tag:blogger.com,1999:blog-4815867514277794362.post8147702632433270608..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Fools seldom differJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-4815867514277794362.post-92074753179865410212009-03-11T10:04:00.000+11:002009-03-11T10:04:00.000+11:00John, I've long shared your views (and what is now...John, I've long shared your views (and what is now also Buffett's) on the health of banks. You have long argued that we're nothing like Japan. But have you looked at Richard Koo's <A HREF="http://www.csis.org/component/option,com_csis_events/task,view/id,1828/" REL="nofollow">presentation</A>? It is perhaps the most lucid analysis I've seen since the crisis began. I'd love to see you blog about it because of its inherent differences with your views.Henry Beehttps://www.blogger.com/profile/12176365362835822750noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-23406215168054228942009-03-11T06:38:00.000+11:002009-03-11T06:38:00.000+11:00JH wrote:> I have been criticised endlessly >...JH wrote:<BR/>> I have been criticised endlessly <BR/>> for pointing out that on pre-tax, <BR/>> pre-provision earnings American <BR/>> banks can quickly regain solvency <BR/>> provided they can maintain funding.<BR/><BR/>Why?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-12976598417126529972009-03-11T02:22:00.000+11:002009-03-11T02:22:00.000+11:00mr hempton -- i don't wish to stir any pots -- but...mr hempton -- i don't wish to stir any pots -- but reading the analysis of chris whalen over at institutional risk analyst leaves one with a very different view. <BR/><BR/>i understand well enough the muddle-through mechanics with the aid of low-cost gov't financing you are highlighting here. whalen, however, is talking about the losses that he thinks will be reported for q1 as a catharsis event which will make evident the need to resolve not only C and BAC, but (at a distance of a few quarters perhaps) JPM and WFC. <BR/><BR/>have you followed whalen's arguments? and would you care to address the difference between these two views?gaius mariushttps://www.blogger.com/profile/10618655639631695070noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-56151810635142754872009-03-11T02:08:00.000+11:002009-03-11T02:08:00.000+11:00While it might seem folly to argue with Buffett, I...While it might seem folly to argue with Buffett, I'll point out the following:<BR/><BR/>-Buffet is to a considerable degree talking his book here, Wells Fargo, Amex, US Bancorp, Swiss Re<BR/><BR/>-He asserts, without any further proof or evidence as to the quality of the assets, that toxic assets will not sink the banks. Time will tell, but the banks' consistent claims that all the marks were only temporary have been shown to be bunk so far through the cycle. How big was the hole on Lehman's balance sheet? These assets sank Wamu, Wachovia, National City, Countrywide, and a baker's dozen of smaller banks since Jan 1. LM sold their remaining SIVs for 25 cents on the dollar - what are Citi's worth? I won't belabor the point, but assertions that the assets aren't toxic is, in my view, speculation so far unsupported by facts. <BR/><BR/>-CDS on Berkshire suggest some see considerable risk in his asset base, it would be good for his assets to be revalued upward, hence an incentive to talk up the market<BR/><BR/>-Buffett is not infallible as shown in his purchase of Conoco in the summer, his market call in September, his purchase of two Irish banks, and his GE and Dow Chemical trades of last year<BR/><BR/>-If the assets are so good, why isn't the disclosure better? If that is the constraint that keeps you from getting additional capital, put your loan book and the marks on the web and let the market see that it is wrong. I don't see anyone stepping up to do that. Watch what they do, not what they say.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-85737035496383556612009-03-11T00:59:00.000+11:002009-03-11T00:59:00.000+11:00John,hate to rain on your parade...but if unemploy...John,<BR/>hate to rain on your parade...<BR/><BR/>but if unemployment hits 9.4% this year(http://www.bloomberg.com/apps/news?pid=20601087&sid=aWHdSE69tNtk&refer=home),<BR/>the banks are toast.<BR/><BR/>I believe the banks are using 9% unemployment rate in 2010 for scenario planning purposes.<BR/><BR/>Hitting 9.4% in 2009 is like cliff jumping.<BR/> <BR/>God help us all.