Rather interesting when you compare the Loan Loss Reserves as a % of Total Loans and Leases for C, BAC, JPM, WFC.
For the most part C, BAC, JPM are reserving roughly the same amount (4-5% for BAC and JPM and 6% for C). Wells on the other hand leads us to believe they have far higher quality credits on their balance sheet with reserves in the 3% range. Not sure why that is. For WFC to reserve relative to BAC and JPM they would need to add about 15 billion or in other words, they are more prone to balance sheet risk assuming their credit quality is similar to their competitors.
Based on some recent litigation regarding put back requests, it is arguable that BAC and JPM are under reserved as well and should be reserved more in the range of C. Taking it one step further, does anyone honestly believe any of these reserves are based on the reality of a double dip in housing prices that has been ongoing for about four months now? What about second tier credit quality? What about the risk of mortgage cram downs? What about the risk of increased strategic defaults in the face of the longest duration of unemployment ever?
Balance sheet risk could very well be the theme of 2011 bank earnings.
For the most part C, BAC, JPM are reserving roughly the same amount (4-5% for BAC and JPM and 6% for C). Wells on the other hand leads us to believe they have far higher quality credits on their balance sheet with reserves in the 3% range. Not sure why that is. For WFC to reserve relative to BAC and JPM they would need to add about 15 billion or in other words, they are more prone to balance sheet risk assuming their credit quality is similar to their competitors.
Based on some recent litigation regarding put back requests, it is arguable that BAC and JPM are under reserved as well and should be reserved more in the range of C. Taking it one step further, does anyone honestly believe any of these reserves are based on the reality of a double dip in housing prices that has been ongoing for about four months now? What about second tier credit quality? What about the risk of mortgage cram downs? What about the risk of increased strategic defaults in the face of the longest duration of unemployment ever?
Balance sheet risk could very well be the theme of 2011 bank earnings.
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