Citigroup beats Citigroup beat analysts’ forecasts as profit rose 2% versus the year-ago quarter and revenue fell by the same percentage.
Goldman beats but profit drops Goldman Sachs beat first-quarter earnings expectations but profit dropped 21% from a year ago “as quiet trading and underwriting took a toll across Wall Street.” Trading revenue fell 18%, in line with the 17% decline at JPMorgan Chase. “But without the big consumer business that bolstered JPMorgan’s earnings last week, Goldman is more beholden to its Wall Street traders and investment bankers to power earnings.”
Receiving Wide Coverage ...
Source of concern “A string of central bankers” attending the International Monetary Fund meetings over the weekend in Washington “expressed concern” that “President Trump’s combative stance toward” the Federal Reserve “could over time weaken the institution and its role in the global economy,” the Wall Street Journal reports. “The central bankers said they are concerned the GOP president’s approach could erode nonpartisanship in the Fed’s boardroom over the long run. They cited that longstanding tradition as part of the reason the Fed is a global role model for apolitical policy-making.”
President Trump’s “relentless attacks” on the Fed, “which he blames for slowing United States economic growth,” are putting Fed Chair Jerome Powell “in a bind as he tries to bolster the economy without feeding fears that he is buckling under political pressure and damaging the integrity of an independent Fed,” the New York Times writes. “Yet while Mr. Powell repeatedly denies that Mr. Trump is changing the Fed’s course, the central bank has largely moved in the direction that the president wants. For now, there is little distinction between Mr. Trump’s view that rates should stay low because the economy is strong and the Fed’s view that rates should remain low because the economy is fragile. How Mr. Powell handles the next few months will be a critical test of his leadership skills.”
So bad it’s good Deutsche Bank’s success in negotiating a merger with German rival Commerzbank “will likely depend on an obscure but valuable accounting quirk.” Deutsche “hopes European Central Bank supervisors will allow wide latitude to use the accounting treatment — known as negative goodwill, or 'badwill' — as part of a takeover. A combined bank could recognize a onetime profit of more than €16 billion, or more than $18 billion, using badwill, according to analyst estimates. That profit would be crucial for maintaining the combined entity’s capital ratios, which regulators are likely to increase as a condition of approving a deal.”
Meanwhile, European regulators are concerned that Deutsche Bank’s U.S. investment bank “remains too large and unprofitable and needs to be cut back. The watchdogs’ stance would not be affected by a potential tie-up with Commerzbank.”
Wall Street Journal
Diverging paths JPMorgan Chase and Wells Fargo both beat first quarter earnings expectations last Friday, but got there from two different directions. JPMorgan, whose net profit rose 5%, benefited from steady loan growth and higher interest rates. At Wells Fargo, however, “the picture is less encouraging” despite its 14% earnings gain. “The rise in profits was largely due to a sharp drop in expenses,” while revenue and loans outstanding were basically flat. “This suggests continued execution problems at Wells Fargo. It surely doesn’t help loan growth that the Fed is not allowing Wells Fargo to grow its total assets. What’s more, the search for a new chief executive could add a new distraction in the coming months. This makes it all the more important for banks to keep growing loans in order to boost profits. For JPMorgan that is doable, but for Wells Fargo it seems to be a tall order.”
A Wells Fargo & Co. bank branch stands at night in New York, U.S., on Saturday, April 11, 2015. Wells Fargo & Co. is scheduled to release earnings figures on April 14. Photographer: Craig Warga/Bloomberg
Craig Warga/Bloomberg
Financial Times
Got you covered TSB said it will become “the first British bank to commit to covering customers against all types of online fraud losses. The new guarantee will cover transactional fraud losses, including unauthorized transactions on customer accounts or when consumers are tricked into authorizing payments to fraudsters.”
“We want to provide peace of mind to our customers,” Executive Chairman Richard Meddings said. “If a TSB customer innocently suffers a fraud loss on their account after being targeted by a criminal, we’ll cover it.”
The good, the bad and the ugly The International Monetary Fund and the World Bank “have launched a private blockchain and quasi-cryptocurrency called ‘Learning Coin’ to better understand the emerging technology. This process will allow the Fund/Bank to better understand how crypto assets could potentially be used in real life. The goal of this project is to promote knowledge — not bias. The app is a prototype that aims to show the good, the bad and the ugly of the technology, without hype or uninformed criticism.”
Going long Edward Bramson has extended the term of his “controversial” $1.4 billion loan from Bank of America that he is using to finance his 5.5% stake in Barclays and win a seat on its board of directors in order to change its business strategy away from trading.
Elsewhere
Winners Banks and their investors won last week’s hearing before the House Financial Services Committee, proclaims Richard X. Bove, financial strategist at Odeon Capital Group, “What emerged was a clear understanding that there would be no meaningful banking legislation for the foreseeable future,” he writes in an op-ed on CNBC.com. “Instead the bureaucrats in the banking regulatory sector would be ‘running’ the banks. These are men and women who either had been bankers or who are strong supporters of the industry. The only banking news that is likely to emanate from Washington, for the next few years, is going to be positive for the industry. The stringent regulations that have been restricting banking for a decade are likely to be loosened. From my perspective, this will be good for the nation and its economy.”
Quotable
“I’m certainly worried about central bank independence in other countries, especially … in the most important jurisdiction in the world.” — European Central Bank President Mario Draghi, referring to the U.S. Federal Reserve Board
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.
