Monday, March 31, 2008
Banks - Tripling Down On Their Losers
I just got the inside word that one of these banks that I am already short:
Bank of America, HSBC, Wachovia, FirstFed, Wells Fargo
...has senior management pounding the table to increase its Home Equity Loan portfolio.
They are trying to UP the compensation to brokers to sell more HELOC products.
Hard to believe, isn't it.
Reminder - Housing is in the sewer AND it's still unaffordable; we're in the first inning of a recession; and mortgage rates can only rise from here. HELOCs, due to their secondary lien status, are trading at pennies on the dollar. Thus they can't be easily pooled, securitized and sloughed off onto investors - banks will have to hold them on their books indefinitely.
Admittedly I don't fully understand the banking business. But to me, it seems as boneheaded as the homebuilding biz. Just as Moronic builders like Ara Hovnanian won't EVER stop building - no matter that the US housing market is already over-supplied by 3.5 million homes - banks seemingly won't ever stop underwriting new loans. They mistakenly think merely slowing loan growth and raising lending standards constitutes a defensive posture. They are wrong - it's time to batten down the hatches.
If we can borrow a somewhat apropos expression from the Big Government solutions manual:
Remember, you're a hammer...so every problem is a nail.
Their reckless pursuit of growth is what got them in trouble in the first place.