21 April 2009

The "Bank analyst' Weiss on US banks ~ Origin of stress test talk

Just don't pay for any high or low end market timing services....he once took me for a ride...
But his advice seems sound here.......

New Data Topic of Audio Press Briefing JUPITER, Fla.--(Business Wire)-- Several of the nation`s largest banks, including JPMorgan Chase, Goldman Sachs,
Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, plus more than 1,800 regional and smaller institutions are at risk of failure despite government
bailouts, according to Martin D. Weiss, Ph.D., president of Weiss Research, Inc., an independent research firm.

The analysis is based on Fourth Quarter 2008 data from TheStreet.Com and the Comptroller of the Currency (OCC). Several large institutions received
significant ratings downgrades from the prior quarter, including Citibank, downgraded from C- to D; Wells Fargo, downgraded from C- to D+; and SunTrust
Bank, downgraded from C- to D+.

To discuss the new data and his analysis, Dr. Weiss will conduct an audio press briefing tomorrow, as follows:

Date and time: Tuesday, April 7, 11 a.m., Eastern Time. Phone # to call: 1-866-228-9900; Overseas +1-719-359-4032. Conference name:
Weiss Participant passcode: 721451

In addition, Dr. Weiss will provide updated commentary of his white paper issued on March 19. Titled "Dangerous Unintended Consequences: How Banking
Bailouts, Buyouts and Nationalizations Can Only Prolong America`s Second Great Depression and Weaken Any Subsequent Recovery," the white paper names U.S.
banks and thrifts believed to be at risk of failure, using that data to demonstrate that the U.S. government greatly underestimates the scope of the debt
crisis, while overestimating its ability to effectively save troubled institutions without severe adverse consequences.

The debt crisis is much greater than the government has reported, according to the white paper. The FDIC`s "Problem List" of troubled banks includes 252
institutions with assets of $159 billion. The updated review by Weiss Research, however, shows that 1,816 banks and thrifts are at risk of failure, with
total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter.

Five large U.S. banks have credit exposure related to their derivatives trading that exceeds their capital, with four in particular - JPMorgan Chase,
Goldman Sachs, HSBC Bank America and Citibank - taking especially large risks.

At year end 2008, Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan
Chase`s, 382 percent; and HSBC America`s, 550 percent, according to the Comptroller of the Currency (OCC). In addition, in the fourth quarter, Goldman
Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital. Although the
banking authorities have not defined how much exposure is considered excessive, Weiss believes that, as a rule, bank exposure to any single risk category
should be limited to 25 percent of capital. Goldman Sachs has exceeded that limit by a factor of 42 to 1.

"Equally alarming," writes Dr. Weiss, "is the fourth quarter OCC data demonstrating that record bank losses are spreading to interest-rate derivatives.
Until now, bank derivatives losses have been limited almost exclusively to credit defaults swaps (CDS), which represent only 7.8 percent of the notional
value U.S. derivatives held by all U.S. banks. In the fourth quarter, although the CDS losses continued at a near-record pace, we also witnessed record
losses in the interest-rate sector, which represents 82 percent of the derivatives market: The nation`s banks lost $3.4 billion in interest-rate
derivatives, or more than seven times their worst previous quarterly loss in this category."

Dr. Weiss continues, "In the face of such enormous risks and losses it`s entirely unreasonable to expect the U.S. Government to offset them without
unacceptable damage to its own credit, credibility and borrowing power."

Dr. Weiss points to early signs that the credit of the U.S. Treasury may already be suffering some damage in the wake of government bailout programs such
as the $700 billion Troubled Asset Relief Program (TARP), the Federal Reserve`s recent $1.15 trillion commitment to purchase bonds, and the $1 trillion
Private-Public Investment Program (PPIP). For example, the cost of credit default swaps traded by international investors to insure against a future
default by the U.S. Treasury recently surged to 14 times its 2007 level; while, more recently, the price of the 30-year Treasury bonds has fallen by 24

"The `too-big-to-fail` doctrine has failed," concludes Weiss. In its place, he recommends the following steps to build a firmer foundation for a future

* Abandon the unrealistic goal of saving all failing financial institutions, focusing instead on the goal of rebuilding the economy`s foundation in
preparation for an eventual recovery. * Pro-actively downsize or shut down the weakest institutions no matter how large they may be; provide opportunities
for borderline institutions to rehabilitate themselves under a strict regulatory regime; and give well-capitalized, liquid and prudently-managed
institutions better opportunities to gain market share. * Seriously consider breaking up the weak megabanks, following the model of the Ma Bell breakup in
1984. * Build confidence in the banking system with better disclosure and transparency, including the public release of the confidential official ratings
on all banks called CAMELS (Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk). * Switch priorities from the
battles we can`t win to the war we can`t afford to lose, such as emergency assistance for the millions most severely victimized by a depression.

Due to the nation`s solid infrastructure and knowledge base, Weiss is optimistic the U.S. can survive a broader banking crisis and even a second great
depression, with good prospects for an eventual recovery, provided we make the right choices. Toward that goal, immediately following the audio press
briefing tomorrow, Dr. Weiss will launch a national grassroots campaign with an online video webinar for over 50,000 investors that have registered for the
event. The webinar takes place at 12 noon Eastern Time and the press is also invited to attend by registering at

About Martin D. Weiss, Ph.D.

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