Chillin' out till it needs to be funded
BofA in fact reported its credit losses and net charge offs at $8.11 bn and $9.56 bn after decreasing provisions to make earnings grade. With improving credit quality the non performing leases, and loans plus foreclosures were still $35.6 billion.
Univ of Michigan Confidence at 66.5 from 75, Housing Market Index at 14 from 22..these economist tricks and treats do keep people glued to the world wide web, but the economy is going down, yet again. Deflation threats seem to face the World’s strongest Economy and the American Economists are united in thinking the tough days ahead “will not be a double dip recession” but things would be tougher as the fiscal stimulus is withdrawn. Well I believe we are making a yet fundamental mistake. If I knew you could not lower interest rates further ( and we have a 20 year long example from Japan showcasing very much the same economy and the same “yen”) I would definitely ask you to sell lower knowing you couldn’t take it. Not that in a mature treasuries market such ransom is being played out but it is clear that one of the key constraints could be removed overnight if we just decided to peg a 5% minimum on the fed rates , that would even observably reflect the systemic risk, we would be in a better place without flooding the markets with assets, currency and purchase requests for treasury bills we do not need. A Mad hatter if ever there was one, the idea has merits so I stuck my neck out. Additional examples from Australia (doing well in this crisis) or India ( doing well since 1947, never better though 🙂 ) or China which never considered cutting down rates after a certain time must be old hat for US economists who never seem to discuss the idea in the event of US pride and the Dollar getting that it in the knees.
However in other such ransoms with positive expectations of profit, J P Morgan is finally letting the cat out of the bag about not being able to afford London and Canary wharf. After having lost 26% of trading revenue, 37% in equity underwriting and 8% in year on year revenue, JP Morgan would need strong incentives and not back breaking regulation costs to justify moving to London. This far ahead in the reforms even David Cameron and Vince Cable would find it difficult to retract government’s paws form other banking players lard and try to give a fair listen to the Cazenove shermans, and so that is unlikely to go any other way now. India and China continue to draw crowds for J P Morgan, especially after the cuts in trading revenues at JPM and their banking cousins Citi and Bank of America. That of course, does not make me blind to the fact that J P Morgan have a large Chase legacy with functioning retail and commercial businesses but right now I would just focus on the plagued revenues at banks in the second quarter that prevented us from reporting interesting times at Citi, Bank of America or others before Goldman Sachs reports tonight. We all know GS is headed south but with the financial regulation bill nearing completion they would be the likeliest ones to make a comeback first and this time with significant investment banking revenues as well, having partaken Tesla and CBOE IPOs in the last quarter
Bank of America is rumored to lose $5 to $10 billion in revenue from the new Consumer Finance Protection agency and terms on new debit card fees. But before that it cast a gloomy friday on global markets with atiny $1.2 billion trading profit ticket down 75% from Q1 and a net profit of $3.1 billion, much of it on restated loan reserves that would reduce the provisions for losses as distance from the crisis gets bigger. The BofA mortgage bank reported losses of $1.5 bn with $854 m spent in repurchasing mortgages unlikely to go anywhere. That said, JPM’s mortgage unit made profits and Goldman Sachs is going to open tonight without any loss making divisions. Outstanding loans again fell for BofA across credit cards, mortgages and commercial loans
Citi wasn’t as bad as Bank of America, with $2.7 billion in profits only riding a -10% on last quarter’s $3 billion. With its reduced reliance on trading, it did not have to suffer any losses in revenues so the deterioration there is a question mark. Though with better retail performance, they are the likeliest candidates to stay the course of recovery and even win a few key markets where they have been strong esp outside the US where action is focussed now. Citi infact reported increased profits of 9c a share from estimates that had taken its 14c Q1 to a 5c Q2, outscoring analysts with a 80% uptick but could not save the market from crying wolf in the middle of downtown. Tier I Capital has improved to 12% and Tier I Common also 9.7% vying with Dimon’s international Cartel for a place in the sun for posterity