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To: Giordano Bruno who wrote (343719)	9/18/2007 9:57:47 AM
From: stan_hughes	Read Replies (1) \| Respond to of 436258

Some tres interessant bank B/S analysis from Minyanville -- Over the weekend I spent some time reviewing Friday’s H-8 to see what trends I could uncover. To make it simple for myself I looked at annualized growth trends from February to July – “the best of times” - and compared them to the annualized growth rates for the most recent four weeks reported - August 8 to September 5. So what did I find? * The contrast in asset growth trends between small and large banks is startling. Large bank balance sheets have ballooned since early August – rising at an annual rate of almost 73% versus a 5.5% annual rate from February to July. I have written previously that credit growth in this cycle was built on an “originate for sale” business model. You really see that in these balance sheet growth statistics. With secondary markets very tight, large banks are clearly being forced to hold assets they would have previously sold. * Since early August, while large bank balance sheets are bursting, small bank balance sheets, having been flat for most of the year, are now shrinking – and at an almost 18% annual rate. The biggest declines appear to be coming from real estate related lending activity, particularly revolving home equity lines. * Large bank net assets (a Fed proxy for total capital) appear to have peaked in May and are down almost 7% since then. Small bank net asset capital, however, continues to be growing – although I would caveat that many small banks do not finalize loan loss reserves until the very end of the quarter and this may push net asset values down. As a result of balance sheet growth and lower net capital, large bank capital ratios have dropped from 12.7% of assets in May to 11.3% - still very strong, but a material decline. * The growth in large bank balance sheet assets has been largely funded through non-core deposits. Since early August large time deposits ($100,000+) have been growing at annualized rate of more than 75% (versus flat from February-July) while non-deposit borrowings are growing at a near 100% annual rate. It also appears that large banks are pulling off-shore liquidity on-shore. Net due to off-shore affiliates has grown dramatically. * Large bank balance sheet growth has not been constrained to loan portfolios. Investment portfolio growth, particularly mortgage-related securities, has been enormous since early August (+68% annualized growth rate versus less than 6% for February-July). * It appears that systemic credit extensions have also grown significantly since early August. Having declined from Feb to July, broker dealer loans and interbank loans are now growing at 100% annualized rates. While, admittedly, four weeks is a relatively short time frame, the changes in large bank balance sheet composition since early August are significant and warrant continued focus, particularly if reported capital continues to decline. Further, the fact that smaller bank balance sheets are shrinking raises questions to me. I will be watching small bank earnings releases to determine whether their balance declines are a symptom of weaker loan demand, more strict lending standards, or fallout from tightened available liquidity. While none is positive, weaker loan demand would represent a more fundamental economic change. minyanville.com