Tuesday, March 4, 2014

2013 US Bank Asset Quality

Citigroup finally released their 10-K this past weekend allowing me to compare the asset quality of the four large banks in the US.  I always like to see what percentage of the assets are the so call "marked to fantasy" assets.  These assets, also called Level 3 Assets, are valued by management WITHOUT any market comparables.  Management basically values them at whatever they want so long as they can convince the auditors that the rationale is not unreasonable. 



This year Bank of America takes top honors, while JPM comes in last.  The rankings haven't changed much over the years other than BAC has overtaken WFC for top spot. 

I am amazed at how quickly Brian Moynihan has cleaned up the books at BAC.  Level 3 assets were around two and half times the current amount only two years ago.  Today, even if you discount the book value by the $32 billion of mark to fantasy assets, you can still buy the company at an $11 billion dollar discount.  I can't resist a bargain. 

I have commented on balance sheet of JPM in the past.  In particular, I noted before the London Whale incident that you could drive a truck through their balance sheet (Read Here: Bank of America & Europe).  Then after the losses from the incident were exposed, I couldn't resist and bought a whole bunch of JPM (Read Here: Why JPM Is Cheap). 

As I read the annual reports of the various banks I found the disclosure this year is better than ever.  The US financials have never been in better shape.  They are soundly capitalized and the quality of the assets have never been better.

The results of the stress tests can't come soon enough. 


Best Regards,
Kevin


Disclosure: Long WFC, BAC Class A warrants and JPM warrants


 

4 comments:

  1. Gotta love those big banks, eh!!

    WASHINGTON - The U.S. Federal Deposit Insurance Corp. has sued 16 big banks, including the Royal Bank of Canada (TSX:RY.TO - News), for alleged rigging of a key global interest rate.

    The banks, among the world's largest and also include Bank of America, Citigroup and JPMorgan Chase, are accused by the FDIC of fraud and conspiring to keep the rate low to enrich themselves.

    The FDIC says it is seeking to recover losses suffered from the rate manipulation by 10 U.S. banks that failed during the financial crisis and were taken over by the agency.

    The civil lawsuit was filed Friday in federal court in Manhattan.

    The banks rigged the London interbank offered rate, or Libor, from August 2007 to at least mid-2011, the FDIC alleges. The Libor affects trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans.

    A British banking trade group sets the Libor every morning after the 16 international banks submit estimates of what it costs them to borrow. The FDIC also sued that trade group, the British Bankers' Association.

    By submitting false estimates of their borrowing costs used to calculate Libor, the 16 banks "fraudulently and collusively suppressed (the Libor rate), and they did so to their advantage," the FDIC said in the suit.

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  2. I do not know how you can recommend these banks, unless greed is greater than morals.

    WASHINGTON - The U.S. Federal Deposit Insurance Corp. has sued 16 big banks, including the Royal Bank of Canada (TSX:RY.TO - News), for alleged rigging of a key global interest rate.

    The banks, among the world's largest and also include Bank of America, Citigroup and JPMorgan Chase, are accused by the FDIC of fraud and conspiring to keep the rate low to enrich themselves.

    The FDIC says it is seeking to recover losses suffered from the rate manipulation by 10 U.S. banks that failed during the financial crisis and were taken over by the agency.

    The civil lawsuit was filed Friday in federal court in Manhattan.

    The banks rigged the London interbank offered rate, or Libor, from August 2007 to at least mid-2011, the FDIC alleges. The Libor affects trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans.

    A British banking trade group sets the Libor every morning after the 16 international banks submit estimates of what it costs them to borrow. The FDIC also sued that trade group, the British Bankers' Association.

    By submitting false estimates of their borrowing costs used to calculate Libor, the 16 banks "fraudulently and collusively suppressed (the Libor rate), and they did so to their advantage," the FDIC said in the suit.

    Citigroup spokeswoman Danielle Romero-Apsilos, Bank of America spokesman Lawrence Grayson and JPMorgan spokesman Brian Marchiony declined to comment.

    Four of the banks — Britain's Barclays and Royal Bank of Scotland, Switzerland's biggest bank UBS and Rabobank of the Netherlands — have previously paid a total of about $3.6 billion to settle U.S. and European regulators' charges of rigging the Libor. The banks signed agreements with the U.S. Justice Department that allow them to avoid criminal prosecution if they meet certain conditions.

    The process of setting the Libor came under scrutiny after Barclays admitted in June 2012 that it had submitted false information to keep the rate low.

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  3. Hello Kevin,

    What did you think of FFH annual report?

    Tom

    ReplyDelete
  4. It just never stops with these banks.

    WASHINGTON (Reuters) - Bank of America agreed to pay $9.3 billion to settle claims that it sold Fannie Mae and Freddie Mac faulty mortgage bonds, helping the bank to end one of the largest legal headaches it still faced from the financial crisis.

    The settlement, announced on Wednesday, includes $6.3 billion in cash and $3.2 billion in securities that Bank of America will purchase from the two housing finance entities

    ReplyDelete