November 28, 2020

Off the Charts: Five Years After Chaos, Shares of Many Big Banks Are Still Struggling

Two weeks later, Lehman Brothers failed and a panic began. The crisis demonstrated how interconnected the world financial system had become and how vulnerable even apparently healthy banks were when their competitors began to crumble. In the weeks that followed, most large banks around the world had to be bailed out. Their share prices plummeted.

Since then, however, some big banks have performed much better than others — a difference based to a significant extent on just how well, or badly, each bank had been run in the months and years leading up to the crisis.

The accompanying charts show the performance of 25 large banks around the world. As the crisis began, each of them ranked in the top 20 in the world in at least one of three measurements — market capitalization, book value or total assets.

In the weeks and months that followed, all but one of them lost at least half of their market value, as measured in the local currency of the bank’s primary market. The exception was a Chinese bank, the Industrial and Commercial Bank of China, whose shares lost less than a third of their value.

The charts also show the performance of the Bloomberg World Bank Index, which comprises more than 140 banks and has done better than most of the large bank stocks. This was a crisis where bigger was not necessarily better, and where some of the largest banks proved to be far from adequately capitalized, notwithstanding what their books had indicated before Lehman collapsed.

This spring, the world bank index got back to within 3 percent of its level at the end of August 2008, although it has since slipped back and is now 11 percent lower. Few of the large banks shown have done as well.

But a handful of banks turned out to be profitable long-term investments that August. Shares of both JPMorgan Chase and Wells Fargo in the United States are now more than 40 percent higher than they were. Shares of two of the three Chinese banks shown — Bank of China and China Construction Bank — are higher now than they were five years ago, while the third is approximately unchanged. In Britain, HSBC is up about 13 percent, a much better performance than was shown by other large European banks. It did not hurt that HSBC had a significant presence in many developing countries, most of which rode out the recession reasonably well even though some have stumbled this year.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/08/31/business/economy/some-big-banks-thrive-despite-chaos-of-2008.html?partner=rss&emc=rss

Off the Charts: Some Big Banks Thrive Despite Chaos of 2008

Two weeks later, Lehman Brothers failed and a panic began. The crisis demonstrated how interconnected the world financial system had become and how vulnerable even apparently healthy banks were when their competitors began to crumble. In the weeks that followed, most large banks around the world had to be bailed out. Their share prices plummeted.

Since then, however, some big banks have performed much better than others — a difference based to a significant extent on just how well, or badly, each bank had been run in the months and years leading up to the crisis.

The accompanying charts show the performance of 25 large banks around the world. As the crisis began, each of them ranked in the top 20 in the world in at least one of three measurements — market capitalization, book value or total assets.

In the weeks and months that followed, all but one of them lost at least half of their market value, as measured in the local currency of the bank’s primary market. The exception was a Chinese bank, the Industrial and Commercial Bank of China, whose shares lost less than a third of their value.

The charts also show the performance of the Bloomberg World Bank Index, which comprises more than 140 banks and has done better than most of the large bank stocks. This was a crisis where bigger was not necessarily better, and where some of the largest banks proved to be far from adequately capitalized, notwithstanding what their books had indicated before Lehman collapsed.

This spring, the world bank index got back to within 3 percent of its level at the end of August 2008, although it has since slipped back and is now 11 percent lower. Few of the large banks shown have done as well.

But a handful of banks turned out to be profitable long-term investments that August. Shares of both JPMorgan Chase and Wells Fargo in the United States are now more than 40 percent higher than they were. Shares of two of the three Chinese banks shown — Bank of China and China Construction Bank — are higher now than they were five years ago, while the third is approximately unchanged. In Britain, HSBC is up about 13 percent, a much better performance than was shown by other large European banks. It did not hurt that HSBC had a significant presence in many developing countries, most of which rode out the recession reasonably well even though some have stumbled this year.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/08/31/business/economy/some-big-banks-thrive-despite-chaos-of-2008.html?partner=rss&emc=rss

Wall Street Modestly Higher, Helped by Earnings Data

The Standard Poor’s 500-stock index hit an intraday record high on Tuesday before slipping in a tight-range session, while the Dow Jones industrials got a lift from upbeat earnings.

The S. P. biotech subindex fell 1.6 percent a day after hitting a record high. The S. P. health care index slipped 0.3 percent and ranked among the worst performers of the 10 industrial sectors in the index.

Shares of United Technologies, the world’s largest maker of elevators and air conditioners, hit a record high of $105.58 and led the Dow’s advance after the company raised the low end of its 2013 earnings forecast. The stock was up 3.4 percent.

