Are the big banks in trouble again ?
http://www.zerohedge.com/news/2013-10-17/goldman-revenues-tumbles-ficc-craters-down-44-eps-beat-compensation-slashed
Submitted by Tyler Durden on 10/17/2013 08:03 -0400
Submitted by Tyler Durden on 10/16/2013 15:31 -0400
Submitted by Tyler Durden on 10/16/2013 07:54 -0400
Submitted by Tyler Durden on 10/15/2013 08:09 -0400
Submitted by rcwhalen on 10/09/2013 14:51 -0400
http://www.zerohedge.com/news/2013-10-17/goldman-revenues-tumbles-ficc-craters-down-44-eps-beat-compensation-slashed
Goldman Revenues Tumbles, FICC Craters Down 44%; EPS Beat As Compensation Slashed
On the surface Goldman's earnings, which justhit the tape at $2.88/share, and which beat expectations of $2.47 - higher than the $2.85 from a year ago - were far better than some of the worst case expectations. That is, until one actually looks at how they were derived. Sadly for Goldman's employees, the EPS beat was not due to a rise in actual revenues, which missed expectations of $7.35 billion massively, printing at $6.72 billion and down 20% from a year ago, but due a slashing in compensation expenses, which were brutalized from $3.7 billion in Q3 2013 and Q2 2013, to "only" $2.4 billion, a 35% Y/Y drop!
But back to revenue, which was an unmitigated disaster: the only bright light were Investment banking revenues which were $1.7 billion, unchanged from a year ago, if down 25% from Q2. It's all downhill from here, because the all important Fixed Income, Currency and Commodities group printed just $1.247 billion, down a whopping 44% Y/Y, well below expectations, followed by a tumble in Equity Client Flow, which at $1.6 billion, was down 18% from a year earlier. Alas not even Goldman was spared from the Q3 crunch, as both trading volumes appear to have tumbled, as well as actual prop misses impacted revenue. This can be seen in the firm's prop trading group, aka Investment and Lending, which printed at $1.5 billion down 18% from a year ago.
All in all, this was the worst quarter for Goldman's non-prop operations since Q4, and even so it was it was barely better by about $50 million.
What is notable, is that unlike other banks, where CEOs and CEOs can take reseve releases to offset cratering revenues, for Goldman this was not an option and the only way the bank could beat EPS was by actually slashing employee comp: that good old margin management tool. Sure enough, in Q3 the compensation margin tumbled to just 35.4%, well below the 44% average, and the lowest since the negative comp margin Goldman took in Q4 2009 when it was once again so desperate to beat EPS, it actually docked from employee comp accruals.
So much for any hopes that tapering, and a market in which only HFTs are left trading, can be navigated by even the best Wall Street Hedge Fund, pardon, Bank Holding Company.
http://www.zerohedge.com/news/2013-10-16/creeping-capital-controls-jpmorgan-chase
Creeping Capital Controls At JPMorgan Chase?
A letter sent to a ZH reader yesterday by JPMorgan Chase, specifically its Business Banking division, reveals something disturbing. For whatever reason, JPM has decided that after November 17, 2013, it will halt the use of international wire transfers (saying it would "cancel any international wire transfers, including recurring ones"), but more importantly, limits the cash activity in associated business accounts to only $50,000 per statement cycle. "Cash activity is the combined total of cash deposits made at branches, night drops and ATMs and cash withdrawals made at branches and ATMs."
Why? "These changes will help us more effectively manage the risks involved with these types of transactions." So... JPM is now engaged in the risk-management of ATM withdrawals?
Reading between the lines, this sounds perilously close to capital controls to us.
While we have no way of knowing just how pervasive this novel proactive at Chase bank is and what extent of customers is affected, what is also left unsaid is what the Business Customer is supposed to do with the excess cash: we assume investing it all in stocks, and JPM especially, is permitted? But more importantly, how long before the $50,000 limit becomes $20,000, then $10,000, then $5,000 and so on, until Business Customers are advised that the bank will conduct an excess cash flow sweep every month and invest the proceeds in a mutual fund of the customer's choosing?
