Bank Consolidation and Jupiter in Capricorn
With the Moon in Venus-ruled Taurus (banking) today, I thought it would be a good time to elaborate on a Reuters story (“US plan may slow fire sales but spur bank mergers”) describing how Treasury Secretary Paulson’s TARP could spur bank consolidation.
Treasury’s $125 billion capital injection into what Paulson describes as “nine healthy banks” particularly benefits what I call “the big four” – Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC). By injecting capital into the nation’s largest banks, the government has solidified the perception that these institutions are “too big to fail.” Indeed, Mercury retrograde marked a reversal in the Bush Administration’s attitude that any government money injected into institutions must be highly punitive to placate the god of moral hazard. Venus (banking) and Mars (action) in Scorpio now reflect Paulson not being fully forthcoming about why he injected capital into weaker institutions such as Citigroup, Goldman Sachs (GS), and Morgan Stanley (MS) when he said that the government would only inject capital into strong institutions.
Today’s Wall Street Journal reports an increase in deposit outflows from smaller banks into the largest institutions. At Wells Fargo, deposits increased by $14.45 billion in the quarter ending September 30, despite the fact big banks typically pay lower interest on savings. It will be interesting to see if the too little, too late (for IndyMac Bank, WaMu, and Wachovia), and too temporary* moves by the FDIC this month to increase individual deposit insurance coverage to $250,000 and unlimited insurance coverage on non-interest bearing accounts, ** will decrease the flow of deposits out of smaller banks and into big banks.
The government facilitated and backstopped big bank acquisitions, such as JPMorgan’s acquisition of Washington Mutual and investment bank Bear Stearns. A recent ruling by the I.R.S. provided a big impetus for Wells Fargo to make a much stronger offer than Citigroup’s to acquire Wachovia (WB), as acquiring banks now receive an immediate tax benefit from the target company’s loan losses and bad debts rather than over the course of multiple years.
The primary drivers of the business cycle are Jupiter (expansion) and Saturn (contraction). Since December 2007, Jupiter has been constrained in Capricorn, an earth energy ruled by Saturn. Capricorn and Saturn represent organizations with large and complex structures, such as governments and large corporations. Jupiter in Capricorn indicates corporate contraction and consolidation where the largest (Jupiter), financially fittest, or government assisted institutions, survive. Capricorn relates to status, reputation, and the highest rank, such as the government making capital injections in the form of senior preferred stock.
Jupiter energies tend to get carried away in excess and exaggeration. This energy likes to radiate optimism, but Jupiter transiting Capricorn tends to exaggerate Saturn’s cautious and pessimistic outlook. With Saturn in Virgo since September 2007, a lack of trust (Jupiter) and fear (Capricorn) has arisen due to uncertainty over how healthy banks’ balance sheets really are (Virgo). The collapse of Lehman Brothers at the Harvest Moon emphasized the energies of Saturn in Virgo opposing Uranus (shocks and sharp price movements) in Pisces (credit). Credit means “to believe,” and these energies represent the severe tightening by banks to issue credit even to the largest corporations, along with banks reluctance to lend to each other. The government fears that lending to weaker institutions will defeat its purpose of distributing capital to generate new loans, as those types of institutions would retain the money to build their Tier 1 capital base.
After a brief sojourn earlier this year, Pluto (debt/lending/mergers) will re-enter Capricorn on November 26 until 2024, transforming financial and governmental structures. The world will go from loose and lax regulation to enforcement of highly structured regulation of banks and the overall financial system. Jupiter will be in Capricorn until January 5, 2009, when it will enter Aquarius (until January 17, 2010). Before Uranus was discovered, Aquarius was also ruled by Saturn. Saturn opposing Uranus until mid 2010 is likely to keep the economy and the financial system constrained. With Jupiter in Aquarius conjoining Neptune throughout 2009, the government is likely to demand that institutions receiving government assistance have societal obligations. Requiring that banks must make mortgage modifications where financially feasible is one example. (In a Wall Street Journal interview today, FDIC Chairwoman Bair made it clear this is what the government should be doing.) Smaller banks with strong operations and IT systems are likely to get absorbed by the big banks.
*The deposit insurance increase provision in the TARP expires December 31, 2009.
**Banks who wish to offer unlimited FDIC coverage on non-interest bearing accounts have the ability to opt-out of participating. This coverage also expires December 31, 2009.