With several big banks reporting profits this quarter, pundits are saying the bank crisis is over. The Dow is up nearly 30% from its low, Goldman and other firms are rushing to pay back the money the government invested in them under the bank bailout program, and financial stocks have soared.
Keep dreaming, says Josh Rosner, managing director at Graham Fisher, an independent financial-services research firm.
Rosner thinks the quarter the banks have just reported may be their best of the year. There's bad news looming just over the horizon, he says--when losses on the loans banks made during the housing boom really begin to hit home.
The deterioration of construction and development loans, the bread and butter of regional and community banks, will soon spread.
Says Rosner:
“We’re about to see the [losses] really start in earnest. I think [this period is] actually where the bank crisis spreads from the 19 or so of the largest banks into the 8,500 banks in our country….” “I think [these losses haven't] been accounted for in [the banks loan-loss' provisions heretofore very acceptably. And I think the loss rates are going to be staggering. And I think that’s where we going to realize that the crisis is redoubling upon itself.” In order to put the banking crisis behind us, Josh says, the government will have to recognize that it can't save every bank. It will then have to draw a line in the sand--helping the strong firms and winding down the weak ones. At best, this process will take another two years.
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