The financial damage is massive and the question boils down to how far the contagion can spread throughout Europe (and elsewhere).  Austerity measures throughout Europe are now backfiring.  France put in Hollande as a move back to the left as Sarkozy’s austerity measures were just going to be too great for the population to want.  Inflation before cutbacks!  Live well today, let the kids figure it out when hey get older!  Hell, even The Netherlands could not agree on a budget and they have their act together financially just about as well as any of the top nations.  Angela Merkel’s party suffered a regional election loss in recent weeks as well.

Greece will not likely be the only casualty here.  Portugal, Spain, and Ireland are all at risk.  Sinn Fein has been making policy statements about austerity and the Euro inclusion and went as far as issuing a video to call for a NO vote in the Austerity Treaty referendum.  Spain has a serious capital shortfall in its banks if the reports over the size of the property value losses versus face value of loans is even only one-third true.  Portugal is just totally irrelevant to Europe, but it is upside down and at risk.  And Italy is just simply “too big to bail” with its debt and spending issues that lie ahead.

The fallout is running top to bottom… safe havens to PIIGS… We are seeing all the new 52-week lows come into play in some positions while many others are still above those recent lows.

iShares MSCI Germany Index (AMEX: EWG) is down 2.2% at $19.87 against a 52-week low $16.96; iShares MSCI France Index (AMEX: EWQ) is down 2.4% at $18.61 against a 52-week low of $17.88. The there is “the Euro currency ETF” via the CurrencyShares Euro Trust (AMEX: FXE) with a drop of 0.9% at $125.03 (new 52-week low) as the Euro is at the lowest point since July 2010.  iShares MSCI Italy Index (AMEX: EWI) is down 3.8% at $10.26 and only one-penny above the $10.25 52-week low.

Ireland… The Bank of Ireland (NYSE: IRE) is down 2% at $4.90 against a 52-week low of $3.99. The New Ireland Fund, Inc. (NYSE: IRL) is down 1.1% at $7.79 against a 52-week low of $6.49.

Greece… National Bank of Greece SA (NYSE: NBG) is flat at $1.52 against a 52-week low of $1.45; Global X FTSE Greece 20 ETF (AMEX: GREK) is down 3.5% at $9.99 at a new 52-week low (prior $10.25 low). The election in mid-June will likely be the key determining factor here.  If not, the situation is still not over and Greece is going to be an ongoing flight risk.

Spain… iShares MSCI Spain Index (AMEX: EWP) is down 3.3% at $22.81 and under the prior 52-week low of $22.87.  Banco Santander, S.A. (NYSE: STD) is down 3.5% at $5.58 against a 52-week low of $5.52 and Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 4% at $6.02 against a 52-week low of $5.96.

Vanguard MSCI Europe ETF (AMEX: VGK) tracks the  MSCI Europe Index, which is made up of approximately 460 common stocks of companies located in 16 European countries-mostly companies in the United Kingdom, France, Switzerland, and Germany.  It is down 2.6% at $39.85 against a 52-week low of $38.40.  The SPDR EURO STOXX 50 (AMEX: FEZ) tracks the STOXX Europe 50 Index and it is down 2.9% at $26.93 against a 52-week low of $26.10.

This is sort of funny on the surface if you don’t think about the financial and human tragedy that is unfolding.  It is not exactly as though the global economy rose this much when they launched the Euro.  Little reward, massive pain!

Sadly, Europe is starting to feel like Latin America of the 1980s and early 1990s all over again.

JON C. OGG

A class-action suit on behalf of shareholders was filed in Manhattan this morning, the financial industry’s own watchdog, the Financial Industry Regulatory Authority (FINRA) is launching an investigation into the way banks communicated a cut in FB’s estimates, and shares in Morgan Stanely (NYSE: MS), FB’s lead underwriter, are down more than -2%. And short-sellers are chasing shares today too, as we noted earlier this morning. All before lunch.