The Dow also reached an intraday record high shortly after the opening bell, within a few minutes of the SP 500’s jump to its record intraday high.

In afternoon trading the indexes were off their highs. The S. P. was 0.1 percent lower, at 1,694.69 points, the Dow Jones industrial average gained 0.3 percent to 15,590.89 and the Nasdaq composite was down 0.3 percent.

If the S. P. ends Tuesday’s session with a decline, that would be only the second down day in the last 14 for the benchmark index. The SP 500 has gained about 19 percent for the year.

“Valuations are decent, there’s positive monetary pressure, earnings are just O.K.” said John Manley, chief equity strategist at Wells Fargo Funds Management in New York. “It’s hard to get people excited but the market keeps grinding higher.”

“It will be slow over the summer, but the market will have an upward bias,” he said.

Asian markets rose after local media outlets in China reported that the government was looking to increase investment in railroad projects to reduce gluts in steel, cement and other materials as it aimed to ensure annual economic growth did not sink below 7 percent.

The reports lifted stocks across Asia outside Japan by 1.3 percent, to their highest levels since early June. They also gave an early increase to mining stocks in London, although a lack of detail made some in the markets cautious.

A flurry of merger and acquisition activity and a sharp rally in telecommunications shares added to gains across Europe in morning trade, but by the end of the session, the FTSEurofirst 300 index was 0.2 percent lower.

Among declining shares in the United States, the online-entertainment company Netflix fell 4.8 percent, a day after it reported that its show “Arrested Development” had lured new subscribers in the second quarter — but not enough to impress investors.

United Parcel Service posted a smaller quarterly profit as customers chose slower, cheaper shipping services, especially on international routes. Its shares were 0.1 percent lower.

Gold took a breather after its biggest one-day gain in more than a year. It was down 0.4 percent, at $1,331.20 an ounce, but it has recovered more than $150 from a three-year low of $1,180.71 an ounce hit on June 28.

Benchmark crude oil in the United States gained 27 cents, to $107.21 a barrel. Investors are awaiting United States crude inventory data for further clues about the outlook for demand.

Article source: http://www.nytimes.com/2013/07/24/business/daily-stock-market-activity.html?partner=rss&emc=rss

Earnings Throw Water on S.&P. 500’s Party

A string of lackluster earnings reports weighed on the stock market on Tuesday, ending an eight-day winning streak for the Standard Poor’s 500-stock index.

Coca-Cola, the world’s largest beverage maker, fell after the company said it sold less soda in its home market of North America and its earnings declined 4 percent. Charles Schwab, the retail brokerage firm, dropped after it reported disappointing second-quarter earnings. And Marathon Petroleum, the fuel refiner, declined after it forecast weak earnings and said its business was being hurt by renewable-fuels laws.

“The expectations out there for earnings over all, they’re pretty modest,” said Scott Wren, a senior equity strategist at Wells Fargo. “Earnings season is not going to be what drives the market from here.”

The Dow Jones industrial average fell 32.41 points, or 0.2 percent, to close at 15,451.85. The S. P. 500 declined 6.24 points, or 0.4 percent, to 1,676.26. The Nasdaq composite dropped 8.99 points, or 0.3 percent, to 3,598.50.

Eight of the 10 industry groups in the S. P. 500 fell. The declines were led by materials companies. Phone and technology companies were the two groups that gained.

Coke dropped 78 cents, or 1.9 percent, to $40.23 after the company reported that its second-quarter profit fell 4 percent. Charles Schwab fell 71 cents, or 3.3 percent, to $21 after its earnings came in short of analysts’ expectations as expenses rose and its interest margins fell. Marathon Petroleum fell $3.17, or 4.3 percent, to $69.93.

“Expectations for earnings growth this quarter are fairly subdued,” said Michael Sheldon, chief market strategist for the RDM Financial Group. “However, the important thing for investors is to look ahead to the second half of the year, where earnings are supposed to pick up significantly.”

Overall S. P. 500 earnings are expected to grow by 3.4 percent in the second quarter from the same period a year ago, according to data from SP Capital IQ. The rate of earnings growth is predicted to rise in the third and fourth quarters, reaching 11.6 percent in the final three months of the year.

The stock market has climbed back to record levels after a brief slump in June, when the S. P. 500 logged its first monthly decline since October on concerns that the Federal Reserve would ease back on its economic stimulus too quickly. The S. P. 500 rose for eight consecutive trading sessions through Monday, its longest winning streak since January. The index is up 4.4 percent in July, putting it on track to log its biggest monthly gain since January, when it rose 5 percent.

