Banking Bust - More To Come!

on . Posted in Articles of Interest


January 16, 2008 - Banks have written down more than $100 billion since the summer. Yikes. Now the bad news: There are still billions worth of potentially toxic securities sitting on the books.

The additional $1.3 billion write-down disclosed by JPMorgan on Wednesday was just the latest loss big banks have reported in the fourth quarter. Merrill Lynch is expected to report a sizeable write-down when it reveals fourth-quarter numbers on Thursday, by some estimates in the neighborhood of $15 billion. Bank of America , Wachovia and other big lenders report next week and are also expected to write down billions of securities holdings.

At Citigroup, $37 billion of collateralized debt obligation exposure remains even after the bank wrote down an eye-popping $17 billion of its holdings in the fourth quarter. Of course that raises the likelihood that Citi will have further substantial write-downs in the quarters ahead. The bank reported a more than $9 billion loss in the fourth quarter because of the write-downs and related credit costs, the worst quarter in its history.

The self-inflicted water torture, taking the hits in increments, coincides with Citi's search for new capital. It raised another $14.5 billion of it from a consortium of investors, including its former Chief Executive Sanford I. Weill. It cut its dividend 41%, saving about $4 billion a year. But many believe it needs to go much further.

"They are dragging their feet," says Christopher Whalen, managing director of Institutional Risk Analytics, who estimates Citi will need to raise $30 billion of additional capital this year, somehow, some way.

Further write-downs will only hammer the stock more and hamper the bank's ability to go out and raise capital. Shares of Citi are trading around $26, down from a 52-week high of $55.

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