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.
If other banks report the kind of earnings numbers that came out of J.P. Morgan today, suffice it to say the banking industry is certainly on the road to recovery. Strong earnings and revenue numbers were impressive. But the numbers that really stood out to this blogger were some of those that are the bread and butter of an investment bank (and commercial bank that does investment banking).
Investment banking fees were up in the three major categories: equity underwriting fees of $489 million were up 22% from the prior quarter. Debt underwriting fees of $920 million were up 17% from the prior quarter. And advisory fees of $424 million were up 10% from the prior quarter.
Posted by Rick Stineon December 13, 2010 Banks, Forex /
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.)
The numbers are just starting to flow in – and it is becoming pretty evident that the one-time U.K. bonus tax imposed on banks is reaping more than expected for the British government.
Two big U.S. banks said yesterday and today that they have paid about $950 million in that bonus tax to the U.K. – JP Morgan yesterday said it would fork out $550 million and Citigroup said it would pay $404 million.
Bank of America didn’t detail its payout but said its non-interest expenses increased by $870 million, largely driven by the U.K. payroll tax and prior year incentive deferrals. Some analysts had estimated that Bank of America would pay a tax of more than $400 million.
The tax was imposed on banks after the public outcry over bankers compensation.
Three major financial institutions reported earnings today (GE Capital, the finance unit of GE, along with Citigroup and Bank of America) and while all were profitable, one sore spot stuck out when you dug through the mounds of data each company reported: Commercial real estate remains a big drag.
GE Capital had net income of $830 million – and that was after it lost $524 million in its real estate portfolio. The unit said it wrote off $186 million of bad commercial real estate debt and had $1.6 billion of non-performing assets. It placed at $6.3 billion its unrealized real estate loss.
Greece is thousands of miles away. But the debt crisis of that country and others in the Euro-region have had implications for companies big and small here – especially those with low credit ratings. These companies have been unable to borrow money, either from banks or the public debt markets, because of the renewed concerns of leverage. Investors and banks worry about a borrowers ability to repay principal and make interest payments.
The chart above, which accompanies a story by Jodi Xu on Dow Jones Newswires, shows the drop off in issuance of new loans and bonds in the below-investment grade arena. As Xu noted in her story, just when confidence was returning to the markets earlier this year, along came the Greek debt concerns and the ripple effect touched here – even for companies with no link to what was going on in Greece.
You want to grab these bank executives around the shoulders and shake some sense into them, especially after reading about their latest efforts to hold off any reform aimed to prevent another financial crisis like the one we just went through.
Today’s WSJ has an article that explores the different moves here and overseas to tax banks. The idea is to raise money that can be used to bail them out in the future, rather than use taxpayer money to do so, if any crisis comes upon us.
Predictably, the banks are crying foul. A trade group cautions the wisdom of a tax because it would remove capital from the banking system – capital that then couldn’t be lent.
A fun video from “Funny Or Die” on President Obama’s efforts to push through financial regulation. A five-plus minute video directed by Ron Howard. Make no mistake. The video is backed by pro-reform activists. Worth a watch.
One of the interesting take aways from the Blackstone earnings report is that, at least in its real estate portfolio, there are signs of having hit or being near a bottom. The company said that it saw property values in the hotel and office segments begin to stabilize – the return for its real estate funds was a negative 0.5% in the most recent quarter versus a negative 29% in the year-ago quarter.
This could be a good sign for the overall commercial real estate market.
Brazil’s central bank, worried about inflation and other symptoms of an accelerating economy, has raised banking reserve requirements on term deposits to 15% from 13%. Granted, Brazil’s economy isn’t expanding at a China-esque pace. But like China, which has taken monetary tightening steps in recent weeks, Brazil wants to prevent a bubble. Henrique Meirelles, central bank president, notes that bank reserve requirements were reduced during the 2008 economic crisis; now stimulus measures need to be reined in. The central bank took some other steps today to restore charges on cash and term deposits. Final data aren’t out yet but it’s believed that Brazil’s economy didn’t grow at all last year; this year, it’s expected to expand a robust 5.5%. We should all have such problems.
The bridge that collapsed on Interstate 5 bridge over the Skagit River in Washington was listed as “functionally obsolete” and “fracture critical,” which means the whole sha-bang could come tumbling down if one major part fails. Click here to read the details from USAToday. This sort of thing shouldn’t be happening in a modern, developed nation. Barry LePatn […]