"Lenders less likely to count funds from reserves in earnings" April 13, 2011|By Pallavi Gogoi, Associated Press
NEW YORK — A lot of big banks had a free ride to higher earnings the last few quarters. That could be ending soon.
As the economy gets better, investors want to see if banks can improve their core businesses of writing loans, issuing credit cards, and advising on corporate deals.
Several major banks including Wells Fargo & Co., JPMorgan Chase & Co., and Citigroup Inc. recorded substantial gains in income in recent quarters from accounting adjustments in their loan loss reserves.
Those adjustments, which are legal, reflected a decline in the likelihood that their borrowers would default on loans. That allowed banks to release cash from reserves that had been set aside to cover future losses, which increased their income.
Of course it’s a good thing in the long run for banks and the overall economy that borrowers are less likely to default. Now analysts are saying the benefits from these kinds of reserve adjustments may be winding down as the economy continues to improve.
And that is REALLY what is MOST IMPORTANT, isn't it?
Jason Goldberg at Barclays Capital suspects that some banks may have overdone it with the adjustments. “We wonder if some companies stretched to put up better results” in the fourth quarter, Goldberg wrote in a recent report.
Income at banks with investment banking operations will probably get a boost from a pickup in corporate deals in the first quarter. Consumers are also spending more, which means banks are probably earning more from charging interest and fees on credit cards. Increased demand from consumers also tends to lead to more borrowing from businesses.
But trouble in the housing market is sure to weigh on bank earnings. A sharp increase in mortgage rates over the past six months could hold back income from issuing new mortgages and refinancing existing ones. The average rate on a 30-year mortgage rose to 4.87 percent last week from 4.32 percent at the end of September, according to Freddie Mac. JPMorgan’s banking analyst Vivek Juneja said he expects the largest drop in income at banks to come from lower fees tied to new mortgages and a drop in the number of refinances.
Meanwhile, all 50 state attorneys general are continuing their investigation into allegations that banks bungled foreclosure proceedings. Analysts expect banks to pay fines, but it’s unclear how big they will be.
Higher investment banking revenue should boost earnings at some banks. Global investment banking revenue reached $19 billion in the first quarter, up 19 percent from the first quarter of 2010, according to the research firm Dealogic. Global mergers and acquisitions volume totaled $809 billion in the first quarter, up 28 percent from the same period last year....
Wow, there sure is a lot of money floating around out there.
--more--"
And where it is flowing into:
"Bank of America Corp. earned $1.7 billion in the first quarter"
If you can call usury and theft earnings.
Also see: BoA Backstabbings
"Citi’s earnings drop less than forecast" April 19, 2011|Bloomberg News
NEW YORK — Citigroup's first-quarter earnings net income was $3 billion....
Chief executive Vikram Pandit relied on $3.3 billion taken from reserves for future losses to generate Citigroup’s fifth straight profitable quarter....
Citigroup, the biggest recipient of taxpayer bailouts....
Bank of America, the largest US lender, last week reported a $2.05 billion profit for the first quarter, while JPMorgan Chase, the second-largest, made $5.56 billion.
BoA must have revised it up, huh?
Related: JPMorgan Chase posts record profit
JPMorgan gives boss $17m stock bonus
Wells Fargo, the fourth-biggest lender, may report a $3.66 billion profit on April 20, according to analysts....
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"Goldman Sachs’ first-quarter income fell to $908 million.... In the first quarter, Goldman set aside $5.23 billion for compensation."
Aww, poor Goldmans didn't clear a billion for the quarter -- but you did see how much they put aside for compensation (is that what they are calling theft these days?).
Also see:
Stocks rally to nearly a 3-year high on earnings
Weak revenues, loan growth keeping investors away from big banks
I don't what sort of sophistry they are selling there.
