Also Noted: Spotlight On... Citigroup misses estimates News From the Fierce Network:
Today's Top News1. JPMorgan director defends CEO
The JPMorgan Chase board will likely tread lightly when it comes to criticizing chairman and CEO Jamie Dimon. The board has always had his back, and all, especially the incoming board members, will likely toe the line. The tone was set recently by Laban Jackson, the head of the all-important audit committee. "He's the best manager I've ever seen, and I'm old," Jackson, 71, was quoted by Bloomberg at the National Association of Corporate Directors' annual conference in Oxon Hill, Maryland. "He has, as we all do, flaws." Jackson also made some memorable comments regarding the employees in the CIO's office responsible for the London Whale trading fiasco. "People get to smoking their own dope," Jackson said. "I'm sure there was some hubris involved." It's doubtful any "flaws" on the part of Dimon will lead to any effort by the board to hold Dimon more accountable for the bank's recent travails. If anything, I would expect the board to be more proactive, in the manner of Goldman Sachs, as proxy season nears. There will likely be a group of shareholders that will aim to split the chairman and CEO positions, a perennial issue at the bank. Last year, some thought that Dimon might be vulnerable, but the vote wasn't even close. Three directors, however, were given the thumbs down. This year, Dimon will likely survive again as chairman, though a huge earnings drop-off will raise brows. For more:
Read more about: CEO, JPMorgan Chase
2. Banks aim to ameliorate pain of a default
As the U.S. debt default drama unfolds, the Federal Reserve Bank of New York has been working behind the scenes to mitigate the impact should the government stop making good on its bonds. Indeed, the working group has been toiling since 2011, when another default crisis loomed, sending repo rates sharply upwards. "The Treasury Market Practices Group, the government-debt markets watchdog that's sponsored by the Federal Reserve Bank of New York, outlined steps last year that would include manually changing the maturity dates of securities that are processed through the central bank's Fedwire, its electronic service that transfers securities and payments. That would help enable systems to handle debt with delayed payments," notes Bloomberg. The group "also proposed that principal payments for securities with delayed maturities be paid to the final holder of the debt, according to minutes of the group's June 2012 meeting. Eventual interest payments would be made to the security's holder on the originally scheduled date." The biggest issues revolve around the repo market, which relies on Treasury securities as collateral. To be sure, the private sector has been active as well. Citigroup and State Street, which have large clearing operations, have been mulling reactive steps. Citi in fact has told some clients that it may not accept bills maturing October 24 or October 31 as collateral, according to media reports, preferring instead longer-dated maturities. Hopefully, a deal will be struck to avoid a U.S. default. But none of this prep work will be rendered moot. A similar default crisis will likely crop up again in just a few months, as the current political deals are short-term only. For more: Read more about: Treasury Securities, Debt Ceiling 3. Giving Pandit credit in the Corbat era
It was not the Citigroup's board finest hour when it sacked then-CEO Vikram Pandit. The move was handled messily, and led to all sorts of commentary about Imperial Chairmanships and whether they are good for companies. In the end, however, the transition to the Michael Corbat era--the successor hand-picked by chairman Michael O'Neill--went fairly smoothly. And for that, Breakingviews gives credit to … Vikram Pandit! "Michael L. Corbat is approaching his first anniversary as chief executive of Citigroup. The bank's chairman, Michael E. O'Neill, installed him after organizing a putsch to oust Vikram Pandit as C.E.O. The new boss has accelerated some cost cuts and clarified strategy around the edges, but the broad direction is still Mr. Pandit's. Either way, it is serving shareholders well." The article notes that while the bank has not shifted courses under Corbat, its stock has soared. "To be fair, Mr. Corbat may be a better interlocutor with the bank's regulators and owners. In March, he broke down for shareholders the various markets where Citi operates into four clearly defined categories. Mr. Corbat has also given investors precise targets by which to judge him. He wants a return on tangible equity of least 10 percent by 2015, and for the overall return on assets to be 0.9 percent to 1.1 percent. Citi almost hit both objectives in the six months