Washington Mutual
It was no surprise to us that Washington Mutual (WM) reported that they will layoff more than 3,000 employees, closing more than half of their home loan and sales offices. I intended to publish the link for WM earnings report, and I will, along with the FDIC banking quarterly report. The disturbing financial news is coming at such a fast pace, it’s difficult to keep up. But, it’s not as if this is “new” news to those in the bigger financial community. They have actually been trying to figure out how to keep this mess from unwinding too quickly for some time. The problem is not something that can be fixed with rate cuts, rate freezes, or other political posturing by both sides of the aisle. It’s anybody’s guess how long the stock market can stay propped up, because we don’t really know just how much is left in the Fed’s arsenal to help things along. When we write about the financial upheaval, we don’t do so lightly. In doing our best to research what’s happening, not only do we see the “bad news”, we also look to see what tools are available to combat it and the capability of various governments to use them. We do not see this as a “subprime” issue, but as a banking issue. More to the point, everything being done now and in the future will be to save the financial institutions.Â
| Almost Half of All Institutions Report Lower Profits |
| Rising levels of troubled loans in all major loan categories, but most notably in residential mortgage portfolios, led to a steep jump in expenses for bad loans in the third quarter. These higher costs, combined with sharply lower trading revenue, caused industry earnings to fall 24.7 percent from a year ago to $28.7 billion — the lowest level for industry earnings since the fourth quarter of 2002. This is the first time since 2003 that quarterly earnings have been below $30 billion. The industry’s return on assets (ROA) for the quarter was 0.92 percent, the lowest ROA since the fourth quarter of 1992. Slightly fewer than half of all insured institutions (48.5 percent) had ROAs of 1 percent or higher. A year ago, 54.4 percent of institutions attained this benchmark. The year-over-year decline in industry net income was fairly widespread; almost half of all institutions (49 percent) reported lower quarterly earnings compared to the third quarter of 2006. However, most of the decline was attributable to results at a relatively few large institutions. Ten institutions accounted for more than half of the decline in industry earnings. Net income in foreign offices fell by $4.3 billion, from a positive $2.0 billion in the third quarter of 2006 to a negative $2.3 billion in the current quarter. |
A lot of money is being “sloshed” into the markets ( see chart ) and there’s no way to know how long this can last. It’s a stop-gap measure at best. The constant changes being made to rules and regulations in the financial world can also keep the bubble floating longer than it should.Â
Honestly, this mess is bumming me. It gives me no comfort to know the precarious position in which our financial houses find themselves, as this affects us all. I hear advisors and pundits say that one thing or another is going to keep our economy going, only to see their theory go up in smoke. For example, not too long ago it was being bandied about that “overseas” economies were so strong that foreign money would just flow like the Mississippi into U.S. equities and other assets. Recently, we began to hear more news that other countries are suffering their own GDP slow downs and housing problems (i.e., Japan, New Zealand, UK). Sometimes it’s difficult to see the bigger picture and still trade the short term, but we will do both in order to survive all of this.
