Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold, Silver and Copper - The 3 Metallic Amigos and Their Messages - 5th Dec 20
TESCO Christmas Decorations Festive Shop 2020 - How to Beat the Coronavirus Economic Depression - 5th Dec 20
Premium Bonds Good, Bad or Ugly Investment? Here's What Return (Prize Wins) to Expect - 5th Dec 20
How to accomplish a technical analysis with the Forex - 5th Dec 20
What is life insurance and what are the benefits of having it? - 5th Dec 20
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Peak Earnings and the Secular Stocks Bear Market

Stock-Markets / Stock Market Valuations Nov 16, 2008 - 07:01 PM GMT

By: Mike_Shedlock

Stock-Markets Best Financial Markets Analysis ArticleBefore we explore the concept of Peak Earnings let's take a look at the mad rush by financial institutions to become banks or bank holding companies. I will tie the ideas together in just a bit.

The mad rush to become a bank continues. Reuters is reporting Genworth in deal to buy bank, seeks TARP money .


Life and mortgage insurer Genworth Financial Inc (GNW) said on Sunday it applied for capital under a U.S. government program after reaching a deal to buy a bank and requesting savings and loan company status.

With the move, Genworth joins property and casualty insurer Hartford Financial Services Group Inc (HIG) in changing its regulatory status to participate in the Treasury Department's $700 billion Troubled Asset Relief Program (TARP).

Earlier this month, Genworth reported a $258 million net loss for the third quarter and its operating profit missed Wall Street expectations. It also suspended a share buyback plan, withdrew a previous forecast for 2008 operating profit, and said it was exploring ways to bolster capital.

Growing Line Seeking Tarp Funds

Hartford Financial (HIG) Acquires Bank from FDIC, Applies To Treasury Capital Purchase Program

November 14, 2008 3:23 PM EST

The Hartford Financial Services Group, Inc. (NYSE: HIG) today announced that it has applied to the Office of Thrift Supervision to become a savings and loan holding company and has applied to participate in the U.S. Treasury Department's Capital Purchase Program.

In conjunction with these applications, The Hartford has signed a merger agreement to acquire the parent company of Federal Trust Bank for approximately $10 million and will also provide an additional amount to recapitalize the bank.

CIT seeks bank status, TARP funds

Thu Nov 13, 2008 12:23pm EST

CIT Group (CIT) said on Thursday that it had applied to become a bank holding company and would seek capital under the U.S. government's program to fund banks, sending the commercial finance company's shares soaring as much as 26 percent.

New York-based CIT said it hoped that once it has approval to convert its charter from an industrial bank to a Utah state bank, it will qualify for funds from the U.S. government's Troubled Assets Relief Program, which is injecting about $250 billion of capital into U.S. banks.

"This is not a cure-all for stemming credit losses," said BMO Capital Markets analyst David Chiaverini. "It will help in absorbing those losses, but it won't change the fundamentals, which are decidedly weakening."

The program was initially intended to provide capital to healthy financial institutions. As recently as October 21, U.S. Treasury Secretary Henry Paulson said in a television interview: "We are not going to use this money to prop up failing banks."

American Express to Be Bank Holding Company

Published: November 10, 2008

American Express, the nation's last big independent credit card company, said late Monday that it would transform into a bank holding company to strengthen its position in the market turmoil.

Federal Reserve banking regulators said they approved its application because of the “unusual and exigent circumstances” roiling financial markets and the company's interest in tapping up to $3.8 billion in government money. As a full-fledged bank, American Express would gain greater access to the Treasury Department's bailout plan for banks, a move that might allow it to lend more freely and perhaps acquire a larger deposit-taking institution.

American Express customers are unlikely to notice the changes. But Monday's announcement may also represent the end of financial companies operating a single line of business and depending on the capital markets for financing.

Goldman Sachs and Morgan Stanley recently transformed themselves from investment banks to bank holding companies after being battered by the markets. Big lenders like GMAC, the finance company partly owned by General Motors, and General Electric's financial subsidiary have similarly been considering becoming banks.

