Do You Expect More Banks to Go South?

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

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I think that the poll reflects accurately what we are going tosee. Based on past experience—including the savings and loansituation 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 thesmaller banks who got into the fray—and now that they are snared inthe credit crunch—they just don't have the pockets that are deepenough to survive this crisis. On the other hand, most biggerbanks, I don't think they are at risk at all. I would say that weare probably looking at a year before the turnaround, may be alittle bit shorter than that.

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You have a perfect storm of the economy being somewhat week, theUS dollar being weak, the markets were shaky before this, andpeople were borrowing against properties that they clearly couldnot afford. And there's another similarity to this situation andthe savings and loan problem in the 80s with the housing bailoutbill. That means that at the end of the day, people are gettingbailed out again—just like in the 80s, except now, we are lookingat borrowers obtaining credit where the borrowers had absolutely nocapacity to pay.

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A big question is: When will credit crunch will ease up? Itcertainly doesn't seem like things have started to ease up. And thebanks are so reluctant to make a move because of the position thatwe are in. On political note, markets will not reactive favorablyto an election where they will anticipate a tax increase. All thathas to play out. Probably, more bad news will come out when theelection is over.

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

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