Banks step up their buying of Treasuries–that’s good and bad news
This is only half as reassuring as it seems to be.
If you’ve wondered (worried) about what buyers are going to step in when the U.S. Federal Reserve stops its program of buying Treasury bonds at the end of June, well, now we’ve got part of an answer.
Banks.
U.S. banks are buying U.S. government debt at the fastest pace in nine months. In the last seven weeks, according to the Federal Reserve, U.S. commercial banks bought $65 billion in U.S. debt. That’s the most since the $79 billion they bought in the seven weeks that ended on July 21.
However, the reason that banks are buying is anything but reassuring. Read more
Update JPMorgan Chase (JPM)
So how did investors react to getting their hopes and fears confirmed by JPMorgan Chase’s (JPM) first quarter earnings, reported before the market open in New York on April 13?
Not all that well, it turns out. The stock was down nine cents a share the day of the earnings announcement but is down almost 2.3% for the day as I post this on April 14.
The bank, the second largest in the United States by assets, reported earnings of $1.28 a share for the first quarter. That was an increase of 73% from the first quarter of 2010 and 12 cents a share better than Wall Street had projected. Wall Street had been expecting an increase in earnings on lower levels of reserves against bad debt and that’s exactly what it got on the bottom line.
On the other hand, revenue fell 8.5% from the first quarter of 2010 to $25.79 billion. That was slightly above the $25.27 billion in revenue projected by Wall Street analysts. Wall Street had been expecting a drop in revenue on weakness in the investment banking and trading units.
Initially, if I can judge from pre-market open trading, investors seem inclined to buy based on the earnings numbers, figuring, I suspect, that earnings will climb even more once revenue starts to grow again. Read more
Update Citigroup (C)
It’s a cynical, totally transparent ploy—but it’s our ploy. If you own the shares as I do, I’m sure you hope it works.
Citigroup (C) has announced that it will engineer a reverse 1 for 10 stock split and then resume payment dividends at a rate of a penny a share.
The two moves will finally get the shares above $10, the cut off level for some institutional investors. That plus the new dividend—some institutional investors can’t buy shares without dividends—will expand the stock’s potential ownership pool. Shares of Citigroup have been stuck at $5 for months.
Not that anyone is going to be fooled by these moves into thinking that shares of Citigroup are anything but the slowly recovering equity of the U.S bank that got the biggest taxpayer bailout. Read more
Update JPMorgan Chase (JPM)
“We lose money on every sale but make it up on volume” wasn’t quite the motto for investment banks in 2010, but with fees for investment banking deals falling to rock bottom levels, volume is the key to profits in the sector.
And if a bank wants to do volume, it better have the Asia’s emerging financial markets dead in its sights. Three of the five biggest markets for IPOs (initial public offerings) in 2010, for example, were Hong Kong at $57 billion, Shenzhen at $47 billion, and Shanghai at $27 billion.
So who’s going to be the dominant investment-banking player in Asia? Read more
A new Eurozone bank stress test–with even less stress?
Thank goodness they learned their lesson.
Last time bank regulators conducted a stress test of European banks, the tests were derided as too easy and meaningless. That criticism gained a certain credibility when Ireland was forced to bail out its two biggest banks, both of which had passed the summer of 2010 tests.
So what are regulators doing this time? They’re watering down the tests even more.
Hard to believe though it might be, the proposed test will model the effect of a 15% drop in stocks market on bank balance sheets this time—as opposed to a 20% drop in the 2010 model. Read more
