Maybe it is because of record rain fall this spring on the East Coast but as soon as the sun came out people forgot about their wet homes and flooding.  While it is great to be optimistic and I hope the rains won’t come again, it reminds me of the markets and the sun shining on them.  I am more cautious than most, in the short run, and think investors are too optimistic about the economy and the markets.

A “cloud on the horizon” is not one of my favorite metaphors but it works here.  So I will discuss these “clouds” or concerns one by one.

The market has run up too quickly, in my view, with regional banks gaining over 35% year to date on unsteady data. Sure earnings look good but how could they look worse than last year at this time! While some banks are seeing a peak in …

Banks are lending less, as is evident in the most recent FDIC earnings report and this is the 5th consecutive quarterly decline in lending.  Businesses and individuals cannot meet the more rigid credit criteria and financials remain in capital preservation mode for a number of reasons .  The pipeline for potential losses remains strong as delinquent loans continued to rise and is at the highest level in more than a quarter of a century. I am concerned about the slowing pace of the reserve coverage build. So, how is it that this economy is recovering?  But, against this persistent challenging backdrop there are enormous opportunities. 

Offsetting the negative credit factors were higher revenues and lower expenses in the third quarter of 2009.  Behind the fee income expansion were gains on asset sales as well as higher servicing fees which were driven by an increase in deposits.  Top line, net interest income rose due to …

For months companies such as Citigroup, American International Group, Bank of America and others have been shedding various business across the globe.  These operations have recently been categorized as non-core or not strategic to the ongoing business.  I wholeheartedly expect many of these institutions to continue to shrink and refocus.

While I am not in complete agreement with all of the methods used by the financial leaders, I do believe they did successfully navigate us through an unprecedented crisis and pulled our global financial system back from the precipice.  Along the way, however, these institutions became even larger, despite addressing a systemic risk at that time.  This was a concern then and remains a challenge.  But my thought is one step at a time, after all, it is triage.

Can these institutions be effectively managed?  Is it possible to adequately regulate these companies?  Can the true risk of these institutions be properly assessed?

A …

It should come as no surprise that credit quality measures remained a key weight on earnings, or the lack of earnings, during the most recent quarter, as depicted in data released by the FDIC.  The initial aggregated earnings for the second quarter stood at a loss of $3.7B compared with a $4.7B profit a year earlier.  Key trends,  in our view, remain deleveraging and capital preservation.

The industry boosted its provision by nearly 33% to $67B, over the last 12 months.  The net charge-off ratio was 2.55% at the end of the second quarter with net charge-offs at $49B, up from 1.94% in the first quarter 2009, 1.32% in the second quarter 2008 and remember this–the net charge-off ratio stood at 0.49% in the second quarter 2007!  The pipeline for potential losses is unfortunately, quite strong as delinquent loans rose for the 13th consecutive quarter as of the second quarter 2009.  …