Receiving Wide Coverage ... Back on track: Hedge funds recorded their eighth consecutive monthly increase in returns, their longest winning streak since early 2004. Investors also stopped pulling their money out following six straight quarters of withdrawals, with assets under management rising to a record $3.1 trillion as the funds took in $6 billion of new money in the second quarter. The improved performance suggests that hedge funds “are back in favor after several lackluster years, where fund managers blamed anything from monetary policy to crowded trades for their poor performance,” the Financial Times said. Wall Street Journal, Financial Times
The improved performance could mean that hedge fund managers will be paying billions of dollars in new U.S. taxes. According to the Wall Street Journal, star hedge fund managers such as Steven Cohen, David Einhorn and Daniel Loeb will be paying more next year due to the closing of a loop hole that allowed them to defer offshore income for years. Total payments from all managers could reach $25 billion to $100 billion or more.
Wall Street Journal Visa profit surges: Visa’s net income jumped past $2 billion in its third fiscal quarter, easily beating analysts’ forecasts, and the company raised its financial targets for the year. The payments company earned $412 million in the year-ago quarter, when it took charges related to the acquisition of its European operations. “Visa is the network for many in-demand credit cards, including the J.P. Morgan Chase Sapphire Reserve card, and has also benefited from Costco Wholesale Corp. cards’ switch to the Visa network from American Express,” the Journal noted.
Visa Inc. credit cards are arranged for a photograph in Washington, D.C., U.S., on Friday, Oct. 21, 2016. Visa is scheduled to release fourth-quarter earnings figures on October 24. Photographer: Andrew Harrer/Bloomberg
Andrew Harrer/Bloomberg
Credit concerns: Capital One’s second quarter earnings rose 10%, to $1.04 billion, while revenue rose 7% to $6.7 billion, both figures beating expectations. The bank said its net interest margin increased by 15 basis points, mainly due to higher interest rates and growth in its U.S. credit card business. “Despite beating analyst expectations, borrower performance remains a top issue for the bank, which is known for its history as a large subprime credit-card lender,” the Journal noted. “The bank wrote off more delinquent loans as losses and set more money aside to cover for future losses. Both issues are being watched by shareholders amid concerns over whether consumer credit is in the early stages of deteriorating.”
Sell on the news: Despite beating analysts’ second-quarter earnings expectations this week, “sometimes by a wide margin,” most of the five largest American banks saw their stock prices drop in response. It was a classic example of the old Wall Street adage: Buy on the rumor, sell on the news. “Bank stocks have run up significantly since the U.S. presidential election and found new momentum at the end of the second quarter, showing many investors already had priced in strong second-quarter results,” the Journal said. “It was hard to live up to the billing.”
A tale of two banks: The two biggest American trust banks reported divergent second quarter earnings. While Bank of New York Mellon beat estimates, Northern Trust failed to. The key difference-maker between their respective performances was how higher short-term interest rates affected them. While BNY Mellon’s net interest revenue rose 4% compared to the first quarter, Northern Trust’s fell 7%.
Cashing out: Partners at Goldman Sachs now own only 4.8% of the company, the lowest level since the company went public in 1999.
New York Times In "Why Women Aren't C.E.O.s, According to Women Who Almost Were," one of the women giving an account is former JPMorgan Chase CFO Dina Dublon. She cites the challenges surrounding breaking into the male circle of camaraderie: "Once you get to the top of the company, in most cases, you are dealing with a male kingdom," she said. "For as long as we are the minority group, it is much more about our capacity to adjust to them than their capacity to open up to us. I don't think it's about fairness. It is narrow-minded and ineffective, but human."
Quotable “The worst [outcome] is always likely to be worse than people can imagine.” — Deutsche Bank CEO John Cryan on the effects of Brexit. The bank expects it will move a large portion of its assets to Frankfurt, Germany.
The Cleveland-based bank is projecting steady growth in net interest income even as credit losses remain manageable. But Chairman and CEO Chris Gorman also said that he thinks a recession is likely.
The first-quarter increase involved commercial real estate loans, including some problematic multifamily loans and an office credit, but none of the criticized loans were to consumers, officials at the Dallas company say. Further CRE deterioration is anticipated.
The Detroit-based company is exploring ways to make more consumer auto loans without running afoul of stricter capital standards that are expected from the Federal Reserve. Possible approaches include more securitizations and the use of credit risk transfers.
The House Financial Services Committee also sent to the full House two bipartisan bills, including one that would prevent large banks from opting out of having to recognize Accumulated Other Comprehensive Income in regulatory capital.
Charge-offs and nonperforming loans rose at the Georgia bank in the first quarter. But it blamed the problem on one large client and said the matter has been resolved.
Amid healthy first-quarter loan growth and improving credit quality, Discover Financial Services slashed its profits by $800 million to offset remediation costs from a 16-year period when it overcharged certain merchants.