to June. So they are soft enough that, barring a calamity, all Mr. Corbat has to do is to keep earnings steady and allow the runoff from Citi Holdings and the utilization of deferred tax assets to pick up the slack. For that, he and his shareholders owe a nod of gratitude to his predecessor." A cynic might argue that it's really O'Neill who deserves credit--or blame--but that would perhaps be too simplistic. In the end, the rising stock price rendered the transition a non-event. The stock is up about 25 percent this year. But if the stock and earnings ever head south, the blame will not go to Pandit. That's for sure. In this regard, the third quarter results might be cause for worry. For more: Read more about: Citigroup, Vikram Pandit 4. Secret study speaks clearly on default harms
As it turns out, among the top CEOs on Wall Street, there are no default deniers. They are definitely not of the opinion that a U.S. default on its debts wouldn't be all that catastrophic. In fact, they have taken the opposite line in a sit-down with the President himself. The memories of the financial crisis are all too fresh in their minds, and a default would likely prove to be much worse. For back-up, they can turn to a secret report "prepared by a large financial institution" for bank CEOs and central bankers. The short paper, which MoneyBeat was able to view, "analyzes the potential market ramifications of a 'technical default' by the U.S.—a distinct possibility if there isn't an agreement by Thursday. Some politicians have tried to minimize the impact of such an event, stressing its 'technical' nature—by which they mean a default caused by the government's unwillingness, rather than inability, to pay its debt." But the report argues otherwise. "In its view, the consequences could be catastrophic. The crucial cog in this machine, and the one that could trip it up, is the role played by Treasurys as conduits of liquidity for the entire system." The really big disaster would be if Treasurys were somehow deemed not suitable to be used as collateral for a wide gamut of transactions. If the drama in Washington continues, Wall Street CEOs would have little choice but to pull out all the stops to ensure some sort of compromise. At some point, it's no longer about politics. For more: Read more about: Treasury Securities, Debt Ceiling 5. Bank of America basically in line with estimates
There were few massive surprises in the third-quarter earnings release from Bank of America. The bank reported per-share profits, which excludes extraordinary items such as a DVA, of 20 cents versus less than a penny a year earlier. The third-quarter estimates were basically in line with estimates of 19 to 20 cents. Revenues increased 5.4 percent $21.53 billion, excluding extraordinary items. That beat revenue estimates by many analysts. The big trends evident in the releases of other big banks held true. FICC activity was sharply reduced. Fixed income, currency and commodities trading revenue was $1.77 billion, down from $2 billion a year earlier and $2.29 billion in the prior quarter. However, equities trading revenue provided a partial offset; it came in at $945 million, up from $667 million a year ago but down from $1.2 billion sequentially. The bank's investment banking fees were essentially unchanged from the year ago, at $1.3 billion. Like other big consumer banks, Bank of America suffered from weaker mortgage market conditions, as the refinancing boom evaporated. Mortgage banking non-interest income fell a whopping 71 percent from a year earlier and 50 percent from the second quarter. Thanks to improving credit quality, the bank was able to modestly release funds from loan loss reserves. The provision for consumer real credit losses decreased $571 million from the year-ago quarter to a benefit of $308 million due to continued improvement in portfolio trends, including increased home prices and the impact of regulatory guidance. As for the NIM, it came in at 2.44 percent, a strong uptick from 2.32 percent a year ago, as higher rates kicked in. For more: Read more about: Bank of America, bank earnings Also NotedSPOTLIGHT ON... Citigroup misses estimates Citigroup reported slightly disappointing third-quarter earnings. Excluding extraordinary items, the bank reported $1.02 per share, compared with an average estimate of $1.04 per share. The main culprit was reduced FICC activity, mainly bond sales and trading activity, which fell 26 percent. Mortgage activity was also weak. Revenue for the entire bank fell 5 percent, excluding one-time items. Article Company News:
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Wednesday, October 16, 2013
| 10.16.13 | Bank of America basically in line with estimates
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