Wednesday, February 11, 2009

More banks declaring big losses, while Congress blasts Wall Street CEOs

I found a couple of stories showing more banks declaring big losses. First, let us take a look at Credit Suisse:

Credit Suisse posted a worse-than-expected fourth-quarter net loss of 6 billion Swiss francs ($5.2 billion), taking it to its biggest-ever annual loss, due to poor trading and restructuring charges.

But the Swiss bank said 2009 started strongly and all its divisions were showing a profit in the year to date, echoing upbeat comments from rival UBS on Tuesday when it reported the biggest annual net loss in Swiss history.

Switzerland's second-largest bank said on Wednesday that its net loss for the full year was 8.2 billion francs, in line with what some Swiss newspapers had predicted but worse than the average analyst forecast of 6.3 billion.

Analysts polled by Reuters had expected the bank to turn in a 4 billion franc net loss for the quarter.


"While our full-year results are clearly disappointing, we entered 2009 with a very strong capital position, a robust business model, a clear strategy and well-positioned businesses," Chief Executive Brady Dougan said in a statement.

So while Credit Suisse has posted one of its biggest annual losses, the chairman thinks that they "entered 2009 with a very strong capital position." In other words, we will return to profitability....Soon. Credit Suisse reported that their investment bank made "significant losses in December due to the standard hedges becoming ineffective due to market turmoil and as credit spreads widened." They gambled in the credit and derivatives markets based on over-valued subprime mortgage investments. And now they are feeling the losses on their books based on the collapsing values of these subprime mortgage investments.

Of course, the losses don't stop at Credit Suisse. How about UBS Bank:

ZURICH - Swiss bank UBS AG said Tuesday it lost 8.1 billion Swiss francs ($7.57 billion) in the fourth quarter and announced it would cut a further 2,000 jobs as it refocuses on its home market after a troubled year abroad.

The results exceeded the fears of analysts, who on average had predicted net losses of 6.2 billion francs ($5.79 billion).

A year earlier Switzerland's biggest bank had reported a net profit of 1.33 billion francs. The latest results bring its full-year loss to 19.7 billion francs for 2008.

UBS said it plans to refocus on its core activity in Switzerland, its international wealth management franchise, and its global onshore business. To this end it will create two new business units. Wealth management and Swiss bank will be led by Franco Morra and Juerg Zeltner, while wealth management Americas will be led by Marten Hoekstra.

UBS is also shedding 2,000 jobs at its loss-making investment banking unit, which has been blamed for many of the bad investment choices that have seen the bank write down tens of billions of francs (dollars) since mid-2007.

Interesting that UBS is cutting 2,000 jobs from its investment banking unit, which probably also gambled in the derivatives strategies based on the subprime mortgage investments. Of course, UBS is creating new "wealth management" business units, hopefully to entice the ubber-rich people to invest in UBS banking, rather than socking their money in zero-interest Treasury bonds as a safe means to park their money in this market turmoil.

Finally, we've got Congress blasting Wall Street CEOs during a hearing today. From The New York Times:

WASHINGTON — Eight of the nation’s top bankers faced off against critical lawmakers in Congress on Wednesday, who questioned their use of tens of billions of dollars of taxpayer money and pointed out the growing public anger at the banks in the bailout.

“When you took taxpayer money, you moved into a fishbowl,” said Representative Paul E. Kanjorski, Democrat of Pennsylvania. “Now, everyone is rightly watching your every move from every side.”

The eight banks collectively received $125 billion in bailout money in exchange for shares in their companies, and two of them — Citigroup and Bank of America — were given tens of billions of dollars more because of their financial problems.

The banks’ chief executives, who testified before the House Financial Services Committee, find themselves in different positions financially, but they all face extreme scrutiny over the money they were given. Their banks provide essential credit throughout the economy, but some analysts have suggested recently that they have not used the government money to increase lending.

Lawmakers are also concerned about bonuses the banks paid out to their employees and whether the banks are able to pay the bonuses primarily because of the government money.

Representative Barney Frank, the Massachusetts Democrat who is chairman of the committee, said the problem for lawmakers was that the government needed to help the banks in order to help the economy, but that many taxpayers did not want to see the banks helped.

“Here’s the dilemma: there is in the country a great deal of anger about the financial institutions, including those represented here,” Mr. Frank said.

Mr. Frank said the banks would receive “collateral benefit” because they would be helped by the government’s broader efforts to heal the economy.

The banking executives said they were aware of the ill will that surrounds them.

“It is abundantly clear that we are here amidst broad public anger at our industry,” said Lloyd C. Blankfein, the chief of Goldman Sachs. “Many people believe — and, in many cases, justifiably so — that Wall Street lost sight of its larger public obligations.”

Lawmakers brought up the overarching question of the day. “What did you do with the new money,” asked Gary L. Ackerman, Democrat of New York, who said it seemed to him that the banks were not loaning out the funds they received from government.

Each of the bankers outlined the ways in which they had used the government capital. Goldman, for instance, increased its financing to lend to clients like Sallie Mae and Verizon Wireless. Morgan Stanley said it had made $10.6 billion in new commercial loans and $650 million in loan commitments to consumers.

As much as I would like to see Wall Street bankers deserve their own punishment for their excessive greed, this hearing is nothing more than political posturing on both sides. The congressmen are showing the American voters how they are "acting tough" against greedy Wall Street bankers, who are squandering away the taxpayer's bailout money on everything but providing loans in the credit markets (Of which they probably are doing). The Wall Street bankers have come to Capitol Hill to defend themselves against "Wall Street greed," saying that while their banks are willing to lend out the bailout money, the credit pullback "comes from a retreat of lenders like money market funds and hedge funds — not a retreat of the banks." So the banks may be willing to put up the money, but the lenders are not willing to lend in this frozen credit market. That may also be partially true. Either way, there is a lot of hot-air talk coming from this hearing, but nothing will ever be done about it.

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