Banking Industry Has Not Run Low On Surprises

It is always heartening to hear the British describe a disaster. Their cool makes it seem as though almost nothing had happened.

In the UK, shares of Lloyds shed a third of their value after it said the financial firm, HBOS which it purchased last year, would lose 12.3 billion before taxes in 2008.

The head of Llyods commented “Whilst we recognize that the short term outlook is more challenging, Lloyds Banking Group has the largest U.K. financial services franchise, with excellent long-term earnings potential.”

It sounded as if the bank had made a record profit.

But the big loss did happen. And, it happened after every government in every major nation in the world has gone over every big bank’s balance sheet. Huge problems are obviously still floating around undetected.

The Lloyds news is a warning signal that major US banks may not have booked all of the losses that the market expects. It is also shows that it is impossible to measure the real sum that the federal government will have to put into the banking system to make it solvent again.

A brief look at estimates from the IMF to US bank analysts to pessimists like Meredith Whitney and Nouriel Roubini shows that the spread of expectations about bank earnings, losses, and viability is incredible. So little is known about the future of the financial system that trying to get to the bottom of the trouble it is like looking for a white rabbit in a blizzard.

Douglas A. McIntyre