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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: pater tenebrarum who wrote (102072)	5/14/2001 3:46:26 PM
From: John Pitera	Read Replies (1) of 436258

Heinz, I think you'll be interested in this: Pru's Mike Mayo out with interesting report on bank contingent liabilities. Highlights (from the report): "(1) RECORD OFF-BALANCE SHEET EXPOSURE. Bank off-balance sheet exposure increased three-fold over the past decade, up $3+ trillion to $4.7 trillion today. "(2) MUCH HIGHER RISK. Customers draw down unused lines during tough times, as shown by Xerox in late 2000. The result is back-ended credit costs but front-loaded fees, which has inflated today's earnings by 3%. "(3) LOAN RESERVES NOT AS STRONG AS THEY APPEAR. The commonly used reserve-to-loan ratio of 1.62% declines to 1.34% after adjusting for off-balance sheet credit exposures. Earnings would be hurt by 9% to reverse this impact, or by 22% to improve the adjusted ratio to our target of 2%. "(4) ALL LARGE BANKS IMPACTED TO A SIGNIFICANT DEGREE. Citigroup has the least risk among the largest banks whereas several large regional banks have the most exposure (relative to loans)." None of this matters, though, if the Fed keeps cutting rates, right?

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