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-30624767362989477242009-03-11T00:38:00.000+11:002009-03-11T00:38:00.000+11:00The banks' quarterly financial reports show that a...The banks' quarterly financial reports show that as of Dec. 31:<BR/><BR/>_ J.P. Morgan had potential current derivatives losses of $241.2 billion, outstripping its $144 billion in reserves, and future exposure of $299 billion.<BR/><BR/>_ Citibank had potential current losses of $140.3 billion, exceeding its $108 billion in reserves, and future losses of $161.2 billion.<BR/><BR/>_ Bank of America reported $80.4 billion in current exposure, below its $122.4 billion reserve, but $218 billion in total exposure.<BR/><BR/>_ HSBC Bank USA had current potential losses of $62 billion, more than triple its reserves, and potential total exposure of $95 billion.<BR/><BR/>_ San Francisco-based Wells Fargo, which agreed to take over Charlotte-based Wachovia in October, reported current potential losses totaling nearly $64 billion, below the banks' combined reserves of $104 billion, but total future risks of about $109 billion.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-27462785414852374902009-03-11T00:15:00.000+11:002009-03-11T00:15:00.000+11:00I meant the bailouts were generous to shareholders...I meant the bailouts were generous to shareholders. Typing slydexia - I mean dyslexia..<BR/><BR/>slydexia lures ko.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-81153971371995106682009-03-10T22:34:00.000+11:002009-03-10T22:34:00.000+11:00To clarify - the banks were very generous to the s...To clarify - the banks were very generous to the shareholders - not the government.<BR/><BR/>As for Anglo Irish - an undiversified portfolio will kill. And did. Corus bank on a grand scale.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-79386159596732943322009-03-10T22:32:00.000+11:002009-03-10T22:32:00.000+11:00Hubert - you are right. The government extracted ...Hubert - you are right. The government extracted very generous terms in almost all bail outs.<BR/><BR/>Buffett got better terms from the best run investment bank (goldies) than the US Government got from really crappy banks. Whole heartedly agree here. <BR/><BR/>The terms however are secondary to whether a guarantee is given. I figure you should give it - and then have a fair system to impose brutal terms. <BR/><BR/>--<BR/><BR/>As for the Irish banks - I have an opinion only of Anglo Irish. (Insolvent.) <BR/><BR/>I do not have an opinion of the others.<BR/><BR/>JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-83483693311306627212009-03-10T22:09:00.000+11:002009-03-10T22:09:00.000+11:00Okay, I get your point.But would it not be practia...Okay, I get your point.<BR/>But would it not be practial to get the same type of funding that Buffett got with Goldman Sachs ? What Buffett did to Goldie shareholders should be done by the taxpayer unto Buffett.<BR/><BR/><BR/>Also, what many have overlooked, Buffett hinted in the Citi context that Obama should guarantee ALL bank liabilities.<BR/><BR/>But then it should at least charge a few hundred basis points accordingly for moral and practical reasons and change rent-seeking moral hazard bank debt investing by PIM & Co at least from now on.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-71511009578525750152009-03-10T22:03:00.000+11:002009-03-10T22:03:00.000+11:00John, I would be interested in your view of where ...John, I would be interested in your view of where the Irish banks are situated in the liquidity/solvency spectrum. My own inclination is to regard them as having liquidity rather than solvency issues, although they do have a significant toxic asset problem in the area of property development.Fergus O'Rourkehttps://www.blogger.com/profile/14855775987063530713noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-58015585894621645322009-03-10T21:57:00.000+11:002009-03-10T21:57:00.000+11:00On GE - he could have just admitted his timing was...On GE - he could have just admitted his timing was awry - and suggested that he thought the preferreds would pay (which they will). That would have been sufficient.<BR/><BR/>There is NO moral principal on which the shareholders of large banks - the too-big-to-fail variety - should be treated differently to small banks.<BR/><BR/>There is ONLY a practical principal. We know what happens when there is an uncontrolled failure of a big financial institution (Lehman). We know it is bad.<BR/><BR/>So you are left with a choice - treat shareholders of large banks nicer by only diluting them a lot (my view) or blow up the whole economy by having strings of Lehman.<BR/><BR/>Morality comes not at all into it. Just be practical.