Posted on 12/05/2009 12:23:58 PM PST by FromLori
Their profits have rebounded, but shaky home-equity and credit-card debt—for starters—could change that.
At first glance, banks seem to be recovering nicely from the financial crisis. But investors cheered by optimistic earnings reports could soon face a painful surprise.
Many banks appear to be postponing inevitable losses on home-equity loans and commercial mortgages. Others face new trouble in consumer banking, especially credit cards. "Banks know they've got big holes on their balance sheets," says Paul Miller, an analyst for FBR Capital Markets.
The hopeful news is that overall bank industry earnings tripled, to $2.8 billion in the third quarter, compared with the disastrous three-month period a year earlier. But plenty of pitfalls remain, and more grief is certain if the economy takes a turn for the worse.
Consider home-equity lines of credit. During the real estate boom, many homeowners borrowed against the value of their dwellings to pay down credit-card balances, buy new cars, or even cover down payments on the very houses that anchored the loans. With property values down sharply in most markets, a lot of those loans now look shaky. Already, payments on $21 billion in credit lines are past due.
(Excerpt) Read more at businessweek.com ...
Ping and related
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Six more U.S. banks closed
http://www.reuters.com/article/idUSTRE5B407F20091205
Banks are showing profits because: 1) they are being allowed to lie about what they have on the books, and 2) the Fed is essentially loaning them money at no interest, bailing out the banks at the expense of every other saver (creditor).
Here are some personal insights from an attendee (not me) at ULI Meeting in San Francisco November 2009
Here is the real stunner. A senior person at Treasury said to a small group of us that it is now official Treasury policy to extend and pretend on real estate loans. In other words, the policy statement from last week says, if you can make an analysis that says even if the current value is less than the loan, if you can do a spreadsheet that shows if you extend for 3-5 years, and if the economy gets better, and if the loan can be amortized down to where the loan is no longer more than the value, then the lender does not have to take an impairment -write down. Loans are to be modified by rate reductions, deferral of reserves, deferral of amortization or what ever.
Just NOT principal reduction. This is just like they are doing in housing.
Giant make believe. The free market seeking an equilibrium price is no longer economic policy. In short, the working of the free market is suspended. She went on to say it was administration policy that they will create new employment and by doing so they will boost the economy, and so then real estate values will return to old levels. There were 50 of the most senior and smartest real estate people in the room. They ripped her to pieces. It looked like one of the town hall meetings of August, except everyone there was a very senior, polished professional. At one point everyone was calling out or moaning at her. It was clear to all she had been given a few talking points and she was told to stick to them no matter how foolish she looked. The group told her in no uncertain terms this is terrible public policy. They said for jobs to be created you need to lower rents so the cost of occupancy was at a level to encourage more hiring. If the loan is kept at old levels and building values not reduced, then landlords can’t reduce rents to where they need to be to make taking space by tenants economically viable. Retailers costs remain higher than they should be making it harder to lower prices to induce sales. So there is a massive make believe going on. When I pressed the issue of political interference she said -what do you want us to do, bankrupt all the banks.
BUMP!
There are people who are living in their homes and have just quit paying the mortgages, AND the banks are not doing a thing about it.
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