Receiving Wide Coverage ...
Missing out
Bank of America reported Monday its third quarter profit jumped by a third to $7.2 billion compared with $5.4 billion a year ago. Earnings per share were 66 cents, beating analysts’ estimates of 62 cents.
But the bank has failed to make itself “a top-flight global investment bank” following its purchase of Merrill Lynch during the financial crisis. “A decade later, the bank is struggling to make good on that promise,” the Wall Street Journal reports. The bank “has failed to capture the benefits of a deal-making boom that has lifted its Wall Street rivals. Bank of America makes far more on service charges like overdraft fees than from merger and underwriting work, and the investment bank has never contributed more than 7% of the company’s overall revenue.”
“During a record M&A boom that has lifted most of Wall Street’s biggest names, BofA has lost market share, missed out on millions of dollars in fees and watched on as more thinly staffed rivals vaulted it in industry league table rankings this year,” the Financial Times comments.
Storm clouds?
Double-digit earnings increases reported by JPMorgan Chase, Citigroup and Wells Fargo for the third quarter were largely driven by consumers, who “easily absorbed higher borrowing costs,” the Journal says.
Still, “their results did little to allay fears that U.S. banks will miss out on a golden era of an economic boom and rising interest rates,” the Financial Times says. “Lower tax rates played a significant part in the growth in net income at all three big banks.”
The New York Times expresses concern the downtrend in lending suggests “the economy is not as strong as it looks. The banks were not lending at the same rate that they had in recent years. While the economy can grow without strong lending, it may struggle to maintain its strength if loan growth remains lackluster.”
Slowdown, not collapse
The recent spike in mortgage rates is hitting an already weak housing market, “but its slowdown looks nothing like the historic collapse that took down the whole economy in 2007,” the Journal reports. “Compared to a decade ago the housing market doesn’t have far to fall. As frenzied as the market has felt in recent years, with bidding wars and double-digit price increases, it never came close to the level of the last boom by most measures. That positions it for a much gentler slowdown.”
The nonprofit Neighborhood Assistance Corporation of America and BofA are teaming up to try to provide mortgages to mostly minority low- and moderate-income homebuyers. The bank is supporting the program with $10 billion in mortgage commitments. “We have seen significant wins in this partnership,” said AJ Barkley, senior vice president of consumer lending at BofA. “When we get those loans with all the heavy lifting here, we're over a 90% approval [rate].” Borrowers are required to go through credit and budget counseling.
Timothy Mayopoulos, who is stepping down Monday, looks back on his six years as Fannie Mae’s CEO, both its comeback since it was taken over by the federal government during the financial crisis and its future.
Taking on Goldman
Barclays is looking to go toe-to-toe with Goldman Sachs’ Marcus consumer banking unit in offering “the low costs of a digital-only bank and the security of dealing with a major financial institution.” The bank plans to “leverage [its] U.K. knowledge and expertise” to create a checking account for its U.S. online bank, which already offers credit cards, savings accounts and loans to 13 million customers. “A consumer-focused account could help Barclays boost its $13.6 billion of U.S. retail deposits.” Marcus recently launched in the U.K.
Separately, a book offers “fresh dirt” about Goldman Sachs. Carmen Segarra, a former bank examiner at the Federal Reserve Bank of New York who “claims she got fired in 2012 after making too much noise about Goldman’s alleged conflicts,” has written “Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street,” which “expands on her previous claims that Goldman Sachs has long exploited an improperly cozy relationship with Wall Street regulators.”
Staying home
JPMorgan Chase CEO Jamie Dimon pulled out of Saudi Arabi’s Future Investment Initiative following questions about the disappearance of journalist Jamal Khashoggi and the Saudi government’s possible role in it. Dimon was scheduled to be a featured speaker at the event “and his bank has longstanding ties to Saudi Arabia and is advising it on deals.” Wall Street Journal, New York Times
Wall Street Journal
Losing the SIFI tag
The Financial Stability Oversight Council may vote as early as Tuesday to remove the “systemically important financial institution” designation from Prudential Financial. “The council has been expected to deregulate Prudential since the beginning of the Trump administration. Removing Fed oversight of the firm is a matter of when, not if,” according to a source on the council.
Quotable
“If the market was looking for a blowout quarter then this was not it.” — KBW’s Brian Kleinhanzl about JPMorgan Chase’s third quarter earnings report.
