Bank Investors Expect Less as Losses Mount

[groovedaddy]

Can the bad news for banks get any worse?

After the last week brought another round of woeful quarterly results from the industry, capped by news on Tuesday of multibillion-dollar losses at the Wachovia Corporation and Washington Mutual, that question is nagging banking executives and their investors.

Kenneth D. Lewis, the chief executive of Bank of America, insisted this week that the industry was turning the corner, after his company reported a mere 41 percent drop in profit. Many investors seem to see signs of hope in red ink that once would have shocked them.

But it has now been a year since the credit crisis erupted, and, so far, the optimists have been proven wrong time and again. Skeptics say it could take years for banks to recover from the worst financial crisis since the Depression. And even when things do improve, the pessimists maintain, banks’ profits will be a fraction of what they were before.

There are many reasons for caution. Home prices continue to decline, and defaults are accelerating on a wide range of loans. As lenders struggle, loans are becoming even more scarce for hard-pressed consumers and companies. That, in turn, could slow any recovery in the broader economy.

http://www.nytimes.com/2008/07/23/business/23bank.html?th&emc=th

[Hydra]

1. Jobs?

Consumer consumption is something like 70% of the economy. No well paying jobs created and many lost = unlikely economic recovery.

Let's watch them pull a rabbit out of a hat, shall we?

[Pale Blue Dot]

5. That's been my argument exactly.

We are losing jobs at a fantastic pace right now, and unlike the past few recessions, there is NO mechanism in place to get those jobs back. In the 90's, the tech boom created jobs. When that bubble burst, the real estate bubble created jobs. Currently, there's not even a phony-baloney bubble to save us. Small businesses, which used to be the big job engine in our economy, are now almost non-existent thanks to consolidation and impossible startup costs (and good luck trying to get a loan in this economy). Federal, state and local governments are all in debt and are actually cutting jobs rather than creating them. Jobs are disappearing quickly and none are being created to replace them.

People are gloating that they are still making money in this economy. Well, good for them. I hope they enjoy it while it lasts.

[Warpy]

2. The last few days of the present sucker rally

have seen my few financials do very well while the industrials and energy stocks have done poorly.

That means we're far from out of the woods, folks, and that the economy still has a very long way to go before the market gets any better.

Financial stocks are announcing bad news every day, but since the bad news isn't as bad as everyone anticipated (this quarter, at any rate), they have rallied considerably.

Whether from much needed but tardy regulation or simply a lack of confidence in the funny money that inflated paper profits over the last decade, the future of a go-go financial recovery is about as likely as the Pope on a pogo stick.

The article is correct, as far as it goes. Added to the decline in housing prices and with it net worth are declines in employment security, health security, and expectations for any sort of a better future as wages continue to lag far behind inflation. Then there's the enormous burden of consumer debt making it impossible for people to consider anything but the bare essentials after the debt has been serviced every month.

The state of the economy is still not good. Once the truth about the financial reports sinks in--that they're still not good reports--the market will reflect it.

[groovedaddy]

3. The only reason the financials are doing well is the prospect of a bail out. n.t

[Warpy]

4. Half of mine are offshore

and they've done better than the ones onshore.

I can't see Bernanke bailing out offshore banks, can you?

The truth is that the rally has more to do with reports not living down to poor expectations.

[groovedaddy]

6. No - he won't do anything about the off shore banks. Moyers & Greider

talked about the impact of the bailout on investors on Moyer's show last week. A bail out means these industry players can't lose, no matter what. Who wouldn't want to invest in that scenario?