CNBC Five Reasons the Markets Don't Like the Bank Bailout

Wall Street's message to the Obama administration was clear Tuesday, even if the plan to save the banking industry wasn't.

Unhappy with a lack of clarity in Treasury Secretary Timothy Geithner's new financial rescue plan, investors launched a massive stock selloff, raising further questions about when confidence would be restored to the market. From the squishy rhetoric about how complex the problem is to the lack of a clear time-frame for when specific weaknesses in the financial sector would be addressed, Geithner's speech did nothing to assuage the market's concerns about the nation's future.

Broadly speaking, reaction to the speech broke down into five areas:
1. There Really is No 'Change'
"Maybe there's not much that can be done right now other than let this work itself out." While investors were looking for some concrete moves on how distressed assets would be taken off banks' books, they instead walked away from Geithner's speech with no indication of how the assets would be priced or who would be buying them.

2. A Far Cry From Finished
If the administration was purposely setting out a general plan with the specifics to be crafted by Wall Street, then it may have accomplished something. With so many details left unsolved, much more work will have to be done, again creating uncertainty for investors.

3. Treasury Bubble Still Popping
While Treasurys rallied Tuesday on a further flight to safety, government debt prices are likely to fall as more and more supply comes on line while the government finances the bank rescue. The predicted trend reflects the difficulty the government will face getting a premium on bills it will be in a hurry to unload.
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"The idea that you can just borrow and spend, borrow and spend, run ever-larger deficits and essentially print money with no consequences is economically naive," says Mike Larson, analyst for Weiss Research's Money & Markets newsletter. "Yet no one seems to be talking about the unintended consequences until now."'

4. Money Will Stay on the Sidelines
With the government unable to stem the tide of uncertainty bedeviling stocks, convincing people to buy will prove all the more difficult. "The poor reception afforded to Mr. Geithner's speech in which little was revealed reminded investors that more turbulent times may be ahead without some sense of resolution to the health of the banks' balance sheets.

5. One Hope: 'Buying Begets Buying'
The one bit of solace from the post-Geithner selloff Tuesday was that you could have set your watch by it. As news spread last week that a rescue plan was in the making, the markets jumped. When the actual plan was unveiled, the market jumped back.

Buy-the-rumor and sell-the-news has been one of the few constants in a stunningly volatile market, and the continuing of the trend raised hopes that the selloff Tuesday would be a one-off event. more...

Bloomberg World Index

North/Latin America
INDEX VALUE CHANGE %CHANGE TIME
DOW JONES INDUS. AVG 7,888.88 -381.99 -4.62% 16:30
S&P 500 INDEX 827.16 -42.73 -4.91% 16:59
NASDAQ COMPOSITE INDEX 1,524.73 -66.83 -4.20% 17:15
S&P/TSX COMPOSITE INDEX 8,817.89 -229.39 -2.54% 17:05
BOLSA INDEX 19,825.72 -711.38 -3.46% 16:06
BOVESPA STOCK IDX 41,207.43 -892.69 -2.12% 15:17

Europe/Africa/Middle East
INDEX VALUE CHANGE %CHANGE TIME
FTSE 100 INDEX 4,213.08 -94.53 -2.19% 11:35
CAC 40 INDEX 3,020.75 -114.12 -3.64% 12:12
DAX INDEX 4,505.54 -161.28 -3.46% 14:30

Asia/Pacific
INDEX VALUE CHANGE %CHANGE TIME
NIKKEI 225 7,945.94 -23.09 -0.29% 02/10
HANG SENG 13,880.64 111.58 0.81% 03:10
S&P/ASX 200 3,488.70 -19.90 -0.57% 02/10
JCI 1,332.13 -10.10 -0.75% 02/10
LQ-45 INDEX 261.34 -2.76 -1.05% 02/10

Bloomberg Stocks Decline, Treasuries Gain on Skepticism Over Bank Rescue

Feb. 10 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index to its biggest drop since Barack Obama’s inauguration, while Treasuries rallied on skepticism that the government’s bank rescue will work. The dollar and gold rose.

