Weak revenue growth underlies bank profits; another Libor alternative

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BofA reports
Bank of America reported a quarterly profit of $7.31 billion, up from $6.92 billion a year earlier, on revenue that was largely flat. Per-share earnings were 70 cents, beating analysts’ estimates of 66 cents.

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Earnings analysis
Citigroup and Goldman Sachs were able to record “decent” first quarter earnings per share that beat analysts’ expectations, but only through “cost cuts and share buybacks,” not revenue gains. “That’s no way to grow a bank over the long term,” the Wall Street Journal says. “Cost cuts and cash payouts are better to have than not, but they are no substitute for real business growth. Bank shares will likely remain under pressure until that turns around.”

While Citi’s first quarter performance “was hardly a triumph, the results contained green shoots of growth after an arid 2018,” the FT notes. “Investors will be watching closely to see if these shoots grow taller over the rest of the year. Citi’s race to close the gap on its rivals comes as the operating environment for banks appears to be at an inflection point: interest rate rise expectations are softening, global economic growth is decelerating, and financial markets have yet to fully emerge from the turmoil that began in December and persisted through the start of this year.”

Meanwhile, Goldman Sachs’ lackluster earnings report compelled the bank to delay “an eagerly anticipated strategic update, dashing hopes that the powerhouse investment bank would lay out new plans as some of its core businesses struggle with difficult trading conditions.” CEO David Solomon “said he would wait until the first quarter of 2020 before providing a 'comprehensive strategic update' that will detail a three-year plan for Goldman’s continued transformation from a trading powerhouse to a more diversified bank that offers everything from retail banking to cash management for companies.”

“For all the talk of future-proofing one of Wall Street’s most venerable institutions, the bank’s quarterly update on Monday failed to encourage investors looking for signs of Goldman’s strategic rebirth,” the Financial Times says.

Still, Goldman said it has hired more than 40 bankers and added over 1,000 new clients in its effort to broaden its client base by targeting companies worth less than $2 billion. The bank eventually plans to “dedicate 100 bankers to this over time.”

Looking for info
Deutsche Bank, Citigroup, JPMorgan Chase and Bank of America have been served with subpoenas from the House intelligence and financial services committees “seeking information about President Trump’s finances and the lenders’ business dealings with Russians.” Wall Street Journal, New York Times

Light at the end of the tunnel
UniCredit agreed to pay $1.3 billion to settle claims that banks it owns processed payments that allegedly violated U.S. government-sanctions programs against Iran, Cuba, Libya and other countries. “UniCredit Group banks routed transactions through the United States in a non-transparent manner, when those payments would have been blocked or rejected if their true nature had been clear, in violation of multiple sanctions programs,” said Sigal Mandelker, undersecretary for terrorism and financial intelligence at the Treasury Department.

“The long-running investigation by U.S. authorities has hung over the bank since 2012,” the FT reports.

Wall Street Journal

Ready for action
Mark Calabria, the newly approved head of the Federal Housing Finance Agency, said he plans to act with “a great sense of urgency” to come up with a plan “to jump-start an overhaul of mortgage finance.”

“The foundations of our mortgage finance system remain vulnerable, and we must not let this opportunity for reform pass,” Calabria said in his first public remarks since becoming head of the agency that regulates Fannie Mae and Freddie Mac.

Libor alternative
Richard Sandor, “who was instrumental in creating interest-rate futures in the 1970s and greenhouse-gas emissions trading in the 1990s,” has launched a potential replacement to the scandal-plagued London interbank offered rate. “His benchmark, known as Ameribor, would be based on rates set on his American Financial Exchange, where banks lend to each other through mutual lines of credit.”

Quotable

“I do think that the Fed independence is something that the world looks to, and I think that the dollar being the reserve currency is very important.” — Treasury Secretary Steven Mnuchin, when asked about President Trump’s latest criticism of the Federal Reserve.

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