Banks are reaching a bottoming phase according to BCA research and neutral positions are warranted. Not so fast says top bank analyst Meredith Whitney. Banks are about to have an asset fire sale after its last source of capital, the U.S. government, runs out.
Loan loss reserves as a percentage of non performing assets have reached cyclical lows of the early 90s, says BCA Research. This analysis, based on FDIC data, looks thin. For one thing, it is based on bank data for the fourth quarter of 2008, which is dated. For another it only looks back to the late 80s and early 90s, which featured a banking crisis in a shallow recession unlike today.
The first round of losses at U.S. banks were in real estate lending– in subprime lending and most prominently in construction and land development (AD&C) lending according to Zelman & Associates. AD&C loans accounted for only 4% of bank assets in the fourth quarter of 2008 but a disproportionate share of non-performing loans (22%).
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