March 9, 2009: Five Major Banks Face Huge Loss Risk if Economy Worsens, Say Reports

Regulatory reports on Bank of America, Citibank, HSBC Bank USA, JP Morgan Chase, and Wells Fargo indicate that, as loan defaults of every kind soar, the institutions face “catastrophic losses” should economic conditions “substantially worsen.” Already suffering as a result of what the banks term “exotic investments,” the reports disclose that, as of December 31, 2008, current net loss risks from derivatives—quasi-insurance bets tied to loans or other underlying assets—have swelled to $587 billion. According to McClatchy journalists Greg Gordon and Kevin G. Hall, obscured in the year-end regulatory reports that they reviewed were figures reflecting a jump of 49 percent net loss in just 90 days.
Bailout Money Shoring Up Reserves - Taxpayer bailout money has already shored up four of the five banks’ reserves, with Citibank receiving $50 billion and Bank of America $45 billion, in addition to a $100 billion loan guarantee. According to their quarterly financial reports as of December 31:
JP Morgan had potential current derivatives losses of $241.2 billion, overrunning its $144 billion in reserves, and future exposure of $299 billion.
Citibank had potential current losses of $140.3 billion, outstripping its $108 billion in reserves, and future losses of $161.2 billion.
Bank of America reported $80.4 billion in current exposure, lower than its $122.4 billion reserve, but $218 billion in total exposure.
HSBC Bank USA had current potential losses of $62 billion, over three times its reserves, and potential total exposure of $95 billion.
San Francisco-based Wells Fargo, which took over Charlotte, N.C.-based Wachovia in October 2008, reported current potential losses totaling almost $64 billion, below the banks’ combined reserves of $104 billion, but total future risks of about $109 billion. [McClatchy Newspapers, 3/9/2009; Idaho Statesman.com, 3/9/2009]