Facebook is responding by testing a new design for its Timeline feature. Lawsuits and falling share prices are somebody else’s problems. At Facebook, there’s no time for such trivial matters.

Facebook has traded about 38 million shares this morning and shortly before noon the price is up 1.8% at $31.60.

Paul Ausick

We have seen that Blackrock will buy about $1 billion of the shares itself as part of a share repurchase plan.  Still, that leaves about $5 billion that the market will have to absorb and this comes at a time when it is an understatement to say that Main Street is not exactly hot on Wall Street investment banking and money management firms.

Barclays is unloading these shares before new Basel rules apply which would have forced the company to count the share stake as capital. The offering is being conducted by Barclays itself along with the firms of Morgan Stanley and BofA Merrill Lynch.  Barclays owns 32,178,505 shares of the series B convertible preferred stock and 3,031,651 common shares per the filing, and this comes to roughly a 19.6% economic interest in Blackrock.  The applicable percentage of ownership for the selling stockholder is based on 139,564,123 shares of common stock outstanding as of March 31, 2012.

Blackrock also has a filing for a note offering which will ultimately be led by Citigroup, J.P. Morgan, and by Wells Fargo Securities.  Blackrock shares were at $180 as recently as May 11 and the shares closed at $171.91 just this last Friday.  Shares closed at $167.73 on Monday and now shares are down another 1.2% to $165.86 in mid-day trading in New York.

Blackrock’s big issue here is that it rarely trades 1 million shares in a day, with only 8 trading days of 1 million or more shares in just the last three months and just ten trading sessions with 1 million shares or more in the prior three-month period.

Blackrock has traded in a range of $137.00 to $209.37 over the last 52-weeks.  The market value today is $29.8 billion, so this is going to be a large offering to absorb.

Dow Jones has listed that the secondary offering is set to price on Wednesday evening for Thursday trading.

JON C. OGG

The Jamaican bank’s ordinary shares already are listed on the Jamaica Stock Exchange and on the Trinidad and Tobago Stock Exchange under the symbol “NCBJ,” and it has been authorized to list the shares on the New York Stock Exchange under the symbol “NCJ.”

Here is what the bank noted about its share prices on the local exchanges:

On May 18, 2012, the closing price of our ordinary shares on the JSE was J$23.69 per ordinary share, which is equivalent to US$0.27 per ordinary share, based upon an exchange rate of J$87.6425 to US$1.00 on that date. On May 18, 2012, the closing price of our ordinary shares on the TTSE was TT$1.93 per ordinary share, which is equivalent to US$0.30 per ordinary share, based upon an exchange rate of TT$6.3891 to US$1.00 on that date.

As far as the underwriters, JP Morgan is listed as the Global Coordinator and Joint Bookrunner, and Macquarie Capital is listed as the joint bookrunner; co-managers are Canaccord Genuity and CIBC.

This banking outfit claims to be Jamaica’s largest and most profitable banking and financial services group, based on consolidated total assets at September 30, 2011 and net profit for fiscal year 2011. It said:

For our fiscal year ended September 30, 2011, and the six months ended March 31, 2012, we had return on average shareholders’ equity of 23.86% and 15.55%, respectively, and, as of December 31, 2011, we had a 29.1% share of the Jamaican banking and financial services market regulated by the Bank of Jamaica, as measured by consolidated total assets.

NCBJ’s filing noted that it has 38 full-service branches and four agencies, its ATMs accounted for 34.7% of all ATM transactions in Jamaica for the six months ended March 31, 2012, and it had over 9,000 POS machines, representing 66.7% of all POS machines in Jamaica.

FULL IPO (F-1) FILING

JON C. OGG

The admission of a $2 billion loss due to improper hedging losses was one thing from J.P. Morgan.  The problem is that Jamie Dimon signaled that the losses could widen out further in the months ahead.  Ultimately the bank will be out of those trades, but these are apparently illiquid enough that the bank cannot simply say “market-sell order” to another trading desk.  J.P. Morgan Chase also has exposure to Europe and elsewhere at a time when BRIC growth has been slowing substantially and while Europe is in meltdown mode.

