Showing posts with label Banking. Show all posts
Showing posts with label Banking. Show all posts

06/07 US Banks Edging Toward Loan Growth

Published: Wednesday, 6 Jul 2011 | 12:08 AM ET

By: Reuters
Major U.S. banks appear to be finally opening the lending spigot.
Second-quarter earnings reports due this month are likely to reveal a slight reversal of the long-term shrinkage in bank loan books, one of several positive signs for investors, bank analysts said.

A number of other long-term clouds over the weakened banking sector may be clearing. Credit quality is on the mend, signaling that many large banks will bolster their bottom lines with money that had been reserved to cover losses on bad loans.
And Bank of America's [BAC  11.00    -0.09  (-0.81%)   ] startling $8.5 billion settlement with mortgage bond investors last week adds clarity and may spur rival banks to clear up their own legal liabilities from home loans.
Another big question mark — how much banks will be hurt by a new law limiting debit card fees — was answered last week when regulators finalized rules that were not as ferocious as initially proposed.
"We're chipping away at the problems here," said analyst Jason Goldberg of Barclays Capital.
The earnings reports begin on July 14 with JPMorgan Chase & Co [JPM  41.03   -0.55  (-1.32%)   ].
Danger Signs
Banks, of course, are far from being in the clear. Weak fixed-income trading and market volatility are believed to have weighed heavily on the biggest banks in the second quarter, while their net interest revenue continues to be pummeled by low interest rates. And low rates are expected to continue for the indefinite future.
A growing loan book, however, could cover a multitude of woes. The Federal Reserve said last week that loans and leases in bank credit grew about 1 percent on an annual basis in both April and May, with the biggest growth — over 11 percent each month on an annual basis — coming from commercial and industrial loans.
Real estate lending is still shrinking, and consumer lending, while stabilizing, is still tepid. Consumer lending grew just 0.1 percent on an annual basis in the second quarter, primarily from increases in credit cards and other revolving loans.
"Banks are beginning to lend again and that's a good sign," said Timothy Ghriskey, co-founder of Solaris Group, which owns bank stocks. "There are a lot of issues out there that still have a potential impact on future earnings. This is going to take years."
Large banks are starting to loosen their standards for credit card applications, according to a Fed survey of senior bank loan officers in April.

JPMorgan Chase, widely considered the strongest of the top three U.S. banks, is expected to report a second-quarter profit of about $1.22 per share, up from $1.09 a year earlier, according to Thomson Reuters I/B/E/S.
Citigroup [C  42.57    -0.31  (-0.72%)   ] will be next to report, on July 15, and is expected to post a profit of 97 cents per share. A year earlier it earned 90 cents, adjusted for 1-for-10 reverse stock split in May.
Bank of America's mortgage settlement will likely bring it to a quarterly loss of $8.6 billion to $9.1 billion, or 88 cents to 93 cents per share. It reports on July 19.
Regional banks such as US Bancorp [USB  25.59    -0.47  (-1.8%)   ] and BB&T[BBT  27.13    -0.21  (-0.77%)   ] could be the biggest beneficiaries of loan growth since they won't have large trading businesses offsetting increased lending fees. Even Regions Financial [RF  6.17    -0.13  (-2.06%)   ], the only one of the 19 largest U.S. banks that has not yet repaid the government bailout it received during the financial crisis, is expected to see its loss shrink to 1 cent per share. It lost $335 million, or 28 cents per share, in the comparable 2010 period.

Kitchen-Sink Quarter
Investors breathed sighs of relief last week over two costly developments that answered questions long weighing on the banking sector.
BofA complemented the$8.5 billion settlement of mortgage repurchase claims from institutional investors with notice that it would take an additional $11.9 billion of charges for other mortgage settlements, and write down the value of its 2008 purchase of Countrywide Financial, among other items.

The settlement put a ceiling on what other banks, including JPMorgan Chase and Wells Fargo & Co [WFC  28.42    -0.25  (-0.87%)   ], could be expected to pay to resolve their own legal issues, investors said.
"Everyone can assume that Countrywide was as bad as it got ... that's the worst-case scenario," said Nuveen Investments analyst Alan Villalon.
On the same day that BofA announced its settlement, the Fed unveiled final guidelines for its long-debated crackdown on fees that banks can charge merchants who accept debit cards.
The rules on the "swipe" fees, mandated by the 2010 Dodd-Frank financial reform law, are expected to shave $9.4 billion from an estimated $23 billion of annual debit card processing revenues in the banking industry, according to CardHub.com. That's far better than the $14 billion hit that many analysts had forecast.
New capital surcharges from bank regulators, announced last month, also resolved some questions about global regulatory requirements banks will have to meet. On top of a base of 7 percent risk-based capital that banks must set aside, the biggest banks will have to add as much as an additional 2.5 percent, depending on size and risk.
"That's been the largest overhang on these stocks, just the unknowns that are out there," said Jason Ware, equity analyst at Salt Lake City-based Albion Financial Group. "On the debit card fees, the banks got a gift. With the capital guidelines, we're starting to get some numbers we can use."
Large banks are starting to loosen their standards for credit card applications, according to the April Fed survey.
Undervalued?
The main thing going for bank stocks today is that they have been beaten down to cheap valuations, according to some analysts. Large banks on average are trading at about 1.25 times tangible book value, according to Nuveen's Villalon, while Citigroup and Bank of America are closer to a multiple of 0.85. JPMorgan Chase is trading at about 1.33 times tangible book, he said.
As Ghriskey notes, however, uncertainty about the economy and regulatory developments still loom over bank stocks.

