Update 265 — 1st Qtr Bank Profits Break Records
But Markets Skeptical: Is an Encore in Store?
With the last of the financial sector’s quarterly earnings reports for 1Q18 trickling in, we take a look at the condition of the large and diverse financial sector in the United States. What we find is a sector whose largest institutions almost all report recording-breaking if circumstantial profits. Analysts and some bank executives cast doubt though on the sustainability of the performance. Still, the banks’ performance begs the $2155-dollar question: why deregulate under these conditions?
Best,
Dana
—————
Wall Street Gets a Tax Break, Sheds Risk
The Wall Street giants emerged from the financial crisis bigger and more profitable than ever. Over the past ten years, the three largest banks by assets — JPMorgan Chase, Bank of America, and Wells Fargo — have added more than $2.4 trillion in domestic deposits.
Net income at JPMorgan Chase, the nation’s largest bank by assets and deposits, rose 35 percent to $8.71 billion. Corporate tax cuts helped the six largest U.S. banks produce a combined net income that surpassed $30 billion for the first time ever. The new corporate tax rate has saved the six largest banks about $2.9 billion thus far, contributing a ten percent increase in quarterly net profit. The tax cuts are supposed to spur economic activity, such as lending and hiring. But loans at the four largest commercial lenders fell $2.5 billion last quarter and the combined loan count was below where it was a year earlier.
Can Wall Street Repeat?
The financial sector’s earning season that just ended makes clear the condition of its largest institutions, measured by annual profits. Along with the massive tax savings, the main factors behind Wall Street profits over the last 12 months have been:
• Trading Activity: Trading revenue was the highest in three years as they capitalized on volatile equity markets. Volatility in the markets came in and helped the equity trading. In particular, equity derivatives benefited Bank of America and others. Rising interest rates fueled revenue derived from lending. Equity trading led, with every investment bank blowing past expectations in the most volatile quarter in years — even with U.S. stocks seeing the worst single-day plunge in almost seven years in early February.
• Interest Income: JPMorgan, Bank of America and Citigroup benefited as the Federal Reserve raised rates twice in the past four months, meaning they can charge more for loans. All three firms posted higher net interest income in the first three months of the year, which they attributed to higher rates and loan growth.
• FinTech: Customers’ increasing acceptance of digital products and tools. Before online and mobile banking became popular, consumers generally opened a new account at the bank with the nearest branch; with more banking transactions done online or through smartphones, customers are picking national banks because of their well-known brands and the perception that their technology products are superior.
• Credit Quality: Credit quality remains a top concern for investors as Federal Deposit Insurance Corp. (FDIC) data shows credit-card loans reached a record last year. Bank of America and JP Morgan Chase both saw write-offs climb about eight percent, attributing the increase to souring credit-card loans. Citigroup warned that its cost of credit will likely increase in the current quarter. Regardless, all of the banks say consumer credit quality is holding up well amid low unemployment. JPMorgan had to set aside more money to cover potentially bad loans, and the bank’s total charge-off rate — the percentage of loans it expects are not likely to be repaid — climbed to 1.20 percent of all loans. That compares to 1.07 percent of loans in 2Q17.
The following might put the profit margins on Wall Street in perspective. Wells Fargo announced a one-off write-down last week of $800 million to cover losses associated with its settlement with regulators. The firm’s tax savings from the first quarter alone came to $636 million, 80 percent of Wells’ settlement charge.
Source: http://www.wsj.com/graphics/bank-earnings/
Can Wall Street repeat this performance? Citigroup Chief Financial Officer John Gerspach said last week that businesses had only begun taking advantage of the changes: “I think the best is yet to come.”
Community Banks Profitability Also Up
Having locked in long term loans at favorable interest rates, big banks have also taken steps to move risk off of their balance sheets. As a result of this interest rate environment and competitive lending conditions, riskier assets have moved further down the industry as smaller, mainstreet financial institutions have “reached for yields.”
At first glance, the nation’s 5,700 community banks, with nearly $5 trillion in assets and record profits, appear to be as healthy as they have ever been. Despite record profits, there is evidence suggesting some community banks are distributing lower quality loans in search of higher yields.
Some analysts are concerned that this combined with dangerous mortgage loans could increase risk in the community banking sector. A provision in S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, would grant relief for banks with under $10 billion from the Volcker Rule and Qualified Mortgage safe harbor, opening the door for community banks to make riskier mortgage loans. The good news is that while individual banks may overextend themselves, community banks pose far less systemic risk than their larger counterparts.
