“Big banks will fail because they don’t provide the added value that many think, says R. Christopher Whalen, a former banking analyst and now part of the hedge fund Tangent Capital Partners.
“We don’t need to have these behemoths. It’s just a total fallacy,” say Whalen, according to the New York Times.
“The big guys are going to break up,” adds Whalen, who is setting up an investment fund to focus on small and midsize banks using methodology he created at Institutional Risk Analytics, a research firm he co-founded.”
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The man makes some very specific estimates on tangible book value and how much money investors would make.
As far as I know the only reason a company would trade below tangible book value is either 1) people don’t believe the reported tangible book value or 2) the company has no way of knowing what tangible book value is.
How are estimates based around that going to be anywhere near accurate? I get the argument that breaking them up would expose the banks balance sheets and people would actually have to figure out what they are worth, rather than having banks spend resources to try and paper over their problems. But don’t go assuming what they will find will be worth more than they are valued at right now.
Not going to run the numbers, so maybe I’m wrong, but I have a sinking feeling he is assuming that breaking them up will magically make the pieces trade at tangible book value and the profits quoted are just the difference between the tangible book and the discount they are trading at right now.
your estimates are more insightful than mine…
perhaps the value of the toxic assets will come to be realized at the market….