Category: Profitability

Business Models, Profitability

Risk management under question at Canadian Banks

Colin Henderson

With these two quotes taken from various press, and summarised on the always complete Canadian Banks blog, it is clear we are entering a period of signficant mistrust amongst at least two of the Banks. Canadian Banks & Insurance Blog Canadian Imperial Bank of Commerce is putting its stock — and the fortunes of its shareholders — at the mercy of hedge funds and other sophisticated players because of the piecemeal way the bank is disclosing its exposure to investments in U.S. subprime mortgages and other complex securities, says a Bay Street analyst. Also not fully explained yesterday was how … Continue reading Risk management under question at Canadian Banks

Profitability, subprime

“A recession as almost a given but differed over how severe it will be”

Colin Henderson

Economists are such cowards.  They have now moved from denial of a recession, to one of how much of a recession.  Calculated Risk: Recession Predictions Many analysts gathered at the American Economic Association’s two-day annual meeting spoke of a recession as almost a given but differed over how severe it will be. Continue reading “A recession as almost a given but differed over how severe it will be”

Profitability

Commercial real estate | another future predictor

Colin Henderson

Traditional Bank problems have arisen from commercial real estate.  In 2007 the story was all about residential real estate. However the commercial real estate market cannot be ignored, and the situation in London shows rents predicted to drop 5% this year.  The graph shows that the volume of property under construction that is unlet is huge. Commercial property | Dominoes on the skyline | Economist.com Relevance to Bankwatch:The consequence of future commercial real estate problems drives into business profitability, and the sheer size of the transactions, will impact Banks’. Continue reading Commercial real estate | another future predictor

Profitability

Some American Banks will go under sometime over the next two years

Colin Henderson

Such statistics are mind boggling – Banks are lending out more than their capital to one segment.  It actually doesn’t matter which segment;  just that the notion of diversification relative to their capital base is lost. In laymans terms this means, that in the event of a housing, ergo, construction economy pull back, that Banks will go under.  Its the equivalent of personally borrowing more than you have in other assets, then losing your job.  Calculated Risk: Rising Delinquencies for Construction Loans Figures compiled by the Federal Deposit Insurance Corporation … show that both midsize and small banks had construction … Continue reading Some American Banks will go under sometime over the next two years

Profitability2 Comments

Canadian Banks write off $1.2 Bn … so far – [33% default rate]

Colin Henderson

RBC announce $0.4Bn charge related to sub prime, bringing the Canadian total to $1.2 Bn so far.  The astounding statistic here is that the RBC charge relates to 33% of their outstanding in that sector.  What kind of risk assessment was done on an investment made within the last 2 years that produces 33%+ default rates?  And using Canadian depositors money no less.   I could comment on the less than 3% default rate at Prosper, but no, I won’t go there … today. reportonbusiness.com: RBC to take $360-million charge amid credit crunch The subprime writedown, which amounts to about … Continue reading Canadian Banks write off $1.2 Bn … so far – [33% default rate]

Innovation, Open Source Banking, Profitability1 Comment

BMO first in laying the groundwork to mitigate against sub prime

Colin Henderson

I  have been awaiting specifics on how the sub prime crisis would impact Canada specifically, and these stories at noted by ‘Canadian Banks’ indicate BMO is one of the first out of the gate with significant balance sheet restructuring in advance of rumoured impacts from the US situation.  The restructuring involved a 6% boost in Assets and liabilities, using new wholesale and commercial deposits to repurchase its own Asset Backed Commercial Paper.  Translation …  the articles speculate this is in anticipation of significant writedowns in the 4th quarter. Who is next ?  Watching and waiting for RBC, CIBC, Scotia information. … Continue reading BMO first in laying the groundwork to mitigate against sub prime

Open Source Banking, Profitability6 Comments

“The Upside of Down” | some thoughts on Banking

Colin Henderson

Over the last couple of weeks I have been reading ‘The Upside of Down‘, authored by Thomas Homer-Dixon. Its not often that a book makes an impact on how I think about things, but this book did. Generally I think of myself as a pragmatist, and no I have not suddenly joined the Al Gore fan club. Thomas carefully develops the case that there are some seismic changes occurring in the world (meaning the whole world) that when they occur simultaneously will produce cataclysmic change in the world. My intention is not to rationalise the book … you can do … Continue reading “The Upside of Down” | some thoughts on Banking

Profitability

“Do investors honestly believe that $45 billion of reserves … control a $6.3 trillion banking system”

Colin Henderson

Fascinating comment on the fragility of the Banking system. The numbers here are American, but the a similar relativity would apply in Europe, Canada, or Japan. This is why the relatively small matter of the sub prime credit crisis, has just an enormous ripple impact across the markets. Hussman Funds – Weekly Market Comment: The Bag Will Not Inflate, And Liquidity Will Not Be Flowing – October 8,2007 Meanwhile, the total reserves of the banking system remain about $45 billion, nearly all of which represents temporary repurchase agreements that are continuously rolled over as they become due. Do investors honestly … Continue reading “Do investors honestly believe that $45 billion of reserves … control a $6.3 trillion banking system”

Profitability

Market cap of some interesting companies

Colin Henderson

A Scoble post earlier about the value of Facebook, and Google, got me looking at the current market cap of some well known companies, both technology, and Banks.  Here it is, descending order, with current market capitalisation in US dollars. Google, Ebay, and Amazon have done a decent job of infiltrating amongst the big guys. Microsoft $282,000 BofA $235,320 Google $194,151 IBM $160,480 Amazon $53,135 RBS $52,292 Barclays $43,903 Ebay $37,206 Continue reading Market cap of some interesting companies

Profitability

“If the banks are bad, … will … become worse if the government … encourages them”

Colin Henderson

Fascinating virtual “interview” with Walter Bagehot, Editor of Economist from 1861 until 1877.  Gilbert creatively aligned pertient questions for the current sub-prime situation, with quotes from Bagehot’s book, “Lombard Street,” published in 1873. Bloomberg.com: News Bagehot Had Credit-Crunch Answers 130 Years Ago: Mark Gilbert By Mark Gilbert Oct. 4 (Bloomberg) — Walter Bagehot, an economist and author writing in the 19th century, had the answers to the current credit crunch. In 1866, the U.K. money markets were in turmoil. The collapse of a private bank called Overend & Co. threatened to destroy the fragile trust underpinning the credit system. The … Continue reading “If the banks are bad, … will … become worse if the government … encourages them”