Stocks rose last week when Ben S. Bernanke, the Fed’s chairman, said the central bank would not ease its stimulus efforts before the economy was ready. On Wednesday, Mr. Bernanke is scheduled to give his semiannual testimony to Congress on the economy.

Esther L. George, president of the Federal Reserve Bank of Kansas City and a voting member of the Fed’s monetary policy committee, said on Tuesday that the central bank should cut back on its stimulus as the labor market begins to recover. The central bank is currently buying $85 billion of Treasury and mortgage securities a month to keep interest rates low and to encourage borrowing and hiring.

“It is time to adjust those purchases,” Ms. George told Fox Business Network.

In government bond trading, the 10-year Treasury note rose 3/32, to 93 8/32, while its yield slipped to 2.53 percent, from 2.54 percent late Monday. The 10-year Treasury yield has retreated since surging as high as 2.74 percent on July 5.

Article source: http://www.nytimes.com/2013/07/17/business/daily-stock-market-activity.html?partner=rss&emc=rss

DealBook: JPMorgan and Wells Fargo Feel First Chill of Rising Interest Rates

Jamie Dimon, the chief executive of JPMorgan Chase.Mark Wilson/Getty ImagesJamie Dimon, the chief executive of JPMorgan Chase.

Even as two of the nation’s largest banks reported record profits on Friday, beneath the rosy earnings were signs that a sharp uptick in interest rates could spell trouble ahead for Wall Street and the broader housing market.

Kicking off bank earnings season, JPMorgan Chase and Wells Fargo handily beat analysts’ expectations. Profit at JPMorgan surged 31 percent, bolstered by gains in the bank’s trading and investment banking business. Wells Fargo, the biggest home lender in the country, posted a 19 percent increase in its second-quarter profit.

The gains were spread across the banks except for one important source: mortgage banking. The results showed that refinancing activity slowed, as did demand for mortgage loans.

The results could worsen. If rates continue to rise, fewer borrowers are likely to refinance or buy a house. And if the mortgage bond market weakens, banks will take a smaller gain when selling the mortgages.

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While these concerns have loomed for months, the earnings on Friday offered the clearest picture yet of how the interest rate turmoil could affect the banks, whose fortunes hinge in part on their lending businesses.

“We’re trying to be clear with you that this would be a significant event,” Marianne Lake, JPMorgan’s chief financial officer, said on Friday, referring to the potential effect of rising rates on the industry. She cautioned analysts that the volumes of mortgage refinancing could plunge by an “estimated 30 percent to 40 percent” in the second half of this year.

The results from JPMorgan and Wells are a barometer for the housing market because the two banks together account for the majority of all mortgages in the United States. In recent years, the recovery in the market has fueled the earnings of both companies and has also played a significant role in the broader economic rebound.

Until now, the banks have benefited from government policies intended to stimulate the economy in the wake of the financial crisis. As the Federal Reserve cut interest rates in recent years, for example, it spurred millions of borrowers to refinance their home loans to take advantage of the lower costs.

But the Fed has signaled in recent weeks that it could ease its stimulus as the economy continues to recover. The warning has prompted investors to drive up interest rates around the globe. Since Fed officials first hinted that they might retreat, the rate for a 30-year fixed mortgage has risen to 4.78 percent from a low of 3.54 percent.

The banks’ second-quarter results show the early results of the sudden surge. In the second quarter, Wells Fargo received $146 billion worth of quarterly home loan applications, down from $208 billion in the period a year earlier. Its mortgage originations totaled $112 billion, down from $131 billion.

At JPMorgan, mortgage originations rose 12 percent in the quarter, to $49 billion, but overall profit in mortgage banking fell by 14 percent, to $1.1 billion.

On Friday, JPMorgan executives said the slowdown could be even more extreme than previous forecasts have suggested. While both banks might be able to seize on the uptick in interest rates to create a bigger spread between the income they derive from lending and the ultimate cost of borrowing, those benefits proved elusive.

Net interest margin, a critical measure that reveals how much profit banks earn on their loans, fell at JPMorgan, settling in at 2.60 percent for the quarter, from 2.83 percent in the previous quarter. At Wells Fargo, it was 3.46 percent, down from 3.48 percent in the first quarter.

The results suggested that the surge in interest rates came too late in the second quarter to significantly affect the banks, but that the increase could cause deeper problems in the second half of the year.

Christopher Whalen, an investor and housing market analyst at Carrington Investment Services, said that the numbers that Wells and JPMorgan presented were a “very big deal.”

