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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (45174)	12/1/2008 5:56:07 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71849

How Low Can Banks Go? by Liz Moyer Monday, December 1, 2008provided byForbes It's anything but festive on Wall Street these days. Canceled holiday parties, lower bonuses and job cuts combined with expectations of a miserable fourth quarter, numbers-wise, weighed on financial stocks Monday. In one stark example, Goldman Sachs shares fell 17%, and analysts almost uniformly predict it will have a fourth-quarter loss after sailing through the 16-month-old credit crisis relatively unscathed. More from Forbes.com.com: • In Pictures: The Worst -- and Best -- Cities to Ride Out the Recession • By the Numbers: Financial Firms that Are Firing • By the Numbers: Financial Firms that Are Hiring Other bank shares tumbled Monday as well. Morgan Stanley declined 22%, JPMorgan Chase 18%, Citigroup 22%, Merrill Lynch 23% and Bank of America 21%. The pessimism extends to the outlook for financial markets in general, especially after a report Monday by the National Bureauof Economic Research confirmed what everyone suspected all along: The U.S. is in a recession and has been so since last December. A recession, combined with rising unemployment, could translate into lower spending, lower corporate profits and less deal activity all around. One potentially alarming trend is banks pulling back consumer credit lines, says Oppenheimer analyst Meredith Whitney. She estimates that $2 trillion worth of credit lines will be canceled in the coming months. Since many households use credit cards to manage monthly cash flow for necessities like groceries and gas, "pulling credit at a time when job losses are increasing by over 50% year-on-year in most key states is a dangerous and unprecedented combination," Whitney wrote in a research note. Risk aversion is one big reason banks are pulling back, however. Despite well more than $100 billion in write-downs so far, there are tens of billions more yet to be taken. Write-downs related to deteriorating asset values could take a huge chunk out of the $250 billion the U.S. Treasury has pledged as direct equity investments into banks to help them start lending again. A volatile fourth-quarter trading environment may also wreak havoc on bank earnings. Credit Suisse analyst Susan Roth Katzke said Monday that Goldman could have a fourth-quarter loss of $4 a share (or $1.5 billion) largely because of an estimated $4 billion loss in its trading activities. That is quite a difference from the record $3.2 billion profits ($7 a share) it reached in the fourth quarter last year. So far this year, Goldman has reported profits of $4.3 billion. Morgan Stanley, the other big independent investment bank left standing in the credit market rubble, is also seen struggling with trading and corporate finance. Katzke sees a $385 million loss for the bank in the fourth quarter, or 35 cents a share. Both Goldman and Morgan could climb out of the credit crisis with the aid of a large bank acquisition, which would bring them highly coveted deposits to fund their lending, rather than relying on the short-term debt markets. Both companies converted to a commercial bank license this fall with the intention of building deposits. Morgan Stanley is seen as more likely in the short term to strike a large bank acquisition. The pickings are getting slimmer, though. Wells Fargo is taking over Wachovia, JPMorgan Chase took on Bear Stearns and Washington Mutual, and Bank of America is absorbing Countrywide Financial and Merrill Lynch. Citigroup is also seen looking for a deal even after the Federal Reserve and U.S. Treasury Department tossed it a $20 billion lifeline last week. That leaves Morgan Stanley to pick among the larger regional banks. Any deal would have to be a blockbuster to have real effect. Consultants at Booz & Co. see a banking industry where just four banks control 40% of U.S. deposits. "A combination of constrained credit availability, anemic demand and intense deposit competition will put significant earnings pressure on the banks that remain," write the consultants, Mike McKeon and Seamus McMahon.