This post was written by Minyanville contributor Minyan Peter.

I realize that these are very difficult times for financial services companies, but I learned a long time ago that the only route to progress is dealing with reality.

With that as background I would offer to any number of regional banks who reported earnings this week that the correct disclosure when writing off goodwill is not "This is a non-cash charge which should be ignored because it does not effect cash or regulatory capital" but "In hindsight we overpaid for an acquisition and based on lower forecast earnings from this business in the future, we need to write down most of the purchase price."

Now that a mass of mortgage-related write-downs has swamped major financial companies, Wall Street has turned its attention to the second half of the year to see whether the beatings will continue. Early indications are that they will. Both Lehman Brothers (NYSE: LEH) and Washington Mutual (NYSE: WM) have said they will take reserves for several billion in their third quarters.

The bank that has been hit hardest by the crisis may not even be American. Reuters reports that UBS (NYSE: UBS) will have to write down another $5 billion on its risky investments in the second half of the year according to the Sonntags Zeitung newspaper.

The IMF has predicted that total write-downs driven by the mortgage crisis will hit over $1 trillion. Only about half of that has hit the markets so far. If banks face a tremendous increase in reported losses, most will have to raise money which will cause another round of dilution.

Bank and brokerage stock prices are going much lower.

Douglas A. McIntyre is an editor at 247wallst.com.

Bloomberg News reports that banks' subprime write-downs have hit $500 billion. The last time I checked, that figure was $400 billion. Bloomberg reports that New York University economist Nouriel Roubini forecasts such losses will ultimately total $2 trillion. I wonder if he would revise his estimate upwards.

Recently banks have been taking write-downs for their Auction Rate Securities (ARS). Bloomberg reports about $1.9 billion has been set aside so far to cover ARS losses. It notes that UBS AG (NYSE: UBS) set aside $900 million to cover potential losses and Citigroup, Inc. (NYSE: C) and Wachovia (NYSE: WB) each estimate that their ARS buybacks will cost $500 million.

Write-downs have been going hand in hand with capital raising. But banks and brokers have not been able to raise enough capital to offset the losses. Bloomberg calculates that they've raised "$353 billion of capital to cope with the write-downs. The gap between the losses and capital infusions, which stands at $148 billion, has regularly narrowed to about $80 billion as capital raising follows write-down announcements."

Can banks and brokerages raise another $1.7 trillion to keep up with the write-downs that Roubini forecasts? I sincerely doubt it.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in the other securities mentioned.

Shares of Credit Suisse Group (NYSE: CS) are trading higher despite that fact that the company reported a loss for the first three months of the year, hit by its exposure to the credit markets. European shares didn't react to well though as it was the bank's first quarterly loss in five years.

Credit Suisse posted a first quarter net loss of $2.1 billion as the global effects of the U.S. subprime mortgage crisis came with substantial write-downs. Thus, the company was forced to write down 5.3 billion francs ($5.3 billion) in mortgage securities and big buyout loans.

Making some comments on its quarterly earnings figures, the company stated its dissatisfaction with the current results, but on the positive side "most of our businesses performed well, with revenues near, or in some cases above, those in the first quarter of 2007." Looking ahead, the company's Chief Executive Brady Dougan is confident that Credit Suisse "will continue to serve as a safe haven for clients in uncertain and volatile markets, and to seize the opportunities that arise in times of market dislocation to create long-term value."

