Banks look forward to strong second half
2008-07-07 15:14:43 (GMT) (Caymanmama.com - Business News)Wall Street (CaymanMama.com) — The first half of 2008 was dreadful for many security firms and banks. This was the time when the economy saw write downs of billion of dollars along with management shakeups and cuts in the dividend amongst some of the well known financial firms. Amidst all this, commercial bank shares also saw a downward trend. The bank index for KBW is low with 33%. Above all this, there was a near collapse in March of Bear Streans that lead to increased nervousness among investors. Many portfolio managers and analysts are preparing to face stiff conditions in the second half of the year 2008 as many fear that the coming second half could be worse than the first quarter.
According to Optique Capital Management’s equity analyst Bill Fitzpatrick, “The stock market is clearly telling us that is going to be the case.” Irrespective of adjustable mortgage rates or complex mortgages, these were a decline of brokerages that saw bad debts.
With the declining value of real estate industry, there were more foreclosures while new homes were empty. In order to safeguard from further economic distress, commercial banks are planning to adjust their balance sheets while fortifying it against any future losses in consumer loan sector. Many banks are increasing their reserves and keeping aside additional money against defaults in credit cards and home equity before the results of second quarter. Estimated by Thomson Reuters, S and P 500 will face a decline of 60% in its net income. And in terms of profit, it will be less than 18% in comparison to the previous year. In case the economy faces decline, banks have to carry on with their reserves even at the end of year.
According to Gerard Cassidy, MD at RBC Capital Markets, “Layer on top of a normal credit cycle the effect of a protracted economic slowdown and the residential real estate debacle and you have yourself a pretty difficult banking environment for the second half of the year.”
CaymanMama.com - Press Release Distribution Service
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