Breaking News This Morning ...
B of A Earnings Fall: Bank of America profits fell 13% in the first quarter on a decline in trading revenue and low interest rates. It reported income this morning of $2.68 billion, or 21 cents per share, beating analysts’ estimates by one cent. That was down from the $3.1 billion, or 25 cents a share, income it brought in the same quarter last year. New York Times
Wells Fargo Earnings Slip: Wells Fargo posted a 5.9% decline in profits for the first quarter to $5.46 billion, or 99 cents a share. The bank charged off more than twice as many energy loans it did in the fourth quarter of 2015. Wells' chief risk officer, Mike Loughlin, said low prices and excess leverage have kept its oil and gas portfolio under stress. Wall Street Journal, New York Times
Receiving Wide Coverage ...
Too Big to Fail, Day Two: Regulators rejected five of the largest banks’ living wills, indicating they’re still too big to fail and the potential for at least another taxpayer bailout remains. It’s the second judgment of the potential bankruptcy plans, whose shortcomings this time across all banks include flawed computer models, inadequate estimates of liquidity needs, questionable assumptions about the capital required to be wound up and unacceptable judgments on when to enter bankruptcy. JPMorgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street each delivered plans deemed “not credible” by the Federal Reserve and Federal Deposit Insurance Corp. The regulators were split on Morgan Stanley and Goldman Sachs, who therefore don’t face the consequences the other five do, like more stringent capital requirements. They gave Citigroup the green light but noted it too has many revisions to make to its plan. The disclosures came amid a presidential campaign hotly debating whether the U.S. has reached its post-crisis goal of ensuring no bank is too big to fail, and although they certainly did not call for a bank breakup, they provided support for Sen. Bernie Sanders', D-Vt., position that they should. The FT breaks down how each bank fared. Wall Street Journal, New York Times, Financial Times
Too Big To Regulate: “The goal to end too big to fail…remains just that: only a goal,” FDIC Vice Chairman Thomas Hoenig said after the announcement that five banks’ living will were deemed not credible. It will be difficult for anyone to tell whether banks are doing enough to dismantle themselves gracefully, should they need to, until they need to – in the next crisis. A view from the FT says while regulators worry about protection in case of a potential failure, bank shareholders have already moved on; they’re more concerned with current performance and the potential for bigger buybacks, which will be governed by the upcoming stress tests due in June. The Journal suggests regulators have perhaps made the living wills exercise necessary because they are not entirely confident in bank stress tests; but that, in the post-crisis era, protection is the default mode. The paper also raises the question of how regulators qualify a good grade, which uses calculations, discretion, interpretation and emphasis. And a Times editorial asserts the wills are not sufficient standards alone for ensuring financial stability, they are important but only one piece of the regulatory puzzle and no more or less important than being watchful for systemic risks, and big capital cushions for derivative holdings. Wall Street Journal, New York Times, Financial Times
JPMorgan Earnings: JPMorgan posted a smaller-than-anticipated decline in its quarterly earnings on weaker investment banking and trading, which was offset by strong lending growth. The bank has at least publicly maintained a glass-half-full attitude, emphasizing that although profits fell for the quarter, the bigger picture doesn’t look so bad. Chief executive Jamie Dimon has long held that being a big and diversified bank allows weakness in one part of the market to be offset by another. Wall Street Journal, Financial Times
Barclays has shed 8,000 jobs in the last four months in one of the fastest reductions at the bank in at least five years. Chief Executive Jes Staley joined the bank in December under pressure from investors to improve performance. He said 6,000 of the 8,000 positions were eliminated in his first 100 days. Barclays had 129,400 full-time employees at the end of 2015. The bank is also set to cut its cash equities business in Asia along with 1,000 jobs in the region and close offices in South Korea, Taiwan, Malaysia, Indonesia, Thailand, the Philippines, Australia, Russia and Brazil.
Deutsche Bank is in the midst of discussions over the sale of Abbey Life, a U.K.-based insurance company it acquired nine years ago for almost $1.4 billion. Several rival insurance companies have shown interest in a takeover from Deutsche, which could seize the opportunity to shrink its U.K. operations ahead of the referendum on its European Union membership, leaving two main U.K. bases in London and Birmingham. Doing so could bolster its balance sheet at a time when analysts and investors are doubting its financial strength.
And Lastly ...
We missed this one last week: Jim Cramer says turning banks into utilities would actually be good for bank stocks.