our neighbor’s house, banks and Grexit

This post could also be titled, “Why bank stocks have never been my favorites.”

a mortgage loan story

There’s a house down the street from us that has been empty for the past seven or eight years.  It’s worth maybe $150,000.  The former owner stopped making mortgage and property tax payments in 2008(?), mailed the keys back to the bank that gave him the loan and left for another part of the country.

The local sheriff has seized the house for non-payment of taxes, which total maybe $20,000, and has tried to auction it off a number of times.  The minimum bid, which no one has offered, is the taxes owed.

Why no bidders?

The bank still has a lien on the house for the $300,000 mortgage it granted almost a decade ago when all the loan craziness was going on.

why I don’t like bank stocks

The bank is apparently still unwilling to recognize the loss it made on this loan.  I presume this is because if its books were scrubbed of all the similar dud loans it is carrying, the bank’s financials would look pretty awful.  So it pretends the loans are still good.  To some degree, but not totally, investors can see through the pretense and the bank’s stock (I don’t know which bank) probably trades at a discount to book value.  But the reality is hard to see from the outside.   This is why bank stocks make me uncomfortable.

from Brexit to Grexit

What does this have to do with Grexit?

Bank stocks throughout the EU plunged when the “Leave” side won in the Brexit vote.  That has very little to do with the UK, in my opinion.  But if Britain can leave the EU, so too, can Greece, whose economy has been moribund for close to a decade.  Leaving would allow Greece to devalue its currency and thereby give its economy at least a temporary boost.  That would only work if the country defaulted on its sovereign debt at the same time.  So default is a probable consequence of Grexit.  That would be very damaging to the EU banks whose vaults are stuffed with Athens-issued bonds.

 

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