Mark to Market Would Make Banks Insolvent
Filed under: Credit Card Companies, Federal Home Loan Banks, Market News
The four largest American banks, JP Morgan Chase, Wells Fargo, Bank of America and Citibank together hold $408 billion in tangible common equity and an additional $129 billion in allowances for loan losses.
Their loan portfolios include: $445 billion in home-equity loans; $136 billion in pay-option adjustable rate mortgages; $44 billion in construction loans; $628 billion in residential mortgages; $238 billion in commercial real estate loans; $255 billion in consumer credit card loans; $351 billion in other consumer loans; and $861 billion in other loans. This totals $2.958 trillion.
Tangible common equity plus reserves would only cover a lost rate of approximately 18%. Real estate and banking analysts would likely agree that this is too low given current economic conditions in the real estate and consumer sectors.
If the analysts are right and the rate is too low, only Citibank would be marginally solvent. Three of the four biggest banks have such bad loan portfolios that they would be deemed insolvent under mark-to-market accounting rules.
The current slope in the yield curve is allowing banks to earn their way into more capital. Jamie Dimon is right not to increase his dividend. This isn’t over.
