The FT ran a piece in which research firm Sanford Bernstein is quoted as saying that loses at Bank of American (BAC) and JP Morgan (JPM) will be just as bad, if not worse, than the news out of Citigroup (C).
JP Morgan is likely to unveil mark-to-market losses on leveraged loans of about $1.4 billion, the paper says. For good measure, throw in another $700 million for write downs on mortgages and mortgage-backed securities. Over at B of A, look for "leveraged loan losses will be $700 million and the mortgage write downs $300 million."
This really is not front page news, although it made it there in the FT. What has not been scoped out, at least not in public, by any of Wall St.’s analysts, is what the next couple of quarters will look like. The mortgage problems are going to get worse. Will the state of mortgage-backed securities? The problems in private equity are not going away. Will loans for those deals have to be written down further?
And, there is the matter of companies that were to be taken over getting upset when private equity firms and bankers back away. Sallie Mae (SLM) was stood up by private equity firm JC Flowers. Flowers backed out of a $60 a share deal, claiming that the SLM business was taking a turn for the worse. But, oddly, the student loan company did not go after the private equity firm in the press. It attacked the banks. "Our contract is with Bank of America and JP Morgan Chase, two of America’s largest and strongest banks," SLM said in a statement.
The earnings meltdown is not over for the banks. They just have not forecast how much worse it can get.
Douglas A. McIntyre