Bracing for More Bad News From Banks

Storm clouds continue to gather over the economy and the market. With the major indexes near their 52-week lows and their lows for the year to date, the market is telling us that the worst of the credit crisis may not be behind us. Here are some of this week's highlights.

• Treasury Secretary Henry Paulson called for more Fed regulatory authority to foresee and prevent a crisis of a large non-bank financial company, a la Bear Stearns. The secretary warned that the Fed must be prepared to facilitate the orderly failure of a large investment bank.
  
  I suppose that it is his job to expect and prepare for the worst, and it's only prudent. But it just doesn't instill a whole lot of confidence in the future to know that this is what the treasury secretary is thinking about.
  
• UBS (NYSE: UBS) analysts forecasted more huge writedowns for Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER) in the second quarter. They also predicted that JPMorgan Chase (NYSE: JPM), a bank that has navigated the crisis relatively well, will write off $1.4 billion for the quarter. Second-quarter bank earnings look increasingly dismal. If current projections prove true, it means that the credit crisis may have a long way to go yet, and we may not even be through the worst of it. That's bad. 
  
•  Deutsche Bank (NYSE: DB) preannounced a second-quarter profit, and said that it would not have to raise any additional capital. The German bank is one of the rare bright spots in the industry. It certainly makes the other banks look bad, by proving that it was possible for a large bank not to behave in a greedily irresponsible manner during the boom times. Good for you, Deutsche Bank.
  
• UBS announced that it is shaking up its board of directors. Four of the 12 members will step down as the bank undergoes a purge in the decision-making apparatus that got it into this mess. The Swiss bank joins Merrill, Citigroup, Washington Mutual (NYSE: WM), and Wachovia in shaking up upper management to try to convince shareholders that things are changing. I'm all for it. Should have done it sooner.
  
• Lehman (NYSE: LEH) announced that it will award its employees a midyear stock bonus. The stock is down 66% for the year already. The bonuses reward employees for hanging in there and give them some shares at dirt-cheap prices. If the bank survives, this would be fantastic for the employees. Otherwise, it will be like paying them Confederate money.

Second-quarter earnings results begin rolling in next week. The current state of the credit crisis will begin to reveal itself as we analyze the results. Stay tuned. Have a fantastic Fourth of July!

Related Foolishness:

• UBS Purges Board
• Why Paulson's Plan Works
• Lehman, You Just Don't Get It