“Everybody in the mortgage industry is going to have to reassess their view of this year and next,” Mr. Whalen said.

Rising rates, though, might help other parts of the banks’ business. Within its fixed-income trading operations, for example, JPMorgan reported an 18 percent increase in revenue. Fees in JPMorgan’s investment banking unit surged 38 percent, to $1.7 billion.

Wells Fargo executives played down the significance of the rate change, noting that mortgage rates were still extremely low by historical standards. John Stumpf, the bank’s chief executive, pointed to the interest he paid for his own mortgages.

“If you were in the mortgage market before 2000, you know that these are unbelievably good rates,” Mr. Stumpf said. “My first mortgage was at 8.5 percent. My second one was at 11.5 percent, and I thought those were great rates at those times.”

Mr. Stumpf noted that the uptick in rates stemmed from the Fed’s indication that the economy was improving. Housing prices are rising and demand for homes has soared.

As the improvements continue, he said, a growth in loans for new home purchases will more than make up for any losses in refinancing.

“I’ll take that trade all day,” Mr. Stumpf said. “It’s good for America, it’s good for the economy and in the long term, it’s good for our business.”

Wells’s overall loan portfolio, which includes commercial and consumer lending, actually rose 3 percent to $802 billion in the second quarter. A bump in credit cards and commercial lending — and record origination of auto loans — further offset the home loan slowdown. The bank’s total average deposits reached $1 trillion, up 9 percent from a year ago.

But important drivers of the returns at Wells Fargo and JPMorgan did not stem from substantial growth in the underlying businesses. Instead, they came from reduced expenses.

Wells Fargo, for example, reduced a crucial expense — building a reserve for bad loans. This move reflected improvements in the quality of loans.

In the second quarter, JPMorgan also lifted its profits by reducing loan-loss reserves by $1.5 billion. The bank defended the practice, saying it pointed to the improving condition of its loans.

Yet Jamie Dimon, JPMorgan’s chief executive, conceded that fresh loan growth was still “soft.”

Nathaniel Popper contributed reporting.

Article source: http://dealbook.nytimes.com/2013/07/12/jpmorgan-quarterly-earnings-surge-31-percent/?partner=rss&emc=rss

March Home Prices See Best Annual Rise in Seven Years

The data on Tuesday also suggested the two segments could act as buffers as the broader economy faces the pinch of belt-tightening in Washington.

The SP/Case Shiller composite index of 20 metropolitan areas climbed 10.9 percent year over year, beating expectations for 10.2 percent. This was the biggest increase since April 2006, just before prices peaked in the summer of that year.

Prices in the 20 cities gained 1.1 percent in March compared to the month before on a seasonally adjusted basis, topping economists’ forecasts for a 1 percent rise.

The housing market turned a corner in 2012, several years after its far-reaching collapse. The recovery has picked up since as inventory has tightened, foreclosures eased and historically low mortgage rates have attracted buyers.

A Reuters poll showed the recovery in the housing market likely has momentum through the rest of the year, with economists ratcheting up their forecasts for price gains in 2013.

Separate data showed consumer confidence picked up in May to its highest in more than five years in the midst of a stock market rally and lower gasoline prices.

Housing and the consumer have shown strength even as there have been hints that tighter fiscal policy is starting to bite in the broader economy. Across-the-board U.S. government spending cuts of $85 billion went into effect in March, while the payroll tax holiday expired at the beginning of the year, raising taxes for many Americans.

The data suggested both areas were performing better than the overall economy, said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.

“There are some individual circumstances that are helping to propel both of these a little bit stronger than what the actual underlying strength would suggest,” said Bullard, pointing to the effect of higher stock prices on consumers, and investor demand for homes in beaten-down regions lifting prices.

Economists expect the pace of growth likely cooled in the second quarter, partly due to tighter fiscal policy, but the second half of the year is seen regaining traction. Investor attention has turned to when the Federal Reserve might start to slow its economic stimulus efforts.

The data lent support to equities where Wall Street rallied more than 1 percent after comments from central banks around the world reassured investors supportive monetary policies would remain in place. U.S. 10-year Treasury yields were at their highest in over a year.

Housing-related shares gained following the Case-Shiller report, with the SP homebuilders ETF up 1.1 percent. The ETF is up more than 20 percent for the year, outpacing the more than 16 percent surge seen in the benchmark SP 500.

Home prices in Phoenix continued their sharp ascent, rising 22.5 percent from a year earlier. Other standouts included San Francisco, up 22.2 percent, and hard-hit Las Vegas, up 20.6 percent.

