Banking Crisis Hits Wall St.

Good Evening!

What a day folks. Well we now have a full blown banking crisis on Wall St. Regional banks like WAMU were destroyed. Some were down 35%. Here are some of the casualties:

"Washington Mutual Inc. posted the steepest retreat ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that regional banks are short of capital. The companies said they've seen no unusual depositor activity. Fannie Mae and Freddie Mac erased an earlier rally fueled by Treasury Secretary Henry Paulson's plan to help rescue the largest U.S. mortgage lenders.

Washington Mutual retreated $1.72, or 35 percent, to $3.23. The biggest U.S. savings and loan is seeing ``business as usual'' with no unusual depositor activity, spokesman Derek Aney said in an interview. National City, Ohio's biggest bank, tumbled 65 cents, or 15 percent, to $3.77 even after saying there was ``no unusual depositor or creditor activity.''
Lehman Brothers Holdings Inc. in a report today predicted a rise in loan-loss provisions at Washington Mutual for balance- sheet losses that may total $26 billion this year.
`Substantial Credit Losses'
Zions Bancorporation, the Salt Lake City-based lender with operations in 10 Western U.S. states, fell 23 percent to $19.73. First Horizon National Corp., Tennessee's biggest bank, slumped 25 percent to $5.04.

Goldman Sachs analysts recommended investors sell Zions and predicted dividend cuts may be in store for Zions, SunTrust Banks Inc., Comerica Inc. and Bank of America Corp.

``Substantial credit losses are going to have to be absorbed,'' said Henry Herrmann, chief executive officer of Waddell & Reed Financial Inc. in Overland Park, Kansas, which manages about $65 billion. ``We're right on the cusp of earnings season, and more and more of this is going to be manifest.''

M&T Bank Corp., the lender whose second-largest shareholder is billionaire investor Warren Buffett's Berkshire Hathaway Inc., plunged 16 percent to $58.82, its biggest drop since 2000. Second-quarter profit at the Buffalo, New York-based bank tumbled 25 percent on losses tied to mortgages.

Wachovia Corp., the fourth-largest U.S. bank, fell 15 percent to $9.84, a 17-year low, after being cut to ``neutral'' from ``buy'' at UBS AG, which predicted a dividend reduction to 1 cent and the sale of $5 billion of common shares."

My Take:

PLEASE READ THIS! If you have not paid much attention to your bank finaces recently then go get your statements right now! Make sure you have no more than $100,000 in any bank. You need to take action tomorrow. If you have $300,000 you need to put it in 3 different banks if you are going to keep it all in your name.

The FDIC will only insure any one individual account for $100,000. You will lose the rest if your bank fails. A run on the bank is highly possible right now.

Please take this very seriously. IndyMac was your warning shot across the bow that the **** is hitting the fan. I will explain why this is happening in my final take.

Investors flock to Treasuries

Investors flew into treasuries today as the IndyMac and Fannie/Freddie news renewed fears of a banking collapse. Here is the data from Bloomberg:

"July 14 (Bloomberg) -- Treasuries gained, pushing two-year note yields down the most in more than two weeks, as stocks fell on concern that U.S. banking-system losses may be worsening.
Predictions of wider losses overshadowed the Treasury Department's support of Freddie Mac and Fannie Mae. Washington Mutual Inc. posted its biggest drop ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that more regional banks may be short of capital.

``There's a significant amount of grave concern about the banking sector,'' said T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York, the investment-banking arm of Canada's biggest lender. ``Now what we're having is solvency concerns.''

The yield on two-year note fell 15 basis points, or 0.15 percentage point, the most since June 26, to 2.46 percent at 4:07 p.m. in New York, according to BGCantor Market Data. The price of the 2.875 percent security due in June 2010 rose 9/32, or $2.81 per $1,000 face amount, to 100 25/32.

The benchmark 10-year note's yield declined 10 basis points, the most since June 6, to 3.86 percent. It earlier touched 4.02 percent, the highest since July 2."

My Take:

I warned everyone this morning to watch the 10 year. This tells you where the smart money is going. If a full fledged bailout was in the cards for Fannie/Freddie, then the 10 year yield would have risen dramatically and sold treasuries fearing the consequences of such drastic actions.

Today's price action gave you a pretty clear indication as to what the Fed is thinking. Yields dramatically dropped as investors flew into treasuries. This tells you the smart money does not fear a nationalized bailout as of right now.

If the street thought that Bernanke was dumb enough to try and do this, treasuries would have gone the other way and yields would have risen to attract investors who were fleeing from treasuries.

The Fed played its first hand based on how the bond market reacted today IMO. Intertpretation: Expect GSE intervention by the Fed but to a point. A takeover is possible down the road, but not until Fannie/Freddie's debt load is much smaller.

This makes treasuries a safe haven once again. However, You need to watch this because Ben could panic as this crisis deepens and decide to change his mind.

I think at this point, its a pretty safe bet that he isn't planning on taking over these $5 trillion bloated pigs at this point.

This is why Fannie and Freddie continued to sell off. These stocks will be zero's before the Fed even entertains nationalization.

So why the selloff?

There were a couple of realizations today by investors. The first one being that Fannie and Freddie MUST survive and its going to be very expensive. As a result, investors realized the rest of the financials are now screwed because the Fed needs to throw the rest of their ammunition at this GSE problem.

This led to realization number two. The banks now have no way to raise capital because the Fed is tied up with Fannie/Freddie, and they cannot raise money through private capital because they burned them so bad.

As a result, the financials are on their own with no way of raising money. Investor's reacted to this reality today by RUNNING to the exits today on all banking stocks especially the regionals.

Today reminded me of George Costanza on "Seinfeld" jumping over children in a total panic during a fire drill at a school as he ran to the fire exit looking to get out at any cost(love that episode).

There were many George Costanza's on Wall St. today that owned financials that decided to follow the same strategy!

Bottom Line:

This is a very serious crisis and the Fed is about out of bullets. As a result, the only option on Wall St. right now is to sell stocks and hide in cash and treasuries.

I am in awe at how fast we are blowing up. Stay tuned and get your finances in order!