Full redacted letter below:
http://www.zerohedge.com/news/2013-10-16/bank-america-misses-despite-surge-reserve-releases-amounting-over-quarter-q3-earning
Bank Of America Misses Despite Surge In Reserve Releases Amounting To Over Quarter Of Q3 "Earnings"
On the surface, the latest Q3 bank numbers to come out of Bank of America today, were not quite as bad as those previously reported by the other TBTFs, namely JPM, Wells and Citi. At a (massively adjuste4d) EPS of $0.20, this was just 1 cent below the expected $0.21, even as net revenue of $21.74 billion missed expectations of $21.95 billion. So far so good. At least so good until one realizes that of the $5.1 billion in pretax income, some 1.4 billion, or over a quarter, was from the usual accounting magic well of gimmicks: loan loss reserve releases! In fact, the $1.391 billion in reserve reduction driven by $1.7 billion in charge offs offset by a tiny $0.3 billion in provisions, was the highest reserve release in the past year, only lower than last Q3's $2.3 billion, when the bank - just like today - was in desperate need of any source of fake earnings. Why? Because the bank's loan origination group, just like all other banks', cratered, and saw non-interest income in its real estate services division implode by $1.5 billion to just $844 million. So much for whatever housing recovery the rose-colored glasses ones had envisioned...
This is how the bank, in a brief note in its earnings, observed this ongoing aberration:
The provision for credit losses was $296 million in the third quarter of 2013, down $915 million from the second quarter of 2013 and $1.5 billion less than the third quarter of 2012. The provision for credit losses was lower than net charge-offs, resulting in a $1.4 billion reduction in the allowance for credit losses in the third quarter of 2013. This compares to a $900 million reduction in the allowance in second quarter of 2013, and a $2.3 billion reduction in the third quarter of 2012.
And that was it: 27% of pretax net income getting 4 lines of explanation. Certainly some sellside analyst will inquire into this?
Reserve releases:
Where the magic "earnings" came from: somehow in a quarter in which everyone else was puking credit losses, Bank of America was wearing so many shades, it barely saw a reason to take any credit loss provisions. Brilliant.
Looking at actual organic lines of business, it is no surprise that just like all the other banks, Bank of America was pummeled in the key, FICC, line item.
But the real pain, as expected, was in the mortgage banking division, where as is widely known, business ground to a halt in Q3. Sure enough, noninterest income in the Consumer Real Estate Services segment imploded by a whopping $1.5 billion from a year ago to only $844 million
This is what BAC had to say about it.
- Net loss increased slightly from 2Q13, as LAS cost savings and provision improvement were more than offset by lower mortgage banking income and increased litigation costs
- Total Corporation first-lien retail mortgage originations were $22.6B, down 11% from 2Q13
- Mortgage pipeline at the end of 3Q13 was down 59% from 2Q13
- Core production revenue declined $395MM from 2Q13, due to a 23% reduction in rate lock volumes and lower sale margins
- Servicing income declined $116MM from 2Q13 as the size of the servicing portfolio continued to decline
- Total staffing declined 11% from 2Q13, due primarily to continued reductions in LAS, as well as actions taken in sales and fulfillment as refinance demand slowed
But not even BAC is brazen enough to keep pumping the bottom line with fake earnings without cutting at least some fat. Sure enough, On the expense side, the firm's recurring expenses (ex LAS and litigation) dropped from $13.2 billion to $13.1 billion mostly due to a 9.2K (3.6%) reduction in FTEs to 247,943, the lowest in years as the bank took the axe to its mortgage origination employees
On the balance sheet, total deposits increased by $30 billion from $1080.8 billion to $1,110.1 billion: a record high, not nearly offset by the mere $10 billion increase in loans from $914.2 billion to $924 billion, as like JPM, BAC uses the excess cash to buy risk directly.
The key loan quality indicators of note is that LTVs for both average and 90% loans continues to drop, and hit 71% and 21% respectively. In the % of loans below 620 FICO, BAC reported a total of 12% in notional.
And so on: accounting gimmicks, deteriorating organic business lines, reduction of key employees as the consumer refuses to originate loans, sticking head in sand and reducing quality of loans made even as deposits soar far ahead thanks to QE, allowing the bank to become ever more into a prop trading desk. All the makings of an inevitable disaster.
