U.S. Bank Industry Entering New Tough Period

Posted By on October 6, 2010

 
Chris Whalen (one of the top banking analysts): 
“Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue.”  “We are less than one-quarter of the way through the foreclosure process,” said  Whalen, in remarks prepared for an American Enterprise Institute event.

By Ronald D. Orol, MarketWatch
Oct. 6, 2010, 10:31 a.m. EDT

WASHINGTON (MarketWatch) — The U.S. banking industry is entering a new crisis where operating costs are rising dramatically due to foreclosures and defaults, an analyst said in remarks prepared for Wednesday afternoon.

“We are less than one-quarter of the way through the foreclosure process,” said Christopher Whalen, managing director at Institutional Risk Analytics in remarks prepared for an American Enterprise Institute event.

“Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue.”

He added that recently agreed-to foreclosure moratoriums by GMAC, Bank of America and J.P. Morgan Chase & Co are “only the start of the crisis” that threatens the financial foundations of the entire U.S. political economy.

The three lenders announced recently they would halt some foreclosures until they could determine whether or not employees signed off on affidavits without verifying the information in the paperwork.

Whalen argues that the largest U.S. banks remain insolvent and must continue to shrink. “Failure by the Obama Administration to restructure the largest banks during 2007-2009 period only means that this process is going to occur over next three to five years – whether we like it or not. The issue is recognizing existing losses — not if a loss occurred,” he said.

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