Earnings season kicks off; higher tax rates may work in banks’ favor

Breaking News This Morning

Profit blowout

JPMorgan Chase said its first-quarter profit “nearly quintupled, after the bank released $5.2 billion it had set aside to cover soured loans. The bank posted a profit of $14.3 billion, or $4.50 per share, well above the $3.10 per share forecast by analysts polled by FactSet. A year earlier, JPMorgan reported a quarterly profit of $2.87 billion, or $0.78 a share.”

Receiving wide coverage ...

Big deal

Coinbase on Wednesday “will become the first major cryptocurrency company to go public in the U.S., a milestone that has generated excitement in an already buoyant market for digital assets. The challenge is that few people know how to value the company, which counts on volatile transactional revenues in lightly regulated markets for the vast majority of its business.”

“Coinbase operates the largest U.S. cryptocurrency exchange. The company’s listing comes during a bull run in the price of cryptocurrencies, with bitcoin more than doubling since January to cross the $60,000 barrier. The heady combination could create volatility in Coinbase’s shares.”

Coinbase co-founder and CEO Brian Armstrong “is poised to become one of the richest people in the world after” the company goes public Wednesday in a deal that “is expected to fetch a valuation of between $65 billion and $100 billion, which could make Mr. Armstrong’s 20% stake worth up to $20 billion," The Wall Street Journal said.

“Cryptocurrency advocates — many of whom expect the technology to upend the global financial system — are celebrating the watershed as vindication of their long-held belief in their cause’s potential,” The New York Times said, calling it “crypto’s coming-out party.”

Wall Street Journal

Silver lining

Banks “are squarely in line to feel higher corporate tax rates. But they might get some pretty attractive offsets as well from the whole package,” the Journal says.

“The Biden administration’s proposed jump from a 21% corporate tax rate to 28% would in theory translate into a roughly 6% hit to earnings per share for large banks. But there are a few factors investors should consider. For one, banks may not be quite so hard hit, at least relatively speaking, as other sectors, like tech. Moreover, the Biden administration’s proposal to raise tax rates is part of a broader push in U.S. infrastructure, housing and energy. Those particular things could provide some tax-advantaged outlets for banks, partially offsetting the headline rate increase.”

“Infrastructure stimulus generally should increase opportunities for lending to companies in that sector. What’s more, higher corporate tax rates can make debt more appealing relative to equity financing. That might lead relatively underleveraged tech companies to boost their borrowing if they face a sizable tax bump. Anything that gets clients to pick up the phone can turn into a win when it comes to banking.”

Home, sweet home

“Big foreign investment firms that buy office buildings, hotels and shopping centers around the world have a new favorite real-estate play: single-family homes in American suburbs. These institutions are partnering with U.S. housing companies to buy or build rental homes by the thousands. The overseas investors are following in the footsteps of many big U.S. investment firms and pension funds, which started buying single-family homes on a large scale in the aftermath of the financial crisis.”

Flash crash

Shares in Barclays “plunged 10% at the opening bell Wednesday and then recovered, triggering a trading halt. Reasons for the sharp drop and subsequent rebound couldn’t immediately be ascertained, though a trading error was a possible cause, according to market participants.”

New York Times

Not so fast

A Louisiana police dispatcher was arrested and charged with theft and bank fraud for trying to spend $1.2 million that Charles Schwab mistakenly deposited in her bank account. Kelyn Spadoni—who was also fired from her job—was released on $150,000 bond last week.

“In a lawsuit filed against Ms. Spadoni in federal court in New Orleans, Charles Schwab said that it was supposed to have moved only $82.56 into Ms. Spadoni’s Fidelity Brokerage Services account, but that a software glitch had caused it to mistakenly transfer the seven-figure sum. The next day, when Charles Schwab tried to recover the money, about a quarter of the funds were already gone. The funds had been transferred to another account and used by Ms. Spadoni to buy a house and a Hyundai Genesis S.U.V., according to the Jefferson Parish Sheriff’s Office,” where she worked.

Quotable

“I think most people understand about how much money is in their bank accounts. When you’re expecting $80 and you get $1.2 million, there’s probably something wrong there.” — Capt. Jason Rivarde, a spokesman for the Jefferson Parish, La., Sheriff’s Office, commenting on a local woman—and police dispatcher—who was arrested for trying to spend that much money that was mistakenly wired to her bank account. The “vast majority of the missing money had been recovered,” he said.