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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerSome analysts thought that once banks moved though their bad bet on subprime paper, they might start to see improvements in their earnings. Not so fast. Plain old loans for houses and condos are going bad so fast that lenders are about to get hit again on the bottom line.
The Wall Street Journal points out in one of it top stories that "Federal regulators warned Thursday that banking-industry turmoil would continue as financial institutions come to terms with piles of bad loans they made to finance the construction of homes and condominiums."
Many investors may say that the information is obvious, and that it was expected that falling real-estate prices would hurt banks. But the real victims may be bank shareholders. As large lenders take more losses on their portfolios, they will have to raise more capital and further dilute shareholders. Banking stocks which are down two-thirds from their highs could drop even further.
Now that banks are selling off these large loans, the quarterly reports for companies like Wachovia (NYSE:WB) and Wells Fargo (NYSE:WFC) are about to get hammered again. Wachovia trades at below $22, down from a 52-week high of more than $54. Wells Fargo has fallen from a 52-week high of almost $38 to $27. Regional banks like National City (NYSE:NCC) have had it worse. It shares have fallen from a one-year high of $34.62 to $5.25.
Selling in those stocks in not over. Not even close.
Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.
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Reader Comments (Page 1 of 1)
6-06-2008 @ 12:23PM
william lindblad said...
No kidding. There are many more than Wells and Wach out there. Been saying this for months and I am surprised that it took the WSJ so long. The FDIC said months ago that it expects some failures - so do I. Since nothing has happened (in the U.S.) yet, we can all assume that there is more to come.
6-06-2008 @ 12:32PM
B. Harrison said...
Well, these "analyst" and "experts" are the same ones who sat by rather complacently during the development of the economic DEBACLE.
Isn't it PAST time for all of these so-called "expert analysts" and "professional economists" turned in their badges and look for employment in some other industry?
I believe that a basic problem has been that none of them had the integrity or guts to "call it the way that it was . . . all of them were being too "politically correct"; they didn't want to be labeled as being "negative" or to be the messenger who got shot" because no one wanted to listen to the truth.
The "bottom line" is that the "King has no clothes on, and all of the pretenders are embarrassed to admit that they were duped . . . orjust plain stupid!
6-07-2008 @ 6:30PM
tom said...
When the FDIC said months ago that it expected some failures they werent Kidding.
tom
http://www.coolpersonalchecks.com
6-06-2008 @ 12:54PM
B. Harrison said...
American business has simply lost it's "integrity" and it's "common sense". We are in the midst of a systemic economic failure due to "corrupt" leadership at the top of our government and our major financial institutionos. And this "corrupt 'leadership'" would not tolerate anyone speaking the truth. (i.e. like Colin Powell being summarialy 'discharged' for asking too many questions.)
As an 'average American" even I can foresee that we have only gone through the "first wave" of economic adjustments; and that there is still a tremenodous amount of losses yet to be disclosed or to be incurred. I think that there will minimally be 4 or 5 "waves" of major adjustments and impacts before our economy "bottoms out" in the next 18 months to 3 years. All of these "overly optimistic" analysts, CEOs, and politicians are merely trying to hopeully moderate the rate of ascent to the "bottoming out point" . . . The USA is in a avery long and difficult decline economically; therre is a lot more bad events and revealations on the way; but that all takes time.
The faith in the markets cannot be restored until ethical leadership and reasonable rgulations are restored.
6-06-2008 @ 2:49PM
winslow said...
Excellent comments from B. Harrison
There is essentially no leadership today in this country, either from government or the business community. I'm so fed up with continual lies, even "I" saw the handwriting a long time ago...and I'm not an expert. I keep hoping things will turn around, but down deep, I know there are tremendous problems in this country. Until our leaders face the truth and discuss the problems and start a dialogue for solutions, there is not much hope of getting out of this quaqmire.
6-06-2008 @ 6:17PM
gerald vaughn said...
I hope all the banks especially Bank of America and Wachovia go under. I 'm doing my part by not paying any of the $24,000 I owe Bofa on credit cards. You should do your part too. The banks wants to raise fees and unanounced interest rate increase to cover their poor investing well not on my back. Screw Bofa and the miserable customer service at Wachovia. You made your beds now lay in them.