For the first quarter of this year, the seasonally adjusted national index rose 3.9 percent, stronger than the 2.4 percent gain seen in the final quarter of last year.

“Low inventories and gradually improving housing demand have combined to push housing starts higher and support home price appreciation,” said Michael Gapen, an economist at Barclays in New York.

“We see these factors as remaining in place and expect residential investment to add to GDP growth in the coming quarters. We also expect rising real estate wealth to support household balance sheets and underpin consumption, helping the broader economy to offset a substantial fiscal drag in 2013.”

The Conference Board, an industry group, said its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists’ expectations for 71. It was the best level since February 2008.

In a sign of confidence among high-end consumers, jeweler Tiffany Co reported better-than-expected sales for the first quarter.

Consumer activity accounts for about two-thirds of the economy and while improved sentiment does not necessarily translate into more spending, the improvement was encouraging.

Still, even with the gain in confidence in May, second-quarter consumption growth is likely to have slowed to a 2.5 percent annualized pace from 3.2 percent in the first quarter, according to Capital Economics.

The expectations index rose to 82.4 from 74.3, while the present situation index climbed to 66.7 from 61.

Consumers’ assessment of the labor market improved. The “jobs hard to get” index slipped to 36.1 percent from 36.9 percent the month before, while the “jobs plentiful” index gained to 10.8 percent from 9.7 percent.

(Editing by Chizu Nomiyama)

Article source: http://www.nytimes.com/reuters/2013/05/28/business/28reuters-usa-economy-homes-index.html?partner=rss&emc=rss

DealBook: Wells Fargo Profit Rises 22%

A Wells Fargo branch in Daly City, Calif.Justin Sullivan/Getty ImagesA Wells Fargo branch in Daly City, Calif.

Wells Fargo posted a 22 percent increase in first-quarter profit on Friday as the bank, which is the nation’s largest home lender, continued to notch record gains even while its mortgage machine slowed.

The bank, which benefited from recent effort to curb expenses, reported earnings of $5.2 billion, or 92 cents a share, compared with $4.25 billion, or 75 cents a share, in the period a year earlier. The results outpaced estimates of analysts polled by Thomson Reuters, who had forecast earnings of 88 cents a share.

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For Wells, which is based in San Francisco, it was the 13th consecutive rise in quarterly earnings and the eighth consecutive record.

“Wells Fargo delivered outstanding first-quarter 2013 results for our shareholders,” the bank’s chief executive, John G. Stumpf, said in a statement.

In a downside for the bank, however, its revenue slipped slightly, to $21.3 billion, compared with $21.6 billion in the period a year earlier.

And the bank’s mortgage business, riding years of record gains, finally showed it was unable to sustain the gains.

The bank’s mortgage banking income, for example, slipped 3 percent. And while handling $109 billion in mortgage originations might be a feat for some banks, it represented a 16 percent drop for Wells Fargo.

The results could present problems for Wells Fargo, whose fortunes rise and fall with the mortgage market. The bank now creates roughly a third of all mortgages in the country.

The results could also signal a flattening out of the broader mortgage market. As the Federal Reserve cut interest rates in recent years, it prompted millions of borrowers to refinance their home loans to reduce costs.

Now, that pipeline of borrowers could dry up, unless interest rates once again drop significantly or the housing market makes a fuller recovery. Refinancing accounted for 65 percent of Wells Fargo’s mortgage origination in the first quarter, down from 76 percent in the period a year earlier.

Still, the bank’s lending business showed some signs of strength. In the first quarter, that business helped lead the growth, as the banks overall loan portfolio grew 4 percent. And profit in the community banking division, which includes Wells Fargo’s retail branches and mortgage business, climbed 24 percent, to $2.9 billion.

“Loans and deposits demonstrated continued growth in a challenging economic environment,” Mr. Stumpf said.

But the strong returns were spread across the bank. The unit that caters to corporations showed improvement, with profits rising 9 percent. The bank also reported a 14 percent profit gain in its wealth management business.

It was a welcome sign for the banking industry.

Wells Fargo, along with JPMorgan Chase, kicked off bank earnings season. Citigroup, Goldman Sachs and other Wall Street giants will report next week.

Article source: http://dealbook.nytimes.com/2013/04/12/wells-fargo-profit-rises-22/?partner=rss&emc=rss

DealBook: BNP Paribas Earnings Fall on Write-Downs

A branch of BNP Paribas in Paris.Jacky Naegelen/ReutersA branch of BNP Paribas in Paris.