Full presentation below
http://www.zerohedge.com/news/2013-10-15/citi-misses-across-board-plunge-mortgage-banking-trading-revenues-despite-675mm-rese
Citi Misses Across The Board On Plunge In Mortgage Banking, Trading Revenues Despite $675MM Reserve Release
First we had JPM confirming what we all knew about the third quarter: it was a disaster for anyone who originates mortgages, whose balance sheet relies on Net Interest Margin, and whose income statement is dependent on trading volumes. Now, it is Citi's turn. Moments ago the bank reported uberadjusted EPS of $1.02 missing expectations of $1.04, unchanged from a year ago, and revenues, ex CVA/DVA, of $18.2 billion, down 5% from Q3 2012, and missing expectations $18.71 billion, by over $500 million. Citi EPS also included the now traditional fudge factor of $675MM in loan loss reserve releases, although well below the $1.502BN from a year ago, offset by $204MM in benefit and claims provisions and some $635MM in incremental mortgage charge offs.
Looking specifically at the factors for this miss, we see the same ones as in the case of JPM: a mortgage origination plunge, a drop in the Net Interest Margin as well as a crunch in securities and banking (trading):
To wit on mortgages:
- Global Consumer Banking revenues of $9.2 billion declined 7% from the prior year period, as significantly lower U.S. mortgage refinancing activity and continued spread compression globallymore than offset the ongoing volume growth in most international businesses. Revenues declined 12% in North America GCB to $4.7 billion, while international GCB revenues declined 1% to $4.5 billion on a reported basis (grew 2% on a constant dollar basis).
- North America GCB revenues declined 12% to $4.7 billion versus the prior year period driven mainly by the lower retail banking revenues, with total cards revenues (Citi-branded cards and Citi retail services) remaining roughly flat. Retail banking revenues are expected to continue to be negatively impacted by lower mortgage origination revenues and spread compression.
And then securities and banking, which as Jefferies prewarned everyone, would be a disaster. Sure enough:
- Investment Banking revenues of $839 million were 10% below the prior year period, driven primarily by declines in debt underwriting and advisory revenues, partially offset by growth in equity underwriting.
- Fixed Income revenues of $2.8 billion in the third quarter 2013 (excluding a negative $287 million of CVA/DVA) decreased 26% from the prior year period, reflecting lower volumes and a more uncertain macro environment.
- Securities and Banking net income was $989 million in the third quarter 2013, down 16% from the prior year period. Excluding CVA/DVA, net income declined 29% to $1.2 billion from the prior year period, primarily reflecting the lower revenues and higher credit costs, driven by loan loss reserve builds, partially offset by a 3% decline in operating expenses, reflecting the impact of headcount reductions and lower performance-based compensation.
The variances visually:
Just securities and banking: the collapse in Fixed Income Markets sticks out like a sore thumb:
So much for yet another bank's expectations of a NIM bounce:
Citi's fake earnings, aka Loan Loss Reserve Releases:
The reason why Citi did not build any Reps and Warrants reserves in Q3: it believes it is out of the woods when it comes to future R&W claims:
the message is clear: with banks, that 20% component of the S&P500 total earnings a big disappointment in Q3 (and likely Q4), one thing is certain: the time to slash 2013 forward earnings is here.
Full Q3 earnings supplement below:
http://www.zerohedge.com/contributed/2013-10-09/shall-we-all-be-surprised-jpmorgan-well-fargo-earnings
Shall We All be Surprised by JPMorgan, Wells Fargo Earnings?
Last week we looked at how the dynamics of the housing sector were likely to affect large bank earnings. This week let’s take a look at how the Sell Side analyst community is posturing itself for a “surprise” as JPMorgan and Wells Fargo get ready to release Q2 2013 results Friday before the bell.
With JPM, the first thing to say is that even with the Fed, the London Whale and various other fiascos proclaimed by the Big Media, the stock is still trading in the $50s vs. the $40s a year ago. If you took Bloomberg News and The New York Times as your benchmarks for reality, you’d think that JPM would be trading far below current levels and CEO Jamie Dimon was out. At just under 1x book value, JPM has a ~ $200 billion market cap and, you might say, is fairly valued given the lack of visibility on revenue. You can tell my pal Maria Bartiromo over atCNBC to calm down on JPM and Jamie Dimon, BTW.
The largest bank in the US has already guided the analyst community to expect an operating loss on the mortgage line as volumes fall. Paul Miller at FBR takes some comfort from the fact that the 2013 mortgage origination totals should come in close to $1.4 trillion and hopes 2014 will thus be better than expected by source such as the Mortgage Bankers Association. But the fact is that the 20-plus analysts who follow JPM -- none with "sell" ratings -- are expecting a 7% decline in revenue this quarter and this largely driven by mortgage volumes and related expenses. Weakening auto financing volumes may also be part of the narrative.
