Derivatives Losses Spreading

JUPITER, FL–(Marketwire – April 8, 2009) – In a press conference held yesterday to review fourth quarter call report data and TheStreet.com bank ratings, Martin D. Weiss of Weiss Research, Inc. concluded that:

–  Three out of four of the nation’s largest banks are at risk of failure –  JPMorgan Chase, Citibank, Wells Fargo.

–  Also at risk are HSBC USA, Goldman Sachs and large regional banks, including SunTrust Bank, Compass Bank (Alabama), Fifth Third Bank (Michigan), Huntington Bank (Ohio) and Etrade Bank (Virginia).

–  The total number of at-risk banks and thrifts rose to 1,816 in the fourth quarter, from 1,568 banks in the prior quarter, an increase of 16 percent.

Also in the conference, Weiss provided updated commentary on his white paper issued on March 19. Titled “Dangerous Unintended Consequences,” the white paper names U.S. banks and thrifts believed to be at risk of failure, using that data to demonstrate that the U.S. government greatly underestimates the scope of the debt crisis, while overestimating its ability to effectively save troubled institutions without severe adverse consequences.

“Especially alarming,” writes Dr. Weiss, “is the fourth quarter OCC data demonstrating that record bank losses are spreading to interest-rate derivatives. Until now, bank derivatives losses have been limited almost exclusively to credit defaults swaps (CDS), which represent only 7.8 percent of the notional value U.S. derivatives held by all U.S. banks. In the fourth quarter, although the CDS losses continued at a near-record pace, we also witnessed record losses in the interest-rate sector, which represents 82 percent of the derivatives market: The nation’s banks lost $3.4 billion in interest-rate derivatives, or more than seven times their worst previous quarterly loss in this category.”

Separately, total global losses from the debt crisis to date are estimated at close to $4 trillion, with only about one third written down so far.

“In the face of such enormous risks and losses,” Dr. Weiss continues, “it’s entirely unreasonable to expect the U.S. Government to rescue failing U.S. financial institutions without unacceptable damage to its own credit, credibility and borrowing power.”

In his phone conference with the press yesterday, Dr. Weiss discussed the serious implications of his findings. (To listen to the audio recording, go to http://blogs.moneyandmarkets.com/martin-weiss/jpmorgan-chase-goldman-sachs-citibank-wells-fargo.)