It is still a bit early, but the financials are setting up for opportunity. As I have said, the end of QE2, the new financial regulations, and the settlement of outstanding lawsuits stemming from the 2008 debacle all will contribute to returning the banks to financial health and their proper role in the economy, which is to provide affordable loans to consumers and business …
Washington Mutual Inc.’s officers, directors, underwriters and auditor have agreed to a $208.5 million settlement to end class-action securities fraud lawsuits, according to court documents. The settlement is among the largest stemming from the financial crisis, trailing a $624 million settlement by Countrywide Financial Corp and $475 million by Merrill Lynch & Co Inc.
The financial sector recognizes the transformation is coming as well, so it is preparing for it. The banks in the sector understand that sooner rather than later, the price of their stock will depend on their top margins growing and their bottom margins showing stability profit. To improve top margins, they will make more loans. To improve bottom margins, they will clean up their books …
Bank of America Corp and JPMorgan Chase & Co have started modifying tens of thousands of mortgages where the banks deem the loans especially risky, even if the borrowers have not asked, the New York Times reported on Sunday. In some cases, the paper said, the banks are slashing the amount borrowers owe, citing one case in Florida where a woman’s principal balance was cut in half.
The U.S. economy will not get back to optimal health until the financial sector is operating properly. One factor in that proper operation is that the commercial banks in the sector act as lending banks, not trading houses. Currently, a bill to reinstate the Glass-Steagall portion of the Banking Act of 1933 is moving around Congress looking for sponsors. It is attracting attention. Fundamentally, the legislation would restore the wall between commercial banks and investment banks, the same wall torn down in 1999. If it picks up steam and passes into legislation, the reality I discussed above is more concrete, but even if doesn’t, the Dodd-Frank reforms will push the reality along no matter what …
Now, for a moment of picking on the bully in the school yard …
I have had it in for the so-called ratings agencies since they showed their true colors in 2007 and 2008. In fact, I have argued they are worthless regarding fundamental analysis. The only reason to follow them at all is many investors still rely on them, so it is good to know what they are saying about particular potential investments. It is good to know, I am not alone in my feelings.
Europe issued a full-throated assault on credit ratings agencies on Wednesday, saying there were signs of bias against the European Union after Moody’s downgraded Portugal’s debt to “junk” status.
Trade in the day – Invest in your life …
