Which will fail first - Lehman, Wachovia, Merrill or Citibank?

If the market is open, the financials are down 10%. This will continue until we have another Bear Stearns-like failure. Bernanke has told us as much. Don't try to bottom-fish. These are failed business models.

The business model of leveraging credit upon credit has failed.  It wasn't a Bear Stearns model, it was an industry.  There were many culprits, banks without the intellectual capital to grow the business of the basis of investment banking or trading like Goldman, Morgan Stanley or JP Morgan, that just leveraged their balance sheet and kept leveraging and leverage.  A crazy credit environment, a housing bubble and a strong economy all contributed to the environment.  But, when you build with leverage on leverage, it doesn't take too much to bring down the house. 

The house is falling now.  These banks are down 10% every day.  The model has failed and there is nothing left.   This will continue until we see a major failure.

I believe that Citi will be bailed out by some middle eastern prince or sovereign wealth fund.  I am less certain of Lehman, Merrill and Wachovia.  I think that one of these banks will fail and fail soon.

However, I could be wrong so I wouldn't dream of shorting one of these.

 

Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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Comments

  • news?

    July 16, 2008

    "This will continue until we see a major failure."

    we've already seen a major failure. it's called bear stearns.

  • Aaron

    July 16, 2008

    I'd be shocked if Merrill or Citi failed. Lehman might go private if its stock keeps going lower. I think WaMu is most likely of the big ones to fail.

    http://hubpages.com/hub/Which-banks-are-in-the-most-trouble-now

  • JRodgers

    July 16, 2008

    I don't consider WaMu to be a big one, but I do agree with Aaron that it will fail.

  • Thomas

    July 17, 2008

    Wachovia looks pretty bad but I don't think it will fail. It has a much more attractive franchise than Indymac and should be able to raise additional capital if needed.

    They must really be regretting the purchase of Golden West financial.

  • Raj

    July 18, 2008

    Wachovia's stock just doubled this week.

  • Doser

    July 21, 2008

    Wachovia stock is still under 13 a share after a 76% decline. The option arm porfolio is going to sink their ship, bc they cant dump them at a high enough price and they were orginating them up through this month (July).

  • scott jones

    September 15, 2008

    I think wachovia will be bought out by another bank. Maybe Wells Fargo. They are going down fast. They won't be able to digest Golden West purchase. Bears, Leman Bros, WaMu, Wachovia is next! Beware!

  • soczie

    September 15, 2008

    Tonight we have an answer and it is Lehman.

  • Eric Peters

    September 15, 2008

    ON THE MONEY WITH LEHMAN, IS CITIBANK NEXT?

  • Sam Cass

    September 16, 2008

    Good call. Only two left from your original list.

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