Do You Expect More Banks to Go South?

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You can expect more bad times on the horizon if you take a cue from respondents to last week’s Quick Poll, with 84% answering “Yes” to the question, overwhelming the mere 16% who answered with a hopeful “No.” Polina Chapiro, a partner with Green Hasson & Janks LLP, sees more bad news coming down for banks.

I think that the poll reflects accurately what we are going to see. Based on past experience—including the savings and loan situation in the ‘80s—we are just seeing the tip of the iceberg, although this might not be as bad as in the past. Some of the smaller banks who got into the fray—and now that they are snared in the credit crunch—they just don’t have the pockets that are deep enough to survive this crisis. On the other hand, most bigger banks, I don’t think they are at risk at all. I would say that we are probably looking at a year before the turnaround, may be a little bit shorter than that.

You have a perfect storm of the economy being somewhat week, the US dollar being weak, the markets were shaky before this, and people were borrowing against properties that they clearly could not afford. And there’s another similarity to this situation and the savings and loan problem in the 80s with the housing bailout bill. That means that at the end of the day, people are getting bailed out again—just like in the 80s, except now, we are looking at borrowers obtaining credit where the borrowers had absolutely no capacity to pay.

A big question is: When will credit crunch will ease up? It certainly doesn’t seem like things have started to ease up. And the banks are so reluctant to make a move because of the position that we are in. On political note, markets will not reactive favorably to an election where they will anticipate a tax increase. All that has to play out. Probably, more bad news will come out when the election is over.

Again, it’s just the tip of the iceberg. I just think that it’s going to take time to unravel.