The day the Feds start listening to Ackman and shut down Herbalife will surely take the cake, but until then, this will have to do: Read more »
Citigroup‘s profits tumbled 96 percent in the second quarter, dragged down by a huge charge related to its recently announced deal with the Justice Department to settle an investigation into its sale of mortgage securities in the run up to the financial crisis. The charge for the legal settlement totaled $3.8 billion, marring an otherwise relatively strong quarter for the bank that was helped by better than expected trading results. Not accounting for the legal charge, or other one-time items, Citigroup exceeded Wall Street expectations in the second quarter with adjusted earnings of $1.24 a share, On that basis, analysts had been expecting Citigroup would earn $1.05 a share, according to a survey by Thomson Reuters…Earlier on Monday, the bank announced a $7 billion deal with the Justice Department. The deal includes a $4 billion cash penalty, the largest yet by a large bank to settle federal investigations of mortgage misdeeds. [Dealbook]
GS had earnings today and I guess they weren’t that good but all anyone ever wants to talk about on earnings calls these days is leverage ratios. That I suppose is a sociologically interesting fact: is banking a business of selling stocks and bonds and loans and whatnot, or is it a business of optimizing yourself around regulation? You can tell what the analysts think, though I suppose that’s like a second derivative; they want to add value to whatever was already obvious to the market. The stock price dropped on, like, not selling enough stocks and bonds and whatnot. Or rather: on making too much money from owning stocks and bonds with Goldman’s own capital, and too little on doing more obviously Volcker-compliant-y things. So: still sort of a regulatory question I guess.
But, yeah, all the analysts want to talk about is leverage ratios, and you know who does not want to talk about leverage ratios is Harvey Schwartz. Delightfully someone at Reuters counted the number of times he was asked to quantify Goldman’s leverage ratio (eight1) and the number of times he did (zero). He said he was “comfortable” with it, which presumably means that GS will be above 5% by 2018 assuming some rates – possibly at, above, or below the current rates – of capital generation and capital return. But they haven’t done the math yet.
Which is curious? Read more »
- When they lose money, that strengthens their capital position, and
- When they make money, that weakens their capital position, requiring them to sell shares.
Maybe? Three months ago we talked about how … well, I said “Deutsche Bank Improved Its Balance Sheet By Losing A Lot Of Money,” which I guess seemed funnier at the time, but to be fair (1) Bloomberg said “Deutsche Bank ‘took pain’ in the quarter by booking a loss to boost its capital ratio without selling shares,” which is about equally funny or unfunny, and (2) Deutsche did in fact have a 4Q loss of €2.2bn and yet increased its Tier 1 capital ratio by 90bps.
The Management Board of Deutsche Bank AG resolved today, with the approval of the Supervisory Board, to execute a capital increase, which is intended to raise gross proceeds of approximately EUR 2.8 billion. The purpose of the capital increase is to strengthen the equity capitalisation of the bank. Read more »
“The fixed-income rebuild hasn’t worked as well as they had hoped,” David Trone, an analyst with JMP Securities LLC in New York, said in a Bloomberg Radio interview. “They want to be more of an asset-gathering institution that also does investment banking and a little bit of trading. They’re not yet really to the point where they’ve convinced all of us what they are yet.”
One way to think about Morgan Stanley is that it’s a big room full of people who invest (or, trade with) other people’s money.1 That money finds its way into Morgan Stanley’s hands in different ways, and those ways change (slowly) over time. Some of it comes from individual investors whose wealth Morgan Stanley Global Wealth Management manages, globally. Some of it is from mutual funds and institutional assets managed by Morgan Stanley Asset Management. Some of it is from shareholders. Some of it is bank deposits. Quite a bit of it is repo and whatnot.
Here’s the mix of where it comes from over the past few years:2
This is pretty unscientific, and Morgan Stanley’s ability and desire to do stuff with its repo funding differs from its ability and desire to do stuff with non-fee-earning client cash. Still you can see some trends there I guess? Read more »
Honestly bank earnings week has been a little boring, no? It’s been quarters since anyone announced a six billion dollar trading loss, and the recent news is pretty much modest beats from a diverse mix of businesses and where is the fun in that I ask you. Financial-market memories are short and … have negative serial correlation, or something … which might explain why Goldman is down today despite announcing a $4.29 EPS vs. analysts’ $3.87, with strength in principal investments and debt underwriting making up for so-so FICC revenues.
The call: variations on boring. Goldman CFO Harvey Schwartz painted a picture of Goldman clients who are deterred from strategic activity by macro uncertainty – “oh we can’t do that merger, because, uh, Cyprus” – and so spend their time refinancing their loans every six months to get lower interest rates.1 I suppose their bankers have to make fees somehow. And there don’t seem to be many conclusions to draw from the numbers: FICC revenues are down because there is noise in FICC revenues, not due to any change in business mix or performance. VaR is down because market vols are down, not because of any change in risk appetite. Private equity gains in investing & lending reflect stronger public equity markets because private equity is just beta. I guess.
Nor is Harvey your go-to guy to fulminate about regulation, though these days really no one is. He said various nice things about how the regulators are working hard and getting it right, and how Goldman doesn’t act in anticipation of regulations but only responds to them when they’re final. Others have phrased this less charitably. Thus Goldman’s new BDC is not a preemptive effort to fit prop traders into the Volcker Rule, but just a client-driven part of Goldman’s asset management strategy – “deploying our competencies into opportunities we feel like our clients would benefit from.”
So what’s left? There’s comp, of course: comp accruals were 43% of revenue ($4.34bn), versus 44% in 1Q2012 ($4.38bn), and headcount is down 1%. Analysts tried to push Schwartz to extrapolate a trend there, but again he mostly resisted. Keep enough people to serve clients, etc. Read more »
Citi announced its quarter this morning and there are various ways to tell that it was good, of which “the stock was up” is probably the main one. A possibly less objective test is that, back in March, Mike Corbat told everyone how he would grade himself, if he was grading himself. As he put it today:
Last month, I presented three targets we aim to reach by the end of 2015. First is achieving an efficiency ratio in Citicorp in the mid 50% range. Second, we want to generate a return on Citigroup’s tangible common equity of over 10%. And third is reaching a return on Citigroup’s assets of between 90 and 110 basis points in a risk-balanced manner.
Today Citi announced $4.0 billion of net income (excluding CVA/DVA), or $1.29 per share, which I work out to around 82bps of ROA, 9.86% ROTCE, and a 55.6% Citicorp efficiency ratio.1 So … pretty good, all in all?
One oddity of Corbat’s three-part plan is that two of the parts sort of collapse into each other. Read more »