Forecasting Bank Earnings

Foreclosure activity is crucial to the outlook for bank earnings. Mortgage losses will continue to be a growing problem for bank stocks in 2010.

Since the suspension of mark-to-market accounting, banks have gained much more control over timing their credit losses, but they cannot get away with completely ignoring them when the evidence is overwhelming that credit losses are real.

From Mark Hanson Advisers:

  • There were a record 92,500 bank repossessions in April
  • At the same time, 29,400 new notices of default were issued
  • So the pool of “distressed” housing fell by 63,100.

It’s fairly obvious that the backlog of foreclosures has built up like water behind a dam. Once the dam gives way, the market may be shocked at how quickly the headline foreclosure numbers accelerate. A saying you often hear in the banking business is: The first loss is the best loss.

Dan Amoss
for The Daily Reckoning