It was only two months or so ago when the "smart money" types were out pounding the tables, saying the worst was over for the financial sector.
According to MarketWatch, banking analyst Richard Bove said that "the last time an opportunity of this nature existed to buy bank stocks this cheap was in 1990....The next time will be in 20 years. This is a once in a generation opportunity."
Well, it looks like Mr. Bove and others who claim to know what is going on might soon get the opportunity to buy those really "cheap" stocks at lower levels than before. Who knows, maybe even at half the price -- or less.
That's because these so-called experts really don't get it. What we are going through right now is the bursting of the biggest credit bubble in history. Meanwhile, the economy appears headed for a crash landing. To top it off, many of the "movers-and-shakers" who helped get us into this mess are still in charge -- and as clueless as ever.
Under the circumstances, you can expect to see a lot more stories like the following report from Bloomberg, "KeyCorp Slide Foretells Losses at `Delusional' Banks," in the weeks, months and years ahead.
KeyCorp fell the most since the stock-market crash of 1987 after doubling its forecast for loans that won't be repaid, prompting concern that regional banks have underestimated the cost of bad mortgages.
KeyCorp sank 11 percent in New York Stock Exchange trading after saying uncollectible debts may be as much as 1.3 percent of average total loans this year. The figure may rise even more, KeyCorp said, as the Cleveland-based company cuts holdings tied to homebuilders.
The revision by the Ohio bank, which last month quadrupled its provision for loan losses to $187 million, may foretell similar increases at U.S. commercial banks as home prices keep sliding, analysts said. The S&P/Case-Shiller home-price index fell 14.4 percent in March to the lowest since figures were first published in 2001, data released yesterday show.
"Things are getting significantly worse before they are going to get better for KeyCorp and the banking industry," RBC Capital Markets analyst Gerard Cassidy said in a note to investors today. He rates KeyCorp "underperform."
Banks and securities firms have already recorded $382.8 billion in writedowns and credit losses tied to the slumping housing market. Lenders have several quarters to go before loan losses reach bottom, said Mark Fitzgibbon, an analyst at Sandler O'Neill & Partners LP.
"Banks are a little bit delusional right now about when they're going to turn around," said New York-based Fitzgibbon, who has 11 "hold" ratings, three "buys" and two "sells" on the banks he covers, which don't include KeyCorp. "Recessions don't turn around in days or weeks or months. It's a multi-year kind of thing."
Banks Tumble
KeyCorp fell $2.15, or 9.8 percent, to $19.80 at 11:21 a.m. in New York Stock Exchange composite trading. It was the biggest one-day drop since at least Oct. 19, 1987. The stock had declined 6.4 percent this year before today. KeyCorp spokesman Bill Murschel declined additional comment.
Seven of the 24 companies in the KBW Bank Index dropped by more than 4 percent. Fifth Third Bancorp slid as much as 5.5 percent, M&T Bank Corp. lost 5.3 percent and Comerica Inc. declined 5.2 percent. Every one of the banks in the index fell.
KeyCorp's revision yesterday means the bank may have to halve its dividend so it isn't forced to raise more capital, Goldman Sachs Group Inc. analyst Brian Foran said in a note to investors today.
Already, banks holding repossessed properties are offering buyers discounts of as much as 40 percent, according to Moody's Economy.com analyst Celia Chen.
Foreclosures
Banks are concluding that they must unload foreclosed properties to get the properties off their books, said Jeff Davis, an analyst at FTN Midwest Securities in Nashville. Davis rates KeyCorp "neutral."
"We're getting to the point where reality is sinking in and the sellers are cutting prices," Davis said. "The deeper we go into the year, the more foreclosed properties trading hands will impact the data."
Housing woes are equally acute for savings and loans, which boosted loan-loss reserves by 38 percent in the first quarter to $7.6 billion, according to a report yesterday from the Office of Thrift Supervision. Troubled assets, loans 90 or more days overdue, and repossessed assets rose to 2.06 percent of all assets, from 1.66 percent in the fourth quarter, the OTS said.
Nor are investment banks immune. Goldman Sachs, Lehman Brothers Holdings Inc. and Morgan Stanley had their second- quarter profit estimates cut today by JPMorgan Chase & Co. because of asset writedowns and ineffective hedges.
Banks that had projected a recovery starting in the second half of the year may be forced instead to continue building loss reserves and raising capital, Fitzgibbon said.
Lenders, especially in the Southeast and Southwest, are going to be "particularly susceptible to the problems in the housing market, and are likely going to have to radically reevaluate their projections in the coming weeks," Fitzgibbon said.
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