The financial crisis crystallized the realities of systemic risk -- the idea that in certain panic-stricken environments, no company reliant on functioning credit markets is safe, even if it is fundamentally sound on its own merits.

No company may have been hurt more by guilt-by-association during the market's meltdown than Goldman Sachs (GS), widely recognized to have been the best positioned investment bank entering the fall of 2008. As Bear Stearns and Lehman Brothers went under, the competitive landscape was theoretically clear for Goldman to make sizable market share gains. But the same reliance on short-term financing and market fears of potentially hidden risks in the company's assets forced drastic changes.

Goldman joined Morgan Stanley in becoming a bank holding company, transitioning away from the high-leverage investment bank model to gain access to emergency lending facilities created by the Federal Reserve to stabilize credit markets. At the same time, Goldman was also early in raising equity capital from Berkshire Hathaway, effectively gaining the endorsement of Warren Buffett as it bolstered its balance sheet. On that day, Goldman stock traded at $120; it entered this weekend nearly one year later at $175, even as the worst economic macro-environment since the Great Depression continues to unfold.

Continue reading One Year Later: Goldman Sachs's amazing rebound

One Year Later: Goldman Sachs's amazing rebound originally appeared on DailyFinance on Tue, 15 Sep 2009 13:00:00 EST. Please see our terms for use of feeds.

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Some critics of recently reappointed Federal Reserve Chairman Ben Bernanke argue that he was too slow to realize that the financial system was teetering on the brink of collapse during 2008. But Bernanke might have had another, more personal banking issue on his mind at the time, Newsweek reports: his wife Anna's purse was stolen in August 2008, and the thieves used its contents to access the couple's joint checking account.

A court affadavit filed in June shows that 10 people are charged in the fraud, which used the Bernankes' bank account to inflate the value of other accounts that then had money withdrawn from them. The 22-page document identifies a victim known as "B. B.," who had $900 stolen from his account, but another complaint against one of the alleged members of the ring used Ben Bernanke's full name.

Continue reading Bernanke's other banking problem: Identity theft

Bernanke's other banking problem: Identity theft originally appeared on DailyFinance on Wed, 26 Aug 2009 17:10:00 EST. Please see our terms for use of feeds.

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August is known as a quiet month for the stock market, as many institutional investors and traders take advantage of the waning summer to go on vacation. Trading volume dries up, and some large price swings can be attributed to the lack of liquidity, but this news about the concentrated nature of trading is truly odd.

According to Reuters, four beaten-up financial companies -- Bank of America (BAC), Citigroup (C), Fannie Mae (FNM), and Freddie Mac (FRE) -- have accounted for upwards of 40 percent of the trading volume on the New York Stock Exchange to begin this week.

Continue reading Low-priced financial stocks dominating trading volume

Low-priced financial stocks dominating trading volume originally appeared on DailyFinance on Wed, 26 Aug 2009 12:30:00 EST. Please see our terms for use of feeds.

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Just as speculation about the health of the banking system in the U.S. seems to be quieting down, there's reason to believe that foreign banks -- particularly two Spanish institutions -- are about to go under the microscope, even as the pair snaps up assets in foreign countries.

Banco Santander (STD) and Banco Bilbao (BBV), with a combined market capitalization of $200 billion, must deal with double-digit unemployment in Spain and a bursting property bubble that threatens to wipe out shareholders, according to a research report from Variant Perception (via FT Alphaville). These two are also working on integrating disparate acquisitions.

Continue reading Are Spanish banks' growth strategies hiding problems at home?

Are Spanish banks' growth strategies hiding problems at home? originally appeared on DailyFinance on Wed, 26 Aug 2009 08:00:00 EST. Please see our terms for use of feeds.

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The following is a round-up of some of the companies making major headlines today:

Office products retailer Staples (SPLS) announced that second quarter earnings were $0.16 cents per share, excluding a one-time charge. That number was in-line with analyst estimates. Revenues of $5.5 billion were slightly below expectations.

Lowe's (LOW) is bringing its home improvement concept to Australia, teaming with Woolworths in a joint venture that expects to open its first stores in 2011. The Australian housing market is healthy, unlike its U.S. counterpart, and home improvement spending is still growing.

Continue reading Stocks in the news: Staples, Lowe's, and Goldman Sachs

Stocks in the news: Staples, Lowe's, and Goldman Sachs originally appeared on DailyFinance on Tue, 25 Aug 2009 09:00:00 EST. Please see our terms for use of feeds.

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Step aside, John Paulson -- there's competition for reaping billions from bets on the financial sector, and it comes from Uncle Sam. The government, which owns 34 percent of Citigroup (C) following a conversion of preferred stock from the TARP and asset guarantee agreement, has booked an $11 billion paper profit as shares have risen to $4.85 in trading today from the original $3.25 conversion price. The conversion was meant to bolster Citigroup's Tangible Common Equity, or TCE, a new measure being used to determine a bank's ability to absorb losses.

