[quote=sdduuuude]Wasn’t so worried about Meredith. The datapoint seemed interesting.
I have to admit, I don’t know how many of the 1.5x turn to charge-offs, but after 120 days, I’d guess it is at least 25%. (If I’m wrong, I’m wrong. But I admit I don’t know) 120 days is a long time. So, to me it translates into roughly another year as bad as the last two or three, as such:
Amount of chargeoffs in last 4 years = C.
Avg. amt of chargeoffs in 1 year: C/4 = C1
Amount over 120 days: C * 1.5 = C1 * 4 * 1.5 = 6*C1.
% needed to be as bad as 1 avg year: 16.
Like I said, I’d guess it is over 16%.
I have a feeling I’m about to learn something …
I think it was the 6x figure that jumped out at me. If it is 1.5 x 4, then that’s alot.[/quote]
First of all, charge-offs tend to be a lagging indicator for a bank. By definition, charge-offs peak right before things start to get better. (For the record, I think charge-offs are headed a bit higher for a couple of years. And I think the Big Banks’ stock prices are wildly overvalued.)
Your equations above are meaningless because you don’t know what reserves or charge-offs have already been put up against the NPAs. To use a simple example, if my NPAs are 5% of loans (which is high) but my reserves are 3% of loans (also high), that’s a wholly different story than if my reserves are 1% of loans. My point is that Meredith Whitney comments on things within a certain context that she’s aware of as an analyst. You don’t have that context, so all you’re really doing is regurgitating what she’s saying without any idea of whether it’s a “Wow” or a “Hmm”… you have no idea.
In fact, loan loss reserves are as high as they’ve ever been for banks (a point Meredith Whitney knows but apparently didn’t bring up). But… so are problem loans! Banks and the banking system remain very fragile. But commenting on one number without the context of other numbers (that are equally important) is silly and completely meaningless. That’s my point.