Wells Fargo is just more of a traditional bank that makes its money off of deposit management, client advisory services, brokerage, loans, and mortgages.  The bank also still trades at a premium to its book value of $25.45 as of March 31, 2012. Its share price is $31.37 after a 1.4% gain today and the 52-week range is $22.58 to $34.59.

J.P. Morgan Chase & Co. (NYSE: JPM) has now joined Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C) in trading at substantial discounts to their prior book values.  As we have said over and over, book value is the ceiling right now rather than the floor. When investors believe that book values will be dropping or that a bank’s earnings power is drained, does book value even matter?  It is not as though the banks could auction off those assets and realize that price overnight.

The book value of J.P. Morgan Chase & Co. (NYSE: JPM) was $47.60 at the end of the first quarter.  That compares to $46.59 the previous quarter and compares to $43.34 in the first quarter of 2011.  J.P. Morgan shares are down 2.6% at $32.62 after two broker downgrades today.

Bank of America Corporation (NYSE: BAC) reported that its stated book value is $19.83 per share, and its tangible book value was $12.87 per share.  BofA trades at $6.88 after a 2% drop today.

Citigroup, Inc. (NYSE: C) reported that its book value was $61.90 on the stated value methodology and its tangible book value was $50.90 at the end of March.  Citi trades at $26.18 after a 0.6% gain today.

Jamie Dimon might still be the strongest CEO in the room, but as of now it is Wells Fargo that is the safest of the big money-center banks.

JON C. OGG

So the question is, ahead of a summit aimed at putting up fences in Europe to contain problems can the banks really make it.  We have heard all sorts of new stories and rumors and frankly it is hard to know what is posturing, what is malarkey, and what is reality.  Some talk about bank guarantees is out there, and other chatter is on deeper assistance.  And what about lending directly to banks but not the nations? Reuters has a speech today worth a read that underpins some of the problems and hopes for Europe given by ECB policymaker Joerg Asmussen.

A look at the banking ADRs today signals that the bank issues “may” be manageable for Greece or Ireland.  The problem is that this could just be a short-covering head fake too.  The ADRs for Spain are still in the red.

National Bank of Greece SA (NYSE: NBG) is up 4% at $1.56 against a 52-week range of $1.45 to $7.65.  The Bank of Ireland (NYSE: IRE) is up 3.8% at $4.93 against a 52-week range of $3.99 to $17.50.

Banco Santander, S.A. (NYSE: STD) is down 1.2% at $5.70 against a 52-week range of $5.52 to $11.92; Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 1.1% at $6.19 against a 52-week range of $5.96 to $12.13.  An IIF report on loan losses is holding these banks down today.

And what about broader exposure?  The ADR of Deutsche Bank AG (NYSE: DB) is up 2.6% at $36.95.

Barclays PLC (NYSE: BCS) is technically not even a part of the Euro-woes as far as sovereignty, but it would be absolutely naive to think they have no exposure.  Ditto for UBS AG (NYSE: UBS) in Switzerland.  Barclays is up 2.6% at $11.44 against a 52-week range of $8.38 to $18.40; and UBS is up 1.6% at $11.44 against a 52-week range of $10.41 to $19.62.

JON C. OGG

Dimon also said that the bank would continue to pay dividends, but those payments could also be in jeopardy if the Federal Reserve decides that the derivatives losses threaten the stability of the banking system. Given a choice between two bad alternatives, Dimon and JPM have chosen to retain dividend payments in an effort to keep shareholders at least reasonably happy. By suspending its share buybacks, the bank is hoping to cut off any demand to kill its dividend payments.

The SEC, the FBI, and the Commodities Futures Trading Commission (CFTC) have all launched investigations into JPM’s recently announced trading loss of $2 billion and counting.

