown total  $19.17B is  growing fast.

2008-02-04 - Regular Trouble:

UBS finds itself in additional hot water with regulators:

Federal criminal prosecutors in New York are investigating whether UBS AG misled investors by booking inflated prices of mortgage bonds it held despite knowledge that the valuations had dropped, according to people familiar with the matter.

…

Other regulators led by the SEC are examining whether financial firms should have told investors earlier about the declining value of such securities and how they priced them on their books, people close to the matter say.

In its investigations, the SEC also is delving into whether Wall Street firms placed higher values on securities they own than those they placed in customer holdings, the people say. The SEC previously has said it has opened roughly three dozen investigations tied to the downturn of the subprime market, which primarily is tied to borrowers with poor credit histories.

In the SEC’s UBS investigation, the agency is examining, among other things, a situation last year in which a trader at a now-defunct hedge fund of UBS’s Dillon Read unit was confronted and then ousted after he valued mortgage securities at prices below the value assigned to the same securities elsewhere at UBS.

Yes, we would say that is a serious mode of butt-covering going on at the money center banks: lie about values, and prevent price discovery. Time will tell how guilty UBS is/was.

Initial Writeup, Jan. 30 2008:

The latest, per Bloomberg:

UBS AG posted the biggest loss ever by a bank after raising fourth-quarter writedowns on securities infected by U.S. subprime mortgages to $14 billion.

…

The bank increased markdowns directly linked to the subprime market to about $12 billion from the $10 billion it forecast in December and said an additional $2 billion of writedowns are for other U.S. residential mortgage securities. “Weak” debt-trading revenue and the sale of securities at a loss to cut risky assets contributed to the results, UBS said.

“Value declines have extended beyond just subprime-related exposures, to new areas, for which we do not yet have disclosure on exposure size,” Jeremy Sigee, an analyst at Citigroup, said in a note to clients. “The recently bolstered capital base remains vulnerable to further erosion.”

And this part must not exactly instill confidence for UBS’s clients:

Ospel and Marcel Rohner, who replaced CEO Wuffli in July, told analysts and investors in London on Dec. 11 that record losses were a result of positions created “by a small group of people in one team.” They also ruled out separating the investment bank from the wealth-management unit and instead said UBS will focus on bringing the two businesses closer together, while cutting assets and risk-taking of the securities division.

Hmm… “don’t worry, the losses were isolated — to a unit we plan on bringing closer to the one your money is in.”

UBS originally write down $500 million worth in Q2-07, then slightly over $5B in Q3 (according to Deutsche Bank data ca. 2008-01-10). Q4 guidance on writedowns was about $1.7B (until the above came out).

It is believed remaining subprime exposure is to the tune of approximately $18B in CDOs and $16.8B in direct RMBS (this data also from Deutsche Bank). It is unknown (to us) what their exposure is to other sorts of shaky mortgage loans (Alt-A, seconds, HELOCs, Pay Options, etc.)

In addition to write downs UBS raised $11.5 billion in cash by selling shares to investors in Singapore.

The Southeast Asian island-state of Singapore will hold its 9 percent stake through the Government of Singapore Investment Corporation (GIC), a second major injection of sovereign wealth fund cash into a major bank along the lines of the Abu Dhabi Investment Authority’s purchase of its $7.5 billion stake in Citigroup on November 27.

“It’s a developing trend. Asian and Middle Eastern sovereign investors are cash rich and have a longer time horizon than the average market investor,” said Omar Fall, analyst at ABN AMRO.

A further stake of about 1.5 percent is going to an unnamed Middle East investor, and the two investments will raise 13 billion Swiss francs ($11.5 billion) of fresh capital. Oman’s State General Reserve Fund denied suggestions that it was the investor in question.

Here are the 2007 write-downs for UBS so far:

• Q2 2007 – -  $500M in Q2 of 2007
• Q3 2007 —   $5B

By the old math that’s $5.5B big ones written down and $11.5 billion raised up so far in 2007.

1. Write-Downs/Charge-Offs: $5.0B + $0.5B = $5.5B
2. Capital Raised                    : $11.5B

Great start UBS!