GMAC may become a bank holding company

GMAC Financial Services says it's holding discussions with federal regulators about becoming a bank holding company. The move could help it access government funding.

GMAC is the financing arm of General Motors Corp., which owns 49 percent of the company. Cerberus Capital Management LP owns 51 percent of GMAC.

Raymond James To Become Holding Company

Regional investment bank Raymond James Financial is taking a page out of Morgan Stanley and Goldman Sachs' book.

The new lead dog in the ever-changing investment banking pantheon is seeking to get approval to convert itself into a bank holding company.

News that Raymond James is aiming for a bank holding company status, first reported by the St. Petersburg Times, follows an announcement from the Federal Reserve last weekend that Morgan Stanley and Goldman had received approval to change from high-flying investment into more closely scrutinized commercial banks. Both will face slimmed down profits in addition to more federal oversight.

With Morgan and Goldman shedding their investment bank status and Merrill Lynch, Lehman Brothers and Bear Stearns either going out of business or being acquired, the St. Petersburg, Fla.-based Raymond James found itself in the enviable position of being the largest investment bank - a title it's expected to now relinquish.

Bank Holding Companies

Since there is this mad rush to become a bank or a bank holding company, inquiring minds are asking What Is A Bank Holding Company?
A bank holding company is a company with significant ownership of one or more banks.

Bank holding companies are required to register with the Board of Governors of the Federal Reserve System. Bank holding companies are subject to the Bank Holding Company Act of 1956 .

New or smaller banks often re-structure themselves into bank holding companies to take advantage of the greater financial flexibility this corporate and legal status permits. Becoming a bank holding company makes it easier for the firm to raise capital than as a traditional bank. The holding company can assume debt of shareholders on a tax free basis, borrow money, acquire other banks and non-bank entities more easily, and issue stock with greater regulatory ease. It also has a greater legal authority to conduct share repurchases of own stock.

The downside includes responding to an additional regulatory authorities, especially if there are more than 300 shareholders, at which point the bank holding company is forced to register with the Securities and Exchange Commission. There are also added expenses of operating with an extra layer of administration.

We're All Banks Now

Is there any financial institution that does not want to become a bank or a bank holding company?

Implications of Move to Become Bank Holding Companies

One of the implications of becoming a bank or a bank holding company is is that it puts the entity under Fed regulation. That means that Goldman, Morgan Stanley, Merrill Lynch (via merger with Bank of America) and any other nonbank becoming a bank holding company is going to have to reduce leverage. Kiss those 30-1 and 40-1 leverage ratios goodbye.

Furthermore, it is highly likely that the ability for banks to hold off balance sheets SIVs will be regulated away. This is a good thing as with reduced leverage comes reduce risk.

However, reduced risk means reduced profit potential. When the economy does pick back up, don't expect profits at banks and bank holding companies to come remotely close to the earnings during the last cycle.

Peak Earnings

One of the implications of Peak Credit is that financial earnings have peaked. And because of reduced leverage, earnings in the financial sector are not coming back for decades. Those earnings were all a mirage in the first place.

Next consider homebuilders given that lending standards have dramatically tightened at banks. Those profits are never coming back. What happenes to profits at major pharmaceuticals if and when the Obama administration allows drug imports from Canada and other places?

One must also factor into the earnings equation boomers facing retirement in the wake of falling home prices and retirement accounts taking a cliff dive. Trillions in potential spending power has been wiped off the books.

Expect boomers to travel less than expected, buy fewer toys (boats, cars etc) than expected, gamble less than expected, and downsize much more than expected in every aspect. This in turn will reduce the earnings potential of non-financial corporations for decades to come. Thus expectations that a new rip roaring bull market will commence once the market bottoms is sadly misplaced.

In the meantime, remember that rising unemployment, rising credit card defaults, rising foreclosures, rising numbers of walk aways, and declining earnings of non-financials means we have not even bottomed yet.

This secular bear market will last a lot longer and be much deeper than anyone thinks. Sadly, very few are prepared for it.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules