Friday, May 8, 2009

Bernanke The Bank Analyst

Federal Reserve: Virtually All Banks Will Lose Money Over The Next 2 Years

The stress test result is out showing that is expected that banks will lose $600b against $362.9b in pre-tax pre-provision income(What the feds call pre-provision net revenue, PPNR), this is a $237.1B in net losses for the US 19 largest banks
Of all the banks tests only three show they will have a net gain over the next two years, Goldman with a whopping $0.7B gain($17.8B losses against $18.5B in PPNR), Bank of New York Mellon with a gain of $1.3B, Amex with a gain of $0.7B

Now keep in mind that the PPNR uses the management estimates of what they will likely earn, this is almost certainly too optimistic as anything that depends on a CEO judgement usually is. It also uses the Treasury economic forecast that will likely prove too optimistic as well(Unemployment is likely to top at 11%). But even then, forget Meredith Whitney, the fed just launched their own earnings forecast for Bank Stocks
over the next 2 years, virtually all of them will show a netloss, some of them will need additional capital and dillute shareholders as their rosy scenarios dont playout. If you look at anlysts earnings estimates they painting a much more optimistic forecast and the stock market is putting something like a 10 multiple on those rosy forecasts, what happens when the market realizes the economy wont grow at 2% rate in 2010 and there will be no earnings and more dillution coming?
What we are seeing in banks stocks is one of the biggest suckers rally ever

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