Trust banks such as Bank of New York Mellon [BK  25.70    -0.36  (-1.38%)   ], State Street [STT  45.13    -0.82  (-1.78%)   ] andNorthern Trust [NTRS  45.77    -0.73  (-1.57%)   ], which avoided many of the credit issues weighing on their competitors, are grappling with the same pesky issues that have dogged them for several quarters: low interest rates and few remaining opportunities to trim expenses.
State Street and BNY Mellon also have an overhang of lawsuits accusing them of overcharging pension funds on currency trading.
In coming years, analysts expect trust banks will have to adjust pricing for a number of products they sell, with currency trading likely taking in less money.

Copyright 2011 Thomson Reuters. Click for restrictions.


CONTINUED: Kitchen-sink quarter


SECTORS:Financials

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04/06 COLUMN - Can Deutsche Bank take Goldman's crown?


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Management Tips

Bad day at work

Bad day at work

When nothing goes right, avoid taking the stress home.  Full Article 
The Deutsche Bank headquarters in Frankfurt are pictured April 28, 2010. REUTERS/Johannes Eisele/Files
By Keith Mullin
LONDON | Sat Jun 4, 2011 9:38pm IST
(Reuters) - The noise in and around Deutsche Bank's AGM last week was all about who's going to replace Josef Ackermann when he retires in 2013. To be honest, everyone seems to be getting a little fractious around the subject. I touched on it back in March as part of a broader piece about succession and recent changes at the top of the investment banking industry. (As I recall, I took some heat for my comments!)
You get the impression there's a lot going on behind the scenes at DB. But as there's little concrete news at this point, I thought I'd focus instead on an intriguing comment Ackermann made at the AGM in response to a question.
Someone asked if Deutsche Bank had the potential to rise to the top in investment banking, to which Ackermann replied: "I can imagine that one day we could overtake Goldman Sachs". At the same time as a vague-ish question might deserve a vague answer, and to the extent that it might have caught him off guard, Ackermann's heavily hedged response was hardly the kind of upbeat response you might have expected from a CEO in front of his shareholders.
The first thing to note is that Ackermann sees Goldman as the firm to beat. No surprises there; that's generally, if begrudgingly, accepted across the industry. But it's interesting nonetheless to hear it validated by a rival bulge-bracket CEO. It's unclear whether the questioner meant investment banking in its narrow sense as in advisory or whether it was a broader question about all activities undertaken by investment banks, but an avid industry watcher like me needs no second invitation.
So I took a look at the year-to-date deal volumes and fees earned by both houses across advisory and capital markets, as well as reported Q1 trading revenues. While it's not exactly a one-sided contest, there's no doubt that Deutsche Bank has some way to go to catch Goldman, which in fairness will take some beating by anybody. GS generated net revenues from advisory, capital markets and trading of just shy of $10 billion in the first quarter of 2011, while Deutsche came in at $7.8 billion. That quantum of difference has been pretty constant over the past five quarters.
However you cut M&A or equity capital markets (ECM), Goldman is well ahead of the field, both from a league table and revenue perspective. Debt capital markets (DCM), one of Deutsche's marquee products, is a different story. Goldman inhabits the bottom half of the top 10 or below in league tables and doesn't profess to be a flow DCM house, unlike DB. Over the past five quarters, Deutsche has averaged +24 percent to GS in debt underwriting in net revenues terms.
In advisory and equity underwriting, though, the differences are more marked in GS's favour. In advisory, GS has on average reported net revenues two-and-a-half times bigger than DB's. In equity underwriting, GS has averaged +72 percent. On the hard performance data, in summary, it's hard to see anyone taking Goldman's crown at this point across the range of product segments.
NOW OR NEVER
Of course, the "world's best" accolade carries with it a whole range of issues like legacy, history and reputation. These softer issues make it notoriously difficult to persuade naturally conservative corporate clients to switch their allegiances. It takes time and patience. Investment banks need to nurture clients over years, often involving offering services and support pro bono to start with in the hope of getting business in the future. To become the trusted advisor that puts you at the centre of your client's world is a long haul.
But there are a lot of people out there forecasting the demise of Goldman Sachs. I've been arguing for some time that if anyone's going to get Goldman, it won't be competitors; it'll be regulators and politicians backed by the baying crowd. The deafening cacophony of criticism directed at the firm is pretty damning.
For the past three years, Goldman has been repeatedly held up as the epitome of everything that's wrong with Wall Street and the global financial industry. Even if a lot of criticism is misguided, wrong or plain vindictive, you get the impression that if it goes on for long enough, it'll have to have some sort of impact.
At this stage, there's no hard evidence that Goldman is losing clients. But you do wonder where it's all going to end. New York prosecutors on Thursday asked it to explain its behavior in the run-up to the financial crisis, while Democrat Carl Levin's Senate subcommittee has claimed -- totally spuriously in my view -- that Goldman offloaded much of its subprime mortgage exposure to unsuspecting clients as the market for such securities was starting to tank. Add to that, the fact that the full effects of Dodd-Frank haven't yet kicked in.
Of course, Deutsche Bank has been implicated or is under investigation for a host of supposed misdemeanours, and recently lost a case in the German courts over a structured derivative it sold to a client. So it's not as if DB is in the clear on the reputation front.
All of that notwithstanding, though, I get the impression that if things are going to change, the next year or two offers the best opportunity for some considerable time. This could be the perfect time for competitors to turn up the heat.
(Editing by Joel Dimmock)
(Keith Mullin, Editor at Large, International Financing Review. The views expressed are his own).
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10/04 Vickers Banking Commission report to back 'firewalls'

