I don’t always have time on a Friday night to explain the events and problems of the banking industry in the detail that they call for. If you don’t have years of history inside banking and haven’t been following the story all along, it can get confusing. Accordingly, I am grateful to Peter White at Truthout for putting together a report that explains, more clearly than I ever could, the connection between foreclosure error and the financial condition of banks. For a quick background on this, please read:
Foreclosuregate Explained: Big Banks on the Brink
No longer able to lean on stock market gains, the giant banks are having to look farther afield to report profits. In some cases they are slashing their loan loss provisions. This results in a profit on paper but is not the same as making a profit from operations. If the bank executives can smile and say, “We don’t think there are more loan losses ahead,” Wall Street might buy it for this quarter, but what will the banks do for the fourth quarter? The reduced loan loss provisions, just at the time when the largest commercial real estate loan losses are about to come tumbling in, is a desperate move from banks that don’t know which way to turn. Surely some investor-class lawsuits will follow from the date of the third-quarter earnings report for bank stocks that tumble from their current levels, though the chance of these lawsuits recovering any money from a bank in a downward spiral are slim. (I have not looked at specifics and do not mean this as a comment on any specific bank holding company).
AIG pulled off a miracle in its stock offering for AIA, which was its oldest and largest operating company. It raised $18 billion, a higher amount than AIA is worth in total, while selling only 58 percent of the company and holding on to a 42 percent stake for itself. This was the largest Hong Kong initial public offering ever. AIA stock began trading today (as 1299.HK). The cash from the stock offering should allow the remnants of AIG to hang on well into next year.
There were no early bank failures reported tonight. It may be that regulators are holding off in order to avoid putting bank failures into the political spotlight on the busiest campaign weekend of the year. If you are a U.S. registered voter, please vote on Tuesday, November 2.
