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EDITOR’S NOTE: for those of you who have read my incessant posts that the mega banks are broke, especially, BOA, the article below spells it out in simple arithmetic terms. BOA is selling at 40% of what it SAYS it has in book value. Citi is at 50%, Morgan Stanley, 60% etc. See for yourself.

Normally finding a stock whose value in the stock market is below book value is a possible signal to buy, but it also  can be a red flag. In this case it is giant red flags with trumpets blaring. My prediction is that BOA and Citi for sure are going to bite the dust shortly. They simply cannot sustain themselves because their assets are overstated and their liabilities are understated. Market analysts obviously agree since few, if any, have put out the word for people to buy these stocks.

The outcome seems inevitable from my point of view. BOA and Citi will collapse and be sold off in pieces. Notwithstanding the whole Too Big To Fail Hypothesis, the financial markets will probably react favorably when this happens. It is obvious that nobody believes the balance sheet at BOA and Citi and that the stock has already been discounted for the inevitable result.

The reason this is relevant to homeowners is that BOA and Citi account for a large percentage of all foreclosures. The overstated “assets” are actually derivatives that supposedly derive their value from home mortgages — which the bank neither owns nor has any other interest. As these facts seep out into our collective consciousness, it will be apparent that most BOA foreclosures are exercises in generating fees rather than collecting the balance due on loans that are unpaid. If the regulators do their job right, it will be apparent that the foreclosures were faked.

My advice is to keep your eye on these banks and see what comes out. Make requests under Freedom of Information and discovery that are directed at how they are accounting for loans they say they own, and for details of the transaction on each particular loan. You will most likely find that the bank has no loan receivable on that home loan you are researching. Armed with that information, if you get it, you can clearly make the argument that there was no transaction in which BOA became the owner of the loan, despite the appearance of paperwork to the contrary. When you drill down, you will see that BOA never bought those loans, never paid for them, and that the transfer documents and other documents are all fabrications behind which there is no actual transaction.

Why 2011 Was So Brutal for Big Banks

By Anand Chokkavelu, CFA | More Articles
December 17, 2011 | Comments (0)

As we approach the end of a tumultuous 2011, it’s time to look back on the year that was.

Few, if any, industries had a worse 2011 than the big banks. Check out the carnage (and remember that the S&P 500 was basically flat after factoring in dividends).

Bank Name

2011 Return

Price-to-Tangible Book Value

US Bancorp (NYSE: USB  ) (2.1%) 2.4
Wells Fargo (NYSE: WFC  ) (14.7%) 1.5
JPMorgan Chase (NYSE: JPM  ) (23.2%) 1.0
Morgan Stanley (NYSE: MS  ) (44.5%) 0.6
Citigroup (NYSE: C  ) (44.9%) 0.5
Goldman Sachs (NYSE: GS  ) (45.8%) 0.7
Bank of America (NYSE: BAC  ) (60.8%) 0.4

Source: S&P Capital IQ. Return includes dividends.

None of these seven largest U.S. banks is leaving 2011 unscathed. US Bancorp and Wells Fargo, the two least Wall Street-y banks, came closest.

To recap the news this year, pretty much every negative macroeconomic event batters the banking stocks because they’re players in so much of the economy, both domestic and foreign:

  • They’re all still recovering from the housing-bubble burst. When we hear about subprime lending, liar loans, derivatives run amok, poor documentation, and the need for better regulation, it’s largely this group.
  • In August, the U.S. lost its AAA debt rating while Congress played politics instead of fixing the budget. If you look at the stock charts for these banks, you can see the effect of this added friction and uncertainty.
  • European sovereign-debt problems become problems for U.S. banking stocks because (1) the global financial system is increasingly tied together and (2) investors are having a hard time determining exactly how much direct European exposure the largest banks have.
  • To expand on that last point, the U.S. financial crisis highlighted how opaque bank balance sheets can be (and how much stuff banks can hide off the balance sheet). This forces investors to assume the worst.

On the plus side, all the banks except Bank of America have been able to profit off cheap interest rates (thanks to the Fed) and high trading volume. That’s why you see some low P/E ratios in this group. But much of that profitability is fleeting, especially if regulations cramp their style.

But this is more a balance-sheet tale than an income-statement tale.

When you go down the table from best-performing to worst-performing, you see a rough order of the likelihood of exposure to shaky lending and derivatives. US Bank and Wells Fargo are mostly regular old banks. JPMorgan is a hybrid Main Street and Wall Street bank that weathered the crisis better than the remaining four largely because of the leadership of Jamie Dimon.

Bank of America and Citigroup are also hybrids, but they’ve been proving to be the weakest of the herd. Citi did it organically, while Bank of America had help with its Countrywide acquisition. You can see the fear in their tiny price-to-tangible-book values, both half what JPMorgan gets.

Meanwhile, Goldman and Morgan Stanley are the only two full-fledged Wall Street megabanks left.

