Bank Stocks
Bank of America (NYSE: BAC) May Never Fully Recover
Bank of America (NYSE: BAC) has been working hard to regain its profitability and stature, but a better-than-expected earnings report isn't enough.
On Thursday the company reported earnings of 3 cents a share. Revenue came in light at $22.28 billion.
Although analysts were looking for 12 cents a share, several weighed in saying that a $4.8 billion charge known as debt valuation adjustment (DVA) complicated the earnings report. Some say BofA actually beat core earnings expectations.
Evercore analyst Andrew Marquardt wrote, "Our initial view of core is closer to 26 cents."
Return on average equity of 11.05% beat fourth-quarter results, but was less than the 15.41% return the bank posted for the first quarter a year ago. BAC succeeded in reducing its credit-loss provisions to $2.42 billion from $3.81 billion in the fourth quarter.
"You had very favorable tailwinds in the fixed-income markets and so trading revenues are very strong for this universe right now," Charles Peabody, an analyst at Portales Partners LLC in New York, said in a Bloomberg Radio interview. "There's no question the earnings that are being reported are very good — the question is the sustainability."
Despite beating estimates with its first-quarter earnings, BofA has struggled more than its counterparts in the wake of the financial crisis. The damage may be too much to allow the bank to grow to as big as it once was.
The Banks Win, Again
Finally, some well-deserved help for beleaguered monster banks is on its way.
Make that, well on its way.
Those poor big banks accidently and inadvertently got caught up making so many easy loans to deserving, hard-up borrowers, who wanted to buy overpriced dream homes, and a few million other folks who deserved two homes and McMansions to keep up with the Joneses (you know the Joneses… most of them were "friends of Angelo").
But now, at last, the banks are making profits again.
After suffering the indignity of insolvency and near collapse for all their hard work, the New Samaritans are still being haunted by their generosity, as regulators hound them into settlement submission, merely for doing God's work.
So, what's the good news?
The second quarter may be a good one for the three biggest servicer banks, namely Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and – the little bank that could, run by that kid named Jamie – JPMorgan Chase (NYSE:JPM).
What's strange is that these do-gooders are being helped by some of the same government folks who are still attacking them in public venues where voters hang their hats.
What's not strange is that tons of underwater homebuyers, who are drowning in debt on dwellings whose prices have fallen 30% to 40%, aren't blaming banks and are running to their rescue.
Okay, maybe they're not running, maybe it's more that they're being corralled, like sheep. But either way, they are helping banks fatten their profits pools (make that bonus pools) again.
They're repaying the banks' favor of giving them loans in the first place by coming (more like being forced) back to the banks to get refinanced on better terms.
But they're not doing it on their own. The banks have a partner helping to round up their old customers and corral them into the breeding profits barn.
That Partner is HARP 2.0
The original Home Affordable Refinance Program, which was launched in April 2009, failed miserably (because there was nothing in it for banks). But the powers that be (the banks… DUH) harped for a new HARP, and they got it last November.
The new program is known as HARP 2.0 (that's because it's twice as profitable for the big banks that sunk the economy and the world under Housing Bubblemania 1.0).
Okay, enough sarcasm; let me slice and dice this succinctly for you.
Premium
Robo-Signing is the Tip of the Iceberg for the Banks
What may be good news for delinquent credit card holders may also be really bad news for banks.
It turns out the "robo-signing" of foreclosure affidavits is just the tip of the iceberg.
In what one judge called "robo-testimony," falsely attested-to statements by bank document custodians have been submitted in courts around the country by banks trying to win judgments against delinquent credit card debtors.
Apparently, tens of millions of credit cards issued by banks have not been accompanied by good recordkeeping, either.
Chasing down delinquent borrowers in court requires original credit agreements and accurate payment histories to verify outstanding balances and claims.
As it turns out, banks aren't providing them – either to the courts or to third-party debt collection companies that buy uncollected debts for pennies on the dollar.
As a result of these shoddy practices, judgments already granted to banks could be overturned and they could be sued by state attorney generals or pursued by the Consumer Financial Protection Bureau.
The same banks could even be potentially charged by the Justice Department under the Racketeer Influenced and Corrupt Organizations (RICO) Statutes for selling dubiously documented accounts to debt collection companies.
While some debtors will take comfort in what they read here, investors in banks may want to question how legal issues and regulatory investigations will impact their stocks.
JPMorgan Chase (NYSE: JPM) Earnings: Don't Be Misled by Sagging Banking Sector
As the grim bank earnings roll in over the next couple of weeks, beginning with JPMorgan Chase & Co. (NYSE: JPM) tomorrow (Friday) morning, don't fall into the trap of thinking the financial sector's woes in the last quarter reflect a sinking U.S. economy.
While bank earnings are usually a good barometer for the nation's economy, many of the factors weighing down financials, such as tougher regulations and the Eurozone debt crisis, aren't necessarily a reflection on U.S. economic activity.
In fact, according to the U.S. Federal Reserve's Beige Book report, released Wednesday, the overall economy at the end of last year continued to improve slowly but steadily.
Friday the 13th for the Financials
Analysts have been consistently lowering earnings expectations for all the big banks in recent weeks.
"Friday the 13th will live up to its name when it comes to bank earnings," Mike Mayo, an analyst with independent research firm CLSA in New York, told Bloomberg News. "You're going to see all sorts of revenue and margin pressure and the results will be underwhelming."
The consensus estimate for JPMorgan, the nation's biggest bank by assets and a bellwether for the industry, has slid from $0.97 per share to $0.94 per share in the past month; three months ago the estimate was $1.11 per share.
That puts JPMorgan's earnings below the $1.02 per share of the previous quarter and well below the $1.13 of the year-ago quarter. JPMorgan's revenue is expected to drop 20.8% from first-quarter 2011.
And as disappointing as that sounds, JP Morgan will be one of the strongest performers this bleak bank earnings season, which follows a year in which some bank stocks fell more than 40%.
As the other major U.S. banks report earnings next week – Citigroup Inc. (NYSE: C) and Wells Fargo & Company (NYSE: WFC) on Tuesday, Goldman Sachs Group Inc. (NYSE: GS) on Wednesday and Bank of America Corp. (NYSE: BAC) and Morgan Stanley (NYSE: MS) on Thursday — the din of negativity will be hard to ignore.
Banks Catch a Break with Long Timeline for Implementing Basel III Regulations
Global regulators on Sunday agreed on new banking capital requirements – known as Basel III – that were much less severe than expected, boosting global financial stocks as investors were optimistic about banks' ability to comply. The Basel Committee on Banking Supervision agreed on new rules that will more than triple capital requirements to give [...]
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