Note the threat to JP Morgan Chase. By Henny Sender, in FT Weekend (via The Penninsula):
Economy bears brunt of the biggest banks’ miscalculations
Web posted at: 11/29/2008 1:14:57
By Henny Sender
Economic forecasts are being revised down with each new data point. On Wednesday, durable goods orders became the latest harbinger of gloom–down more than 6 percent last month. Most economists believe there is worse to come. “We are not even in the eye of the storm yet,” says David Rosenberg, chief economist of Merrill Lynch.
That means there has to be far worse to come for the banks, which inescapably mirror the economy. So far, it is banks like Citigroup that have been hardest hit. That’s because this recession has been led by cash strapped homeowners and consumers.
But as the downturn continues, the next phase will hit corporate America as demand for products dries up and cash flows diminish. That in turn means banks that have so far been relatively less vulnerable to the slowdown may well falter. “As the credit crisis ripples through the real economy, perceptions about strength and risk management will change,” says Charles Peabody of Portales Partners, a research boutique. Peabody predicts that losses from commercial loans can increase up to six-fold. He says he is especially concerned about JPMorgan Chase, so far the symbol of prudence. JPMorgan has a far bigger book of corporate loans than Citi, far bigger exposure to the commercial real estate market and it is at continuing risk from its exposure to leveraged buy-out deals. Indeed, according to the calculations of Peabody, those exposures amount to some $288bn.