Randomly Noted

J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees number came from equity and debt underwriting, with the big piece coming from debt – a quarterly record of $971 million for the bank.

Grouped under the investment bank is also trading – and fixed income once again ruled the day. Of the $6.6 billion of revenues from “fixed income/equities,” $5.23 billion came from fixed-income. The bank didn’t offer a break down i.e. how much was from FX trading, for example.

Finally, the investment bank (trading and traditional IB) contributed about 43% of the firms net income ($2.37 billion of a total $5.5 billion).

A quarter where the investment bank didn’t carry the whole day, er quarter, but carried a lot of it.

One of the most interesting aspects of the 26-page annual missive penned by Berkshire Hathaway Inc. Chairman Warren Buffett was the reproduction of a 1939 letter from his grandfather and the mathematical trajectory one can trace from a homespun lesson on savings to Berkshire’s ability to massively benefit from the recent financial crisis.

In that 1939 letter from Ernest Buffett to one of his sons and the son’s wife, Ernest described the $1000 cash reserve he had built for them. “I hope it never happens to you, but the chances are that some day you will need money, and need it badly, and with this thought in view, I started a fund …” Ernest wrote. Without liquidity, he said, one might have to “sacrifice some of their holdings” when cash was immediately needed.

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You normally wouldn’t think it’s good news that consumers are taking on more debt, especially when that debt comes in the form of credit cards, which can be very costly debt. But today’s report from the Federal Reserve that showed the first increase in credit-card debt since the month before Lehman Brothers failed is being viewed as just that – a positive sign about the economy.

In December,  credit-card debt rose $2.3 billion to $800.5 billion – the first monthly increase since August 2008. This, combined with a recent Fed survey that found banks were becoming more willing to make installment loans, has some wondering: Has the consumer stopped de-leveraging?

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Here’s a great quote from the Financial Crisis Inquiry Commission report that  was released earlier today:

“It didn’t take Sherlock Holmes to figure out this was bogus.” That’s from Prentiss Cox, then an assistant attorney general with the state of Minnesota. He was talking about loan applications he reviewed from a mortgage lender who later went bust,

Cox received 10 boxes of applications from the mortgage lender and began to pull out random files. Here a pretty healthy mortgage was given to a disabled borrower in his 80s who used a walker and was described in the loan application as being employed in light construction.

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One of the interesting little tidbits in the Goldman Sachs earnings report today – the company took a $305 million impairment write-down against its “Designated Market Maker” rights at the New York Stock Exchange.  What that’s referring to is the old specialist business that Goldman owned through Spear, Leads & Kellogg.

Once upon a time, before technology became such a big part of our lives, traders called specialists made markets in a stock. He/she matched buyers and sellers from orders over the phone. If someone wanted to buy but no sellers were available, the specialist became the seller. Or vice versa. But as technology became more prevalent, it became apparent you didn’t that brokers to so the matching of orders.

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It wasn’t a good day for Chinese stock markets on Monday. And unless U.S. companies unleash some positive earnings news on Tuesday, stock markets in the U.S. could be under pressure as well.

The Shanghai Composite Index closed down 3.0% while the Shenzhen Composite Index fell 4.3%. Both were reacting to Friday’s news from the People’s Bank of China, which said it will raise the share of deposits that banks must keep on reserve by half a percentage point. this is the seventh time in a year the bank has done so and follows two interest-rate hikes since October.

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It was just about a full year ago that the President of the U.S. stood in front of television cameras and referred to the “tall guy behind me.”

The tall guy was Paul Volcker, that day near the crest of a remarkable political renaissance that saw the “Volcker rule” go from Volcker’s seemingly singular quest to official Obama administration policy. Eventually, it became a still controversial part of financial regulatory reform.

The “Volcker rule” bars commercial banks from engaging in certain types of proprietary trading. Volcker’s simple point: banks shouldn’t be taking big risks when their deposits carry government insurance. If they want to trade for their own accounts, they should stop being banks or spin off the units that do the trading.

The news today is that Volcker, now 83, is going to leave his role as head of the President’s Economic Recovery Advisory Board.

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At first, it’s hard to tell if BMO Financial Group’s $4.1 billion acquisition of Marshall & Ilsley is about a strategic expansion of business in the U.S. or an opportunistic buy of a bank beat up by bad real estate loans.

The answer is it is probably both. Marshall & Ilsley has lost money for nearly two years because its loan portfolio – heavily commercial – soured across the board. But it has a strong deposit footprint in Wisconsin, Minnesota, Florida and Arizona.

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Earlier this year, when the Banks for International Settlements came out with its triennial FX survey, we learned that 85% of the growth in the FX market over the past three years came in a category called “other institutions,” a group that includes funds of all stripes, including hedge funds, as well as small banks and insurance companies. In fact, for the first time, there was more trading in this category than among reporting dealers.

Now, we learn from the BIS Quarterly review what the BIS believes drove those increases. Number one on the list: High-frequency trading strategies grew. Followed by more trading among smaller banks. And finaly the emergence of retail (individuals as well as small institutions.)

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A socialist U.S. senator and a central banker issued very separate critiques of the U.S. banking system, but in their own ways they both question the interconnectedness of the big-time, global financial system.

The seemingly odd couple consists of Sen. Bernie Sanders, the independent from Vermont, who was much in media demand on Wednesday, since he was key to forcing the Federal Reserve to reveal the names of the recipients of the Fed’s loan largesse during the dark days of the financial crisis. The other is Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City and a lone, serial dissenter from the super-easy monetary policies of the U.S. central bank.

Both implicitly were praising a bygone time, when national politics and policies were not so out of sync with the fully global and totally tangled nature of the financial services world. It’s an open question whether U.S. decisions alone can challenge that structure and leave a vibrant financial services industry in its wake.

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