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Big Banks in Junk Zone

03/23/2012 9:15 am EST


Martin Weiss

Chairman, Weiss Research, Inc.

From a just-released report on the world’s largest banks, Dr. Martin Weiss shares his list of the most vulnerable US and overseas banks, some of which are guaranteed to surprise you.

I’m talking today with Martin Weiss, and we’re talking about the new bank settlement and the situation with banks today in the United States. It doesn’t look too good, does it?

Well, the attorneys general finally got the banks to pony up some money, $24 to $25 billion in settlement for all of those lawsuits because of the robo-signing of the mortgages and so forth. So there is this illusion in the market that money is going to now help support $9 trillion in mortgages that are going bad. $24 billion is just a drop in the bucket.

The bigger problem is that all of those banks that got stuck with bad mortgages and toxic assets in 2008 and 2009 are still stuck with most of those toxic assets. So our organization, Weiss Ratings, is assigning many of the large banks very low ratings, and I want to tell you which ones they are.

I’d like to know which ones they are, because you’re hearing every day in the media that the banks are getting in much better shape and the capital requirements are looking pretty good…and maybe it’s time to buy the banking industry now. But you don’t agree with that.

Well, I don’t agree that long term, they’re going to be able to be strong. They are very weak right now. Here, I have a list right now.

What are the top five that you have?

Well, we looked at the largest banks, and then among those, picked out the ones that have our lowest rating, so you can get a sense of how bad the situation is.

JPMorgan Chase (JPM) is at the top of the list. It has $1.8 trillion in assets, and its rating is in what I would consider the junk zone or the danger zone. In the same category, Bank of America (BAC), Wells Fargo (WFC), SunTrust Bank (STI). This list is two pages long. Regions Bank (RF).

Wow, it surprises me about SunTrust and Regions, because those were those super-regional banks for so many years that were supposedly much safer because they were doing more local lending than some.

Local lending in commercial real estate.

In the commercial real estate, but they’ve switched over. They got into the mortgage derivatives just like the big banks did.

And commercial real estate was a sore spot as well. But here’s the bigger news and this is new. This is news that we’re releasing right now here at The MoneyShow, and that is the problems in banks overseas is now greater than the domestic banking problem.

That sounds hard to believe, Martin.

They’re bigger banks, and we’re releasing our new global bank ratings as we speak.

Well, and I don’t think that most people understand that in other countries, you don’t have 10,000 banks.

There are fewer banks and they are bigger.

Right, yes, right. So tell us about some of those.

Deutsche Bank (DB)—with $3.1 trillion in assets, by the way. BNP Paribas (BNPQF) with $2.7 trillion.

Is that, uh, what country?

Paris, France. Then Royal Bank of Scotland (RBS), $2.5 trillion in assets. Barclays (BCS) with $2.4 trillion dollars in assets. Credit Agricole (CRARF), also in France, with $2.3 trillion dollars in assets. Societe Generale (SCGLF), with $1.7 trillion dollars in assets.

And it keeps going on. Banco Santander, Louis Bank, UniCredit in Italy, Commerzbank in Germany. All of these banks are in that same danger zone category, which is a rating of D-plus or lower on our scale, meaning that they’re vulnerable to failure.

Wow, so for the investor, obviously stay away from banks.

Well, there are some banks that have good ratings. So you can selectively find them. It’s not an all or nothing proposition…but these are the largest banks.

But, however, let me interrupt you on that. If another banking crisis worldwide occurs—if these get so bad that we create another domino effect—that will effect every bank.

It will, at least in the stock market and for the short term.

Are you forecasting that at all?

I am, because we have the sovereign debt crisis and the banking credit crisis coming together. That could be a very dangerous combination.

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