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• Bear Stearns Cos. Inc. (NYSE: BSC) reported a profit that missed expectations by a penny.
• Caterpillar Inc. (NYSE: CAT) posted higher profits in the first quarter, boosted by global gains.
• Charles Schwab Corp. (NASDAQ: SCHW) first-quarter earnings were in line with expectations.
• Citigroup Inc. (NYSE: C) posted a bigger-than-expected loss on further write-downs.
• Crocs Inc. (NASDAQ: CROX) lowered first-quarter guidance led the stock to a new 52-week low.
• Eaton Corp. (NYSE: ETN) beat first-quarter estimates due to strong demand overseas.
• Gilead Sciences Inc. (NASDAQ: GILD) posted better-than-expected first-quarter earnings.
• ITT Corp. (NYSE: ITT) raised its first-quarter and full-year earnings guidance.
• Johnson & Johnson (NYSE: JNJ) reported better-than-expected first-quarter earnings.
• JPMorgan Chase & Co. (NYSE: JPM) beat expectations though first-quarter profits fell
• Merrill Lynch & Co. (NYSE: MER) posted a bigger-than-expected first-quarter loss due to write-downs.
• TD Ameritrade Holding Corp. (NASDAQ: AMTD) second-quarter EPS rose 35%, but revenue fell.
• U.S. Bancorp (NYSE: USB) beat first-quarter earnings expectations thought profits slipped.
• Wachovia Corp. (NYSE: WB) posted its first quarterly loss since 2001 and cut its dividend.
• Washington Mutual Inc. (NYSE: WM) swung to a first-quarter loss of more than $1 billion.
• Wells Fargo & Co. (NYSE: WFC) beat expectations though first-quarter profits fell.

Citigroup (NYSE: C) is expected to post write-downs of as much as $12 billion in first quarter and have a loss of over $3 billion. Merrill Lynch (NYSE: MER) could show write-offs of $5 billion and a loss of $2.7 billion. According to The Times, Merrill "is expected to knock a further 20% from the value of its sub-prime holdings, in spite of the fact that it announced $18 billion of write-downs only three months ago."

The paper also reports that "Deutsche Bank is attempting to offload some of its €35 billion (£28 billion) of toxic debt to a consortium of private-equity firms."

Douglas A. McIntyre is an editor at 247wallst.com.

It is shaping up to be another tough day for the market as traders continue to express concerns over a possible recession, disappointing earnings numbers, surging crude oil prices and persistent weakness for the U.S. dollar. However, not all the companies are joining the general market anxiety, and Swiss Re made strong gains, trading up 4.9% in the Zurich exchange, despite a plunge of 87% in its fourth-quarter net profit as investors were encouraged by its positive earnings outlook.

The world's largest reinsurer announced that its quarterly profit had dropped to 170 million Swiss francs ($161.7 million), dragged down by higher write-downs related to bad loans. Its profit numbers were down from 1.3 billion reported in the same period a year ago.

A look at NYSE short interest as of February 15 shows that short sellers are still willing to make very large bets that bank stocks will go lower.

Shares sold short in Wachovia (NYSE: WB) rose 16.3 million between January 31 and February 15. For Citigroup (NYSE: C) shares short rose 10.9 million to 92.8 million. At Bank of America (NYSE: BAC) the number was up 6.3 million to 68.8 million.

Even with bank stocks trading near multi-year lows, a number of investors are anticipating more bad news as banks file their 10Ks for 2007 and announce their 2008 first quarter results. The short sellers have a fairly good chance of making a killing.

Big banks still have several things going against them. As the mortgage market gets worse, they may have more subprime write-downs. A drop in the credit rating at a bond insurer like MBIA (NYSE: MBI) could force the banks to write-down securities that rely on AAA ratings for some of their value. Perhaps the most important liability banks have not faced is the declining value of financial instruments based on auto loans and credit card balances.

The world is likely to get much worse for big banks and short-sellers are likely to make money on that.

Douglas A. McIntyre is an editor at 247wallst.com.

While big banks were trying to dig themselves out of the subprime mortgage mess, they neglected to notice that muni-bond insurers had made the same bad bets that they had. According to Reuters, the failure of banks to address the insurance crisis early on could cost them. The total write-downs at the banks "may jump by almost 50 percent, according to brokerage Oppenheimer & Co. in New York. That is because the tottering bond insurance companies some banks used to guarantee their mortgage bets are facing their own troubles and may not deliver on policy claims." Write-downs by big banks already total $150 billion.

That is not only bad for the banks, it is bad for their customers. Even with the Fed cutting rates, banks may not pass those lower rates on to clients. As a matter of fact, they may cut back their lending substantially because they cannot afford the risk of extending credit, even to corporations.

The assumption until recently is that, even with bad financial news, the Fed could give banks enough liquidity to provide capital to industry. That could fuel growth across a wide variety of businesses and keep the economy out of recession.

