When the Federal Reserve hands you money at zero percent, and you can lend at (zero percent + anything) you make oodles of money. Time to hand out major bonuses to bank executives for pulling off this business model. Just like it was time to hand out major bonuses to oil executives for somehow minting money at >$100 oil.
Since we are going to ignore all toxic loans on the balance sheet... and FASB now eliminated those darn accountants, we can focus on the "borrow at 0%" and "lend at 0% + something" model.
Even better, word is leaking out that all 19 banks "PASSED" under the stress test. Imagine that. However, some will still need government money... because when you "pass" you can still ask for more taxpayer dough.
- For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened.
- What they are discovering may come as a relief to both the financial industry and the public: the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say. (I love this paragraph considering what comes next)
- That is the good news. The bad news is that many of the largest American lenders, despite all those bailouts, probably need to be bailed out again, either by private investors or, more likely, the federal government. After receiving many millions, and in some cases, many billions of taxpayer dollars, banks still need more capital, these officials say. (this is "passing")
- Regulators say all 19 banks undergoing the exams will pass them. But the tests, which are expected to be completed by the end of this month, are being conducted out of public view. Some investors wonder if the new tests are rigorous enough, given the potential problems lurking inside the banking industry.
- “Nothing has changed with the fundamentals,” said Meredith A. Whitney, a prominent banking analyst who has been bearish on most financial institutions.
Back to Wells Fargo (WFC), via AP
- Wells Fargo & Co. said Thursday it expects record first-quarter earnings of $3 billion, easily surpassing analysts' estimates and providing an encouraging sign for the banking industry. Wells Fargo's stock rose $4.87, or 32.7 percent, to $19.76 in electronic premarket trading, while stock futures also surged on the announcement.
- San Francisco-based Wells Fargo, which has received $25 billion in funds as part of the government's bank bailout plan, anticipates earnings after preferred dividends of about 55 cents per share. Revenue for the period ended March 31 is expected to climb 16 percent to $20 billion. Analysts polled by Thomson Reuters forecast profit of 23 cents per share on revenue of $19 billion. Analysts' estimates typically exclude one-time items.
- "It's premature to conclude the economy has turned," said Howard Atkins, Wells Fargo's CFO. "All I can tell you is we're seeing a lot of business."
- Revenue at Wells Fargo, which has been one of the strongest banks during the ongoing credit crisis and recession, was bolstered by strong mortgage banking and capital markets business, Atkins told The Associated Press. During the first quarter, Wells Fargo received about $190 billion in mortgage applications, a 64 percent jump from the previous quarter. More than 40 percent of that volume came in March. (refinance time across America, the house ATM is back for those who are not underwater) Most of that business was refinance applications.
- "For sure the reduction in interest rates is having an impact on the wave of activity in the mortgage market," Atkins said.
- Wells Fargo said charge-offs are expected to total $3.3 billion for the first quarter, compared with a combined $6.1 billion between Wells Fargo and Wachovia during the fourth quarter. Charge-offs are loans written off as not being repaid. The bank is still facing loan losses as customers fall behind on repaying loans during the recession. It said its loan-loss provision will total about $4.6 billion for the first quarter, including adding $1.3 billion to its credit reserves.
So remember, before we got "here" 90% of America's assets were in the top 10 financial institutions DESPITE there being 8000 such places of business. Since then we've concentrated power into fewer and fewer hands, making "too big to fail" firms even "too bigger too fail". Then we are testing them, finding them flying past the stress test, although they will need more capital. Then we tax the populace via future inflation (the most insidius and regressive tax on a population) via 0-0.25% federal funds rates... so that these same firms can make profits if even a toddler ran the company. This also will effectively kill Geithner's PPIP plan because if banks can just look the other way at the toxic assets and celebrate the new loans, they won't have any reason to sell them off. PPIP made obsolete.This can only mean one thing...
