Breaking News This Morning ...
Morgan Stanley beats estimates: Morgan Stanley reported a third quarter profit of $1.6 billion, or 81 cents a share, up 57% from $1.02 billion, or 48 cents a share, in the year ago period. That easily beat the median Street forecast of 63 cents. Revenue rose 15% to $8.91 billion from $7.77 billion, also beating analysts' estimates of $8.17 billion. As with its peers on Wall Street, which reported earlier, the bank's results were helped by a rebound in securities trading. Return on equity jumped to 8.7%, up from 5.6% a year ago. Wall Street Journal, Financial Times
Receiving Wide Coverage ...
S&P cuts Wells' outlook: Wells Fargo delayed until Wednesday its scheduled sale of 10-year bonds after S&P cut its outlook on the bank's credit rating to negative from stable, citing "increased business risks" stemming from the bank's phony accounts scandal. "Uncertainty has increased, in our view, regarding the scope and ramifications of the misconduct, the duration and magnitude of the reputational damage, the possible impact on the company's customer flows, and the potential consequences of ongoing legal and regulatory investigations." Wells has been rated A or above by S&P since at least 1990, making it one of the highest rated banks. Fitch warned earlier this month that it might cut Wells' credit rating. Wall Street Journal, Financial Times
Wall Street Journal
No breakups: Former Federal Reserve Chairman Paul Volcker doesn't appear to be a fan of breaking up big banks. "If you break up a $2 trillion bank into $400 billion or $500 billion banks, you've got a problem," he said. "It's an interesting debate. But from a stability standpoint it's not on my list." When asked if large asset managers such as BlackRock — which said Tuesday its assets under management topped $5 trillion for the first time — should be designated "systemically important," Volcker said, "No, I wouldn't go that far at this point." But he did say it should be looked at, "because of the kind of growth you see, and you wonder a little bit about what's going on ... within all those huge firms."
Jumbo loan demand up: Underwriting rules — especially income requirements — are loosening in the jumbo mortgage business, enabling more people to qualify for loans. Both portfolio lenders and investors who buy loans from mortgage bankers have loosened their standards. "That's because jumbo loans, once considered risky investments due to their size, are now perceived as safe due to the strong credit of the borrowers. That has created competition among both originators and investors for jumbo loans," the paper says.
Prospects rise: Young, first-time homebuyers are expected to return to the housing market "in droves" next spring, with the group expected to account for more than half of prospective buyers looking to buy homes, up from a third a year earlier, according to a study by Realtor.com. "The first-time buyer is ready to come back," said Jonathan Smoke, the website's chief economist. "The absence of first-time buyers has been one of the biggest abnormalities of the housing market in recent years," the Journal commented. "If they return, it could provide a big boost to sales and serve as a sign that the housing market is returning to normal."
Blockchain for mortgages: Bank of China and HSBC are looking to enhance mortgage underwriting in Hong Kong using blockchain technology. The banks plan to use the technology behind bitcoin to provide quick property valuations for mortgage applicants on the island. Currently, when customers apply for mortgages, lenders hire surveyors to value the property, and if the customer applies to different lenders, the same survey work must be done again. According to the paper, "blockchain can be used to create a decentralized network of banks and surveyors through which the latest valuations can be listed, verified and shared — in a matter of seconds." An analyst working on the system said, "To the best of our knowledge, this will be the first production-grade [blockchain] mortgage system to integrate with a bank."
New York Times
A little lumpy: Goldman Sachs's third-quarter earnings weren't as good as the headline numbers would suggest, in fact, they look "overly lumpy," according to the New York Times. More than half of the bank's $1.3 billion increase in revenue came from its investing and lending division, which can be notoriously fickle. In addition, Goldman's tax rate fell to 27% versus the usual rate of at least 30%. "If taxes had been more like usual and investment gains half what was reported, the annualized return on equity for the quarter of 11.2% would have dipped to around 9.3%," the Times said. In addition, stock buybacks reduced the number of outstanding shares by an unusually large 6%, which helped boost shareholder returns. "As welcome as these many elements are, Goldman's earnings look overly lumpy," the paper concludes. "That makes them too unreliable to justify its shares heading back above book value any time soon."