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4/9/09

Seeking Alpha: The U.S. Banking System's Terrifying Balance Sheet - Today's Wells Fargo Figures Somewhat Hocus Pocus - by Felix Salmon

For the complete report from Seeking Alpha click on this link

The U.S. Banking System's Terrifying Balance Sheet - by Felix Salmon

On the asset side of the US banking system’s balance sheet, the $4.8 trillion in mortgages is a problem — but there’s another $3.1 trillion in bank loans and consumer credit which is looking increasingly shaky. Against that there’s less than $1 trillion in common stock, supporting over $12 trillion in liabilities. Meanwhile, when you line up the US government’s support programs along with the relevant parts of the right-hand side of the banking system’s balance sheet. Add them all up, and they come to just over $9 trillion, or 67% of the banking system’s total assets. It’s an absolutely astonishing amount of support, and it brings home the scale of the problem facing the government. In a nutshell, the problem is the classic one: on the left-hand side nothing is right, and on the right-hand side nothing is left, at least absent government intervention.

Note EU-Digest: Today's Wells Fargo announcement of surprisingly strong earnings for its first quarter seem somewhat "hocus-pocus". Wells Fargo’s problems are not solved, and analysts and investors will comb other measures of the bank’s health, including its rate of non-performing mortgage loans and its accounting treatment of mortgage loans it wants to sell. Richard Ramsden of Goldman Sachs noted today, “several critical pieces of information were missing, including asset quality and securities exposure.” Given recent regulatory changes and the pressure on banks to send out some good news, caution is the order of the day until it becomes clear how Wells Fargo reached those sky-high new numbers. One thing this Wells Fargo report did achieve was that it gave the "Wall-Street Casino Operation" a boost.

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