Beware humans. Oppenheimer & Co analyst Meredith Whitney told the Times after JPMorgan upped its offer for Bear Stearns:
Jamie Dimon was clearly very upset with how distraught Bear employees were. His decision to raise the offer was definitely a human move and as a leader you can’t be human. He has made a big mistake and opened a Pandora’s box. If $10, why not $20, or $50? It’s like with a child: if you give the shareholders an inch, they will go for a mile.
Which might go some way to explain this, from Whitney’s latest unflinching report on the US banks.
We head back to the chopping block, reducing our 1Q08 estimates for U.S. banks on average by 84% (led by C at -309%), and our FY2008 estimates on average by 30% (led by C at -120%),to reflect 1Q08 mortgage and CDO related write-downs. Since November, we have cut estimates for financials over 30 times, with no clear end in sight.
The slashed forecasts are based on declines in the ABX indices, LCDX index and widening CMBX spreads, all of which means increased writedowns, rather than the propensity of the banks to staff up with those of a human bent. JPMorgan, with its lamentably human leader, gets off relatively lightly in fact, with an 18 per cent reduction to Q1 forecasts, and a 10 per cent cut for the full year.
With very little earnings visibility and little confidence in estimates, the reports adds, more investors will default to looking at multiples of tangible book value.
Upon this measure, the stocks look expensive based
upon historical standards. Due to the adoption of purchase accounting in 2001, goodwill has grown to unprecedented levels on bank balance sheets. As we believe we will begin to see goodwill writedowns during the first half of this year, we believe investors will focus more on tangible book value and stocks will quickly revalue to far lower levels.
Worryingly, as the US authorities get more and more heavily involved in managing the fallout from what Whitney calls the worst credit cycle in generations, politicians are not immune from the humanist threat. In an unrelated incident, Hillary Clinton admitted that she too was human. Confessing that she “misspoke” last week, when claiming that she had been under threat of sniper fire on a visit to Bosnia in 1996, Mrs Clinton said:
I made a mistake - I’m human, which for some people is a revelation.
Her opponent Barack Obama has yet to clarify his position on the issue.
