I think it’s important to keep in mind how banks get revenue and what their cost structures are like. This gives you insight into the sustainability and possible growth of their business model.
Banks get revenue from loan payments and fees. They have costs for depositors, employees and operations overhead. Now their costs have not gone away, but much of their revenue has…..collecting on mortgages, credit cards and other loans. As defaults increase, they’re losing valuable revenue to sustain their operations. How long can this continue before they must modify their businesses? I’m not taking into account their balance sheet, because they’ve been given a “pass” on regulation, yet again, for their survival. But make no mistake, their business model is in real jeopardy. Time will show this.
Unemployment is at 15% for the U-6 in the nation and maybe near 20% for CA. This number is not stabilizing nor is it shrinking. NOD’s are at all time highs and growing. These are leading indicators of disaster, not a bottom.
