Banking Analysts Freak Out

If you missed this morning’s State Street earnings call you missed quite a show. After announcing horrific write downs, the company’s stock dropped 59% Nearly all the Wall Street analysts were caught off guard by the losses.

The question and answer period made for some interesting times. A good part of the questions were analysts trying to figure out how to get a read on the banking industry and companies in particular.

Our favourite question was Mike Mayo’s:

The issue is we don’t know what the rules are for capital, and I say that covering the industry and covering it for two decades, what are the rules for capital, and it varies bank to bank, regulator to rating agencies. Do you agree with that and have you spoken to anyone in government about that? Because we don’t know if [inaudible] equities, we don’t know if it’s tier-1, we don’t know if it’s leverage, or if it’s case-by-case. How can we analyse the industry? Why would anyone put private capital into the industry and how would you manage your business?

Here’s how State Street CEO answered:

You broke up a little bit but I think I have the essence of your question. We look to the regulatory agencies as extremely important and one of the reasons is why they are what they are. And we are going to continue to do that. But we have to look at all the ratios and find some way to moderate the balance in terms of what is the right thing to do. I don’t know what more I can say about that other than it’s truly the balance that we’re trying to find there in terms of the ratios between the rating agencies and regulatory agencies.

Translation: Dude, we’re as much in the dark as you are!

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