Banks perform well despite falling interest rates; Berkshire wants more BofA
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Bank of America reported a quarterly profit of $5.78 billion, compared with $7.17 billion a year earlier, as it took a $2.1 billion charge related to the coming termination of its partnership with First Data. Revenue was slightly ahead of both expectations and last year’s total.
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Boom and gloom
JPMorgan Chase led Tuesday’s third quarter “earnings parade” of four of the nation’s largest banks, as its shares hit a record high, “underscoring the continued solid performance of the largest U.S. lenders at a time of global tensions and economic worries. Together, the figures confirmed that the largest U.S. banks have yet to feel the sting of recent interest-rate cuts and turbulence in the stock and money markets. But executives warned that falling interest rates would eventually take a bite out of profits,” the Wall Street Journal says.
The results at JPM, Wells Fargo and Citigroup were buoyed by “the performance of their credit card businesses," the Financial Times reports. "Across the three lenders, customer card purchases grew 7%, on average, and loan balances rose 5%. Loans yields and credit quality were stable. The healthy results from the banks’ retail operations were in sharp contrast with uneven performance in their investment banking and capital markets divisions.”
But “beneath the surface of banks’ decent quarter are some troubling trends,” the Journal says. "At those same three banks, “many of the negative effects of falling interest rates and economic worry were visible. Net interest income fell 2% across those banks in the third quarter from the second. Total loans were essentially flat at those banks, and average net interest margin was 2.54%, down from 2.66% in the second quarter.”
Despite the quarterly results, “bankers are starting to worry," according to the New York Times. "Manufacturing activity and job growth are slowing, and trade talks with China have so far produced only an interim agreement that still has to be written and signed.”
Meanwhile, discount broker Charles Schwab “reported record third-quarter earnings that topped expectations, as growing cash balances helped the e-broker offset the impact of falling interest rates," the Journal says. "Prompted by growing concerns over the economic outlook, clients moved a bigger share of their portfolios to cash. For Schwab, net interest revenue made up 60% of overall revenue during the September quarter. As a percentage of total client assets, cash rose to 11.4% — the highest since February — as customers pared equity holdings.”
At Goldman Sachs, which missed earnings expectations, CEO David Solomon “appealed for patience on profitability, pledging that investments in projects such as Goldman’s online bank Marcus, its Apple credit card and a transaction banking platform would pan out — despite collectively costing the Wall Street bank a net $450 million this year,” the FT says.
Wall Street Journal
Can’t get enough
Berkshire Hathaway has asked the Federal Reserve for permission to increase its stake in Bank of America above 10%. “Berkshire typically tries not to own more than 10% of a bank to avoid additional Fed oversight.” But the “application underscores [Berkshire CEO Warren] Buffett’s positive outlook on Bank of America and on the U.S. banking sector more broadly. Berkshire said in its application that it might be interested in buying more Bank of America stock in the future and that it plans to continue being a passive investor in the bank.”
Smoke and mirrors?
German payments company Wirecard “projects an image of one of Germany’s leading business success stories, a fintech champion to rival software giant SAP. Yet Wirecard’s seemingly irresistible rise has been plagued by intermittent controversy about its accounting and business practices.” On Tuesday the paper published documents “which cast further doubt on Wirecard’s accounting practices. The documents, provided by whistleblowers, give the clearest picture to date of Wirecard’s questionable accounting practices and business model.”
For its sake, Wirecard has accused the paper of “relying on fake material and that its own journalism is corrupt and suspect.” It has also charged the paper’s reporters with working with short-sellers to drive down the price of the company’s stock.
“JPMorgan is best in class of global banks and it shows this quarter.” — Wells Fargo banking analyst Mike Mayo, discussing the bank’s third quarter earnings results