Those Nasty Troubled Assets

  • JJ Hornblass
  • August 11, 2009
  • 1

The Dow Jones Industrial Average is above 9,200 and all seems to be right again with our business world.

Except for a little thing called “troubled assets.”

Lest you forget about that nagging problem, the Congressional Oversight Panel, about the pluckiest government outfit around, today released its August report on the Troubled Asset Relief Program (the memories are flooding back now, right?). The COP did something that hasn’t been done in a while: try to calculate the number rotten assets still on our nation’s banking balance sheet.

First, you should know that the Treasury Department has already brushed aside the panel’s conclusions with a “the Treasury’s efforts have already helped stabilize the banking system” statement.

So how bad is it even today? I’d say very bad.

In publicly available data reviewed by the panel, the 19 stress-tested bank holding companies have
reported:

* $657.5 billion in Level 3 assets, which include assets for which it is difficult to find
reliable external indicators of value;
* $132.9 billion in annualized loan losses;
* $264.6 billion in past due loans; and
* $8.9 trillion in credit default sub-investment grade exposure.

I don’t have enough fingers for that math. The panel went further and calculated that all banks had another $627 billion to $751 billion of annualized losses still to come. Do the banks have the money to cover those losses? Uh, no. COP says the shortfall of capital across banking might be as much as $23 billion.

No, Elizabeth Warren and her COP cohorts aren’t loons. The COP’s estimates are middle of the road compared to others.

ESTIMATOR — WRITEDOWNS REMAINING
Federal Reserve Stress Test (Adverse Case) — $599.2 billion
IMF — $550 billion
Goldman Sachs — $450 billion
RGE Monitor — $1,220 billion

We’ve all grown fatigued by discussions of financial calamity. The numbers just become too big; they lose their meaning. But these numbers are real and some variant of them will hit banks in the months and years to come. We can gloss over it, but the truth is what it will be.

“Troubled assets were at the heart of the crisis that gathered steam during the last several years and erupted in 2008,” the COP writes. “The stabilization of the financial system is a significant achievement, but it does not mark an end to the crisis. One continuing uncertainty is whether the troubled assets that remain on bank balance sheets can again become the trigger for instability.”

I’d put it another way: There’s still ugliness to come.

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JJ started the first iteration of Bank Innovation back in 2007, and has been working on it ever since. He also serves as President & Chief Executive Officer of Royal Media, Bank Innovation’s parent. He founded Royal in 1995 and oversees all aspects of the New York-based diversified media company. Prior to forming Royal, JJ was on the editorial staff of American Banker, the daily newspaper, and worked as an editor of a business magazine in Hong Kong. As a reporter and editor, he has won journalism awards from the National Press Foundation, Newsletter & Electronic Publishers Foundation, and the Reader’s Digest Foundation. He has a BS in Economics from Yeshiva University and a Master’s from the Columbia University Graduate School of Journalism. He was also a Fellow at the University of Wisconsin-Madison Graduate School of Banking. He lives in New York City with his wife, two daughters, and son. He counts among his accomplishments one New York City Marathon, two New York City Triathlons and the 2010 Father’s Day 5K, the first race he ever ran with his daughters. He can be reached at hornblass@gmail.com or 212-564-8972.

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One thought on “Those Nasty Troubled Assets

  1. Here is the link to the Naked Capitalism post.

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