Receiving Wide Coverage ...
(Investment) Bank of America: A common thread in the coverage of Bank of America's first-quarter earnings was the growing contribution from trading revenues, particularly fixed income, in contrast to weakening profits on the retail side. The report "underscores how dependent on Wall Street the bank has become," the Times says. The FT notes prominently that Bank of America lost money in the mortgage business, unlike peers that benefited from the government's refinancing program for underwater borrowers; litigation, loan putbacks and intensive asset servicing remain salient themes for B of A in home loans. (Another FT story also notes that bond trading was also a bright spot for most of the investment banks and diversified financials.) Still, if you strip away a big accounting hit, revenues and earnings were better than expected (even though revenues dropped significantly, another contrast to the rival megabanks). … But should you strip out that accounting adjustment? Peter Eavis of the Times notes that B of A flagged the item prominently in its press release — "asking analysts and investors to effectively ignore that loss" — but didn't go to such lengths in its third-quarter report last year, when the debt valuation adjustment went the other way and added $1.7 billion. Moreover, the DVA loss this time around could theoretically be seen as good news, since it means the value of B of A's debt is rising because investors see the bank as more creditworthy, and its chief financial officer certainly talked up this interpretation in the press release. The rub, according to Eavis, is that the adjustment is based partly on pricing in the credit default swap market, whose reliability as a gauge of broad investor sentiment has been hotly debated for years. In the actual long-term debt markets, the columnist notes, B of A has been paying more to borrow money — a development the company did not go out of its way to highlight. (OK, to be fair to B of A, the CFO's quote specifically mentioned tightening credit spreads, a term which can refer to pricing on CDS or on bonds, and bond spreads can improve, from the borrower's perspective, even when absolute rates on debt worsen — if the benchmark rates rise. Did they? We'd look it up but we've spent too much time on this DVA stuff already.)
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Take Your Time: Banks will be given two years to get into full compliance with the Volcker rule, regulators said. This was a big relief for banks since the agencies have previously indicated they wouldn’t have a final rule in place by the deadline of July 21, and Dodd-Frank says the separation of banking and prop trading takes effect then whether or not there’s a final rule. An analyst quoted in the Journal says that the longer it takes to finalize the details, the likelier it is the rule will be softened from the proposed version issued in October. As usual, our favorite headline on the subject can be found at Dealbreaker: “It Would Be Great If Banks Could Start Complying With Financial Reforms Two Years From Now But No One Should Stress Themselves Out About It Or Anything.” Wall Street Journal, New York Times, Bloomberg, Dealbreaker.
Powerful Woman: Sallie Krawcheck’s been gone from her job at Bank of America for six months now, but she remains highly influential. In just a few weeks she’s amassed 2,000 Twitter followers, according to the Times. Krawcheck’s also been writing op-eds this year for major media outlets supporting stronger regulation of consumer financial products and money market funds and she recently joined the board of Gold Bullion International.
Wall Street Journal
Ahead of General Electric’s earnings report this morning, the “Ahead of the Tape” column looks at the state of GE Capital. The finance unit, which went on life support during the 2008 crisis, is doing better these days and may soon be able to pay a dividend to its manufacturing parent. A recent downgrade of both GE and GE Capital by Moody’s “looks like another case of ratings firms shutting the barn door long after the horse has bolted.”
Wendy Long, a Republican running for a U.S. Senate seat representing New York, writes in an op-ed that financial regulation is hurting the state.
Need a Fed-bashing fix? This op-ed blames the central bank’s monetary policy for growing economic inequality. Citing a metaphor used by Friedrich von Hayek, Mark Spitznagel writes that “the Fed's money creation does not flow evenly like water into a tank, but rather oozes like honey into a saucer, dolloping one area first and only then very slowly dribbling to the rest.” That one area is the banking sector, which Spitznagel depicts as an unfairly privileged class, “first in line at the trough.” (He’s a hedge fund manager, by the way.)
