Winners and Losers in Financials

Now that twelve banks have disappeared, who are the winners. Its obviously the banks who didn't get involved in option ARM loans on derivative securities. The easiest way to determine the best financials is figure out which ones are up ytd. So in no particular order:

Winners: BBT, WFC, JPM, PNC, and USB.

Losers: Anyone that no longer exists, C, BAC.

C purchased Wachovia's assets after it became the latest bank to approach insolvency. But C will be on the hook for the first $42 billion in losses from Wachovia's loan portfolio. The sad thing is Wachovia purchased Golden West Financial's loan portfolio and did not know what they were doing when expanding the ARM portfolio through leverage.

BAC as we explained overpaid for MER and will find out how much they overpaid when they go through MER's "Level 3 Nonassets".

Note that Warren Buffett has positions in BBT and WFC for his BRK/A portfolio. As if one believes Buffett will let the market tarnish his reputation. Recently Buffett has been making favored deals to GS ($5 billion) and GE ($3 billion) giving them much needed capital in exchange for 10% private secured bonds along with convertible warrants ($115 for GS, $22.25 for GE) into common stock.

He believes he's getting the "best of the industry" companies at fireside prices. I really don't know what to believe.

We do know that today, the trading is range bound, hardly anyone willing to go long or short with tonight's vote on the bailout bill by the U.S. Senate. The risk/reward is insufficient for me to take a position today, although that could change, if the averages decisively break one way or another. From the Buffett standpoint, he would prefer a yes vote to justify the $8 billion he has handed over from his Berkshire shareholders.

We also heard the SEC is planning to extend the ban of short selling 950 "financials" until the end of October and for possibly reimplementation of the uptick rule. Obviously a lot of rules changing in an attempt to prevent the financial system or the markets from imploding.