JPMorgan profits drop; Earnings may decide dividend payouts' fate

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Still in the black

JPMorgan Chase said first-quarter earnings dropped 69% as its “set aside a whopping $6.8 billion to cover potential losses on loans to consumers and businesses struggling to stay afloat during the coronavirus shutdown.” The bank’s quarterly profit fell to $2.87 billion, or $0.78 per share, versus with $9.18 billion, or $2.65 a share, in the year earlier period. Analysts had expected the bank to earn $2.16 per share. “The bank’s total provision for soured loans jumped to $8.29 billion, from $1.43 billion the previous quarter. That is more than the bank has had to take in any full year since 2010.” Wall Street Journal, Financial Times

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Bribery charged

A former banker in Goldman Sachs’s London office was accused by the Securities and Exchange Commission of violating the Foreign Corrupt Practices Act by “arranging millions of dollars in bribes to be paid to government officials in Ghana to help a client win a power-plant contract,” the Wall Street Journal says. The SEC lawsuit said the banker, Asante Berko, who left Goldman in 2016, “facilitated as much as $4.5 million in bribes to help a Turkish energy company win a contract to build a power plant.” Berko “also personally paid bribes totaling $66,000 to members of the Ghanaian parliament and other government officials.”

“Goldman, which is still facing a U.S. investigation into the multibillion-dollar 1MDB embezzlement and bribery case in Malaysia, was not identified by the SEC,” the Financial Times says. The SEC complaint said Berko “took deliberate measures to prevent his employer from detecting bribery schemes.”

Wall Street Journal

Math solution

The “philosophical debate about whether U.S. banks should stop paying dividends” like their European counterparts, may be settled by basic math, the paper says. “Whether the cuts are strictly economically necessary may be informed by the quarterly numbers that begin rolling in this week,” it says. “Under Federal Reserve guidelines, when banks fall below their capital minimums, their payouts become increasingly limited as a percentage of past income. It may be unlikely that banks have already breached those levels in the first quarter, but after the results, it will at least be clearer to investors how much cushion there really is.”

“Already, big U.S. banks have cut the bulk of their shareholder distributions by suspending buybacks. While some large European banks have suspended dividends as well, their U.S. counterparts’ move to halt only buybacks was also quite substantial: Large U.S. banks’ median payout ratio went from 135% of expected 2020 earnings to about 45%. Meanwhile, large European banks’ median ratio started at about 45%, which was almost entirely in the form of dividends.”

Fewer repos

The Federal Reserve Bank of New York said Monday “it will soon ease back on operations designed to add short-term liquidity to financial markets. Starting on May 4, it will do an overnight repo each morning, but no longer offer one in the afternoon," the paper says. "It will also now offer a three-month repo once every two weeks, rather than once a week. It will continue to offer a one-month repo once a week. All operations will have a $500 billion cap.”

The Fed said it is making the change “in light of more stable repo market conditions.” Demand for repos, “which recently was very strong, has waned considerably as the Fed has radically expanded its other efforts to support the market,” the paper says.

Looking for a lifeline

The Mortgage Bankers Association said about two million homeowners will not make their mortgage payment this month, as the percentage of loans in forbearance rose to 3.74% as of April 5, up from about 2.73% the prior week. “The stimulus bill provided no assistance to mortgage servicers, and the companies say they might have to come up with tens of billions of dollars to meet their obligations to investors if enough homeowners stop making payments," the paper says. "The MBA and other industry players are pressing the Federal Reserve to support mortgage servicers via an emergency lending facility similar to those it has extended to other industries.”

Under pressure

In Europe, “scarred by a debt crisis last decade, some banks risk buckling under the strain” of the coronavirus pandemic. “Credit-rating firms have already put banking systems in several European countries on watch for downgrades," the paper notes. "Those most immediately exposed to losses they might not be able to cover are smaller lenders in Italy and Spain. German banks, including Deutsche Bank and Commerzbank, are also under pressure.”

“Bank executives, regulators and analysts say banks can survive a short-term shock to the economy after a decade of building their capital buffers and the temporary relaxation of some rules. If it lasts more than a few months, the picture darkens.”

They want in

Nonprofit loan funds focused on lending to small businesses that have trouble borrowing from traditional financial institutions are trying to get a slice of the Small Business Administration to help their struggling clients. “Democrats in Congress are looking to address that issue by setting aside roughly half of $250 billion in additional PPP funding for what are known as Community Development Financial Institutions, along with other lenders such as credit unions and community banks.”

Quotable

“The number of borrowers asking for forbearance will likely continue to rise at a rapid pace.” — Mike Fratantoni, the chief economist of the Mortgage Bankers Association, which is asking for federal aid for nonbank mortgage servicers