Three banks you could come to seriously regret working for by 2013

If the worst predictions turn out to be the true predictions, working for all banks could prove a source of imminent regret. With luck and small miracles, the worse predictions won't come to pass, there will never be another Lehman, and the ECB will buy as much Italian and Spanish debt as is necessary.

But if this doesn't happen and something nasty does manifest itself in the next 17 months, where might you want to avoid? Share price movements, CDS spreads, write down potential and general negativity all suggest the following. (On the other hand, these concerns may well be overdone.)

1) Bank of America (Merrill Lynch)

How bad are things really at what was formerly Merrill Lynch?

Not so bad at all - if you look at the performance of the investment bank alone. In the first half, revenues here fell a mere 6% year-on-year (versus an 18% decline at Citigroup) and profits fell a mere 11% (versus a 40% decline at Citigroup and a 48% decline at Goldman Sachs).

However, the picture is less beatific when expanded to encompass Bank of America as a whole. Since April, Bank of America's share price has fallen 44%. Today, its CDS jumped to their highest level since June 2009. Someone has started a blog titled Bank of America Death Watch.

The problem is Bank of America's enormous and increasing exposure to dud US mortgages. While the investment banking division made a profit of $3.7bn for the first half of 2011, the bank as a whole made a loss of $7bn.

As Bloomberg columnist Jonathan Weil pointed out last week, Bank of America's market capitalization is less than half of its book value, suggesting investors foresee further big writedowns to come.

This could create a need to raise more capital, and this could possibly necessitate the sale of Merrill Lynch? But who would buy it, and at what cost to jobs? Maybe it's best to escape now? Or maybe not.

The argument for Bank of America On the other hand, maybe it's not that bad at BAC.

Analysts at Creditsights maintain that even as Bank of America's mortgage repurchase liabilities grow, it has the balance sheet to handle them. The bank is allegedly about to reinstate its dividend, which should help its stock price. In the event that the US economy improves and US house prices stop falling, it could also benefit from its massive stock of US real estate.

2) SocGen

SocGen is also having a difficult time.

Its shares have fallen 30% since July 21st and today spreads on its CDS rose to record levels on concerns about its €1.85bn net Greek bond exposure and a seemingly apocryphal story in the Daily Mail (which has since been removed from the website) wrongly suggesting the French government was preparing a bailout.

Last week, SocGen announced a €395m pre-tax writedown on Greek government bonds and said its 2012 profit target would be, "difficult to achieve."

The argument for SocGen On the other hand, SocGen's corporate and investment bank isn't doing badly. While other investment banks foundered, its revenues rose 6.5% year-on-year in the first half. This was helped by the disposal of legacy assets, but even the global markets business achieved a 5.6% increase in revenues (vs. a 25% reduction at Goldman Sachs).

Dirk Hoffman Becking, an analyst at Bernstein Research says concerns about the bank are overdone and the, "the liquidity challenge to Societe Generale is likely to be materially less than peers'". He points out that the bank has increased cash levels by €23bn and its available for sale portfolio by €16bn since the end of 2010 to boost its liquidity buffer

3) Morgan Stanley

Morgan Stanley's share price is down a mere 20% since July. Revenue-wise, its investment bank didn't too badly in the first half and in the second quarter it achieved its fantasy of out-earning Goldman Sachs. However, as we've pointed out previously, Morgan Stanley appears to have ramped up risk at precisely the wrong moment.

In its 10Q document, released today, Morgan Stanley revealed that it still has $5bn of exposure to Portugal, Ireland, Italy, Greece and Spain and $3.5bn in other funding exposure to Europe. It also lost money on eight trading days in the last quarter and appears to have done incredibly well on one - suggesting volatile trading earnings.

The argument for Morgan Stanley: On the other hand, Morgan Stanley seems to be in far finer fettle than Bank of America.

By 2013, cost cutting in its retail arm should feed through to the bottom line.

In sales and trading it has the enviable status of a flow monster and should thrive even as margins are squeezed. And its M&A business is one of the best in the world.

Brad Hintz at Bernstein Research is a fan and rates Morgan Stanley outperform on the grounds that in future it, "will be less reliant on trading and have a lower-risk business model, will control the leading market share position in retail brokerage, and maintain its top ranking in M&A advisory and equity capital markets."

US analyst Dick Bove also thinks Morgan Stanley is really ace, largely on account of the strategic masterfulness of James Gorman.