Regional Bank Euphoria
While fewer than ten regional banks have announced their first quarter 2018 earnings reports, the results have been favorable for these institutions thus far. Comerica and KeyCorp each reported substantial increases in adjusted net income year over year. Northern Trust’s Q1 earnings totaled $381.6 million vs. $276.1 million the year prior. BB&T’s quarterly earnings are up 22 percent, compared to 4Q17.
Some institutions will see some short-term pain in exchange for long-term gain with the recognition of past tax deferrals. For instance, BMO Financial’s 1Q18 net income fell 35 percent due to the revaluation of its deferred tax asset of $425 million. This upfront charge will be more than worth it for BMO going forward as the company can now claim a significantly decreased tax rate.
If it passes the House, S.2155 is one of the biggest gifts the regional banking sector could have asked for. In raising the threshold for automatic enhanced prudential standards from $50 billion to $250 billion, the bill would allow regional banks to devote fewer resources to maintaining required capital buffers, complying with stress testing, and submitting resolution plans. In the short term, this will benefit these banks, but increased systemic risk could harm the financial system in the medium to longer term. Regional banks tend to have similar balance sheets, so while profit is strong at present, this class of banks rises and falls together.
The Sectoral Landscape
The U.S. financial sector is far more stable than it was a decade ago. Record profits, bolstered by the Republican corporate tax cut, do not appear to hide the same kind of asset bubbles, no-doc lending practices, and others risks that accompanied but went largely missed or ignored in the run up to the 2008 crisis.
The strength and stability of the financial system is thanks in no small part to post-crisis regulations. But industry lobbyists are presently hard at work taking aim at Dodd-Frank’s systemic risk protections via S.2155.
Even regulators themselves — the steadily increasing number of Trump-appointed ones at least — are not so much diligently applying lessons learned but are designing new federal rules to relax critical capital buffers, the leverage ratio, and stress testing.
More to come this week.
Reputable Online Pharmacy Usa Boitteedasse [url=https://bansocialism.com/]buying cialis online reviews[/url] orafepeexire Cialis Tratamiento
[url=http://hcialischeapc.com/]cialis online prescription[/url]
We are a group of volunteers and opening a new scheme in our community.
Your website offered us with valuable information to work on. You have done a formidable job and our whole community will be thankful to you.
0mniartist asmr
Way cool! Some very valid points! I appreciate you writing
this post plus the rest of the site is extremely
good. 0mniartist asmr
I am no longer certain the place you’re getting your information, but good
topic. I needs to spend a while learning more or understanding more.
Thank you for wonderful information I was on the lookout for this information for my mission. asmr 0mniartist
For most recent news you have to visit internet
and on the web I found this site as a best web site for most up-to-date updates.
asmr 0mniartist
Pretty nice post. I just stumbled upon your weblog and wished to mention that I have really loved surfing around your blog posts.
In any case I’ll be subscribing in your feed and I am hoping you write once more soon! 0mniartist asmr
local milfs
[url=”http://datingfreetns.com/?”]dating sites for over 50 [/url]
personal loans
[url=”http://paydayloanusaone.com/?”]money mutual [/url]
Truly no matter if someone doesn’t be aware of after that its up to other viewers that they will assist, so here it happens.
Wow, fantastic blog layout! How long have you been blogging for?
you made blogging look easy. The overall look of your web site is wonderful, as well as the content!
What’s up everybody, here every one is sharing such know-how,
thus it’s good to read this blog, and I used to go to see this web
site every day.
Wow! Finally I got a website from where I be able to really obtain valuable data concerning my study and knowledge.
tinder login, tider
[url=”http://tinderentrar.com/?”]how to use tinder [/url]
tinder online , tinder website
[url=”http://tinderentrar.com/?”]browse tinder for free [/url]
You really make it seem so easy with your presentation but I
find this topic to be actually something which I think I would never understand.
It seems too complex and very broad for me. I’m looking forward for your next post,
I’ll try to get the hang of it!
Do you have a spam issue on this blog; I also am a blogger,
and I was curious about your situation; many of us
have created some nice methods and we are looking to
exchange solutions with others, please shoot me an email if interested.
how to use tinder , tinder app
[url=”http://tinderentrar.com/?”]browse tinder for free [/url]
It’s going to be finish of mine day, except before end I am reading this
impressive article to improve my knowledge.
Since the admin of this web site is working, no doubt very soon it will be famous,
due to its feature contents.
I really like it when folks get together and share ideas.
