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…should we be bullish about the Wells Fargo guidance that got US investors all excited?

Happy Easter

MT3 says the Bull Train for those who missed the rally from March 9 2009 has left. My wife told me over the weekend that I am too bearish….so how !! Being an analyst for more than 30 years – I will let fundamentals do the talking and allocate about 20% to sentiment. When I saw that the Dow and the Nasdaq had risen by 246 and 62 points respectively on Thursday…..I was beginnning to have doubts that this was a bear rally or is it the early stages of the Bull market. Wells Fargo’s comments/guidance that it made US$3bn in Q1-2009 caused financial stocks to stage a strong rally on Thursday. My first response was that the market was “DOUBLE COUNTING” – because this profit comes mainly from the FASB’s relaxation of the mark to market rules – for banks this means that banks dont have to charge any losses which they deem to be “temporary” to their P&L. Last week, Wells Fargo said that it would set aside US$4.6bn for bad loans and another US$3.3bn for uncollectible loans – did they charge this to their Q1 numbers of just stated the number and invoked the temporary clause to report the US$3bn profit number ?

The most important number now is the banks loan loss reserve – and are the US banks going to be under-reserving because of the FASB relaxation ? This means that these profitable bank numbers may not be the actual situation and that US banks will probably still need re-capitalisation especially with GM or Chrysler files for Chapter 11. Read more…