PARIS – BNP Paribas, France’s largest bank, posted a fourth-quarter profit far below estimates on Thursday as it wrote down the value of its Italian unit and booked an accounting charge on its own debt.

The bank said net income fell to 514 million euros ($688 million) in the three months ended Dec. 31, a 33 percent decline from the period a year earlier. The quarterly earnings were well below the figure of about 1 billion euros anticipated by analysts surveyed by Reuters, while revenue fell 3 percent, to 9.4 billion euros.

BNP Paribas, based in Paris, said it had recorded a good will impairment of 298 million euros on the value of its Banca Nazionale del Lavoro division because of expectations that the Italian central bank would raise capital requirements. It also booked a 286 million euro charge to revalue its own debt, an accounting requirement, as the market value of the debt had improved.

Still, BNP Paribas noted, its 2012 net income of 6.5 billion euros, up 8.3 percent from 2011, was third among the world’s biggest lenders, behind only JPMorgan Chase and Wells Fargo.

The bank’s results were the second disappointment for French investors this week, after Société Générale – the country’s second-largest listed bank – posted a fourth-quarter net loss of 476 million euros on Wednesday, roughly double what analysts had been expecting.

Jean-Laurent Bonnafé, the BNP Paribas chief executive, said in a statement that despite a weak economy, the bank had achieved “solid results.” Under Mr. Bonnafé, the bank’s share price has risen by a third in the last year, as BNP Paribas, like other euro zone banks, has sought to reduce its reliance on dollar investors, raised its reliance on deposits and restructured in response to the sovereign debt crisis.

With Europe moribund, the bank said it planned to focus on providing services in higher-growth markets, including Turkey and the Asia-Pacific region, while strengthening its investment banking offerings in the United States. Next year, it said it would begin restructuring to “simplify the way the group functions and improve operating efficiency,” with 1.5 billion euros “in transformation costs spread out over three years.”

The bank said the plans would allow it to save 2 billion euros a year beginning in 2015, without closing any businesses. Shares in BNP Paribas rose 2.8 percent in morning trading in Paris on Thursday.

BNP Paribas said its investment banking business had cut its dollar funding needs by $65 billion. And it noted that it was ahead of most global peers in adapting to new capital regulations, attaining a common equity Tier 1 ratio, a measure of an institution’s ability to withstand financial shocks, of 9.9 percent by the end of 2012 under the accounting rules known as the Basel III regime. The bank said it had cut its risk-weighted assets by 62 billion euros during 2012.

Despite the weaker-than-expected profit, analysts generally welcomed the results.

Credit Suisse analysts said the “results showed significant progress in terms of group strategy.” Jon Peace, an analyst at Nomura in London, said in a research note that the bank’s efforts to improve its capital position had left it with “a superior balance sheet.”

Pretax profit earned by the bank’s investment banking business rose nearly sixfold to 266 million euros, from 46 million euros. The bank said the unit’s bad loan provisions rose to 206 million euros, compared with 72 million euros in the third quarter of 2012. The increase, it said, was the result of “a provision set aside for one specific loan.” It did not provide further details.


This post has been revised to reflect the following correction:

Correction: February 14, 2013

An earlier version of this article misstated the magnitude of the increase of the fourth-quarter pretax profit at the bank’s investment banking business. The unit’s profit rose nearly sixfold, to 266 million euros, from 46 million euros; it did not rise 29 percent from a year earlier.

Article source: http://dealbook.nytimes.com/2013/02/14/bnp-paribas-profit-falls-on-write-down-costs/?partner=rss&emc=rss

DealBook: In Deal, Bank of America Extends Retreat From Mortgages

Correction Appended

Bank of America bought Countrywide in 2008.Kevork Djansezian/Associated PressBank of America bought Countrywide in 2008.

9:00 p.m. | Updated

Bank of America is continuing a large-scale retreat from its costly expansion into the home mortgage market, a shift that concentrates more power in the hands of its biggest rivals and leaves fewer options for some home buyers.

The bank, which already has sharply scaled back in making mortgages, on Monday sold off about 20 percent of its loan servicing business as part of its agreement to pay the housing finance giant Fannie Mae more than $11 billion to settle a bitter dispute over bad mortgages.

The payment resolves claims that Bank of America made bad mortgages before the financial crisis that home buyers had a hard time repaying, and then sold those troubled mortgages to the government. When borrowers defaulted — sometimes within months of taking out a mortgage — the taxpayer-supported Fannie Mae suffered immense losses.

