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Friday, October 21, 2016

Financial Frankness Is A Bad Dream For A Bank

Jan. 12 (Bloomberg) — There’s a simple explanation for why the world’s zombie banks remain so reluctant to write off worthless assets and tap the equity markets for fresh capital. They don’t want to end up like UniCredit SpA.

This month has been a nightmare for the Italian bank’s shareholders. Since embarking last week on a 7.5 billion euro ($9.7 billion) stock sale at a steep discount to its Jan. 3 closing price, UniCredit shares have fallen 39 percent to 2.56 euros. It seems no good deed goes unpunished when it comes to lenders besieged by Europe’s debt crisis. A little bit of candor about the true state of a company’s finances can hurt a lot.

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Copyright 2012 The National Memo
  • LogicObserv123

    I have a suspicion that BofA is going to hit the wall this year. I sincerely hope that that depositors and shareholders alike continue the Move Your Money strategy. I also hope that instead of bailing out this bank, that our dear government appoints a receiver, takes it over, fires every single Corporate officer and the Board, while retaining the balance of the employees, and converts the bank into a genuine state-owned bank designed to service the needs of regular citizens and small businesses. William Black, Richard Reich and an Elizabeth Warren clone would be a good place to start when looking for new board members. This is what an intelligent government would do, but unfortunately we do not possess an intelligent government.

  • Common Sense Patriot

    While this article appears to be accurate, it does not focus on the real issue: why would a Bank (like most of them do) refuse to work with borrowers to modify the loans, even if it means extending it to a 40 year loan or taking a hit to profits, if in the end, they are better off not forclosing and allowing the borrower to hold on to the property? It’s simple – most of these mortgages were guaranteed by the FHA, or sold to Fannie Mae or Freddie Mac and the Bank is just a servicer of the loan (for which they receive a fee.) The problem is, most mortgage lenders (including Banks) don’t retain the mortgages they make unless they have an FHA guarantee. Therefore, they pass the bad loan on to Fannie or Freddie (making the U. S. taxpayer ultimately responsible) or they foreclose and get the balance of their money from the FHA guarantee. On the CBS news just yesterday, there was the example of aman who had lost his job and was no in arrears on his mortgage payments. He had done everything he could to work with the Bank to modify the loan to no avail — and he was a former laon officer with a Bank! In the end, he was more fortunate than most. A friend bought the property at auction for just $25,000 (it was originally valued at many tiems that and the mortgage outstanding was many times that). He then sold the property back to the owner for $25,000. So, the ignorant bank lost money, right? No, they collected the balance of the mortgage due from the FHA, i.e., the American taxpayer. How ignorant can we be to issue FHA guarantees without any requirements on the Banks to work with the lenders to modify the mortgage terms if they have in the past been a good credit worthy payer of the loan? Why do we not direct Fannie and Freddie to modify terms with the borrowers, instead of allowign the mortgage servicers to foreclose on the property? These are simple answers, yet we continue to operate with our heads in the sand and allow predatory lending practices and taxpayer bailouts (one mortgage at a time) to continue. It’s madness.