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Wednesday, November 4, 2009
Why 'too big to fail' banks keep growing

"Despite all the debate about 'too big to fail', we've ended up with four banks that tower over everybody," Kathleen Shanley, who writes pithy bond recommendations (and non-recommendations) for Gimme Credit LLC, told me on a visit to the Inquirer last week.

JPMorgan, Bank of America, Citigroup and Well Fargo have mostly "gotten much bigger by absorbing institutions on the edge of collapse." But Shanley expects they'll be shrinking and selling some assets. "They're still not totally in control over their own destiny. I don't think people have a clear picture of where Washington is going. There's all kinds of ideas being tossed around."

Will the US force banks to split, as Europe is doing? Even JPMorgan Chase & Co., which is profitable, and repaid the government's investment? "Jamie Dimon," JPM's CEO, ""does stand in as someone who did things right. His argument would be, 'The companies we serve are on a giant scale, we have to be able to serve these people all around the world...'

"Too Big to Fail is a political rather than a credit-analyst thing. I don't see how we can be on a path to small banks. There are economies of scale for credit-card loans, for back-office processing. And we haven't seen a major company go down because of losses in those areas."

What about the No. 5 bank, Pennsvlania's own PNC? They bought National City Corp., "the most troubled regional bank otu there. Like Wells Fargo (with Wachovia), they did all thise purchase-accounting marks. It's really difficult to analyze... I worry about their commerical real estate and about straight commercial loans."

Who else? "If anyone deserved to fail, it was General Motors Accemptance Corp. Just about any way you could lose money, they lost it. Residential Capital. Warehouse loans. Homebuilders. Mobile home leaseback. Land. They also lost a lot of money on car lending... The government thought it was important to support them because they also were the lender to a lot of GM dealerships."

European governments are forcing banks to sell off assets, including ING Group's Wimlington-based ING Direct Bank. Anyone want $90 billion in onlinje assets? "It's hard to think another bank would be interested in buying it."

Posted by Joseph N. DiStefano @ 3:32 PM  Permalink | Post a comment
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About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column, which is printed in the business pages of The Philadelphia Inquirer every Sunday, Tuesday, Wednesday, Thursday and Friday. Joe has worked at the Inquirer, mostly, since 1988. He has also written for Bloomberg and Gannett, authored the book Comcasted, majored in economics at Penn, and fathered six children. Reach Joe at 215-854-5194 and JoeD@phillynews.com

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