Well, after a fine speech, President Obama has to decide how much money to fork over to keep the global banking system from collapsing.
As it turns out, today was not a good day for bank stocks. Here are seven of the biggest percentage decliners.
- Royal Bank of Scotland (NYSE: RBS) -69.77%
- Barclays (NYSE: BCS) -42.76%
- JPMorgan Chase (NYSE: JPM) -20.46%
- Bank of America (NYSE: BAC) -29.39%
- Wells Fargo (NYSE: WFC) -24.68%
- Goldman Sachs (NYSE: GS) -18.55%
- Citigroup (NYSE: C) -20%
I am fairly confident that unless the U.S. steps in to do something about the U.S. banks on this list -- especially the ones trading near or below $5 a share (Citi and Bank of America) -- their stock prices will keep plummeting very quickly. If the past is any indicator, the U.S. will use the second $350 billion tof the TARP to buy more stock in the banks and/or guarantee losses on their assets.
Or maybe it will announce a plan to use taxpayer money to buy all their bad assets. But at what price? That question is what killed the first version of TARP. If the U.S. buys bad assets at a price that is above the one that toxic waste is currently stated on the bank's books, then the taxpayer takes a hit. If the U.S. buys at a price below that book value, then the bank has to take a loss and raise more capital.
Speaking of capital, who is Treasury Secretary today? I know Tim Geithner has not been sworn in and Hank Paulson's last day was the 16th. But it turns out we don't have a Treasury Secretary -- we have an acting one, Stuart Levey, the former head of the Treasury Department's anti-terrorism operation.
It should be interesting to see if Levey's name pops up in the news in the next few days. We need action and fast!
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. Portfolio recently published his eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing. He owns Citi and Wells Fargo stock and has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
1-20-2009 @ 7:28PM
jd said...
Instead of this half-hearted attempt to support failing banks via the pro-socialist TARP, why not just go all the way and NATIONALIZE the four biggest banks temporarily (C, BAC, JPM and WFC)? Once everything is back to normal, then the government can decide whether to make money for the taxpayers by taking the companies public. That way, the government could restart the lending process at will instead of waiting on banks to pad their executives' bank accounts while Rome burns, figuratively speaking.
1-20-2009 @ 7:59PM
william lindblad said...
Peter, Obama can talk.
The problem is larger than the U.S. Consequently, whatever we do will have the same impact as putting a band aid on a wound that needs stitches.
Banking problems are not over. What control do we have over Europe and Asia?
NONE!
Any solution to our domestic headaches, and that would be at best a partial, would be bled dry by the rest of the world.
With the printing presses running 24/7 the only thing that is holding hyper inflation at bay is that the rest of the world, and their respective currencies, are in the same boat. If one, or some recover, than this balance will become an imbalance sending the currency trading markets into a tizzy and simply compound all current ills.
The mess that everyone is in is something new and needs a new approach and this approach will have to be for all of the major powers to agree on a way to handle it.
If, and when this happens, we may be looking at what Huxley envisioned.
It will take a Brave New World.
1-21-2009 @ 7:14PM
William C. Heath said...
Nationalizing the banks would be putting their future in the hands of the same oversight committee members that watched over the banks and financial institutions on their way down. They sure did a good job then and what is to think they are any better now.
1-22-2009 @ 12:07PM
gpscarson said...
When are we going to see the people & the investigation made public as to what the consequences are going to be for creating this mess brought to bear? Some poor smuck steals something trivial and goes to jail for god knows how long but these people still go on living the american dream which is now our nightmare.We hail a new beggining but what about yesterday?