<BR/><BR/>JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-79229255520894831312009-03-10T21:48:00.000+11:002009-03-10T21:48:00.000+11:00John,disagree with your GE comment. WB certainly k...John,<BR/><BR/>disagree with your GE comment. WB certainly knows that he was wrong or early with GE. But to admit that would bring even more trouble to GE. So if he can get away with not explicitely talking about it - the better for both Buffett and GE. It would have been the commentators job to get at this, not Buffetts.<BR/><BR/>OTOH I think he is playing a game in his banking recommendations to the presiden: I think Buffett is sweating that current Wells Fargo will own the bank in its great future. The margins on toxic assets and new business are great but if the rules stay the rules until the end of 2009 the small equity cushion of WFC should force the regulators hands. In effect Buffett tries to lobby his position there. He wants to make the big money (back). How about giving the taxpayer a good deal for a change ? On what moral principle should Wells Fargo and its owners be treated differently than smaller banks ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-45621879331263633502009-03-10T19:23:00.000+11:002009-03-10T19:23:00.000+11:00In the early UK examples, Northern Rock and HBOS, ...In the early UK examples, Northern Rock and HBOS, it was clear that the main problem was funding (largely the over-reliance on wholesale deposits and securitisation), and an ever-increasing danger that liquidity would dry, leading to a bank-run and insolvency. The primary missing ingredient was not capital. It would have been possible to provide liquidity by way of toxic asset purchases, normal asset purchases or a guarantee. Once the UK government decided that insolvency was the problem, rather than the likely result of the problem, capital became essential and state ownership virtually inevitable. <BR/><BR/>One can distinguish other cases, however, to which capital was relevant. RBS became inadequately capitalised through hubristic acquisitions, and Lloyds became inadequately capitalised through acquiring HBOS with the encouragement of the Prime Minister. Barclays is probably inadequately capitalised, because its low level of writedowns is statistically an outlier. <BR/><BR/>But the original Paulson-style approach via the purchase of toxic assets, combined with deposit guarantees, should have been correct. The TARP would have made a profit, liquidity would have returned to the system, and the banks would have remained solvent. The deteriorating level of delinquencies in asset backed securities - where there is a feedback loop from bank illiquidity - could have been mitigated. <BR/><BR/>By addressing the wrong variable, Governments have made matters infinitely worse than they need have been.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-68438372044001995962009-03-10T17:58:00.000+11:002009-03-10T17:58:00.000+11:00It seems to me that your disagreement with the lik...It seems to me that your disagreement with the likes of Yves Smith is not so much a disagreement on principle but stems from a difference in (temporal) perspective.<BR/><BR/>If I may be so bold to summarize your general position in a few words, it is that the "good bank" parts are so profitable right now that they earn enough to bailout the "bad bank" parts eventually ... if they are given time.<BR/><BR/>On that note I agree. As you say the problem lies with: "... so long as you can get past the past."<BR/><BR/><BR/><BR/>In a certain way, the difference between providing the banks with capital directly from the government now, or issuing guarantees and have the private sector funding them is not that large at all.<BR/>Those private investors can either buy US public debt which then gets transformed by the government into capital for the banks, or they can provide capital to the banks directly albeit with a government guarantee.<BR/><BR/>I suppose the only real difference lies in what "the market" considers to be better, implicit or explicit guarantees of the banks liabilities.<BR/><BR/>Overall, I think a guarantee is more likely to be successful, simply because it's a more explicit method and by that ensures a more equal treatment of banks.<BR/>In a sense this is only because politically, a statement of guaranteeing bank liabilities is more believable than the promise to provide capital to them as needed, when they need it.<BR/><BR/>I try not to ramble too much in comments, so I suppose I'll stop here and let you tell me (if you want) whether that makes sense, you'd need some clarification of my thoughts, or if I'm simply wrong.Anonymousnoreply@blogger.com