The rebound in Citigroup shares, which fell to under $1 at the height of market distress, is part of a rally in financial stocks as confidence in the sector has been restored. Citigroup has received $45 billion in TARP capital from the government, in addition to a loss-sharing deal reached on a pool of assets in excess of $300 billion.

Continue reading Surging market gives government $11 billion profit on Citigroup

Surging market gives government $11 billion profit on Citigroup originally appeared on DailyFinance on Mon, 24 Aug 2009 16:30:00 EST. Please see our terms for use of feeds.

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The parent company of the Philadelphia Inquirer, the Philadelphia Daily News, and the related Philly.com website could emerge from bankruptcy debt-free, if a proposal submitted by the ownership group that bought the paper in 2006 is accepted by lenders in court. Bruce Toll, of homebuilder Toll Bros. (TOL) fame, and public relations executive Brian Tierney are leading a bid to buy out the more than $300 million the company owes for 20 cents on the dollar in cash and real estate.

As the newspaper business continues to reel from a combination of high fixed costs and falling advertising revenue, established papers across the country have been going bankrupt or seeking help from wealthy local citizens. The Boston Globe, which the New York Times Co. (NYT) owns but is actively shopping for sale, has seen interest from at least two local groups, as well as one private equity fund. Even though such newspaper sales have not worked out well in the past, there is hope that re-making the Inquirer as a debt-free company will allow it to be marginally profitable.

Continue reading What's left after a newspaper bankruptcy: 20 cents on the dollar

What's left after a newspaper bankruptcy: 20 cents on the dollar originally appeared on DailyFinance on Fri, 21 Aug 2009 19:00:00 EST. Please see our terms for use of feeds.

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There has been a great deal of talk in the financial media of late about bank's loan values, which may be vastly overinflated due to flexibility offered by accounting rules. The SEC revealed that it sent a memo to a number of CFOs at banks, telling them, "Clear and transparent disclosure about how you account for your provision and allowance for loan losses has always been critically important," and "although determining your allowance for loan losses requires you to exercise judgment, it would be inconsistent with generally accepted accounting principles if you were to delay recognizing credit losses." (Hat tip, Zero Hedge).

Clearly, there is concern that many banks are not taking the appropriate marks on their loan portfolios. Last week, DailyFinance discussed the next hundred-billion-plus-dollar question for the banking system: whether or not the enormous gap between some banks' book values and market values was a cause for concern. One curious development since then has been the Financial Times' revelation that Citigroup CFO Ned Kelly was forced out by U.S. regulators shortly before reporting second quarter results.

Continue reading Citigroup's loan disclosures: Over-provisioned or fudging fair value?

Citigroup's loan disclosures: Over-provisioned or fudging fair value? originally appeared on DailyFinance on Fri, 21 Aug 2009 14:40:00 EST. Please see our terms for use of feeds.

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As the S&P 500 ($INX) flirts with highs last seen in October 2008, the credit markets have been on edge, and the perceived risk of default is risen to its highest levels in a month -- a time when the S&P was 50 points lower. Since reaching a low point the first week of August, the cost of insuring against default on a basket of investment grade-rated debt has risen 15 percent, and the same measure for lower-rated "high-yield" or "junk" credits jumped 16 percent, according to data from Markit CDX indices. Similar indices tracking subprime mortgage-backed securities and commercial MBS have also fallen sharply in the last few weeks.

The conflicting signals -- either the stock market or bond market must be wrong -- are a sign that the massive rally in equities could be drawing to a close. The bond market is traditionally viewed as the more prescient forward indicator, and as credit investors show more risk-aversion (Treasury yields have also dropped in the last week) while stock investors bullishly march on, the odds of a negative shock jump. What stocks are most at risk?

Continue reading Credit concerns rise as stock market tests highs

Credit concerns rise as stock market tests highs originally appeared on DailyFinance on Thu, 20 Aug 2009 15:40:00 EST. Please see our terms for use of feeds.

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The U.S. economy is out of the frying pan and into the fire, Warren Buffett writes in an op-ed piece in the New York Times today. The very actions that saved the financial system from the brink of ruin now threaten the long-term health of the dollar.

"The United States economy is now out of the emergency room and appears to be on a slow path to recovery," Buffett wrote. But rescuing banks and the unregulated "shadow banking system" comes at a high cost, and will result in a budget deficit of $1.8 trillion this year, or 13 percent of gross domestic product. Excluding World War II, this is more than twice as high as anytime since 1920.

