Breaking News This Morning ...

Earnings: Goldman Sachs' fourth-quarter earnings fell on a $5 billion regulatory penalty.

Wall Street Journal

Bank of America took a hacksaw to its expense base during the fourth quarter, slashing expenses by 2% from a year earlier, in part by firing employees, according to American Banker's report on its earnings. B of A may want to find a sharper blade. Much of the cost-cutting at B of A has come from its subsidiary that services troubled mortgages. Analysts believe B of A will cut more in other departments, even if it's not clear exactly where the savings will come from. "We'd have to have a pretty significant turnaround to avoid having cost cutting not be a major theme this year," according to Brennan Hawken, a UBS Group analyst who tracks B of A.

But nibbling cuts may not help, "Heard on the Street" says. Super low interest rates are killing banks' profits and may require more drastic measures. Banks may need to cut bone; Morgan Stanley, for example, should think about dropping its business of trading non-U.S. assets, since that division produces little revenue, the paper says.

Wealth management may be losing its luster as a steady generator of fee income for banks, or at least the biggest institutions with large investment management operations.

Bank of America and Morgan Stanley each issued results on Tuesday that demonstrated the weakness. Volatility in the markets has caused individual investors to be wary of making trades, cutting banks' fees. Low interest rates also reduce the amount banks can charge in fees. As a result, wealth management revenue at B of A fell in 2015, and rose a paltry 1% for Morgan Stanley.

An obscure federal law has allowed more than 7,500 student-loan borrowers to petition the U.S. Education Department to forgive their education debt. The borrowers who have so far filed petitions owe a total of about $164 million. Education Department officials estimate the total cost of forgiveness of all those who are affected by the law could be in the billions of dollars.

The law the former students cited is one that had previously been cited only three times before last year; it allows for debt forgiveness if the school used illegal tactics to lure them into enrollment. Most who have applied attended a for-profit college, operated by either the now-liquidated Corinthian Colleges, or Education Management Corp., or ITT Educational Services.

Count Bank of America among the U.S. corporations whose board members have close ties to the company or to management, despite meeting the letter-of-the-law when it comes to independence. Thomas May, who is deemed an independent director at B of A, was once a committee member at FleetBoston Bank, where he had oversight of executive compensation, including that of Charles Gifford, also a director at B of A, albeit a non-independent director. Also, Gifford now serves as a director and compensation committee member at Eversource Energy, where May is chief executive. Wonder if that ever comes up in conversation when Gifford and May are playing golf? B of A declined to comment on the set up.

New York Times

The New York Times takes note of the difficulty banks face in assessing the oil market and their exposure to it. How do you determine the value of your energy-sector loans and forecast losses when there is so much uncertainty on the future value of a barrel of oil? If the global glut of oil eases, prices could rise. But signs of a recession have appeared and Iran could soon flood the market with even more supply.

"The question becomes how much of that waiting can you endure before you get to the point where you say, 'It is never going to turn around,'" noted Dennis Cassidy of the oil practice at AlixPartners. A turning point for banks could be the coming expiration of oil hedges, said KBW analyst Brady Gailey, who covers regional banks in the southwestern U.S. Some energy companies continue to receive up to $80 a barrel, even with prices dropping below $30 a barrel, due to hedges. When those hedges expire early this year, it could either help banks, or it could cause the energy borrowers to default on their debt payments.

Elsewhere ...

CNBC: Some banks are backing off residential real estate lending, partly due to the fact banks have been making less on mortgages. It's also that Quicken Loans and other nonbank lenders have been taking away market share. At JPMorgan Chase, mortgage originations fell 25% from the previous quarter and 2% from a year earlier.

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