Auto Related TARP Transactions

General Motors Corp.	$16,284,024,131
GMAC LLC	$5,000,000,000
Chrysler Holding LLC	$4,780,130,642
Chrysler LLC	$3,034,000,000
Chrysler Financial Services Americas LLC	$1,500,000,000
Total	$30,598,154,773

Please remember that GMAC LLC is a bank holding company. They were instructed to raise $11.5 billion based on the stress test. GMAC LLC is not a public company and is highly leveraged as a result of a private equity acquisition. Would you like to guess where they will get the additional capital?

http://news.yahoo.com/s/ap/us_gm_inevitable_bankruptcy

GM is not far behind Chrysler in going under. Prepare to kiss $42 billion good-bye.

Great Reads: Sucker's Rally

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5301123/bEnjoy-the-rally-while-it-lasts---but-expect-to-take-a-sucker-punchb.html

"Our delicious spring rally is nearing the limits. The 40pc rise on global bourses since March assumes that central banks have conjured away the debt overhang by slashing rates to zero and printing money. Nothing of the sort has occurred. Two thirds of the world economy will be in deflation by July."

http://dealbook.blogs.nytimes.com/2009/05/08/hedge-fund-sees-disaster-brewing/


Disaster Brewing



http://dealbook.blogs.nytimes.com/2009/05/08/fund-manger-thinks-bank-stocks-are-priced-to-perfection/


Shorting Financials



http://online.wsj.com/article/SB124139532998281787.html#mod=loomia?loomia_si=t0:a16:g2:r1:c0.0141778:b24326894


Looming Mortgage Catastrophe

The Biggest Stress Test Lie

In past posts, I have written about the bogus Stress Test economic assumptions (4/24/09) and the chosen benchmark capital ratio (5/9/09). Today, I would like to highlight the biggest fraud of the report: expected net income.

The report states that over 2009 & 2010, the Fed expects the 19 banks to generate adjusted net income of $362.9 billion. This would enable the institutions to survive on the meager capital additions that the report demanded. This amount is utterly unreasonable. Of that $362.9 billion, I will allocate $145.16 billion to 2009 and $217.74 billion to 2010.

The ENTIRE Banking Industry:

Total Assets on 12/31/2008: $13.898 trillion





Based on the above graph, I will be generous and forecast a 2% growth rate for 2009 and a 5% growth rate for 2010. That would bring average 2009 total assets to $14.176 trillion.

Using data for the last 10 years, I created the following scenarios. Click on graphs to review recent return on asset data:

ROA	Net Income
Duplicating Best Year	$ 195,630,429,780
Dream World	$ 226,817,889,600
Average	$ 156,066,172,901
Average, Excluding 2008	$ 170,538,700,743
Trend	$ 102,540,587,590

So, based on historic trends, the Fed is forecasting that those 19 banks will make as much as one would expect the entire industry to make.

In fact, even adjusting the record 2006 numbers for inflation, the best year for banking was worth $154.7 billion.

Caveat emptor.

The Mystery Starts To Unfold....

The Wall Street Journal reported earlier tonight that the Stress Test capital benchmark was not the expected ratio:

"On Friday, some analysts questioned the yardstick, known as Tier 1 common capital, that regulators chose to assess capital levels. Many experts had assumed the Fed would use a better-known metric called tangible common equity."

http://online.wsj.com/article/SB124182311010302297.html#mod%3DtestMod%26articleTabs%3Darticle

When is enough, enough?

Failure Friday Fun

Please click on tables to expand.

Westsound Bank was the only one closed today. It was at the top of the Bad Banks list. How do you get to the top of the Bad Banks list?

Net Bad Loans Ratio

bad loans = assets at least 30 days delinquent + non-accrual assets

ratio = (bad loans - bad loans guaranteed by Federal Gov't) / (loan loss allowance + Tier 1 capital)

Net Non-Accrual Ratio

ratio = (non-accrual assets - non-accrual assets guaranteed by Federal Gov't) / (loan loss allowance + Tier 1 capital)


I modified the last column of the failure list:

ratio = (total deposits - FDIC loss) / total assets

Anyone Remember Fannie Mae?

Well, you should America. Another huge loss in the 1st quarter: $23.168 billion down the drain. Since and including the 3rd quarter of 2007, Fannie Mae(Day) has lost $88.2 billion.

This latest loss puts them into the negative net worth area again: their assets are worth less than their liabilities. This is only possible of course because the Federal government (YOU, TAXPAYER !!!!) is back-stopping the whole derelict operation.

As a result, Mae(Day) has requested that YOU pony up another $19 billion to buy its preferred stock.

The bulk of the losses stem from increased their reserves for credit losses (paying out on guarantees) and foreclosure expenses. This accounted for $20.9 billion of the loss.

- Non-performing loans totaled $114.9 billion, up from $10.9 billion a year ago

- Carrying values of $6.4 billion in foreclosed properties, up from $4.6 billion a year ago

Fannie Mae(Day) and Freddie Muck represent over 40% of the mortgage universe. Buy bank stocks if you like, I wish you luck.

