re Banks - i don't think it makes much sense to discuss the failings of the current banking system.
The fact that JPM releases some reserves is probably not too surprising, it seems to show that they have overreserved in during the 2008/2009 crisis. Wether it's a smart thing to do is another question. my guess is that it has to do with management incentives to meet internal earnings targets, if we understood JPM's incentive targets for this year, we probably knew why. They are certainly not get rewarded for it in terms of shareholder value - the market is rightly spooked by poor pre-provision earnings , which appear to have peaked.
The current QE does not have much to do with helping the banks, imo. The goal is to keep LT interest rates artificially low by leveraging the FED balance sheet and buying LT assets with short term financing. if this goes wrong, the taxpayer will have to eat the market to market losses on this loan portfolio.
Anyways, as for investment angle of this, the current fact is that ROA will be lower (probably mid teens peak) due to lower allowed leverage (8% Tier one target). The systemic risk has decreased somewhat due to less leverage but then on the other side, if the FED manipulation of the interest rates go wrong, there is a risk of a meltdown that has not been there before.
the meltdown scenario would be something like a feedback loop of:
Sovereign default scare---> failed treasury auction--> sharply higher LT interest rates---> FED shows huge market to market losses on balance sheet---> Sovereign default scare....
Well you get the picture - it's a chicken and an egg thing and could start or end at any of the above. Fat tail chance that it will happen <g>. If it does, short all the financials, it does not matter which ones. |
