Much has been made of bank exposure to FNM and/or FRE securities exposure. This is to be expected given the current state of affairs. The following examples of financial institutions and their exposure, as disclosed on or about July 20,2008 should be noted and applied towards any financial security considered for investment.

1.$Exposure 2.Pref. 3.Debt. 4.% of tangible equity


Wells Fargo (WFC) 480m 480m 0 n/a
Fifth Third (FITB) 68m 68m n/a 1.2
U.S. Bancorp (USB) 97m 97m 0 0.9
BB&T (BBT) 310m 0 310m 4.4
Sovereign Bancorp (SOV) 823m n/a 623m 14.5
M&T Bank (MTB) 352m 162m 190m 11.3
Synovus Financial (SNV)100m 100m 0 3.4
Huntington (HBAN) 350m 0 350m 14.8
WestAmerica (WABC) 45m 0 45m 16.4%
Valley National (VLY) 70m 70m 0 9.2%
EastWest Bancorp (EWBC)45m 0 45m 6.3%
Wilmington Trust (WL) 42m 0 42m 6.2%

These are but a few examples of financial institution equity tied up in the FNM/FRE situation. The point being, investors should inquire as to financial institution exposure to risky securities, and especially the amount of FNM/FRE exposure, before speculating in the stock. The latest available data may an incorrect picture of current circumstances. But one has to start somewhere, and the financials with the cleanest balance sheets should reign supreme as portfolio candidates.

Being able to raise capital presents another issue. Two days ago, I listed several regional banks that I believe are worthy of research leading to speculation. While there are doubtless others, many other banks simply will not be able to raise sufficient capital to maintain operations. 19% of the top fifty banks have cut dividends this year, and more may follow as the dividend payout rate for large banks is now at 62% of the historical median, compared to 42% norms of previous eras. BAC and SNV appear highly vulnerable to a dividend cut, to name but two. Total return of many will be limited.

Banks exposed to GSE preferred stock and other potential capital pressure are out there,but overall I believe the situation is manageable. Certain small banks that have problems raising capital and/or have a high exposure to GSE's may flop.Most at risk appear to include EWBC, MTB, SOV, VLY, WABC and WL.

This is not to say that the investor with a speculative inclination should not take a flier on banks that may turn out to be winners with total returns to make one appear to have been brilliant. What I am stating is that careful examination of current exposure to what amounts to piles of financial manure needs to be researched to avoid stepping into the dung as some proclaim the worst to be over in the financial sector.