net interest margin

British Lord Proposes "Fix" To Pension Crisis: Work Until 70 To Get More Money

In this increasingly gloomy world for retirees everywhere, one person has come up with a modest proposal: the UK's Lord Jonathan Adair Turner, Baron Turner of Ecchinswell, who judging by his title hardly has much to be worried about his own personal retirement funds. That said, Turner also happens to be the former chairman of the UK Pensions Commission, and as such his opinion will be closely followed. What he said is the following: people should work until they are 70 and then be rewarded with a more generous state pension.

Japan Banks May Soon Pay Borrowers To Take Out Loans

Japanese banks may soon pay borrowers to accept loans if they can raise funds at even cheaper rates. Negative interest-rate lending is increasingly becoming a reality since the Bank of Japan started levying charges on idle cash. Lenders can now borrow for three months in the Tokyo interbank market at a record-low 6 basis-point annualized rate, versus 17 basis points since the BOJ move in January. They may eventually be able to be paid to borrow and then profit by paying less to lend, according to Credit Suisse Group AG, JPMorgan Chase & Co. and SMBC Nikko Securities Inc. This is also known as shoving money down people's throats... and then paying them for it.

Morgan Stanley Profit Plunges By More Than 50% As Trading Revenue Tumbles 40%

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.

BofA Profit Misses, Tumbles 13% On Trading Revenue Slide, Build In Energy Reserves

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 High Yield Bond 'Emperor' Has No Clothes, BofA Warns 1 In 3 Firms Face Default Threat

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.

"Pandora's Box Is Open": Why Japan May Have Started A 'Silent Bank Run'

"... 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 Trading

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. 

JPM Earnings Rebound On Big Drop In Compensation Expense; Dimon Notes "Some Stress 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.

The Dire Societal Consequences Of Stability-Obsessed Keynesians

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.

 

3 Things: "You Should Buy, Professionals Need To Sell"

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?

Is The Yield Curve Still A Dependable Signal?

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.