A masterpiece
prudentbear.com
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Wells Fargo reported third-quarter Net Income up 8% (reduced by special charges) from Q3 2002, with total Revenue up 19%. Total Assets surged $21.2 billion, or 23% annualized, to $390.8 billion. Total Assets were up 17% y-o-y. (Average Assets were up 21% y-o-y) For the quarter, Total Loans increased $16.45 billion, or 30.6% annualized, to $231.8 billion (up 24% y-o-y). Commercial Loans were up $143 million (up 1.9% y-o-y). Home Equity loans increased at a 43.5% annualized rate and were up almost 35% y-o-y. Credit Card loans expanded at an 11% rate. One-to-four family real estate loans expanded at a 95% annualized rate (up 77% y-o-y). “The number of Wells Fargo SBA (Small Business Administration)-guaranteed loans rose from 2,256 in 2002 to 3,181 in 2003, up 41%.”
From Citigroup: Consumer Loans were up $45.3 billion, or 15.4%, y-o-y, while Corporate Loans declined $7.3 billion, or 6.6%. During the third quarter, Consumer Loans expanded at a 10.8% annualized rate, while Corporate Loans declined at a 21.7% rate.
BankOne reported third quarter Net Income of $883 million, up 7.3% from Q3 2002. Total Retail Loans were up 11% y-o-y to $54.7 billion. During the quarter, Retail Loans expanded at a 14% annualized rate, while Commercial Loans contracted at a 20% annual pace. “Home equity loan production was $4.7 billion, up 24% from the prior year. This growth led to a 37% increase in average home equity balances to $24.5 billion… [Credit card] Managed average loan balances increased $6.1 billion, or 9%, over the prior year… Corporate banking end-of-period balances were down $3.8 billion, or 12%, partially due to lower utilization.”
Leading California adjustable-rate mortgage lender GoldenWest Financial saw Total Assets expand at a 22% annualized rate during the quarter to $76.2 billion. Total Assets were up 16.2% y-o-y.
From Countrywide Financial: “Consolidated net earnings for the third quarter reached $1.1 billion, a gain of 187 percent over the prior record set last quarter and 381 percent more than the third quarter last year… Total fundings were $126 billion for the third quarter, increasing 98 percent over last year. The servicing portfolio rose to $606 billion, up over $200 billion compared to last year.” Total Asset growth slowed during the quarter following a doubling of assets during the preceding three quarters. Total Assets were up 104% y-o-y. Bank Deposit liabilities expanded at a 55% rate during the quarter to $9.2 billion and were up almost 200% y-o-y. Countrywide's Total Assets increased almost 5-fold over the past 11 quarters.
For September, Fannie and Freddie's Total Retained Portfolios increased an unprecedented $79.9 billion, or 64.8% annualized, to $1.56 Trillion. For the quarter, the combined Retained Portfolios ballooned $160.2 billion, or 46% annualized. To put this number into perspective, Total Home Mortgage borrowings increased $258 billion during the entire year of 1997. Year-over-year, combined Books of Business were up $476 billion, or 16%, with Retained Mortgage Portfolios ballooning $277 billion, or 22%. Out of control…
The GSEs have aggressively ballooned their holdings (mainly buying mortgages and mortgage-backs), providing liquidity to the banks, hedge funds, and Wall Street community. And, importantly, to finance this extraordinary balance sheet expansion, the GSEs have been issuing non-monetary IOUs/liabilities – long-term agency bonds (that are not a component of the “money supply”). Thus, we must appreciate that agency debt (as opposed to bank or money fund liabilities) has been over the past few months a predominant financial sector liability created in the unrelenting financial sector expansion (liquidity creation). The system has experienced tremendous liquidity creation resulting in little expansion of money supply components. This is a very atypical development in quite unusual times.
So I would tend to have my own view of the current liquidity situation: I believe the recent money supply stagnation is NOT indicative of generally faltering systemic liquidity. Indeed, it could be just the opposite. There is today a strange paradox of GSE induced over-liquefication financed by the issuance of agency bonds. Large quantities of these agency securities are being purchased by foreign central banks and international players recycling the raging surplus of global dollar balances. The Overriding Issue Remains Unrelenting Dollar Liquidity Excesses – an out of control Bubble of dollar financial claims creation. (At the same time, the grossly speculative and inflated U.S. stock market is a liquidity-Bubble accident in the making.)
This acute dollar over-liquidity view may be counterintuitive and even controversial, but there is certainly ample supporting evidence. I can point to continued over-liquefied Credit markets. Credit spreads domestically and internationally remain extraordinarily narrow (they've collapsed!), and demand for dollar denominated global risk assets (debt instruments in particular) remains unprecedented. Credit Availability could seemingly not be easier at home or abroad.
It has been fascinating to witness truly historic financial evolution over the past decade. I have often attempted to explain how the Fed, GSEs and Wall Street have evolved to the point of having mastered the art of liquefying the market-based U.S. Credit system – Liquidity on Demand in Grand Excess. The nexus of this unparalleled power lies in the capacity for virtually unlimited GSE liability creation – insatiable demand for (implicitly guaranteed) GSE debt that can be issued in gross excess with no impact on perceived creditworthiness or investor demand (the “moneyness” of GSE liabilities); the Fed's capacity/audacity to peg short-term interest rates significantly below market rates; the explosion of aggressive leveraged speculation; and, of course, the dollar's role as international reserve currency. These provided a confluence of powerful forces unlike anything experienced in monetary or financial history.
A truly amazing system has evolved over time. And, let there be no doubt, “The Community” has ably and repeatedly demonstrated its capacity to regulate the amount of “rainfall”/interest rates/liquidity. The Fed can peg short-term rates at 1% and orchestrate a steep yield curve; the GSEs can sit back with the capacity to create enormous liquidity on demand; the leverage speculators can bet with reckless abandon; the financial sector can expand without limitation; inexhaustible liquidity can fuel real estate and securities inflation and resulting economic expansion; and the interest-rate derivative players can write unbounded policies with confidence that rates will simply not be allowed to shoot higher. All the while, the Credit system can expand aggressively with little concern for the endless supply of new dollar financial claims created. A Trillion here and a Trillion there, and there's no downside. Speculative demand for securities will meet the ballooning supply, with little if any impact on the “controlled” interest rate markets. Cheap and plentiful Liquidity on Demand Forever!! A truly historic “achievement.” |
