Think it's hard for the U.S. Congress to agree on a policy?

Try getting a policy passed by the European Union.

Strictly speaking, of course, the European Parliament (both chambers), not the EU, is akin to the Congress, but the 27-nation EU is proving to be almost as unwieldy as the EP.

The EU's decision to increase the guarantee on bank deposits to 50,000 euros or about $68,000 Tuesday represented the first common, or unified approach to the financial crisis, The New York Times reported Tuesday, despite incontrovertible data indicating that the credit crunch is restricting lending, both short- and long-term, and is slowing commerce.

EU stance: 'Every nation for himself'

Economist Richard Felson told BloggingStocks Tuesday the EU's lack of unified action highlights the limitations of Europe's supranational political system. "For those European nations using the euro, these nations are unified by a common central bank. But fiscal policy, in terms of a treasury department, remains at the nation-state level. That makes it much harder to coordinate a bank rescue, for example," Felson said.

That's the main reason the EU hasn't passed a rescue package similar in scope to the U.S. Congress', Felson said. "Europe's economy is just as large as the U.S.'s and it's likely to experience distressed/bad debt aftereffects almost as large as those in America. It requires a unified response, but thus far it's been 'every nation for himself.' It's very disappointing, from a governance standpoint."

A bank stock? In this market? Indeed preferred bank plays exist, with several community banks scoring high on that list. But it's understandable if you may want to avoid the investment banks for awhile.

Still, there are selected investment/commercial banks with superior business models, and among these the Bank of New York Mellon is worth a review.

Bank of New York Mellon (NYSE: BNY) is one of the world's leading asset management and corporate trust services banks, with an astounding $20 trillion in assets under custody and more than $1 trillion of assets under management.

In general, analysts expect BK's merger-adjusted revenue to rise about 8-10% in F2008, and 10-12% in F2009. Analysts also expect BK's merger with Pittsburgh-based Mellon Financial to enhance the company's business mix.

Further, the Bank of New York has also done a good job restricting non-merger expense growth, and it could also benefit as several competitors more-involved in the subprime mortgage sector struggle with credit-related issues. The Reuters F2008/F2009 EPS consensus estimates for BK are $2.99/$3.41.

The perceptive and common sense-rooted Ben Stein, in a business column in The New York Times, has weighed-in on the credit crisis, and for market absolutists, it's an argument they probably don't want to hear.

Stein, like many of us, has pondered how the massively well-paid men and women of Wall Street could create such a catastrophe. How did some of the smartest, talented executives, Stein ruminates, generate such immense losses that "they made banks clam up on lending -- at great risk to the economy?"

Compelling questions

Stein asks: Where were the fail-safe devices? The government watchdogs? The ratings agencies? A speech by Greenlight Capital hedge fund manager David Einhorn at a Grant's Interest Rate Observer event, provided the answers -- the unfortunate truths of the recent housing/credit boom -- which Stein summarized:

The Bank of America, seeking approval of its Countrywide Financial Corp. takeover, announced Monday it will modify at least $40 billion in troubled mortgages during the next two years to keep customers in their homes, Bloomberg News reported Monday.

The action could help as many as 265,000 homeowners, Liam McGee, president of the Bank of America's (NYSE: BAC) global consumer and small-business banking unit, said Monday in Los Angeles at a U.S. Federal Reserve hearing on the pending purchase, Bloomberg News reported.

``No one benefits from a foreclosed home,'' McGee told Bloomberg News. ``It is bad business for banks.''

Bank of America's shares moved 10 cents higher to $38.40 while Countrywide (NYSE: CFC) gained 7 cents to $5.91 on the news in Monday afternoon trading.

RBS (NYSE: RBS), the United Kingdom's second-largest bank, said the move is consistent with earlier stated intentions to cut costs as it merged its two wholesale banking businesses and also is warranted "in light of current conditions in some parts of the global credit markets."

Shares of RBS gained 12 cents to $7.19 on the news in midday Monday trading.

Thinning the ranks

Independent stock analyst C. Leonard Bauer told BloggingStocks Monday investors / traders should not be overly alarmed by RBS's likely upcoming staff adjustment. "I interpret this as more deal-related than credit markets-related," Bauer said. "RBS added considerable positions during the strong years for investment banking, and the bank wasn't understaffed at the start of the boom in 2003, so some job cuts were expected on those grounds. The ABN Amro deal simply meant that there would be more wholesale banking positions to consolidate." Bauer added that he does not have a rating on, nor own, RBS's shares.

