SMF NOTES F.B.R. says that with the bulk of earnings season behind, 246 cos have reported out of 286 total banks and thrifts with assets greater than $1 bln. For 4Q08, the firm says investors still really have one thing on their minds: asset quality.
Given the historical "kitchen sink" nature of 4Q charge-offs, they were not necessarily surprised by the acceleration in NCOs, but the acceleration in NPAs should raise investor concerns. Reserves are up only slightly (11 bps) to 1.5% of loans, which continues to disappoint, as they would like to see reserves building in line with NCOs, at the very least, in this uncertain environment.
If this trend continues, the firm would expect to see an outsized jump in reserves at some point in the coming qtrs as cos build their reserves to more acceptable levels as credit losses continue to accelerate.
They remain cautious on valuation, although it has corrected materially, because the risk profile of the industry continues to increase at an accelerating rate, and their concerns surrounding the economic outlook in the Northeast are quickly rising, given the financial sector upheaval in recent months.
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