The Bankwatch

Tracking the consumer evolution of financial services

US government signals significant control to be taken over banks

geithner

While short on specifics the message from Tim Geithner has enough clarity to indicate his direction.  The banks will have their assets revalued to market value, which means appropriate and sizeable write downs of assets.  This is a requirement in my view before confidence in banks will return.  Banks and in particular US and UK banks are over extended and to use an old word  ‘overtrading’.  They are producing far too much revenue on far too little a capital base.

US rescue plan will need state to dig deep | ft.com

When crises have hit other countries, US policymakers have invariably urged the authorities to force banks to crystalise losses and avoid fudging the issues through accounting treatments. The argument is that only clarity on potential bank losses will restore confidence and bring back private capital.

[this next quote deleted from online version]

This [asset write downs] could bring reported capital ratio’s more in line with market valuations of bank equity capital.

The write downs have to be managed such that the US government is directly involved with guarantees inroder to permit an orderly continuance of banking, and that is the simple challenge for Geithner.  It also means significant control over the banks in the hands of the US government, and early warning shots of that were evident yesterday at the House Financial Service Committee hearing.

At the hearing they were literally raked over the coals, and agreed to a moratorium on foreclosures for three weeks.

bankers

Left to right:

Jamie Dimon of JP Morgan, Robert Kelly of Bank of New York Mellon, Ken Lewis of BofA, Ronald Logue of State Street, John Mack of Morgan Stanley.  Not all shown in that phot from the hearings, so here they all are shown individually.

bankers2

The CEOs of eight banks that received TARP funds testify before Congress. Top row, from left, Goldman Sach’s Lloyd Blankfein; JPMorgan Chase’s James Dimon; and Bank of New York Mellon’s Robert Kelly. Bottom row, from left, State Street’s Ronald Logue; Morgan Stanley’s John Mack; Citigroup’s Vikram Pandit; and Wells Fargo’s John Stumpf

Written by Colin Henderson

February 12, 2009 at 11:37

Posted in Banking Strategy

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