After reading through this, it looks like continue slogging through the bad loans and weakening U.S. economy. I did notice the banks loan loss reserves have fallen a considerable amount, likely to their view that the loan book is less risky than it was a year ago. The problem now is with Washington D.C. and dealing with the deficit, profligate spending and large entitlement programs that will need to be reformed is they are to remain viable.
We will just need to sit tight and watch. I would continue to reduce debt and build savings while we grind this out. I believe we have another major leg down and another recession in the works before we start really gaining traction. Traditionally we have seen large market moves in the fall so hopefully we are not seeing the lull before the storm.
Reuters - Bank of America said it plans to slash costs by $3 billion annually in commercial lending, investment banking and wealth management, becoming the latest big bank to take aim at expenses in a sluggish economy. The second-largest U.S. bank announced the cost cuts as it posted second quarter results that illustrate the pressure it is under. Bank of America said its loan book shrank from the same quarter last year, its interest income fell 15 percent, and each of its divisions except for mortgage lending posted lower revenue.
At first I was appalled when I finished reading this article. This action is something that I have considered “could happen” down the road when the collapse was in full swing. Now, after contemplating the idea of this happening, I think there could be some value with the right approach. “If”, they keep the rental rates stable and competitive. This is a much better option than having displaced homeowners hit their local existing rental markets, sucking up all the excess rental unit capacity thus making rents rise due too the increased demand.
Outside of any legal improprieties, this could be good if more rental units can come to market so rental rates can decline. For middle and lower income earners, this increases their discretionary cash. This is a good thing and results in a higher standard of living. This is good. I might add, the property owners that are now gasping because the have to service debt at a higher assumed rental rate. Well don’t worry. The banks should be compelled to re-finance these properties so we can lock-up the new rental rates. The problems you see is when relief is only given to one set of parties when there is always at least two parties (even if its yourself).
There is some substance in this proposal if it was expanded and given across the board. The logically at some point down the road maybe a “lease to own” program could be established to get home purchases to be made at the proper market price. There are areas where you allow the market to determine the outcome and then and only then, you create programs to give the assistance where it is needed to prevent having major breakdowns. Balance is the goal and difficult to find when you are dealing with various parties, I do not doubt this.
CNN - Bank of America has announced a program that will let homeowners facing foreclosures stay in their homes as renters. The “Mortgage to Lease” program will start as a limited pilot program for up to 1,000 homeowners in Arizona, Nevada and New York selected by the bank.
This may be a turn-around story in the making. The faster they write-off the bad loans and give more disclosure on any contractual and legal liabilities, the better. It looks like they are getting serious about reforming the BofA bank and brand so lets hope so.
WSJ - Bank of America Corp. (BAC) closed out the turbulent 2011 year with better-than-expected revenue in the final three months, driving the bank to a fourth-quarter profit compared with the prior year’s loss.
This Reuters story about Bank of America moving derivative contracts from their Merrill Lynch acquisition that is uninsured by the FDIC, to a main banking unit at B of A is only going to get more attention and scrutiny. I don’t see why this would be allowed. These are huge credit risks that Merrill agreed too or are relying on another party for that now are in a unit that would be made whole if it failed. Bank of America has been beat up pretty bad lately, their stock hovers around $6-7 dollars a share.
One of the loose ends for B of A is the “robo-signing” problem where many key mortgage & disclosure documents were not filed as prescribed. They are involved in lawsuit that revolve around this issue. Some analysts have even discussed that some of these documents would of halted some of these transactions because the disclosure information was damning.
The valuations on U.S. real estate in 2007 and before, it begs to ask how we got that much capital to come into the real estate market. It points in the direction that there was some serious rule-bending and likely law-breaking. What is true, is that the courts will sort this out in the end.
Reuters (Christopher Whalen):
Bank of America has managed to step into the kimchee several times over the past couple of months, an achievement that only warms the hearts of crisis communications professionals. First came the abortive settlement of $10 billion or so in put-back claims by some large investors. The State of New York and anyone else paying attention intervened. Settlement is now mostly muerto in political terms, although the big investors are still paying the big lawyers to soldier on in hope of forcing a settlement on all parties. Only in New York are such things possible.
Utter garbage. How can we sit back and let a bank move a massive load of liabilities to a banking unit that has deposits and is backed by the U.S. taxpayers via the FDIC? No surprise the Federal Reserve didn’t see a problem because they would not be first in line to make that banking unit whole again if something went wrong and trigger the CDS and whatever, other exotic contracts Merrill Lynch may have. We are just increasing the risk on this massive institution.
We need to quit using this line of global uncompetitiveness as a reason why our deposit institutions need to act like investment banks and take those type of risks. If it is that important to Bank of America or any other bank (not to single them out), they just need to make BofA Investments or whatever so they can run that operation off their own capital and investors so they can take that risk so try and increase profits. Our banks just need to be competitive in our home market, America.
If other countries allow their “safest” banks jump off a cliff, should we compete to let ours? Even William K. Black is mentioned in the article and he thinks we should have tight runs against this type of practice. Just so people know, I am not against banks or banking, personally I find them fascinating companies and I love their history, but what we have these days is nothing like the old days. When I say that, I mean the sense of duty and prudence is not their and that is a loss for the industry as a whole.
Bloomberg (Bob Ivry, Hugh Son and Christine Harper): Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.