Originally Posted By Sport Goofy << Why would Bank of America want to buy Countrywide and Merrill? >> It could all be a shell game, where the acquiring bank beefs up its books momentarily with the purchased banks real assets. This temporarily offsets the operating losses from the tanking mortgage business and losses from the investment banking in mortgage-backed investment vehicles. Over time, the unhealthy parts of the business might overcome the accounting schemes associated with acquisitions. If JPMorgan had not bought Bear Stearns, it was rumored to be very close to insolvency. However, adding the Bear Stearns commercial real estate assets to the book (which were worth far more than JP's purchase price for the company) gave them some room to maneuver on the balance sheet. Similarly, BofA got to purchase Countrywide on the condition that the U.S. government essentially take responsibility for all of the bad mortgage debt -- allowing BofA to cook their books with Countrywide's good assets while neglecting the bad. How long can the shell game go on before it's over?
Originally Posted By leemac <<If JPMorgan had not bought Bear Stearns, it was rumored to be very close to insolvency.>> No idea where you got that idea - JPMorgan Chase is the healthiest of the big US banks by far. Their exposure to SIV/mortgage-backed securities losses is minimal compared with the likes of Merrill, Citi and BoA. There was a fascinating study of JPM in the current issue of FORTUNE: <a href="http://money.cnn.com/2008/08/29/news/companies/tully_dimon.fortune/index.htm" target="_blank">http://money.cnn.com/2008/08/2...ndex.htm</a>
Originally Posted By Mr X Don't be so sure, Lee. <a href="http://digg.com/business_finance/Are_banks_are_having_a_little_trouble_with_reserves" target="_blank">http://digg.com/business_finan...reserves</a> Just a small nugget, only half a billion (among the four), but these sort of events keep popping up and if I've learned one thing about this whole mess it's that you can't believe a word anyone says about relative good or bad financial health in these institutions. Granted, I'm not all that familiar with Chase and perhaps you've examined their books under a microscope, but until you do that you really just never know. Neither does Fortune magazine. Not contradicting you, by the way..I have no reason to doubt your word. I'm just pretty skeptical when it comes to banks claiming to have "minimal" exposure to any toxins. They can bite you in more ways than one.
Originally Posted By Mr X I realize that's old info, by the way. It's just that with events like that, I figure who really knows what's going on behind the scenes. After all, Bear Sterns was "healthy" until they suddenly caught a 24 hour flu and died. Yeah. Right.
Originally Posted By leemac X - it is all relative. JPMorgan by virtually every measure is the healthiest. Some of the smaller regional players like Wells Fargo, SunTrust etc. are also hanging in there too. My point is that if JPMorgan Chase fails then the entire banking system is bankrupt. BoA, Citi and their ilk will fail before JPMorgan Chase. All of us with Lehman business now have the fun of trying to unwind the relationship - that is going to be a lovely quagmire to play in for the next year.
Originally Posted By Mrs ElderP I didnt realize that Wells Fargo was still considered a reagional bank, but like I said this is *so* not my area of expertise.
Originally Posted By Sport Goofy It's also difficult to believe that Wells Fargo doesn't have any exposure to all of this considering they are located primarily in the epicenter of real estate speculation, California. But so far they appear to be holding up. Go figure.
Originally Posted By leemac I believe Wells operates banking services in about half of the states - but the focus is still very much on the west coast (more than half the offices are in CA alone if I recall). I believe they derive about 15% of their revenues from mortgages but the vast majority are from the prime market. They do have something like $85bn of mortgages on their books though. Not a small number.
Originally Posted By Mrs ElderP I heard an interview with the CEO of Wells Fargo last November or so where he stated that they just recognized the insanity of the situation, and they didn't get involved. That said we were looking for a mortgage in winter of '03/'04. We were a midly risky case, credit score in the low 700s, only 5% down, and first time homeowners. We wanted a fixed rate loan and eventually got one from some online source and now Citi and GMAC service our loans. Wells Fargo offered us a loan, at a full percentage point higher than we ended up at. They were NOT into risky business then, and I don't think they ever got into them. They never drank the Kool-Aide.
Originally Posted By Mr X ***X - it is all relative.*** Absolutely. ***My point is that if JPMorgan Chase fails then the entire banking system is bankrupt.*** Understood. Let's hope THAT doesn't come to pass!
Originally Posted By SingleParkPassholder "That said we were looking for a mortgage in winter of '03/'04. We were a midly risky case, credit score in the low 700s, only 5% down, and first time homeowners. We wanted a fixed rate loan and eventually got one from some online source and now Citi and GMAC service our loans. Wells Fargo offered us a loan, at a full percentage point higher than we ended up at. They were NOT into risky business then, and I don't think they ever got into them. They never drank the Kool-Aide." If my experience with them counts, I'd have to agree. Although we have a 30 year fixed with them at 5.63, there weren't much, if any of these crazy loans that have brought down some of the others that they offered. We got ours through a re-fi with them in late 2004, and haven't looked back. We had to jumo through all sorts of hoops, not just show up with the ability to write our names, like the first lender we had. Our real estate agent had a broker who arranged the first one for us, and we couldn't get away fast enough to Wells.
Originally Posted By ecdc I guess I just don't get all the panic. I'm told by John McCain that the fundamentals of our economy are strong.
Originally Posted By Mr X There are now only 2 major investment banks left standing... Goldman Sachs and Morgan Stanley Wow.
Originally Posted By fkurucz So will the Plunge Protection Team be able to save the stock market today? At this point the Dow and SP500 are down about 2% and the Nasdaq is only down 1%. Considering the severity of the news these past few months its remarkable that the stock market hasn't crashed.
Originally Posted By Mr X I believe the reason for that is the incredible volume of short interest...the "evil" short sellers are actually acting as a life preserver for the markets, taking their profits whenever there's a significant dip like today.
Originally Posted By ecdc >>Considering the severity of the news these past few months its remarkable that the stock market hasn't crashed.<< That was my thought as well. I fully expected to wake up to news that the Dow had lost 1,000 points or something.
Originally Posted By Mr X Bad analogy, I meant to say "acting like a life jacket" in the sense that when you plunge all the short covering floats the stocks back up. What's really creepy is that most of Asia was on holiday today, so tomorrow they need to "catch up". Yikes.
Originally Posted By Mr X And to make matters worse... "Bush to Make Statement on Markets By HENRY J. PULIZZI September 15, 2008 10:06 a.m. WASHINGTON -- U.S. President George W. Bush will make remarks on financial markets at 11:10 a.m. EDT, the White House said Monday. The president isn't expected to take questions from reporters following his comments, which will be his first since a series of events over the weekend radically altered the Wall Street landscape. A White House spokesman said Sunday that Mr. Bush was in touch with his advisers about the rapidly-moving situation on Wall Street." About 17 minutes from now. It might be a fun exercise to watch the dow second by second as he speaks.
Originally Posted By fkurucz The Dow is flirting with dipping below 11,000. Will the PPT still come to the rescue? Or are they finally out of ammo? There is about 1 hour left.
