CreditSights research firm estimates that the six largest domestic banks could be looking at losses in the ballpark of $524 billion over the next two years. The breakdown is as follows:
- Wells Fargo, $119 billion
- Bank of America, $99 billion
- JP Morgan, $124 billion
- Citi, $101 billion
- GS, $47 billion
- MS, $34 billion
The combined market cap of these six companies currently stands at $243 billion, about half of the projected losses. These are the figures that Geithner is looking at, and this is exactly why there is so much uncertainty surrounding his newest plan. Unfortunately, private investors have not come to the rescue (see stock prices). As of right now, if these losses continue on their path to fruition, a large-scale restructuring seems inevitable. Equity would potentially be wiped out and debt could quickly be converted into stock. Fortunately, as investors we're not required to solve the problem, we simply need to adjust our portfolios accordingly. Personally, I am remaining underweight U.S. equities and continue to look to preserve capital rather than expose myself to undue risk (more to come in investment outlook later this week). Remember, these figures are only estimates, but this possible outcome should not be excluded from your risk models.
I only included the following chart because I thought it vaguely resembled Pacman...
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