Bank of America Corp. and Citigroup Inc. slipped more than 15 percent after Treasury Secretary Timothy Geithner said he’s still “exploring a range of different structures” to bail out lenders. Principal Financial Group Inc. plunged 30 percent on concern the life insurer needs more capital. Alcoa Inc. slumped 10 percent after S&P cut the aluminum producer’s credit rating to the lowest investment grade. Nine S&P 500 stocks rallied. All Dow Jones Industrial Average companies fell at least 2.8 percent. more...

Bloomberg Crude Oil Falls to 3-Week Low on Skepticism About Bank Rescue

Feb. 10 (Bloomberg) -- Crude oil fell to a three-week low on skepticism that the U.S. government’s bank rescue plan will revive the economy.

Oil dropped as much as 5.6 percent after Treasury Secretary Timothy Geithner said he is “exploring a range of different structures” to bail out lenders. A U.S. government report tomorrow is forecast to show that crude oil stockpiles increased 2.75 million barrels last week, according to the median of 14 analyst estimates in a Bloomberg News survey.

“All the markets are reacting to the Geithner comments with skepticism,” said Michael Fitzpatrick, vice president for energy at MF Global Ltd. in New York. “Stocks dropped and oil followed. Everybody expects tomorrow’s report to show that inventories rose yet again.” more ...

Macquarie Indonesian banks Capital raisings: Necessary?

Capital raisings: Necessary?
Event
We conduct a simple analysis to determine whether the Indonesian banks are likely to undertake capital raisings under various scenarios.

Impact
Three banks have indicated capital raisings. Despite the regulatory CAR requirement of 8%, three Indonesian banks under our coverage: Danamon (BDMN IJ, Rp2,275, N, TP: Rp2,750), BNI (BBNI IJ, Rp750, OP, TP: Rp970) and Bank Rakyat Indonesia (BBRI IJ, Rp4,350, OP, TP: Rp5,700) have indicated capital-raising plans. We believe these banks are likely to tap the market early both to maintain flexibility and sustain growth over the medium term without having to worry about capital. Indonesia’s banks on average are well capitalised at around 14.3% CAR. Their equity to assets stand at 9.6x, which is relatively high vs banks in other markets.
Scenario analysis of CARs: We test three scenarios to see whether Indonesian banks are likely to raise capital.
Solid CAR at 15%, NPLs rise by 3ppt for all banks and they maintain coverage ratios, NPLs rise by 5ppt and coverage ratios stay at 100%
Asia Pacific capital raisings: More than 20 banks in Asia raised capital in the past 12 months, attracting more than US$65.9bn. We believe that demonstrating strong capital is a way to reinforce investor confidence as long as the primary purpose is prudent policy and preservation of stability.
Some relief from risk-weighted asset (RWA) changes. To support economic growth, the central bank has implemented regulations covering micro lending (loans below US$45k). The RWA for KUR (government sponsored microlending)has been cut to 20% from 50% while the RWA for other micro loans has been cut from 100% to 20–85% (see page 9). Finally, the central bank pushed
back the inclusion of operational risks in the calculation of CAR to June 2011.

Outlook
Most banks need to raise capital. In our view, Indonesian banks need to raise capital to maintain a comfortable 15% CAR. We do not view this as negative as we believe it will provide banks with both flexibility and sustainable growth over the medium term without having to worry about raising further capital. Some banks also have off-balance sheet liabilities (derivatives exposure) that are not included in the CAR calculation.
Cautious view in 1H09; slight U/W vs the market: We maintain our cautious view on the Indonesian banks in 1H09 due to potential surprises on NPLs and strong price performance in the past six months (outperformed the market by 30%). On a top-down view, our strategist has turned to a slight Underweight on the sector. We maintain our top picks in the banking sector, BRI and BNI. We also recommend accumulating defensive bank BCA.