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Less competition in the mortgage market could hurt consumers, potentially raising the costs of borrowing. The problems at Bank of America have cut down its mortgage ambitions; it accounts for 4 percent of the nation’s mortgage market, a slide from just over 20 percent in 2009, ceding market dominance to Wells Fargo and JPMorgan Chase.

“This is part of a broader consolidation of banks and that is something that we should all be very, very concerned about,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “Anything that leads to less competition can only be bad for consumers.”

Brian Moynihan, chief of Bank of America.Win McNamee/Getty ImagesBrian Moynihan, chief of Bank of America.

Also Monday, Bank of America and nine other lenders agreed to an $8.5 billion settlement with banking regulators to resolve claims of foreclosure abuses that included flawed paperwork and bungled loan modifications. While the two agreements were separate, they represented one of the biggest single days for government settlements with United States banks, totaling $20.15 billion, and illustrated the extent of the banks’ role in the excesses of the credit boom, from the making of loans to the seizure of homes.

While costly, analysts said, the settlements may reduce legal uncertainties for lenders and spur more banks to compete for home loan business.

In its agreement with Fannie Mae, which the government controls, Bank of America will pay the agency about $3.6 billion to compensate for faulty mortgages and $6.75 billion to buy back mortgages that could have resulted in future losses for the government. The bank also agreed to sell to other firms the right to collect payments on $306 billion worth of home loans.

“Bank of America is sending a clear message that the bank only wants to be the mortgage lender to a select, small group of people,” said Glenn Schorr, an analyst with Nomura.

Bank of America has been battered by a steady stream of losses after its 2008 purchase of Countrywide Financial, the subprime lender that has come to symbolize the reckless lending practices of the real estate bubble. Before Monday, the $4 billion Countrywide acquisition had cost Bank of America more than $40 billion in losses on real estate, legal costs and settlements. Most of the loans covered in the Fannie Mae settlement were issued by Countrywide from 2000 to 2008.

“These agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” the bank’s chief executive, Brian T. Moynihan, said in a statement.

Bank of America said it expected the settlement to depress its fourth-quarter earnings by $2.5 billion. Its shares, which doubled in 2012, on Monday essentially closed flat at just over $12.

While the settlement will resolve all of the lender’s disputes with Fannie Mae, which weighed on the bank, Bank of America still faces billions of dollars in claims from investors and federal prosecutors.

While the mortgage market is consolidating in the hands of a small number of banks, the housing market is showing signs of recovery. The Federal Reserve has spent hundreds of billions of dollars to stimulate the economy, driving down interest rates on 30-year mortgages to 3.34 percent. In the last year, this has helped lift house prices from their lows and prompted a boom in refinancings. At the same time, though, even borrowers with strong credit complain about onerous checks and backlogs in the application process. This suggests banks are still struggling to efficiently follow the higher standards introduced since the financial crisis.

Nearly all mortgages that banks make right now are transferred to the government, which guarantees that they will be repaid.

Most analysts agree that mortgage rates would be lower if banks were competing more vigorously for business. Because the settlements could ease legal uncertainties surrounding mortgage lending, a wider array of banks might be encouraged to lend more, eating into the market share of giants like Wells Fargo.

“Every one of these puts a little more distance between the banks and their subprime problems,” said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication.

Wells Fargo made 30 percent of all new mortgages in the first nine months of 2012, far ahead of the second-place JPMorgan, which accounted for 10 percent of the market, according to figures from Inside Mortgage Finance. In 2007, Wells Fargo originated 11 percent of new mortgages.

“The markets are actually more competitive than ever,” said Vickee Adams, a spokeswoman for Wells Fargo Home Mortgage. She says smaller banks are making gains in some of the nation’s biggest urban markets.

Some mortgage analysts said the settlements did not provide the level of legal clarity that the banks crave. “We haven’t done enough listening to the banks,” said Christopher J. Mayer, a professor at Columbia Business School. For instance, he says, the banks need clearer rules on when they have to take back loans they have sold to government housing entities.

But a big problem may be that many banks are too poorly run to compete, a situation that may not quickly change even with greater legal clarity. Bank of America’s servicing operations have struggled for several years.

“It may be that Bank of America decided that it wasn’t good enough at servicing,” said Thomas Lawler, a former chief economist of Fannie Mae and founder of Lawler Economic and Housing Consulting, a housing analysis firm.

The bank is looking to refocus beyond the mortgage business. To that end, Bank of America agreed to offload the servicing rights on two million loans with an outstanding principal of $306 billion. Those rights were scooped up by specialty mortgage servicing firms, including Nationstar Mortgage Holdings and the Newcastle Investment Corporation, which collect payments from borrowers.