I see value in this uncertainty. The market is definitely valuing these banks on fear. And a lot of it is justified. Investing in these banks (especially as you go down the list) takes a leap of faith that the balance sheets can’t be that bad. It may even require some faith that the government would bail them out again without destroying common shareholders if need be.

Investing in the largest banks isn’t for the faint of heart. Fortunately, there is an alternative if you like bank stocks. Smaller regional banks are generally a lot simpler. Like US Bank and Wells Fargo, they mostly stick to taking in deposits and lending. Smaller bank stocks are by no means easy to decipher, but they’re a heck of a lot more transparent than the Wall Street banks.

20 Responses

  1. Bog banks don’t fail, they just re-organize.
    For BOA to fail would mean the collapse of the world trustees.
    It just ain’t gonna happen. But who knows? There always “hope,”
    even there is no “change.”

  2. funny Anon – your beloved Neil is a lawyer. as is Stopa, Mandelman, Judge Schack, etc.

  3. @nomods – I will. Thanks for the info.

  4. There are 2 good things : Lawyers and Bankers : dead ones and it would be my pleasure in sending them on there way – yeh so now I am a terrorist so lock me up

  5. I was sold out by Wells Fargo, trustee was US Bank,

  6. mind you Wall St banks are public company banks traded on the stock exchange. Yes, those shares, those stock shares are traded on Wall St.

  7. First they lend you CREDIT for buying something, which was created from just book keeping entry of debit/credit,

    and then you have to pay this back plus interest………..nothing was lent, no other people’s money was lent, it’s just on the books,,,,,,,,,,something (interest payments or collected) from nothing,,,,,,,,,,,,,all criminal.

    But what if the Governments lent that nothing, that credit, and the interest went to fund the Government operations? What if? Why should the creation of credit, or money be in private hands such as private banks or Wall St banks?

  8. @SAL

    “Re-hypothecation transactions are off-balance sheet and are therefore unrestricted by balance sheet controls. Whereas on balance sheet transactions necessitate only appearing as an asset/liability on one bank’s balance sheet and not another, off-balance sheet transactions can, and frequently do, appear on multiple banks’ financial statements”


    You, not YOU, can use all the fancy words one wants to use. It’s all manipulation of money, it’s all leverage and it’s all using others people money to make MONEY.

    BUT, it ain’t do’in one thing to increase production of actual products that are exchanged with people to survive. There is no social benefit, it’s just mak’in money while joe public gets screwed one way or the other…………and thinks he is INVESTING, when in fact Joe Public is giving his hard earned WORKING wage to a bunch of white collar legal criminals who desire to get something for nothing, and it is call speculation, but Wall St calls it investing, what a joke, I’m laughing my ass off. A criminal in it’s basic thought is to get something for nothing, no exchange.

  9. @ katheryn

    contact M can reach him (

  10. They are selling to foreigners that are unaware they dont own the houses. Another scam. They wont own the property and they will loose the property back to the homeowner that got ousted if we press on to have any kind of justice done in this fairy tale America, that has been fraudclosureamerica for a long time. They have been doing this to the poor sucking their blood like leeches and just became greedier until it became obvious and they have done this over and over to our anchestors, stolen their wealth, small incomes to big incomes. Chase Bank needs to go down too. They are the bank from hell along with the other devils advocate banks..

  11. SURE DONT KNOW HOW IT COULD BE WORSE. ALL THE SAME INGREDIENTS. NO PROOF OF AUTHORIZED OWNER SHIP, AND JUST ANOTHER DEBT COLLECTOR TO HAVE TO OBJECT TO but I am not an experienced party to this crime like some of the people on this web site. Same scam just a different debt collector coming at you.

  12. To say re-hypothecation is perfectly legal is akin to saying the holocaust was perfectly efficient, or that torture is perfectly effective. I doubt it’s a usage either Merriam or Webster would think highly of.

    In other news, to take a page from Bill Black, I think it’s time to start a petition to rename the Justice Department. Maybe….the Department of Criminal Assistance?

  13. It is much worse than anyone is willing to admit, but recently has been exposed in an article about “re-hypothecation”. What is “re-hypothecation” you ask?? Wait until you hear this information from the article titled “MF Global and the great Wall St re-hypothecation scandal”

    “Re-hypothecation occurs when a bank or broker re-uses collateral posted by clients, such as hedge funds, to back the broker’s own trades and borrowings. The practice of re-hypothecation runs into the trillions of dollars and is perfectly legal. It is justified by brokers on the basis that it is a capital efficient way of financing their operations much to the chagrin of hedge funds. ”

    “Re-hypothecation transactions are off-balance sheet and are therefore unrestricted by balance sheet controls. Whereas on balance sheet transactions necessitate only appearing as an asset/liability on one bank’s balance sheet and not another, off-balance sheet transactions can, and frequently do, appear on multiple banks’ financial statements. What this creates is chains of counterparty risk, where multiple re-hypothecation borrowers use the same collateral over and over again. Essentially, it is a chain of debt obligations that is only as strong as its weakest link.