Continue reading Buffett: Economy out of the frying pan, into the fire

Buffett: Economy out of the frying pan, into the fire originally appeared on DailyFinance on Wed, 19 Aug 2009 19:30:00 EST. Please see our terms for use of feeds.

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Robert Selander, CEO of MasterCard Inc. (MA), looks to be getting ready for retirement, TheStreet.com says. According to a recent SEC filing, Selander plans to sell roughly one-third of his shares of the credit-card processor under a pre-arranged sale program for "personal financial management purposes" -- a common move for executives who might otherwise be restricted from trading because they possess material non-public information.

The sales are expected to begin in October and finish by February.

Continue reading Mastercard CEO Selander plans his retirement -- by unloading his stock

Mastercard CEO Selander plans his retirement -- by unloading his stock originally appeared on DailyFinance on Wed, 19 Aug 2009 12:00:00 EST. Please see our terms for use of feeds.

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As residential housing market data registers a blip on the EKG, commercial real estate has become the hot-button issue for those concerned about the potential losses lurking on bank balance sheets. Despite undergoing a 40 percent decline in property values from peak prices in 2007 -- the Case-Shiller home price index has registered "only" a 33 percent drop -- commercial real estate does not generally garner the same media attention. It's clear, however, that there are plenty of reasons to be concerned that future defaults will wind up being another $100+ billion problem.

CB Richard Ellis Group (CBG), the world's largest commercial real estate services firm, said in an investor presentation that vacany rates on office, industrial, and retail properties have increased 31 percent since the end of 2007, and are set to rise an additional 10 percent by the end of the year. CEO Brett White said on the earnings conference call that "the leasing business remains very much depressed and [moribund] and the sales market is just in a very-very similar condition as it was in the first quarter."

Continue reading $1 trillion in commercial real estate to be refinanced

$1 trillion in commercial real estate to be refinanced originally appeared on DailyFinance on Tue, 18 Aug 2009 18:20:00 EST. Please see our terms for use of feeds.

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As the economy tries to rebound from its horrific slump, commercial real estate has remained a potential source of trouble. Both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner have highlighted the uncertainty that exists in the sector, which could lead to loan losses hitting an already-fragile banking system. Of particular concern are regional banks, whose portfolios tend to be more heavily concentrated in commercial assets. This became particularly evident after Colonial Bank, an Alabama-based lender with significant exposure to construction and commercial loans, became the largest bank failure of the year.

Even as the sector continues to struggle, capital has been flowing in searching for opportunities. In recent weeks, hotel chain Hyatt, mortgage modification ship Pennymac, and commercial REIT Starwood Properties Trust, have all filed for IPOs. DailyFinance asked Jonathan Horn, Senior Managing Director, and Josh Malka, Managing Director, at Helios Capital LLC, a mortgage loan advisory firm to banks, for their outlook on commercial real estate -- and what it means for the banking system and the broader economy.

Continue reading What's causing the slow motion commercial real estate crash?

What's causing the slow motion commercial real estate crash? originally appeared on DailyFinance on Tue, 18 Aug 2009 11:20:00 EST. Please see our terms for use of feeds.

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Traders, reacting to the previously-prescient investment bets by Paulson, have bid up many of those companies' stock prices. Although the SEC filings capture only a point in time -- in this case, June 30 -- if Paulson & Co. maintained its positions, the hedge fund saw a nearly $300 million gain on its financial stocks in the last two days. Bank of America, Capital One, and Regions Financial accounted for the majority of the gains.

Continue reading John Paulson's quarter-billion dollar payday from Bank of America

John Paulson's quarter-billion dollar payday from Bank of America originally appeared on DailyFinance on Fri, 14 Aug 2009 18:30:00 EST. Please see our terms for use of feeds.

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Warren Buffett might have slowed his stock purchases of late to focus on providing financing to certain distressed companies, but that doesn't mean the Oracle of Omaha's portfolio has been stagnant. Berkshire Hathaway's (BRK.A) equity portfolio rose to $48.95 billion according to an SEC filing, including a new stake in medical instrument and supply company Becton, Dickinson & Co. (BDX).

Berkshire reduced its holdings in auto dealership CarMax (KMX), electrical equipment company Eaton (ETN), health care providers Wellpoint (WLP) and UnitedHealth (UNH), and Home Depot (HD), though holdings in competing home improvement retailer Lowe's (LOW) remained steady. The SEC filing only provides a snapshot of Berkshire's equity positions as of June 30, so it does not include any actions taken since then. Previously, Buffett has also been granted waivers when he is still accumulating a stock, so that his disclosure does not inspire copy-cat buying.

Continue reading Berkshire Hathaway reports new stake in Becton Dickinson

Berkshire Hathaway reports new stake in Becton Dickinson originally appeared on DailyFinance on Fri, 14 Aug 2009 17:50:00 EST. Please see our terms for use of feeds.