Great site, continue the good work!
tider , how to use tinder
[url=”http://tinderentrar.com/?”]browse tinder for free [/url]
kamagra or malegra[/url]
tinder login, tinder login
[url=http://tinderentrar.com/]http://tinderentrar.com/[/url]
tinder online , tider
[url=http://tinderentrar.com/]http://tinderentrar.com/[/url]
scoliosis
Hey there! Do you use Twitter? I’d like to
follow you if that would be ok. I’m absolutely enjoying your
blog and look forward to new updates. scoliosis
scoliosis
I’m not sure where you’re getting your information, but great topic.
I needs to spend some time learning much more or understanding more.
Thanks for fantastic info I was looking for this info for my mission. scoliosis
dating sites
This is my first time pay a visit at here and i am truly pleassant to read
all at single place. https://785days.tumblr.com/ free dating sites
dating sites
Hi it’s me, I am also visiting this web site on a regular basis,
this site is truly good and the people are actually sharing good thoughts.
free dating sites
For hottest information you have to pay a quick visit world-wide-web and on internet I found this
website as a finest site for hottest updates.
If you wish for to get much from this article then you have to apply such techniques to your won weblog.
Hello there, You’ve done a fantastic job. I will certainly digg it and personally suggest to my friends.
I’m sure they’ll be benefited from this web site.
Pingback: singapore dating website free
Your mode of describing all in this article is in fact pleasant, every
one be capable of effortlessly know it, Thanks a lot.
Hiya! Quick question that’s totally off topic. Do you know how to
make your site mobile friendly? My web site looks weird when viewing from my apple
iphone. I’m trying to find a template or plugin that might
be able to fix this issue. If you have any suggestions, please share.
Thanks!
As the admin of this web site is working, no doubt very rapidly it will be well-known, due to its quality contents.
Excellent way of telling, and good post to take information regarding my presentation subject, which i am going
to deliver in institution of higher education.
hi!,I love your writing very so much! share we keep in touch extra about your post on AOL?
I require an expert on this space to resolve my problem.
May be that is you! Taking a look forward to see you.
I every time spent my half an hour to read this blog’s posts all the time along with
a cup of coffee.
It’s remarkable to visit this website and reading the views of all friends regarding
this paragraph, while I am also zealous of getting knowledge.
antabuse[/url]
cialis professional[/url]
I do not even know how I ended up here, but I thought this post was good. I don’t know who you are but certainly you’re going to a famous blogger if you are not already 😉 Cheers!
Hey terrific website! Does running a blog similar to this require a lot of work? I’ve absolutely no knowledge of programming however I had been hoping to start my own blog in the near future. Anyhow, should you have any suggestions or tips for new blog owners please share. I know this is off subject but I simply had to ask. Thank you!
really great blog I like it~
Basically desired to emphasize I am just happy I happened on the
site! https://gaydatingzz.com/
Basically desired to emphasize I am just happy I happened on the site! https://gaydatingzz.com/
free online dating
[url=”http://onlinedatinglook.com/?”]does online dating work[/url]
plenty fish date site
[url=”http://onlinedatingtwo.com/?”]dating saudi arabia[/url]
gay dating site in los angeles
gay male dating site pakistan
[url=”http://gaychatgay.com?”]completely free gay dating[/url]
online dating gay women bi
gay dating phoenix
[url=”http://gaydatingzz.com?”]gay disabled dating[/url]
Pingback: easy keto dinner
Keep this going please, great job!
Дом Гуччи смотреть онлайн
Загін самогубців 2
Currently it seems like BlogEngine is the preferred blogging platform
out there right now. (from what I’ve read) Is that what you’re
using on your blog?
chicago gay dating
gay dating in julian ca
[url=”http://freegaychatnew.com?”]gay dating houston[/url]
cub gay dating
mateen gay dating
[url=”http://freegaychatnew.com?”]gay dating in usa[/url]
свати 6 сезон 7 серія ютуб
ашдирезка
Hello Dear, are you genuinely visiting this site on a regular basis, if so
afterward you will absolutely take pleasant know-how.
гра престолів 1 сезон онлайн
кінокрад
harry potter and the prisoner of azkaban 123movies
new gay dating sites
gay otter dating
[url=”http://gaychatus.com?”]russian gay dating scams[/url]
Круїз у джунглях безкоштовно українською
thai gay dating site
gay silver daddy dating site
[url=”http://gaydatingzz.com?”]gay women dating site[/url]
gay dating in boston
offline gay dating
[url=”http://gaychatus.com?”]gay dating for twinks[/url]