But, the banks aren't lending money.

Douglas A. McIntyre is an editor at 247wallst.com.

The New York Times reports that Japan's decade-long economic slump following the bursting of its 1980s economic bubble offers important lessons for the U.S. Of these, the most important one seems to be that banks and others exposed to bad loans should write them off fast and move on. It was Japan's unwillingness to bite the bullet that kept it stuck for a decade.

Last month, I compared Japan's negative interest rates to the ones we have now. But what caused the predicament that led Japan to cut its rates so much? In Japan, housing prices in the major metropolitan regions nearly tripled from 1985 to 1991, then proceeded to lose two-thirds of their value over the next 14 years. In the U.S., the price run up was less extreme: house prices rose 82% from November 2001 to their peak in June 2006. Since the peak, house prices have fallen 10% with 10% to 15% further to go.

Japan was slow to write-down its bad loans. That's because its industrial groups, or keiretsu, had tight links with banks, so when a bank got in trouble it was often quietly bailed out temporarily with loans or investments from other members of the corporate group. In the U.S., banks are quicker to take write-downs and so far we've used Sovereign Wealth Funds (SWFs) to recapitalize the banks.

The lesson we should learn from Japan is that the sooner we face reality, the sooner we can solve our problems and move on to the next period of growth. A larger question is whether we can grow without creating another bubble.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Almost every other big bank doing business in the U.S. has taken a big subprime write-down, so why should Barclays (NYSE: BCS) be any different? It's not.

The big British bank announced that it would take a $2.7 billion charge for the four months ending in October. As Reuters writes, "In a surprise trading update on Thursday, Barclays Capital announced a write-down of 500 million pounds for the July-September quarter and a further 800 million pound write-down for October. The write-down was less than many estimates of Barclays' exposure to problems."

As perverse as it may seem, Barclays stock will probably do well because the number was not larger. There had been rumors that the charge could be as large as $10 billion.

The message from big banks and Wall Street firms that is now emerging is that they are, for the most part, OK. The worst of the subprime problems may well have passed and it is time for investors to consider that shares of these institutions may have bottomed.

But, there are other ghosts still hiding in the basement. Consumer credit may have been damaged by the housing mess and LBO loans still sit on the balance sheets of several large financial institutions.

The fun is not over yet.

Douglas A. McIntyre is an editor at 247wallst.com.

Bloomberg News reports that Bank of America (NYSE: BAC) is taking a $3.3 billion charge related to writing down the value of more of its Collateralized Debt Obligations (CDOs).

When will these little unpleasant surprises stop dribbling out? Wall Street's largest banks and brokers will have to write down $130 billion, including $70 billion this year, because of the slump in subprime-related debt, Deutsche Bank AG analyst Mike Mayo said in a note yesterday. But this $130 billion is not likely to be the end of it.

These write-downs are feeding on themselves. Not only that, but institutions around the world may be holding these nasty pieces of financial engineering. And as they take their write-downs, they are setting the bar for others that have not yet bitten the bullet. This means that there's more to come -- and nobody seems to know how much more.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Bank of America securities.

Several banks have been taking big write-downs related to subprime loans lately, and many of us have been applauding their conservative, prudent accounting. Their stock prices have responded well, with investors betting that the worst is over, and glad that the companies have come clean.

But The Wall Street Journal's Heard on the Street column [subscription required] has a different take: "At the same time, some investors are wondering whether banks are being so conservative with their accounting that they will quietly book profits down the road as the securities they still hold rebound in value. Fans of accounting scandals know this as filling the cookie jar. Later, the cookie jar is emptied, giving earnings a boost when needed most."

It seems plausible. Investors have been fretting for months over the subprime debacle, and most on the Street have been expecting sizable write-downs. Many have been willing to give the banks the benefit of the doubt, writing off this quarter just as the banks are writing off their loans.

The problem is that the banks know investors are thinking this, and realize they can probably get away with writing down a little bit more, without their stock prices taking a corresponding hit.

This idea of cookie jar accounting is hardly new -- to learn more about it and other tricks companies use to boost their financial statements (or hammer them temporarily in this case), check out Financial Shenanigans.