Rob Chrisman, a mortgage market commentator most readers of ZH don’t know, puts the FBR report into perspective:
“Investment bank FBR's third-quarter mortgage originations estimate is $349 billion, a 29 percent decline over the quarter. Not only are refis down, but the last and first quarters of any year are usually the low points of the purchase market, leaving lenders wondering if they've cut enough staff for volumes during the next six months. FBR estimates a 46 percent decline in refinances in the third quarter and a 2 percent rise in purchase originations.”
But, of course, we will all be surprised when JPM reports the weak performance of what has heretofore been a key revenue line, right? Despite the fact that JPM officials have been taking about the changing dynamics in mortgage markets since the Q2 2013 earnings call, there will be many people who are surprised and publicly so. That said, the same analyst group who are expecting Q3 2013 to be a wash out for JPM see revenue only down 0.8% for Q4 2013 and down just 0.5% for the full year. For 2014, the analyst group expects JPM revenue up ~ 3% but EPS up close to +10%, meaning a lot more layoffs. Naturally this is bullish for the US economy.
Likewise with WFC, the equity market valuation looks a lot better than you might expect reading the Big Media. While the nation’s largest mortgage lender is about 10% off of the 52-week highs, it is still trading 1.4x book, easily the richest valuation among the large cap universal banks. But what is fascinating is that the 23 Sell Side analysts who follow WFC are guiding to just a 1% decline in revenue in Q3 2013, but down 4.3% in Q4 and down 1.4% for the full year. Listening to the guidance coming from WFC in the past month, it seems reasonable to expect that many Sell Side analysts will be “surprised” by the WFC results. Again, Miller at FBR is a rare voice of sanity among the Sell Side contingent:
“Wells Fargo and other large banks continued to cede [mortgage market] share in 3Q13. Based on the initial GSE MBS issuance data, Wells was responsible for 19.5% of MBS sold to Fannie and Freddie in the quarter, down from 23.4% a year ago and over 30% in the beginning of 2012. Likewise, JPM, C, USB, and BAC ceded 0.2%, 0.6%, 0.7%, and 0.7%, respectively. This pullback by the largest players continues to leave room for smaller originators like [Home Street] HMST, [Nationstar Mortgage] NSM, [Pennymac] PFSI, [SunTrust] STI, and [Walter Investment] WAC to maintain volumes through market share gains in what is an otherwise declining market.”
Of note, WFC did $98 billion in refinance loans and $85 billion in purchase loans in the first half of 2013, this according to Inside Mortgage Finance. While volumes for refinance loans are expected to fall sharply in 2H 2013, purchase volumes are growing steadily, but the fastest growth rates for purchase loans are seen among the nonbanks. It is worth noting too that Miller, who has followed the large cap financials for years, is now diversifying his analyst portfolio to include the non-bank mortgage group.
Despite the minus signs on the revenue growth rates in 2H 2013, the Sell Side community expects WFC to do EPS of $3.37 in 2013 and $3.85 in 2014, a mere 14% earnings growth rate YOY. Revenue is expected to rise just one tenth of that amount, so again look for more layoffs from WFC. WFC already has a 50% efficiency ratio, the best operating leverage ratio in the peer group, so getting to the EPS number means a significantly lower headcount. All of the large banks have been managing expenses intensively over the past five years, so getting that kind of earnings lift with virtually no revenue growth means significant personnel reductions at WFC. And again, this will be bullish for the US economy, right?
One bright note in the large bank earnings picture will be mortgage servicing rights or “MSRs,” which increased in value more than 10% in Q2 2013 according to data from the FDIC. The shift in valuation came partly due to higher rates (and expectations for slower prepayments), partly because of a supply of new buyers entering the market. The adjustment in fair value of MSRs flows through income, providing the illusion of earnings growth even as the banks withdraw from the mortgage sector. The analysts who understand MSRs will likely feign surprise, while those who are clueless will remain, well, clueless. Watch for a discussion of fair value of MSRs in the earnings releases of the top five universal banks and in their subsequent 10-Qs. And don't hold your breath waiting for any "sell" ratings on these names.
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