net interest margin
Morgan Stanley's results were quite ugly: total revenue of $7.8 billion barely changed from the previous quarter, and was down 21% from Q1 2015, however due to the sharp drop in consensus estimates in recent months, revenues was a "beat" to the $7.76 billion expected. Earnings likewise were ugly, tumbling by 53% from $2.4 billion to $1.1 billion, or $0.55 per share. This too was a beat as a result of a sharp plunge in Q1 EPS expectations in recent months.
Wells Fargo Finally Reveals Its Dire Energy Exposure: $32 Billion To Junk-Rated Oil And Gas CompaniesSubmitted by Tyler Durden on 04/14/2016 10:25 -0400
The punchline in Wells Fargo's earnings report is in the reminder of just how generous Wells has been in lending to junk-rated oil and gas companies in the recent past to compensate for its eclining NIM: Wells reported that ~22%, or $8.8 billion, of exposure to investment grade companies, which means $32 billion is to junk-rated companies!
Expectations of a "less terrible" first quarter for banks may have been premature following yesterday's stronger than expected JPM earnings report. First it was both PNC and Blackrock missing on the top and bottom line, but the highlight of the day was Bank of America which moments ago reported $0.20 in EPS, missing expectations of a $0.21 print, while revenue ex-DVA dropped by $1.4 billion to $19.7 billion, also missing expectations of a $20bn print. BofA reported Net Income of $2.68 billion, down from $3.1 billion one year ago.
The market reaction from last week’s dovish FOMC statement took many by surprise, including BofAML's HY Strategy team, but as they say the High-Yield Emperor has no clothes, warning that the underlying commentary provided by Chair Yellen shows the vulnerability for high yield issuers to longer-term growth trends. Couple the deteriorating fundamentals for HY issuers with downgrades outpacing upgrades by a ratio of 3.5:1 and a worsening of global growth potential, and they believe the recent rally, though boosted by strong inflows and cash generation, will ultimately fade.
According to Morgan Stanley the biggest threat to the profibatility, viability and outright existence of the most leveraged commercial bank in the world, is none other than ECB president Mario Draghi.
Beware, we are now spiraling headlong into a collapse thanks to a nightmarish NIRP "doom loop" from which the global cabal of central bankers' gone full-Krugman will not allow us to escape.
"I cannot identify a big source of risk... but the market is seeing something. I worry we could be missing something.”
"... if the negative interest rate continues for longer or goes deeper, commercial banks may have to set negative interest rates on deposits, which would expand not only the tax on commercial banks, but also on depositors (households and companies). This could lead to a ‘silent bank run’ via a shift of deposits to cash (banknotes), which in turn damages the sound banking system by enlarging the leakage of funds from the credit creation mechanism in the banking system."
BofA Reports $21.3 Billion In Energy Exposure; Beats On EPS Despite Revenue Miss, Sliding Sales And TradingSubmitted by Tyler Durden on 01/19/2016 08:55 -0400
Here is what everyone wanted to know from BofA results: commercial net charge-offs increased $75MM compared to 3Q15, driven by losses in Energy, while the Allowance increased $144MM from 3Q15, driven by energy-related exposures and higher loan growth across the portfolio. Most importantly, BofA revealed its "Utilized Energy exposure of $21.3B ($1B traded products)", down $2.6 billion from a year ago. BofA also notes that the "higher risk sub-sectors of Oil Field Services and Exploration & Production comprise 39% of utilized energy exposure." NPLs increased $110MM from 3Q15, to $1.2 billion driven mostly by increases in Energy.
There were four things we mostly cared about in today's JPM earnings release, the first Wall Street bank to report Q4 results:i) how did the company's fixed income and equity trading revenue do; ii)what is the bank's credit exposure to energy/oil;iii) did the recent Fed hike do anything to boost the company's Net Interest Margin (this has been the primary catalyst for bank share upside), and iv) did JPM halt its practice of releasing reserves and start building reserves - a major inflection point when it comes to management expectations for future credit quality deterioration.
We will be the first to admit that yield curve inversion is not the only factor causing recessions, but through the credit channel it can be an important contributor. Depending on the importance of the credit channel, the Federal Reserve, by pegging the short term rate at zero, have essentially removed one recessionary market mechanism that used to efficiently clear excesses within the financial system. While stability obsessed Keynesians on a quest to the permanent boom regard this as a positive development, the rest of us obviously understand that false stability breeds instability.
Every day when you flip on the media, there is someone telling you that now is the time to "buy" into the market. Of course, if you are buying, then who is selling? The only "net buyers" of equities this year have been "individuals," while "professional" firms have been "net sellers." This is the epitome of the classic "smart money/dumb money" analysis where individuals are used by institutions to offload positions that are no longer optimal. The question is with corporate profits and earnings declining, weak economic data, and the threat of tighter monetary policy - will individuals once again be left "holding the bag" while institutions derisk portfolios in advance of the next decline?
To the extent the Federal Reserve decides to increase interest rates, it should be apparent that such a move would be inconsistent with their prior actions. In fact, it may likely be a desperate effort to re-load the monetary policy gun as opposed to a signal of domestic economic strength. Not only is this a departure from the past, this would lead many to question the Fed’s motives. It is worth keeping in mind that blind trust and confidence in the Fed has propelled many markets much higher than fundamentals justify. The bottom line is that NIM and the Taylor Rule-adjusted curve are both flashing warning signs of economic recession, while the traditional yield curve signal is waving the all clear flag.
If you thought we'd seen the depths of NIRP, think again because as Deutsche Bank notes, the ECB, Riksbank, SNB, and Nationalbank will likely dive further into the monetary Twilight Zone in the months ahead. Only when rates become negative enough to spark a depositor revolt will we have reached the "real" lower bound, but at that point, it will be far too late...
While yesterday's JPM results missed from the top to the bottom, coupled with a surprising and aggressive deleveraging of the bank's balance sheet which has shrunk by over $150 billion in 2015 mostly on the back of a decline in deposits, Bank of America reported numbers which were largely the opposite when it printed a modest beat on both the top line with $20.9 billion in revenues (adjusted sales of $20.6Bn vs Exp. $20.5Bn), down $500 million from a year ago, and the bottom line: generating $0.35 in adjusted earnings in the quarter, 2 cents better than the $0.33 consensus estimate.