Tuesday, April 10, 2012
Thursday, August 11, 2011
S&P "more concerned" about threats to bank profits (Reuters)
NEW YORK (Reuters) – Standard & Poor's is "more concerned" that a slower economy, sovereign debt issues and mortgage risks will depress U.S. bank industry profits and credit quality, the ratings agency said on Tuesday.
The comments come just a few days after S&P stripped the United States of its top "AAA" rating, contributing to market turmoil that weighed on stocks and lifted Treasury prices.
S&P said its base forecast for the U.S. bank industry in 2011 still calls for a "moderate rise" in net income because credit losses are decreasing, allowing banks to draw down on reserves previously set aside to cover losses.
Banks will continue to suffer from a "moderate decline in revenues" because of modest loan growth and low interest rates, S&P said in slides posted on its website for a quarterly banking conference call on Tuesday.
"We expect 2Q trends to continue into 3Q but are more concerned about slower economic growth, sovereign debt issues, and continuing mortgage risks," S&P said. In the second quarter, bank credit ratings, earnings, asset quality and capital strength were all better.
S&P's comments came a day after shares of Bank of America Corp (BAC.N) plunged 20 percent, capping three days in which the biggest U.S. bank lost almost a third of its value. Shares of Citigroup Inc (C.N), the third-biggest bank, fell 16.4 percent on Monday.
The stocks recovered some of those losses on Tuesday, with Bank of America up 7.5 percent and Citigroup up 10.2 percent at midday. The KBW Index of U.S. bank stocks (.BKX) was up 4 percent.
Threats to S&P's outlook include a U.S. economic slowdown and, particularly for large banks, mortgage market risks and European sovereign debt issues. U.S. regional banks are threatened by commercial real estate issues.
U.S. banks' direct exposure to debt-troubled European countries "is not material, absent contagion," S&P said.
While the largest banks recently benefited from additional work on takeovers and debt underwriting, "future improvements look less likely as U.S. economic trends weaken and sovereign debt issues continue," S&P said.
The outline repeated S&P's prior statements that its downgrade of U.S. government debt on Friday would not have an immediate or direct impact on its credit ratings for any banks.
"The sovereign downgrade does not alter the government support assumptions that we factor into our ratings," said S&P, a unit of McGraw-Hill Cos Inc (MHP.N).
(Reporting by David Henry; Editing by Lisa Von Ahn and John Wallace)
Thursday, July 21, 2011
Wells Fargo: Strengths, Weaknesses, Opportunities, Threats (The Motley Fool)
Wells Fargo (NYSE: WFC - News) joined the big-bank earnings parade by beating the average estimate by just a penny and reporting revenue roughly in-line with estimates. Even though results weren't much of a beat, Mr. Market liked the story and bumped the price of a stagecoach ticket more than 5% by day's end.
The Wells Fargo report follows an earnings beat by JPMorgan Chase (NYSE: JPM - News), strong numbers by Citigroup (NYSE: C - News), and Goldman Sachs' (NYSE: GS - News) mix of strong earnings, lower trading revenue, and job cuts. Bank of America's (NYSE: BAC - News) billions in charges to settle mortgage claims make a strong case for naming Countrywide the worst business acquisition in history.
Strengths:
Earnings increased compared with last quarter and the same quarter last year.Tier 1 capital and common ratios continued a string of increases dating back to December 2009.Credit quality measured by provision expenses, nonperforming assets, and early delinquencies is improving.Cost reduction initiatives are expected to cut more than $1 billion in quarterly operating expenses by the end of 2012.There's now a stock buyback plan and a real dividend, not just a token to avoid getting kicked out of equity income funds.Weaknesses:
Wells Fargo doesn't have the diversified, global footprint of its big-bank brethren.$1 billion of the earnings came from credit loss allowance releases. The allowance reduction is reasonable considering improving loan quality, but it isn't sustainable over the long run.The net interest margin -- the spread between what the bank pays for money and what it earns on loans -- has been slowly decreasing over the past year.Wells Fargo trades at a premium to its peers based on price-to-tangible book ratio.Opportunities:
Improving loan quality trends should allow credit loss allowance releases to continue for a while.West Coast operations have a higher cross-sell-number of products per customer than legacy Wachovia customers, which presents an opportunity to grow business by selling to existing customers.Threats:
The easy money policy at the Fed will change at some point. I don't know when, but Fed rates only have one direction to go.New banking regulations could crimp income.A weakening economy would threaten the improving loan quality trend.There are still problems and risks, but Wells Fargo's business is improving, and I believe there are better days ahead.
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