Thursday, March 13, 2008

More scary news on banks (business week)

Investors breathed a sigh of relief on Mar. 11 when the Federal Reserve offered to lend troubled banks as much as $200 billion in Treasuries. Still, the Fed's lifeline won't fix the root of the housing market's problems—falling prices and rising defaults. So it is unlikely to save mortgage lenders from the next wave of losses, those buried deep in the minutiae of balance sheets.

A closer look at the books of big lenders reveals several weak spots that haven't yet shown up in the financial results. At many banks, bad loans are piling up faster than the amount of money they're setting aside to cover them. Meanwhile, housing lenders booked income on vulnerable exotic loans and mortgage securities before they collected the money—paper gains that may be reversed through writedowns. Plus the values of some troubled loans, which have been trimmed modestly so far and shown up in previous losses, could still be overstated......

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