Loan-Value Data Shows Ills Persist..."double-dip"

The fair value of loans held by the nation's biggest banks continues to decline, indicating that credit markets have not yet turned around and raising serious questions about the effectiveness of the government's efforts to help the industry through the credit crisis.

In fact, among the banks that were stress-tested in May, the difference between carrying values and fair values grew 14.4% from Dec. 31 to June 30 — to $164.4 billion.

Observers said the data shows that it is getting even more difficult to find buyers for stressed loans and that banks' efforts to jettison bad assets could be delayed. And if the Financial Accounting Standards Board advances a sweeping mark-to-market proposal, some banks might have to raise more capital to close their valuation gaps.

"It is clearly a sign of stress that surprises me," said Tim Yeager, a finance professor at the University of Arkansas and a former economist at the St. Louis Federal Reserve Bank. "I thought by now that we would have turned the corner, but things seem to be getting worse."

Kevin Jacques, a former official at the Office of the Comptroller of the Currency who now is chairman of the finance department at Baldwin-Wallace College, agreed. "There is still difficulty moving assets," he said. "There is still talk of a double-dip recession; unemployment keeps rising, and there is concern over commercial real estate. Put it all together, and it is going to be really difficult to price these loans."

cont'd

http://www.americanbanker.com/issues/174_167/loan_value_data_shows_ills_persist-1001517-1.html


OR as one predictor put it:

As I’ve said, this isn’t an ordinary recession: it’s a turning point in history comparable to the beginning of the Industrial Revolution and the system of finance capitalism that enabled it. The old order is frantically printing money, creating credit and ginning up one bubble after another to try and preserve the status quo. That’s how we get a rising stock market (with made-up money and bank bail-outs), increased auto sales (with government rebates) and home sales (with government first-time buyer payoffs). It’s how we keep unemployed workers from taking to the streets (with extended unemployment benefits, and 10% of the US population now on food stamps). All of this, of course, is being financed with borrowed money. At some point, one sees that the Emperor has no clothes...