Tags: Chris | Whalen | Banking | Bloodbath

Whalen: Banking Bloodbath Is Still Ahead

Monday, 25 Jan 2010 04:01 PM

Chris Whalen, of Institutional Risk Analytics, says a bloodbath in the banking industry is still dead ahead.

“Loss rates for the industry will be very high," Whalen says, forecasting record charge-off rates, higher loan loss reserves and a lot of "minus signs" for banks' bottom lines.

"Right now the total egg — credit — is shrinking," Whalen told Tech Ticker. "The bank side is not a source of growth."

"Can you pull it out on the capital market side? Maybe, but I'm not sure where that comes from" given many of the big banks have loaded up on low-risk securities in the aftermath of 2008's bloodbath.

"I don't see this as a great value story," Whalen says, citing weak revenues at Citi and JPMorgan.

"Remember they've lost more money than they've made in the last half century.”

Still, the Fed's program of buying toxic securities means "everyone gets a pass on market-to-market," with the biggest banks getting a disproportionate benefit, Whalen observes.

One year after stripping its entire mortgage business from its retail bank, Citigroup is rethinking that decision, The Wall Street Journal reports.

CFO John Gerspach said the bank in this quarter will move $34 billion of mortgages from Citi customers in the U.S. into its core retail banking business and out of Citi Holdings.

The mortgages Citi has decided it will keep are prime, first mortgage loans made to affluent clients that comply with Fannie Mae and Freddie Mac standards, and jumbo mortgages too large to be bought by Fannie and Freddie.

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Chris Whalen, of Institutional Risk Analytics, says a bloodbath in the banking industry is still dead ahead. Loss rates for the industry will be very high, Whalen says, forecasting record charge-off rates, higher loan loss reserves and a lot of minus signs for banks'...
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