As the market continues to slide, JPM’s losses from the trades continue to mount and could top $5 billion. The catch is that no one really knows the extent of the bank’s exposure, probably including even the bank itself.

Shares are down less than -1% at $33.18 in a 52-week range of $27.85-$46.49.

Paul Ausick

Several media outlets report that one proposal to help fund banks, and indirectly the nations in which they are based, is to use part of the 500 billion euro European Stability Mechanism meant to bail out countries like Portugal and Spain. The Financial Times reports that discussions about the possibility heated up before the G8 summit. “Senior officials said those talks have focused on using the €500bn European Stability Mechanism to directly inject capital into banks,” the paper reported. This program might exist alongside another plan to have the European Central Bank buy the sovereign bonds of Spain, among others. The ECB has objected to similar plans in the past.

The direct bank aid program may make sense on paper. Spain, in particular, has very troubled banks. Some got into that trouble because they made large numbers of loans based on real estate. The value of that real estate collapsed during the recent recession in a way similar to what happened in the U.S. The Spanish banking sector situation is so bad that Moody’s recently downgraded 16 banks based in the country, including the huge Banco Santander (NYSE: STD). The country’s chance to help these financial firms took another blow. Spain recently got into more trouble in terms of its own bailout because it missed its 2011 deficit-to-GDP ratio goal. The government said the figure was 8.9% instead of the 8.5% it has expected.

The debate about which countries in Europe to aid is extremely complex and contentious. Even the fate of Greece is constantly debated. Should its neighbors throw what many believe is good money after bad? Maybe, if it keeps the eurozone together. But, if the leaders who have the ability to potentially bail out countries cannot decide on which countries, when, and under what circumstances, how can those decisions possibly be made bank system by bank system or bank by bank?

Douglas A. McIntyre

One example of a CEO who were taken to task recently for the actions of his company was Lloyd Blankfein of Goldman Sachs (NYSE: GS), who seemed to forget everything about the operations of his investment bank for the few short hours he answered questions. Another was Akio Toyoda, whose company, Toyota Motors (NYSE: TM), built some cars with dangerous accelerator problems. Toyoda spent most the time during his testimony apologizing for the mistakes the manufacturer, founded by his grandfather, made and explaining how a new quality control program would prevent them. Toyoda must salvage the good name of his ancestors, he said.

A parade of CEOs and senior executives was called to testify about the financial meltdown that triggered the last recession. These included bankers and officers of ratings agencies, in particular, S&P and Moody’s. No criminal charges were brought against any of these executives. Many have gone on to collect the large pay packages that Congress attacked with vigor. All in all, the testimonies were an inconvenience, or perhaps a brief period of anxiety that ended quickly.

Senators will ask Dimon how JP Morgan lost $2 billion or more on risky trades. He will repeat his standard response that his traders were stupid and that the mistakes were “self-inflected.” He will describe how those who ran trading operations were fired. He will explain all of the things JP Morgan will do to better manage risk. Perhaps most importantly of all, Dimon will talk about the incident as an aberration, and not a lesson in how a few poor decisions should prompt Congress and the Administration to set more strict bank laws.

For Dimon, if history is any guide, his time before the Senate committee will be little more than a few uncomfortable hours.

Douglas A. McIntyre

A 15-year fixed-rate loan averaged 3.04%, also an all-time low, besting the 3.05% rate from a week ago. A year ago the rate stood at 3.80%.

The interest rate on a Treasury-indexed hybrid 5-year adjustable-rate mortgage loan rose to 2.83%, down from 2.81% last week, but still down from 3.48% a year ago.

According to a Freddie Mac executive:

The European debt crisis overshadowed improving economic indicators for the U.S. and allowed Treasury bond yields and fixed mortgage rates to ease for another week.

Data earlier this week on mortgage applications showed a rise in refinancings, but an overall dip in the seasonally adjusted index of total mortgage applications.

Paul Ausick