Tip of the Iceberg

Crossposted from The Stars Hollow Gazette

Banks face $60 billion mortgage hit: S&P

Cleaning up the mortgage mess isn’t getting any cheaper.

Posted by Colin Barr, Fortune

February 8, 2011 12:48 pm

The banking industry could find itself picking up a $60 billion tab for souring home loans, Standard & Poor’s Ratings says in its latest report on so-called mortgage putbacks.

When S&P last looked at the issue in November, it said the six biggest U.S. lenders faced $43 billion in mortgage-repurchase costs. That was itself up from July’s estimate, which held that the leading banks would have to build their reserves to the tune of $24 billion.

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February’s estimate stems largely from rising projected costs to settle claims by private mortgage securities investors and monoline insurers.

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S&P has been raising its forecasts for the costs of settling disputes with private investors and monoline insurers who promised to pay when borrowers fell behind. The rating agency now estimates the cost of settling those cases at $29 billion, evenly split between the two categories.

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Rising projected costs for settling the private label and monoline claims could hit bank earnings at a time when tighter rules and slow economic growth are already weighing on profits. What’s more, the report highlights the risk that the banks could yet take more lumps, depending on how various cases turn out and whether investors become more aggressive in pressing their grievances.

The world’s dumbest banks

Ireland’s disastrous banks continue to punch above their weight.

Posted by Colin Barr, Fortune

February 9, 2011 6:36 am

(A) list of the most reckless banks wouldn’t be complete without a mention of Merrill Lynch, which was sold in distress to Bank of America (BAC) with $668 billion in assets just before Lehman Brothers failed, or Wachovia, which was raffled off to Wells Fargo (WFC) a couple weeks later with $764 billion worth.

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The good news is that one of the guys who made out like a bandit while running into the ground, former CEO Sean FitzPatrick (of Anglo Irish Bank), has already reached this acceptance state. This after he took 80 million euros in loans from the bank without telling shareholders, then declared he had frittered it all away.

“I am very happy to put my hands up,” he told the Irish Sunday Times last month. “I am very happy to apologize to all my creditors. I don’t feel ashamed, but I do feel regret, very serious regret, and I am sorry that it is going to cause people losses.” Talk about an understatement.

I repeat my offer to lose $24 Billion for a much more reasonable rate than 80 Million Euros.  I bet I could manage to do it for a mere Million or 2 a year.