> Carl Remick wrote:
>
> >To assume the thankless Chicken Little role: The WSJ ran an ominous
> >chart the other day, showing strong similarity between current US
> >stock values and those of US equities in 1929 as well as Japanese
> >equities a few years ago at their peak.
Japan experienced a sharp credit crunch after the bubble was pierced due to the dependence of its banking system on equity values for its capital base, no? US banks are tied into the stock market in different, but no less ominous, ways.
>From today's FT "Earnings show banks' reliance on stock market" by Gary
Silverman, p. 15:
"in general, 4th quarter earnings at big banks were boosted by participation in public markets--merger and acquisition advice, underwriting, asset management or venture capital investments. "less impressive were earnings from traditional lending activities, which were weighed down by rising rising interest rates and in some cases fraying credit quality "'the bottom line is that that banks are showing that they are double leveraged to the stock market,' said Michael Mayo, banking analyst at Credit Suisse First Boston. "'the first degress of leverage is through direct gains from venture capital,' he said.'the second degree of leverage is through equity underwriting, asset management and other related stock market fees'... "Bank of America, the second largest bnak by assets and the biggest by deposits, provided a glimpse of how lacklustre the old lending business have been. "A consumer banking powerhouse serving one of every 3 households, BofA said its net interest income fell 2 percent during the quarter to $4.5 bn, while its non performing assets rose as a percentage of the total. "By contrast, the non interest income at the bank soared 35 percent to $3.6bn and banks officials predicted that fees from equity underwriting and M&A growth would continue to power earnings growth."
rb