Breaking News This Morning ...
Receiving Wide Coverage ...
3Q — The Big (Ugly) Picture: Goldman Sachs posted its second quarterly loss since going public in 1999, and while Bank of America swung to a profit, like other megabanks it benefitted heavily from accounting adjustments. And Bank of America became a little less mega: JPMorgan Chase has overtaken it as the country's largest bank by assets. Though stocks rallied on hopes of a rescue package for Europe, the Journal says the two banks' results "highlight the grim new reality for U.S. banks: slow economic growth that tamps down loan demand, low interest rates that pressure investment returns, volatile markets that inhibit risk-taking and tighter regulation that adds to bulging costs — not to mention a rising wave of populist, antibank sentiment." "Lex" in the FT says the juxtaposition of B of A's profit and Goldman's loss calls into question the widespread assumption that the latter is the superior investment. "The comparison raises the important question of whether pure investment banking or universal banking is the way to go from here," the column says. "While everyone agrees that retail banking in the US is going to be sluggish for years to come, at least BofA makes money out of the likes of deposits, cards and wealth management."
3Q — Heavyweight Champ No More: The Journal takes a step back and considers B of A's "abdication" of the most-assets title in the context of history. The Charlotte bank "spent a quarter of a century chasing" the No. 1 spot, largely through acquisitions, the story notes. Yet today the executives who have to deal with the consequences of that empire-building are saying things like "Having a goal of placing any deal of importance on being the largest is clearly not where we are at" (CFO Bruce Thompson) and "We don't have to be the biggest company out there, we have to be the best" (CEO Brian Moynihan). "DealBook" in the Times says that by shrinking the company Moynihan is "reversing the legacy" of predecessor Ken Lewis — we might add that it could also fairly be called the legacy of Lewis' predecessor, Hugh McColl. We also find it somehow fitting that Countrywide, the 2008 acquisition behind so many of the Bank of America's woes today, was built by yet another executive who famously strived for the top of the heap.
3Q — B of A Potpourri: On B of A's earnings call, Moynihan said "a lot" of customers can avoid its much-maligned $5 debit card fee by keeping most of their business with the bank. This comment provoked outrage — the Journal's "DealJournal" blog pronounced the fee "A Tax on the Disloyal." On the Times' "Economix" blog, Floyd Norris sees hints that B of A's mortgage putback disputes with Fannie Mae and Freddie Mac are "getting nastier." The bank said the GSEs' repurchase demands "have become increasingly inconsistent with our interpretation of our contractual obligations," and while its provision for rep and warranty claims was the lowest since at least the fourth quarter of 2009, the claims themselves kept growing. "Marketwatch" columnist David Weidner says Moynihan has earned some credit for the progress he's made digging B of A out of its hole. And you can find straight-up earnings summary stories in the Times and the FT.
3Q — Goldman Loses Luster: The Journal's "Heard on the Street" points out that the investment bank's results in its traditional securities business were actually "decent considering all the market upheaval"; it was the principal investing lines that drove the quarterly loss. Still, "Goldman did little to dispel the growing worry that its core trading and banking businesses are facing structural changes, not simply a cyclical bump." An analytical story in the FT also mentions that worry, and notes that Goldman is calling regulators' proposal for implementing the Volcker rule "unworkable." A lengthy piece in the Times' "DealBook" interprets Goldman's report as a sign that "boring businesses are back in vogue" on Wall Street, prompting this comment from a reader: "This is a GOOD THING that should be celebrated by the rest of the nation. It means that Wall Street is, finally, going back to its proper role — as the handmaiden of companies that produce REAL goods and services, like GE and Microsoft." And there are stories with the basics on Goldman's results in the Journal, FT and the Times.
Wall Street Journal
Pawnshops and payday lenders are getting more business as the economy stagnates and bank lending standards remain tight, according to this feature story. Stock prices in this niche have hit records in recent weeks, and two IPOs are on the way.
The Libor probe has spawned the Euribor probe. European Commission officials seized documents from several banks Tuesday, looking into whether they accurately reported borrowing costs for the survey that produces the Euro interbank offered rate. The banks aren't identified in the story, but an anonymous London-based executive at one of the institutions is quoted as saying "It was more of a visit than a raid." Hopefully this executive offered the regulators a cup of tea, then.
"Ahead of the Tape" previews American Express' earnings, due out this afternoon after the closing bell. Despite everything, the company's focus on the affluent remains a strong advantage, the column says.
New York Times
"As investment banks pull back from a volatile commercial mortgage market, life insurance companies are moving in, expanding their lending."
A "scorecard" released by the Basel Committee found that many countries "failed to implemented Basel II and Basel III standards, undermining promises to prevent a further crisis."
"Large US regional banks will need to cut expenses by up to 40 per cent to cope with slower economic growth, lower revenues and high regulatory costs, and that will increase pressure to cut staff or merge with rivals," according to a study by Alvarez & Marsal, a turnaround firm.
European leaders are promising not to repeat what they saw as a major blunder by the U.S. when it refused to rescue Lehman Brothers in 2008. "For both economic reasons and moral reasons, we can't let Greece fail," says French President Nicolas Sarkozy. "What we can't do is destroy the confidence of all investors mid-course," says his German counterpart, Angela Merkel. Of course, these assurances have complicated negotiations with Greece's creditors: "Investors in Greek bonds, which include major European banks, know that government officials in Germany, France and elsewhere are determined to avoid the kind of disorderly default that could cripple global markets and will ultimately have to bail Greece out. So the investors have less reason to make concessions of their own." We recognize that helping out a neighboring nation is different than bailing out a Wall Street firm, but we're surprised to find no mention of the phrase "moral hazard" in the comments on this story.