Word: loaning
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...value during the past four months than Bank of America's. The combined value of its shares is now $37 billion. That's $123 billion less than they were worth at the end of September. In the third quarter, BofA was forced to write down $4.4 billion in loans, or about 1.8% of its loan portfolio. Compared with what some of its competitors wrote down, that wasn't a heck of a lot; Citigroup, for instance, had a $13.2 billion charge in the same quarter, primarily related to loan losses. But the relatively small loss took BofA's thin tangible...
...bank has $5 in capital and $100 in loans. Now the government gives the bank an additional $100 in preferred shares and says, "Go make more loans." Well, the bank might then have $200 in loans, but it still has only $5 in common shareholders' equity. The result: if just 2.5% of its loans go bad, the bank's shareholders are wiped out. Wisely, the largest banks in the nation lent less in the fourth quarter of 2008 than in the previous three months - a strategy that has drawn some complaints. But that hasn't removed the pressure on their...
...Merrill Lynch lost $15 billion in the fourth quarter alone. Knowledge of the impending losses forced BofA CEO Ken Lewis to ask the government for an additional $20 billion in TARP funds - on top of the $25 billion it had already received - as well as about $100 billion in loan guarantees. Without the government assistance, BofA says, it couldn't have closed the merger...
Nouriel Roubini, the New York University economics professor who was famously early in predicting that the end of the housing boom would cause a financial crisis, estimates that continued loan losses will force U.S. banks to come up with an additional $1.4 trillion just to stave off bankruptcy. And since the banks aren't likely to earn much money or attract new investors anytime soon, much of the money will have to come from the government...
Washington policy makers seemed to be moving closer to expanding loan guarantee programs, which have already been offered to Citigroup and Bank of America, to other banks. But in both those cases, the loan guarantee strategy seems to have produced few positive results...