    With collateral being re-hypothecated to a factor of four (according to IMF estimates), the actual capital backing banks re-hypothecation transactions may be as little as 25%. This churning of collateral means that re-hypothecation transactions have been creating enormous amounts of liquidity, much of which has no real asset backing. ”

    “Fuelling hyper-hypothecation and joining together daisy chains of liability through the pledging and re-pledging of collateral have been banks around the world. Once in the system collateral is being pledged and re-pledged over and over again either through sale and repurchase agreements or re-hypothecation as demonstrated by a review of SEC filings. For instance, Goldman Sachsdisclosed recently that it had re-pledged $18.03 billion of collateral received as at September 2011, Oppenheimer Holdings re-pledged approximately $255.4 million of its own customers’ securities in the same period, Canadian Imperial Bank of Commercere-pledged $72 billion in client assets, Credit Suissesold or re-pledged CHF 332 billion of assets (received under resale agreements, securities lending and margined broker loans), Royal Bank of Canadare-pledged $53.8 billion of $126.7 billion available for re-pledging, Knight Capital Groupdelivered or re-pledged $1.17 billion of financial instruments received, Interactive Brokers re-pledged or re-sold $7.9 billion of $16.7 billion available to re-sell or re-pledge, Wells Fargo re-pledged $19.6 billion as at September 2011 of collateral received under resale agreements and securities borrowings, JP Morgansold or re-pledged $410 billion of collateral received under customer margin loans, derivative transactions, securities borrowed and reverse repurchase agreements and Morgan Stanley re-pledged $410 billion of securities received. “

  14. The question is…who in their right mind, is buying, at ANY price? (It’s a rehtorical and trick question…following the money…)

  15. @ carie


    “….Bank of America, which took over the troubled loans of Countrywide Financial, is setting a plan in motion to sell its repossessed homes to investors,….”

    The REAL scary part about all of this is the fact that these “investors” are foreigners. Our land, heritage and the blood, sweat and tears of our forefathers have been STOLEN from us and are now going to be sold to the highest bidder from the Chinese, Arabs, French, German, Russian, British, etc. Then set up the “Amero”, etc. At least, that’s “the plan”.

    The Quran states that: “The Devil plans a plan, and Allah plans a plan. Allah is the best of planners.”

    Our forefathers did what they had to do. This nation is now under our watch. We’ll do what we have to do – LAWFULLY. We can’t and MUST NOT let “them” set our human and moral values – least we become just like them. We are AMERICANS – as we fight the fight, we must never forget who we are and were we come from. My youngest child is only 24 years old. He is a combat Marine. 2 weeks ago, me and his Mother hugged him, kissed him, and sent him off to board a plane to God knows where. She grieves every hour that she may never see her child alive again. As I sent him off, I told him the same thing – Don’t never forget who you are and where you come from.

    3 or 4 days out of the week I now spend my days and some nights over on wall street with the other OWS sharing “war stories” over hot coffee and bagels. I already told my Wife and family that I am going to eat my Christmas dinner there. I wish my Son were here so I could teach him how to tune-up a cadillac, fry an egg and choose a Wife.

    Oh well, let me get ready to go. enrage, nancy, anonymous, etc – Merry Christmas to you guys and your families.

  16. Neil, do they have to buy back the bonds at the maturity like MF global had to do at the end for the European bonds? I just wonder how these bonds investment thinggie work.

  17. I have been in litigation with fraudofamerica for almost a year. I am pro se as I could not find anyone willing. They have had as many as 4 lawyers representing them (different firms) and have spent a fortune rather than reach a suitable compromise. The attorney of record handling the litigation has been decent in his dealings with me but here is my question. They have asked, now, for the third extension to answer my interrogatories and production of docs. I have always let them have it, but not without conditions. All of the accounting documents referred to in this post is, in part, information I have demanded from them. The new discovery cut off date is now February 28 and their due date for providing answers and docs is Jan. 6. I have delayed preparing Plaintiffs admissions to Defendants until I receive the information and whatever accounting docs I get. I have been flying by the seat of my pants up to now, however, I will need to have someone who knows about the accounting and balance sheet end of this and get a professional opinion as it relates to my case. Does anyone have any suggestions on who I could hire for this specific information I will need prior to preparation of the admissions? Thanks.

  18. Just to get an idea of how many people, worldwide, will be affected…

    And that doesn’t even take into consideration the already existing casualties through foreclosures, loss of pensions, loss of investments, you name it.

  19. Corporations are people, we hear. And people are like fish: they rot from the head first… And E. Toile is right: spending waaaay too much time on this site.

    Well, off to work, not eking out a living…

  20. i read that if BOA goes under, it is actually WORSE for the homeowners who got a mortgage directly thru BOA or has BOA as their servicer……..does anyone know if that is correct ?

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