Will Q4 bank earnings surprise?; Credit cards rule payments world
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Housing rebound coming?
Long-term fixed-rate mortgage rates have fallen again to their lowest levels in nine months, “a move that could propel more activity in the U.S. housing market.” The average rate on a 30-year fixed mortgage fell to 4.45% in the most recent week, down from 4.51% a week earlier. “Lower mortgage rates combined with continued income growth and lower energy prices are all positive indicators for consumers that should lead to a firming of home sales,” said Sam Khater, Freddie Mac’s chief economist.
Not surprisingly, mortgage applications have jumped so far this year. Total loan applications jumped nearly 24% from a week earlier, according to the Mortgage Bankers Association, as refinances grew 35% and purchase loan applications rose 17% in the week.
Bad day at BlackRock
BlackRock, which on Wednesday promoted a possible successor to CEO Laurence Fink, on Thursday said it is cutting about 500 jobs, or about 3% of its 14,000-plus workforce, “as the world’s largest money manager looks to simplify parts of its business and focus more on areas such as technology, retirement and nontraditional alternative investments.” After the layoffs, the company’s head count still will be 4% higher than it was a year ago.
While the company “remains comfortably profitable — on a margin of more than 40% — the entire asset management sector is under increasing pressure on fees at a time of weakening investor sentiment.”
Sexual harassment “took center stage” at the American Economic Association’s annual meeting in Atlanta last weekend. “Top women in the field shared stories of their own struggles with discrimination,” while “leading male economists offered an unprecedented acknowledgment of harassment and discrimination in the field.”
“Economics certainly has a problem,” said former Federal Reserve chair Ben Bernanke, the group’s president this year. The profession has, “unfortunately, a reputation for hostility toward women and minorities,” he said.
Wall Street Journal
Still the kings
Despite a “somewhat bewildering proliferation of ways to pay for things,” from a variety of companies, “it is increasingly clear that the ultimate winners are likely to be the same old credit-card companies that already dominated: Visa and Mastercard. The vast majority of the time, though, all these [other] methods are really just different means of delivering your credit- or debit-card information to the merchant.”
While many investors await next week’s fourth quarter earnings reports from banks “with trepidation,” “a group of seasoned investors is looking at the banks and seeing a big opportunity,” believing that the recent bank bashing in the stock market has gone too far. Patrick Kaser, who manages Brandywine’s Classic Large Cap Value strategy, “thinks that between share buybacks, a bit of loan growth, dividends and cost cutting, the big U.S banks could see earnings grow at a percentage rate in the mid-teens.” Christopher Davis of Davis Funds sees “enormous value because there is [much] lower risk than people imagine there to be.”
The U.K.’s Financial Conduct Authority has launched “a full-blown investigation” into Royal Bank of Canada’s London operation after “dozens of former employees complained” about their treatment after raising legal and compliance issues at the bank. “The launch of an official investigation means that if the watchdog finds wrongdoing, the bank faces a substantial fine and the possibility of sanctions for senior managers.
More trouble for Danske
Add France to the list of countries investigating Denmark’s Danske Bank. “The likely move to place Danske under investigation ensures that it starts the year under the continued shadow of one of the largest money laundering scandals ever uncovered.”
JPMorgan Chase, which Reuters says is “known as one of the stingier banks on Wall Street in terms of how much it pays revenue-generating employees,” is raising its bonus pool for 2018 by 3%. Employees will find out their actual bonuses next week after the bank reports fourth quarter and full-year 2018 earnings.
HSBC agreed to pay $30 million to settle investor lawsuits alleging that 11 big banks rigged the $9 trillion government agency bond market from 2009 to 2015. The British bank is the third bank to settle, after Deutsche Bank and Bank of America agreed in August 2017 to pay $48.5 million and $17 million, respectively.
“The feeling is that [bank earnings] will be fine, but then what? The party started at 4, it’s now 11:30. Where do we go from here? We’re not going to go all night.” — David Ellison, portfolio manager at Hennessy Funds, commenting on next week’s bank earnings reports.