Further, Bauer said the likely RBS cuts does not change his outlook on the credit market / bond market recovery.The worst of the mortgage and related asset-backed write-offs are over, he argued, and he expects the size and frequency of investment bank write-off announcements to taper in Q3 and Q4 2008.

Royal Bank of Scotland said it will sell 12 billion pounds or $23.9 billion worth of new shares to boost capital, Bloomberg News reported Tuesday.

RBS (NYSE: RBS) has suffered from capital depletion following loan and related credit mark-downs, and as a result of its $114 billion purchase with Banco Santander (NYSE: SAN) and Fortis of ABN Amro.

Shares of RBS fell 30 cents to $7.19 on the news in Tuesday morning trading. Shares have declined more than 45% since October 2007.

RBS said it expects a large increase in the expected losses it faces on its portfolio of poorly performing loans and assets, including U.S. subprime mortgages and leveraged loans to private equity deals, The Financial Times reported Tuesday. The bank said these additional writedowns would reach about $11.8 billion -- three times the losses the bank has already recorded.

Worst not behind banks?

Confidence in the global economy improved for the the first time in five months in April 2008, a Bloomberg News survey of news / analytics subscribers to Bloomberg on five continents indicated Wednesday.

The Bloomberg Professional Global Confidence Index, which surveys 5,905 Bloomberg subscribers, rose to 14.5 in April 2008 from 13.1 in March 2008. The measure increased to 18.5 from 17.6 in the U.S. and to 11 from 7.5 in Asia. It declined in Western Europe. A reading below 50 indicates negative sentiment.

Economist Peter Dawson, who was not a part of the survey, told BloggingStocks Wednesday the April 2008 uptick is welcome news, but investors/traders should not become prematurely optimistic.

"Overall sentiment remains cautious and downbeat," Dawson said. "We are close to a recession in the U.S., with little signs of life in the housing sector or from the consumer to inspire confidence that recovery is just ahead, so you've got to place the higher April data in the proper context."

My Ph.D. adviser David E. RePass, professor emeritus at the University of Connecticut, used to frequently recite an axiom about the U.S. Congress that rings true, regardless of era, or circumstance.

"Congress does not react, unless not reacting will result in the wrath of the American voter."

Well, concerning housing, it looks like Congress sees the wrath of the American voter ahead because the legislative body is starting to react.

Two measures working their way through Congress may ease the housing crisis. The first, a bipartisan Senate measure, is a modest step to address the rise in home foreclosures, The New York Times reported Friday.

Billionaire investor George Soros believes the current financial crisis is the worst since the Great Depression, and said stocks have not bottomed yet, Bloomberg News reported Thursday.

Soros said the most recent market bottom "will probably not prove to be the final bottom," adding that the current stock rebound will last six weeks to three months as the United States moves closer to recession, Bloomberg News reported.

Further, Soros, in an op-editorial column in The Financial Times, argued that the cause of the market's current problems is a flawed premise: the belief that markets are self-correcting and tend toward equilibrium. They aren't and don't, Soros argues, and the laissez-faire policy creates bubbles, including the most-recent housing bubble, which, in turn, when it started to burst, led to the current credit crunch.

Soros cites deregulation

Soros added that the market's current troubles originated in 1980 when U.S. President Ronald Reagan and United Kingdom Prime Minister Margaret Thatcher led a laissez-faire movement that reduced/eliminated regulation of banks and financial markets, the FT reported.

Readers of this space know that the investment thesis offered here favors large-cap companies with demonstrated business models that have a competitive advantage in established markets, preferably with a favorable global trend as a support.
Still, every once in awhile an exception is made, in this case to get-ahead-of the-curve regarding a sector's recovery, and with the aforementioned in mind, JP Morgan Chase is worth an evaluation.

JPMorgan Chase (NYSE: JPM) is the third largest financial services firm in the United States.

Analysts like JPMorgan's solid organic growth prospects, diverse product lines and wide geographic footprint. JPM has more than 3,000 retail bank branches.

Equally significant, analysts believe JPMorgan's subprime related asset exposure is manageable: it's in a much better position than its peers. Furthermore, analysts expect strong growth in asset management fees and in treasury/securities services to offset slumps in investment banking and credit quality. The Reuters F2007/F2008 EPS consensus estimates for the company are $4.18/$4.58.

Historically, October is a rough month for the stock market.

So when the markets made it through October 2007 following August 2007's brutal subprime asset-induced credit crisis and accompanying stock market sell-off, everyone breathed a sigh of relief.

But is August making a return appearance in November?