Jerry Dubrowski, a spokesman for Bank of America, said, “The strategy is simple: to focus on our core retail customers, to be able to provide an entire array of products and services to them, in which mortgage is an integral product, but not the only product.”


Correction: January 8, 2013

An earlier version of this article omitted one element of the settlement between Bank of America and Fannie Mae, and summaries of the article in some sections of nytimes.com consequently understated the total amount of the two mortgage-related settlements announced Monday. It is more than $20 billion, not $18.5 billion.

Article source: http://dealbook.nytimes.com/2013/01/07/bank-of-america-to-pay-10-billion-in-settlement-with-fannie-mae/?partner=rss&emc=rss

Shares Rise After Signs of Progress in Budget Talks

Stocks rose on Wall Street on Monday as investors were encouraged by signs of progress in budget talks in Washington two weeks before tax increases and government spending cuts will take effect if no deal is reached.

The Dow Jones industrial average rose 100.38 points to 13,235.39, its biggest gain this month. The Standard Poor’s 500-stock index climbed 16.78 points to 1,430.36 and the Nasdaq composite index rose 39.27 points to 3,010.60.

Marc Chaikin, chief executive of Chaikin Analytics, a market research firm based in Philadelphia, said investors had become more optimistic about a resolution in the budget talks after the House speaker, John A. Boehner, made an offer to increase tax rates on high-income Americans.

“The fiscal cliff is obviously foremost on everyone’s mind,” Mr. Chaikin said.

Banks were among the best-performing stocks. Citigroup gained $1.55, 4.1 percent, to $39.15 after Raymond James, the brokerage house, raised its target price on the stock to $52 from $44. In a note to clients, it reaffirmed its strong buy rating, citing the “improving fundamental outlook.” Bank of America was also higher, gaining 42 cents, or 4 percent, to $11.

Investors now prefer financial stocks to technology stocks, said Ben Schwarz, chief market strategist at Lightspeed Financial.

“The banks are ripping today,” Mr. Schwarz said. “People are looking for stability, and the tech sector hasn’t given them any.”

Financial companies are the best performing industry group in the S. P. 500 this year, according to FactSet Data. The group, which includes banks like Wells Fargo and insurers like Travelers, has gained 25 percent this year.

Apple rose $9.04, or 1.8 percent, to $518.83 after it said it sold more than two million iPhone 5 units in China in their first three days of availability, setting a record for that market. Apple stock has fallen 26 percent since closing at a record $702.10 in September and is trading close to its lowest since February.

In Washington, there appeared to be movement in long-stalled budget talks aimed at avoiding tax increases and government spending cuts set to take effect Jan. 1. The combination could lead to a recession.

Indexes opened higher after the news that Mr. Boehner, a Republican, had offered $1 trillion in higher tax revenue over 10 years and an increase on the top tax rate for people making $1 million a year, to 39.6 percent from 35 percent. The market moved higher still after reports shortly before noon that Mr. Boehner had gone to the White House to meet with President Obama.

Wall Street has been relatively calm in recent weeks, but David Kelly, chief global strategist for J.P. Morgan Funds, said that by Friday the market will be “squarely focused on what is or is not happening in Washington.”

He suggested in a note to clients that the markets will not have “priced in” any outcome, “setting the stage for a market rally with an agreement and a slump with stalemate.”

Clearwire, an Internet access company, slid 46 cents, to $2.91, after Sprint announced terms of its buyout deal for the company. Sprint’s price of $2.97 a share was below Clearwire’s closing stock price Friday.

Japanese stocks rose after the country’s Liberal Democratic Party regained power in a landslide election victory.

Brian Singer, a partner at William Blair, an asset management firm based in Chicago, said investors had been encouraged by the outcome, which gave the conservative party overwhelming control of Parliament. The Liberal Democrats have promised greater economic stimulus spending and more action to end a destructive cycle of declining prices.

Interest rates were higher. The Treasury’s benchmark 10-year note fell 20/32, to 98 21/32, and the yield rose to 1.77 percent from 1.70 percent late Friday.

The American International Group, the insurance company, rose $1.01, or 3 percent, to $34.95, after it said it was selling its remaining stake in the AIA Group, a life insurer.

Tenet Healthcare gained 55 cents, or 1.8 percent, to $31.18 after Deutsche Bank raised its recommendation on the stock to buy from hold. The bank cited Tenet’s “compelling” business and financial outlook over 12 to 24 months.

Article source: http://www.nytimes.com/2012/12/18/business/daily-stock-market-activity.html?partner=rss&emc=rss