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Jonathan Weil at Bloomberg has quite a contention: on a mark-to-market basis, a number of banks -- such as Regions Financial (RF), SunTrust Banks (STI), and KeyCorp (KEY) -- would have negative regulatory equity. Meanwhile, others -- including giants like Bank of America (BAC) and Wells Fargo (WFC) -- would be insolvent or undercapitalized, with hidden loan losses of more than $140 billion. In a world blind to "too big to fail," the former group would be shuttered by the FDIC, and the latter would either need to raise capital or risk a similar fate.

As Weil correctly points out, footnotes disclosing the fair market value of loans on Regions' balance sheet show a $22 billion gap between the value currently carried on the books currently and the price that they could be sold for. At quarter's end, this exceeds stockholders equity of $18.7 billion. However, accounting and regulatory rules allow those loans to be labeled as "held to maturity," meaning that they are excluded from being marked-to-market -- thus leading to two different values that can paint drastically different pictures of a bank's health.

Continue reading Are these five banks hiding more than $140 billion in losses?

Are these five banks hiding more than $140 billion in losses? originally appeared on DailyFinance on Fri, 14 Aug 2009 17:00:00 EST. Please see our terms for use of feeds.

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David Rosenberg, Chief Economist and Strategist at Gluskin Sheff, said that the data was "simply awful" in a client note obtained by DailyFinance. "We can have all the inventory building in the world but it can't last without a revival in final sales... If there was ever going to be a month where retail sales were going to rise, this was it -- due to the 'successful' Cash-for-Clunkers program. The program may be a 'success' but all the government is really doing is taking away from future spending."

Continue reading 'Cash for Clunkers' helped July retail sales, but not enough

'Cash for Clunkers' helped July retail sales, but not enough originally appeared on DailyFinance on Thu, 13 Aug 2009 16:20:00 EST. Please see our terms for use of feeds.

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The seemingly-improbable stock market rally has faced much skepticism, but the bulls have continued to win out, as the S&P 500 ($INX) has now rallied 50 percent from its March lows. With each advance, however, the odds shift slightly more in favor of the bear camp having another day in the sun. And, as David Rosenberg points out, groupthink is one element necessary to push the market too far to an extreme.

Rosenberg, the long-time chief economist at Merrill Lynch noted for his early warnings about the credit and housing bubbles, wrote in a client note that "It does appear that we have some groupthink to consider - virtually everyone at this stage is now bullish on the market... As an example, a CNBC poll released yesterday showed that 90 percent of Wall Street economists believe the recession has ended. It is highly unlikely that 90 percent of the economics community can be right on the same thing at the same time."

Continue reading Short-sellers hiding as bulls run wild

Short-sellers hiding as bulls run wild originally appeared on DailyFinance on Thu, 13 Aug 2009 12:00:00 EST. Please see our terms for use of feeds.

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Aggressive lending practices fueled the housing boom, and the availability of generous sums of mortgage and home equity money left borrowers with more debt and less equity than ever before. The Federal Reserve reported that home mortgage debt grew at a double-digit rate every year from 2002 to 2006. But as real estate markets across the country have seen price declines between 10 percent (Dallas) and 54 percent (Phoenix), an estimated 11 to 15 million households are now "underwater" on their mortgages, owing more than their house could be sold for today. This overhang, already being blamed for exacerbating the decline in residential real estate, likely won't peak until 2011, according to a research note from Deutsche Bank obtained by DailyFinance.

Deutsche Bank says that nearly $6 trillion in home equity has been vaporized since the peak in housing prices, and any quick recovery would be dependent on repeating the same lending mistakes that led to the boom -- an unlikely proposition. As housing prices continue to fall, the firm estimates that 25 million homeowners, or 48 percent of all mortgages, will eventually wind up being underwater.

Continue reading The negative home equity nightmare: Housing won't stabilize until 2011

The negative home equity nightmare: Housing won't stabilize until 2011 originally appeared on DailyFinance on Tue, 11 Aug 2009 15:00:00 EST. Please see our terms for use of feeds.

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But Cash for Clunkers has been more than a boondoggle for auto companies and people trading in used cars -- it's been great for insiders, too. In a classic case of intended consequences, Wall Street has helped translate government support for the automobile industry into a nice mid-summer bonus for insiders. Executives at auto dealer AutoNation (AN) have used the boost given to the stock price to cash out of their holdings, and that's another sign it's too late to be long auto stocks.

Continue reading AutoNation execs cashing out as stock jumps on 'cash for clunkers'

AutoNation execs cashing out as stock jumps on 'cash for clunkers' originally appeared on DailyFinance on Mon, 10 Aug 2009 16:00:00 EST. Please see our terms for use of feeds.

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