"Systemwide crisis leaves Hub banks hobbling" by Steven Syre, Globe Staff | January 22, 2009
Boston's biggest banks have big problems.
In just the last few days, Bank of America, which controls 20 cents of every deposit dollar in Massachusetts, received another bailout from the US government and analysts now believe it may need billions more in additional support. This week's news from State Street Corp. was so bad the company lost more than half its stock market value in a single day.
Citizens Bank appears to be on solid ground, but its distressed Scottish corporate parent is under increasing pressure and may have to sell the American banking unit to raise money. Sovereign Bancorp, the third-biggest bank in Massachusetts measured by deposits, is about to be sold to a foreign owner and may scale back its banking operations after the transaction closes.
Each of these institutions faces serious financial problems stemming, one way or another, from the credit crisis plaguing the nation's banking system. Assets they own, loans to individuals and businesses, or securities backed by those loans keep losing value as the economy worsens, forcing the institutions to carry ever-larger losses on their books.
Bankers had hoped asset values would stabilize after US Treasury and Federal Reserve officials bought securities and invested directly in financial institutions last fall. So far, that government support has not worked, and worsening economic conditions among their customers have only increased the prospects of losses on loans and other businesses these institutions conduct.
Analysts say none of the banks face problems that threaten their survival and customers' deposits are not at risk. But shareholders could lose even more money on their investment and ownership could possibly change hands. Job cuts at banks could increase....
In October, Bank of America was among the first institutions to receive money from the government as part of the industry bailout. The $25 billion investment, in exchange for preferred shares, was supposed to bolster the bank's financial position and help it extend new loans. But the scale of losses it reported last week showed just how much the value of its investments deteriorated in the last few months.
So, for the second time, federal officials stepped in to help, with another $20 billion purchase of preferred shares and financial guarantees for $118 billion of Merrill Lynch assets.
Bank of America's problems are far from over. Last week, chief executive Ken Lewis warned of more red ink in the immediate future. Analyst Paul Miller of FBR Capital Markets said his "best-case scenario is that [Bank of America] does not return to profitability until the second half of 2009."
One response to Bank of America's money problems: job cuts. The bank had previously disclosed plans to eliminate 35,000 jobs over the next three years. It is now expected to fire 1,000 employees of its investment banking business this week....
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The day-to-day operations of State Street are unlike those of most banks that count on loans and deposits for business. State Street makes most of its money by serving other investment companies, acting as a custodian for securities and managing money for large institutions.
Oh, they handle GLOBALISTS MONEY for them, huh? No wonder they are getting a bailout!
State Street is also on track to eliminate 1,600 to 1,800 jobs, or about 6 percent of the workforce.
Citizens Bank, which offers loans and deposits in 259 Massachusetts branches, is in relatively good shape, but its corporate owner, the Royal Bank of Scotland, has suffered massive losses.
The British government acquired 58 percent ownership of the Royal last October when it injected billions into the banking giant laid low by huge losses from debt securities. The bank warned on Monday that it may report a staggering $41 billion loss; its shares plunged 71 percent. The British government offered another round of aid which, if the Royal accepted, would result in taxpayers owning 70 percent of the company.
Most analysts believe the Royal will be forced to pull back its global banking franchise and look to sell whatever it can to raise money. Citizens appears to be high on the list of businesses that might attract buyers.
"Sometimes when your back is against the wall, you have to sell your best and most marketable asset," said Cassidy. "Citizens may be the most marketable asset they own."
Sovereign, expected to soon complete its sale to Spanish banking giant Banco Santander, has suffered through loan and investment losses, including a massive loss of nearly $1 billion on debt securities and shares of Fannie Mae and Freddie Mac. The company's stock has sunk 77 percent in the past year.
Last month, Sovereign revealed plans to cut 1,000 jobs by the end of 2009. Analyst Jim Sinegal of Morningstar Inc. said he wouldn't be surprised to see Sovereign pull back on lending.
--more--""Britain owns 70% of Citizens' parent after 2d bank bailout" by Associated Press | January 20, 2009
LONDON - Britain disclosed a second rescue plan for the country's ailing banks yesterday, hoping to thaw frozen lending by offering to insure banks against large-scale losses on bad assets they already hold.
Investors, however, were spooked by fears that the second bank-rescue plan in three months was a step toward full nationalization of one or more banks. Fears focused on the Royal Bank of Scotland, which said it is likely to report a record full-year loss. RBS, the parent company of Providence-based Citizens Bank, said its losses for the full year could be $41.3 billion, which would be the biggest ever by a British corporation....
Prime Minister Gordon Brown said yesterday the government has increased its stake in RBS to almost 70 percent, but declined to say whether he believed the bank will eventually be fully nationalized. The government took a stake under a first round of bailouts last year. Brown scolded RBS for what he called irresponsible risk-taking on mortgage-related securities in the United States and the expensive takeover of Dutch bank ABN Amro....
In revealing the new rescue package, Brown said the government would offer to insure banks against default on toxic loans in exchange for a fee and legally binding commitments to make credit more available to businesses and home buyers.
Brown's plan will also see about $74 billion set aside to create a special fund for the Bank of England to buy high quality loans and other assets directly from banks. That plan is also aimed at bringing down borrowing costs. The European Commission said yesterday the bank-rescue programs, along with falling tax revenue, would push Britain further into debt.
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"Financial titans still staggering; State Street Corp. facing billions in potential losses" by Beth Healy, Globe Staff | January 20, 2009
The financial picture at State Street Corp. took a turn for the worse the last three months of the year. The Boston financial services company said it took more than $800 million in earnings charges in the fourth quarter, according to a regulatory filing, and that it has $9.1 billion in potential losses on its books, due to investments and commercial paper that have plunged in value.
More than half of the unrealized losses, or $5.5 billion, are associated with investment securities the company holds. If the value of those securities doesn't improve and State Street has to consider the losses permanent, its capital could take a hit. State Street received $2 billion from the US Treasury last year as part of the federal bailout package to shore up its capital, or financial cushion.
Another $3.6 billion in unrealized losses were linked to State Street's commercial paper program. The company administers conduits, or pools of assets, that normally issue debt but could not last year due to the freeze in the credit markets. State Street was then obligated to step in and buy the paper, or short-term debt. State Street held $230 million in commercial paper issued by the conduits as of Dec. 31. That does not include $5.7 billion issued under the Federal Reserve's emergency facility to buy such paper....
The company's looming troubles are the latest sign that the worst is not yet over for the nation's major financial houses. Over the past week, Bank of America Corp., Citicorp, and Citizens Bank parent Royal Bank of Scotland Group all have reported weakening financial positions that could require additional government assistance....
That means more of YOUR MONEY, taxpayers!!!
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