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Tuesday, October 21, 2008


now for the real losses: banking sector nationalization grows closer

barry ritholtz relays a short media piece by chris whalen of the institutional risk analyst (whose related latest missive is here).

the upshot: look for citi, bank of america and jpmorgan chase to be nationalized outright at some point over the next two years, as real loan defaults eat through everything they've already set aside as loan loss reserve and more. the TARP, as whalen sees it, is a down payment on the kind of government assistance that is going to be required to help these banks absorb the losses they are already exposed to -- never mind new credit growth, which will be essentially nonexistent.

of further concern, whalen's characterization of jpmorgan as "an OTC derivatives exchange with a bank attached to it" is utterly correct -- while citi is the riskiest of the large banks by traditional metrics, JPM carries scads of a different kind of non-banking risk.

as for smaller regional banks -- many of which are reporting deeply disappointing earnings this week -- they are more likely now that ever to end up in FDIC receivership with the money center banks as well as GS and MS swooping on their deposit bases in resolution.

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