Tuesday, October 21, 2008

Your Regional Bank is Next in Line for a Bailout

More banks are in trouble:

A bevy of regional banks reported worse-than-expected third-quarter results on Tuesday, burdened by investment losses and higher credit costs — a stark indicator of more loan troubles ahead.

Many of the regional banks said they are considering participating in the government's plan, which analysts agree will likely give a boost to earnings going forward and relieve some of investors' concerns surrounding capital levels.

I bolded the nonsense above to show just how clueless some investment analysts can be, and how equally clueless some journalists are for reprinting their guesses. I've been harping a lot on bad earnings news lately as a rationale for keeping new cash out of the stock market (for now). The above AP article's insistence that somehow a capital injection will help earnings is nonsensical. The bailout addresses balance sheets, not income statements. Only someone who flunked Accounting 101 would count a capital infusion toward earnings! Wasn't that one of the tricks that sunk Enron six years ago? Spoiled Ivy League preppies who get hired as analysts must have never paid attention in b-school.

Earnings will continue to suffer as consumers default on credit card debt and auto loans at least through Q209. Watch the headlines for more confirmation.