The Wachovia situation is a good example to illustrate the point I have been making insufficient capital at Banks, and their extended leverage. Citigroup Inc. to Acquire Banking Operations of Wachovia Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk. They are saying in effect that the $312 bn loan portfolio has significant bad debts and that Citi will absorb up to … Continue reading Managing leverage combined with sound lending practices are essential for Banks | Wachovia failed on both

The official Federal Reserve announcement signalling that the US government is not prepared to let AIG fail.  This after letting Lehman Brothers fail, and pressuring Merrill Lynch into a sale to Barclays. Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance More here at the FT The loan is at a punitive interest rate … Continue reading US to take control of AIG

As predicted, here is the first example of Asian Banks seeking positive investment opportunities amongst the American Banks. In this case they are being characteristically careful and investing in one they already know. FT.com / Lex / Financial services & property – MUFJ/UnionBanCal The second is that the would-be buyer is Japanese. Mitsubishi UFJ wants to buy the 35 per cent it does not already own of UnionBanCal for $63 a share, implying a valuation of $8.8bn for the owner of Union Bank of California. Relatively unscathed, Japanese banks have already lent a financial hand to struggling global peers. MUFJ … Continue reading Tokyo Mitsubishi UFJ invest further in UnionBanCal

Two down, and approx 88 to go if current estimates are correct. There is an update due in August, and I would not be surprised to see the 90 estimate increased. FT.com / Companies / Financial services – US regulators seize two more banks Two weeks after the Federal Deposit Insurance Corp seized IndyMac, the Office of the Comptroller of the Currency said it closed First National Bank of Nevada and First Heritage Bank NA of California. Continue reading Two more Banks shut down by FDIC

This has to be the most depressing piece on the true underbelly of the subprime situation in America. Note how lenders have shifted to fee revenue to optimise the high personal debt situation. Given a Shovel, Digging Deeper Into Debt – NYTimes.com Lenders have found new ways to squeeze more profit from borrowers. Though prevailing interest rates have fallen to the low single digits in recent years, for example, the rates that credit card issuers routinely charge even borrowers with good credit records have risen, to 19.1 percent last year from 17.7 percent in 2005 — a difference that adds … Continue reading Given a Shovel, Digging Deeper Into Debt | Nytimes

UPDATE: to post 14th July 2008 Fannie/ Freddie collectively have $5,300 billion in mortgage credits against $ 81 bn in capital. Any revaluation of their mortgages by more than 1.5% discount will wipe out their capital base. More than half their loans are from the peak years of 2005 – 2007. Valuation of their mortgages is difficult, but it is certain they are worth something less than face value. While they had a rule of not lending greater than 80% of home value, this rule was broken through top up loans, and potentially through loans purchased from investment dealers. Fannie … Continue reading More on the valuation of Freddie/ Fannie, and their capital requirement