10 April 2011 Last updated at 11:06 GMT

Click to play

The BBC's Robert Peston can reveal some of the proposals ahead of the announcement

Big Banking

An interim report from the Banking Commission due on Monday will not support the total break-up of Britain's biggest banks, the BBC understands.

Instead it will favour ring-fencing their risky investment banking operations, so they do not jeopardise the savings of ordinary depositors.

The move will still cause anger at big banks like Barclays, according to BBC business editor Robert Peston.

It means their investment banking units will find it more expensive to borrow.

"I understand that the Commission will recommend that within megabanks like Barclays, HSBC, or Royal Bank of Scotland, new legal barriers - or 'firewalls' - should be constructed," our correspondent said.

"So that if a crisis occurs in the investment bank it can't hurt our savings in the retail bank."

Danny Alexander, Chief Secretary to the Treasury, declined to comment on the report's details ahead of official publication.

But he told the BBC's Andrew Marr programme on Sunday that the government would put the interests of taxpayers' ahead of the interests of banks when considering a bank restructuring.

"The government will take its obligations to taxpayers first. It is in the interests of taxpayers that will be uppermost in our mind in responding to this report, in taking this issue forward, not the interests of the banks.

"We set up this commission because we have a serious problem which has caused enormous damage to our economy. These banks' balance sheets are 5 times the size of the British economy. We have to act on that and we certainly intend to," Mr Alexander said.

Universal risk

The Commission of five economists and bankers, chaired by former Bank of England chief economist John Vickers, was tasked with considering a full-scale break-up of banks - something Liberal Democrats had called for in their election manifesto.

The concern is that "universal" banks such as Barclays, which combine ordinary retail banking with investment banking, benefit from an unfair government guarantee.

“Start Quote

Parts of a universal bank such as Barclays, Royal Bank of Scotland and HSBC... would always be bailed out by taxpayers ”

Markets believe the government would never allow a big retail bank to go bust, because of the resulting losses to depositors and the disruption to the payments system.

But this guarantee means that the universal banks can borrow more cheaply, and use that money to fund their highly profitable, but more risky, investment banking businesses.

The new 'firewall' arrangement is intended to eliminate the possibility of losses at the investment banks being borne by the public purse.

Rating downgrades

It is expected that the Commission will recommend requiring the banks to put their investment banking operations into a separate subsidiary company that they own.

The subsidiary would have its own capital, which could be used by it to absorb losses, but which would be allowed to go bust if it became insolvent.

Barclays' chief executive, Bob Diamond, was bitterly opposed to the move in evidence he gave to the Treasury Select Committee in January.

It would force the banks to raise more capital for their investment banks, something the banks see as expensive and painful.

And markets are likely to see the ring-fenced investment banks as riskier credits, making it more expensive for them to borrow and undercutting their profits.

Rating agencies will be looking carefully at the report to understand how it affects the chance of banks being rescued by the government in future financial crises.

One agency, Moody's, said on Thursday that it will review ratings for 19 UK banks this year in light of the tougher regulatory environment, with many likely to face large downgrades.

The ring-fencing may mean that rating agencies give investment banks separate - and lower - credit ratings than their parent banks.

Lehman Brothers

However, critics may question whether the move will achieve its intended purpose.

It is unclear how strictly a retail bank would be restricted from supporting its investment bank - for instance through loans, guarantees or capital injections during a financial crisis.

Moreover, some may query whether the government itself would refuse to rescue a big investment bank during a financial crisis.

Former US Treasury Secretary Hank Paulson was heavily criticised for allowing the investment bank Lehman Brothers to fail, sparking the global financial crisis in September 2008.
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