“This is going to be one of the more interesting quarters, because over the last 12 to 13 months, bank stocks have roughly tripled because of an expectation that loan-loss provisions are going to come down and earnings are going to be quite good,” Bove told CNBC.

“And while that may be true, it’s not going to happen in the first quarter.”

“You’re going to see weak loan volume, stress margins, continued problems with the loan-loss provision and even problems with non-interest incomes.”
“If you look within the banking industry, it is the worst banks that are doing the best,” noted Bove. “But it’s the companies that have had the worst loan-loss provisions and have shown no improvement in earnings that will continue to lose money.”

“Inflation is already back,” he added. “If you were to take out housing in the CPI number, it’s up 4.5 percent—so inflation is back and interest rates are going to go up meaningfully. And that’s going to be very beneficial to the banks, because inflation will help raise real estate prices and higher interest rates will improve their lending curve.”

Starting today, underwater homeowners will be permitted under a government program to sell their homes for less than they owe and basically force the lender to take the loss rather than foreclose on the home. Shari Olefson, of Fowler White Boggs, and Susan Wachter, a real estate professor at Wharton, discuss.

“Case Schiller aside, we expect housing prices to fall another five percent in the coming months,” says Paul Dales, US economist at Toronto based Capital Economics. “We’ve actually seen some declines in areas of the country. That’s going to put a halt on any housing recovery.” “There’s going to be less demand for housing when the tax credit ends,” Dales says. “That leaves more home on the market for sale. And as to foreclosures, there will be more of them and that puts pressure on prices. We estimate about 2.5 million foreclosures through the rest of 2010.”

“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending.”
“I’m one of those people who never liked public-private partnership to begin with. I think what they did was use public when public was useful and private when private was useful,” she said. “And I think we’ve got to rethink that whole thing.”

“There is no implicit guarantee anymore,” she added. “I don’t care how big you are, if you make serious enough mistakes, then your business can be entirely wiped out.”

Bernstein report:

A higher than expected yield on a five-year auction is sending treasuries lower today, with CNBC’s Steve Liesman and David Zervos, Jefferies Head of Fixed Income Strategy.

It seems somehow poetic to me that on the very day the TARP watchdogs (sorry, Office of the Special Inspector General for the Troubled Asset Relief Program) releases a report that just rips the Treasury’s $75 billion Home Affordable Modification Program, Bank of America announces it will begin writing down principal on thousands of loans.

Fannie Mae and Freddie Mac will be the subjects of a Congressional hearing Tuesday morning, when the House Financial Services Cmte. looks at restructuring the troubled GSEs. Rep. Paul Kanjorski, D-Pa., gives CNBC a preview.

The financial reform debate is heating up as the mark up of Sen. Dodd’s bill begins today. Sen. Bob Corker, R-Tenn., and Sen. Evan Bayh, D-Ind., share their insight.