[CutePuppy]

But if you can borrow most of the price, you can double your *equity* paying 50, if they are really worth 60.

Which is exactly what Citi and BoA are doing now. It's an easy way to get really profitable really fast, using leverage, and pay off TARP loans (which is in everybody's interest) if / when financial system is stabilized and bear raids or run on the bank are no longer in the picture. That would unclog the credit facilities of the banks, which have been already thawing due to lower spreads and LIBOR rates.

[JasonC]

They are reducing leverage. They care more about their stock prices. What is true though is narrowing spreads and recovering bond prices mean all the financial institutions will see mark down pressure evaporate. This was already in the cards in November - it was clear in the late November to mid December period that corporate bond prices had already bottomed. The stocks went down for another quarter because it takes that long for the price recovery to show up in earnings. But nobody should be surprised when B of A et al announce they are profitable again, shortly.

The spread between corporates and treasuries simply was and is the crisis. If the Fed wanted to address it directly they'd just arb that spread directly. Instead they continue to do it indirectly, wanting private actors to take the lead. That is delaying things, but sooner or later it turns.

The original losses have all been written off long since. All the big banks have been cash flow positive throughout - the "losses" are all marks and additions to loss reserves, not cash going out the door.