I think the analysts have a clue, there's just no correlation between their stats and the performance of the market. Take a look at Mayo's comments, as he warns about bank losses being greater than they were in the Great Depression. He makes the point that bank losses peaked in 1934, 2 years after the market bottom in 1932.
I'm not going to dispute his projection that bank losses will go higher. However, if the banks can limit their losses to loan losses, they will be more profitable in the future. WFC posted staggering writedowns for WB last quarter. Most of that was a 1 time shot. They will be more profitable in Q1 than Q4 by avoiding all those writedowns for WB.
I guess the real sign of the bottom for the banks will be when the loan loss reserves stop growing. The banks keep overfunding loan loss reserves to stay ahead of the stress tests. Once the stress tests are over in April, I would expect to see the banks start indicating they add less capital to loan loss reserves.
I guess the question is when? Will it be this quarter, next quarter, or the third quarter. Most of the big banks are sitting with anywhere from $20 to $30 billion in reserves. After this quarter, the range could be $25 to $35 billion, if everyone only added $5 billion to reserves.
I don't know, Mayo and Whitney have all kinds of legitimate concerns, I just don't think they are relevant as the economic downturn begins to fizzle out. |
