Friday, July 17, 2009

Credit Deterioration Continues at BAC

No matter what "Green Shoots" you think you saw, articles in clueless news channels, better housing starts, and government sponsored programs to help homeowners, nothing can apparently stop the flat out credit deterioration at major financial institutions. We saw credit problems yesterday with JP.

This morning BAC announced better then expected earnings, top line beat expectations, do you expect BAC to issue a press release saying that credit sucks? No.... You actually have to read the release to see that.

Bank of America's earnings are littered with examples of rising credit problems. Nonperforming assets which were a mind boggling $31 Billion, those on the verge of becoming losses are up nearly 21% over last quarter alone.


BAC set aside $13.3B to cover future losses, exactly the same as last quarter. Some idiot on CNBC actually had the nerve to say this is positive, as its constant with last quarter. OK, let me see, if BAC takes $13 Billion in reserve hits every quarter to perpetuity, we should view this as positive?

Net charge-offs totaled $8.7 billion, up 25 percent from the prior three-month period. Total reserves increased $4.63 billion to $35.78 billion.

Credit cards were a big trouble spot. The bank said it is not collecting payments on 11.73% of its $169.8 billion card portfolio, up from 8.62% three months earlier.


BAC turned a 2Q profit of $3.2B, but most of those gains came from asset sales. BAC generated a whopping $9.1B in pretax gains during the quarter by selling a stake in China Construction Bank for $5.3B, and a merchant processing unit for $3.6B. So in fact, earnings on an operating basis were a total disaster. How much more assets can they sell to offset credit problems in the future? This is why the government is balking at them paying back TARP.

CEO Ken Lewis has the nerve to tell investors they want to pay back TARP as soon as possible? How can they do that when they are running $26 Billion in Credit reserves so far this year?


BAC booked identical year over year profits.

2ND Quarter 2008 - $3.4 Billion Net profit or .72 cents a share
2ND Quarter 2009 -$3.2 Billion Net profit or .32 cents a share

Roughly double the share count due to dilution.


This is an excuse for poor credit.

Most of the issues BAC is in credit, the bank actually re marked up Non-Agency MBS in the quarter.

As well as the government is back stopping $118 Billion in Merrill Losses.

Investment Banking and trading were profitable, yet trailed GS and JP.


Home lending and insurance business lost $725 million, despite an increase in mortgage and home equity loans to $114.3 billion from the first quarter's $89.26 billion.

They are still in the process of cleaning up losses here as well, they are under reserved for legal claims and mounting losses.

The only good news is that if the economy picks up, employment picks up, mortgage rates fall further, and housing stabilizes, they will be able to BLEED back reserves unto their income statement, reflating operating ratios.

You have a better chance of seeing a cold day in hell.

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