On Monday, the markets took a decided turn with an hour remaining in the trading session. Some have attributed the sudden reversal from positive to negative as a response to comments from OPEC on oil production levels while others blamed Dallas Fed President Robert Kaplan's remarks that mask wearing would lead to faster economic growth or the WHO's Tedros Adhanam saying that government's have sent mixed messages and the response has been inadequate to halt the spread of COVID-19.
How the virus proceeds, and what the incidence is, is going to be directly related to how fast we grow," Kaplan told Fox Business Network in an interview. "While monetary and fiscal policy have a key role to play, the primary economic policy from here is broad mask wearing and good execution of these health care protocols; if we do that well, we'll grow faster.
-- Dallas Fed president Robert Kaplan
The commentary from these diverse sources seemed to be very well-timed, like a chorus from Wagner's Götterdämmerung, signaling chaos and destruction on a massive scale. Whatever the matter, they provided cover for speculators to flee the scene in advance of Tuesday's expected tsunami of bad news, which starts with second quarter earnings from JP Morgan Chase.
J.P. Morgan Chase (JPM)
The nation's largest bank by assets, JP Morgan blew away analyst expectations, which were significantly lowered in response to the coronavirus impact. Adjusted revenue came in at $33.83 billion vs $30.4 billion expected. Adjusted earnings per share was $1.38 versus $1.05 per share expected, a 51% decline from a year ago as the bank made $4.7 billion net and set aside $8.9 billion in loan loss reserves for the quarter, anticipating massive credit losses due to the severe economic impact from the pandemic and government response.
Trading revenues were JPM's strong suit, with market revenue coming in at $9.7 billion, up 79% from a year ago. Revenue from fixed-income nearly doubled from last year's results, up 99% to $7.3 billion, while equity trading revenue rose 38% to $2.4 billion.
The firm suspended its share buyback program until at least the end of September on orders from the Federal Reserve. CEO Jamie Dimon stressed that the company would continue to pay out its dividend of 90 cents annually.
While Bloomberg and CNBC were gushing over the bank's "positive" results, drilling down into the data showed that JP Morgan Chase last money during the quarter in its Consumer and Community Banking (CCB) division, losing $176 million, compared with net income of $4.2 billion in the prior year. Net revenue was $12.2 billion, down 9%.
The company also lost money in commercial banking, dropping another $691 million. The provision for credit losses was $2.4 billion, driven by reserve builds across multiple sectors. Net charge-offs were $79 million,
up $64 million versus the prior year.
Adding it all up, JPM lost money on both sides of it banking business (consumer and commercial), but made up for it by having a blowout quarter trading stocks and bonds. Their loan loss provisions are probably too low and their gains in the market were driven almost exclusively by easy conditions and easier money from the Fed. If the company has a rough quarter in the markets and loan losses continue to pile on, JPM's "fortress balance sheet" will crumble like Chinese concrete.
The company press release and full financials can be found here. [PDF] Be sure to read the notes at the end, which describe some of the tortured "non-GAAP" metrics the firm deploys to persuade Wall Street and the investing public that all is well.
Following JP Morgan, which reported at 7:00 am ET, were Citigroup (C) and Wells Fargo (WFC) at 8:00 am ET. This is where it got a little more interesting.
Wells Fargo (WFC)
Wells Fargo, the bank in which Warren Buffet has a heavy investment, lost $2.69 billion in the second quarter compared to a profit of $5.85 billion in the same period last year. EPS was -$0.66 in Q2 vs. $1.30 in the same period last year. -Analysts projected -$0.20 per share.
Gross revenue was $17.84 billion in Q2 vs. $21.58 billion in the same period last year.
The bank set aside $8.4 billion in loan loss reserves. The Federal Reserve instructed Wells Fargo to cut its 51 cents per share dividend to 10 cents, or 2.5 cents per quarter.
Citigroup (C)
Citigroup reported a nearly 73% plunge in quarterly profit as the bank set aside $5.6 billion to cover potential loan and credit card defaults stemming from the coronavirus outbreak.
The New York-based bank reported a profit of $1.32 billion, or 50 cents per share, for the second quarter ended June 30, down from $4.8 billion, or $1.95 per share, a year earlier.
Revenues were actually higher, up five percent, to $19.77 billion.
Analysts on average had forecast $19.12 billion in revenue and earnings of 28 cents per share, so, on the surface, Citi looks like it beat the estimates, though the numbers were slashed early in the quarter by analysts.
Overall, the banks have now put over $50 billion into loan loss reserves, while some of the other big names, notably Bank of America, still have not yet reported. While the numbers may seem to be adequate to cover losses, it should be noted that many lenders have provisioned troubled borrowers with considerable forbearance on credit card, mortgage, auto, student and private loans.
With unemployment still very high and the effects of many Main Street businesses going broke having yet to be felt, if the crisis continues much longer, these banks may be facing more serious losses than anticipated. Of course, the Fed has all of them backstopped, thus averting a full-blown banking panic.
As the opening bell approaches, it appears that confidence is waning, with Dow, NASDAQ and S&P futures off considerably from levels prior to the bank earnings reports. The NASDAQ and S&P have fallenen into the red and Dow futures are barely positive.
More tomorrow...
At the Close, Monday, July 13, 2020:
Dow: 26,085.80, +10.50 (+0.04%)
NASDAQ: 10,390.84, -226.60 (-2.13%)
S&P 500: 3,155.22, -29.82 (-0.94%)
NYSE: 12,014.67, -60.91 (-0.50%)
Posts
No comments:
Post a Comment