WE WILL GET STIFFED ON THESE JUST LIKE WE GOT STIFFED ON CHRYSLER. WHY IS NOBODY TALKING ABOUT THE $7 BILLION THAT WILL NEVER BE REPAID BY CHRYSLER!

Non-Farm Payroll

My guess was pretty close: 539,000 jobs were lost in April. The unemployment rate moved higher, 8.9% for April as well.

My forecast was a loss of 557,000. I will note the following:

- February job loss was reported to be 651,000: revised to a loss of 681,000

- March job loss was reported to be 663,000: revised to a loss of 699,000

This marks the 16th consecutive month of job losses and the 6th straight month of losses of at least 500,000 jobs. Since and including the December, 2007 report, the economy has lost 5,697,000 jobs.

GM Earnings

Yuck.

Another $5.9 billion in losses. This marks the 7th consecutive quarterly loss for the company, a whopping $76.4 billion cumulative loss.

Weekly Jobless Claims

Initial claims dropped to 601,000 last week, marking the 14th consecutive week above 600,000. This number was below expectations, adding more fuel to the "this must be the bottom" fire. As I mentioned earlier, this number is bound to decelerate as more people file. That 600,000 becomes a larger percentage of the pie as more jobs are lost.

Continuing claims continued their inexorable march to 6.5 million. This week's total came to 6,351,000: another record high. In addition, the IUR rose to 4.8%, another record.

So, there may be fewer people filing for initial benefits, but they can't get off the dole.

Jobs Data

Way late in this, but I have not been in the mood for posting. My post (4/27/09) about not buying stocks after looking at S & P's earnings forecast was dead wrong. Financial stocks have continued to rally well past where I though they should have tired out. It also appears that my post (3/30/09) about a major bank being nationalized by tomorrow was wrong. In either case, perception is reality. When an economy losing 500,000 jobs in a month is considered good news, anything is possible. I genuinely don't know if the market is getting lulled into a sense of false comfort or the things that I have been writing about simply don't matter. Does the amount of debt matter? Does fractional reserve banking matter? Does a mounting tax burden matter? Do high earnings multiples matter? Do continuing job losses matter? Do falling prices matter? I really shouldn't say "matter", it should be "matter as much as I think it matters."

Anyway, the ADP jobs report came out this morning: 491,000 jobs lost in the month of April. Including the 12/2007 report, the economy has lost 5,218,000 jobs since the recession started. Based on ADP's numbers: 5,115,000 jobs were created from 11/2004 to 11/2007. So we are basically back to the same amount of jobs that we had 4 and a half years ago.

My forecast for Friday's BLS number is a loss of 557,000 jobs. This is based on claims data and the ADP number.



Please click to expand.

Bank of America Capital

http://bloomberg.com/apps/news?pid=20601087&sid=aA5X3dkyymvw&refer=home

Bank of America Said to Need About $34 Billion in New Capital

http://www.nytimes.com/2009/05/06/business/06stress.html?hp

U.S. Says Bank of America Needs $33.9 Billion Cushion

"Mr. Alphin said since the government figure is less than the $45 billion provided to Bank of America, the bank will now start looking at ways of repaying the $11 billion difference over time to the government."

This almost makes it sound like BoA has too much capital. Based on this paragraph, I am not certain about what the bank has to do. I'm sure clarification will drip out. This dissemination of information is a joke.

*** BANK OF AMERICA NEEDS $33.9 BILLION ***

http://www.nytimes.com/2009/05/06/business/06stress.html?_r=1&hp=&adxnnl=1&adxnnlx=1241583126-4q9FGUUnO/1OBEWHyECsQQ

U.S. Says Bank of America Needs $33.9 Billion

Boy, Bailing Out The Auto Companies Was A Great Idea..

http://online.wsj.com/article/BT-CO-20090505-714780.html

GMAC 1Q Loss Widens On Credit Woes, Weak Economy


http://www.reuters.com/article/marketsNews/idINN0548672220090505?rpc=44

GM details plans to wipe out current shareholders


http://money.cnn.com/2009/05/05/news/companies/chrysler_loans/index.htm?postversion=2009050519

Chrysler won't repay bailout money


This is just the beginning of the massive failure of ALL OF THE BAILOUT PLANS. Prepare for more job losses, prepare to take it on the chin for corporate America, prepare for higher taxes.

Items of Note This Week

Wednesday, 8:15 AM: ADP Employment Report____Consensus -643,000

Thursday, 8:30AM: Initial Jobless Claims________Consensus 620,000

Friday, 8:30AM: Non-Farm Payroll____________Consensus -620,000

Friday, 8:30 AM: Unemployment Rate__________Consensus 8.9%

Also:

- Thursday: Release of Bank Stress Test Findings

- BankUnited: Possibly an end to the saga, will it find a buyer or will it be shut down?

- Corus Bank: Condo lender, teetering on the brink, will it be closed?

- Over the last week or so: Bonds down, stocks up, oil up..........end of the deflation trade? How close are we to an inflationary problem?

May Showers?

Updated: Failure Friday & recent bankruptcy filings