Despite the rebounding economy, charitable cash giving was flat among many of America’s largest and most lucrative corporations last year. That’s according to The Chronicle of Philanthropy, a newspaper that conducts an annual survey in which they ask 300 of the top revenue-producing American companies, according to the Fortune 500 rankings, about their charitable contributions. This year they received data from 106 of them, as companies are not required by law to disclose information about their giving. The Chronicle looked at cash contributions, and 2012 giving as a share of 2011 profits. It found that charitable donations grew by a modest 2.7% to $5.3 billion last year for the 106 companies that provided data. They gave a median of 0.8% of their 2011 pre-tax profits to charity, which was less than the previous six years when that figure ranged from 1% to 1.4%. “The modest increase isn’t a surprise, given the fact that many of the large companies we surveyed last year said they weren’t expecting to significantly step up their giving in 2012,” says Peter Panepento, The Chronicle of Philanthropy’s assistant managing editor. “Even though the economy has improved, many companies are still reticent to increase their giving. Big businesses are still wary about the economy and, as a result, they’re not yet ready to make big philanthropic investments.” One company that did up their charitable giving last year: Wells Fargo. The multinational banking and financial services firm tops the list of the companies that gave away the most cash in 2012. It donated 1.3% of its 2011 pre-tax profits, or $315,845,766 cash, to 19,500 nonprofits and schools nationwide. That’s a 47.9% surge in cash giving from the previous year, thanks primarily to the $77 million it contributed to NeighborWorks America, which aids first-time home buyers in neighborhoods most affected by the housing crisis. The company also gave $6.7 million to the Opportunity Finance Network for an awards program which “recognizes innovative nonprofits that provide banking services in low-income communities,” The Chronicle says. “Wells Fargo has always been committed to the communities it serves. It is core to our vision and values,” says Tim Hanlon, head of Philanthropy for Wells Fargo. “While promoting sustainable homeownership and neighborhood stability was responsible for a large part of our giving in 2012, we actually support a wide array of nonprofits –more than 19,000 – that are dedicated to causes such as the environment, education, community development, arts and culture, and many more.” According to The Chronicle, Wells Fargo said that it doesn’t plan to increase its giving in 2013. In Pictures: America’s 10 Most Generous Companies Walmart, which held the top spot seven consecutive times, ranked second on this year’s list. The retail giant gave away $311,607,280 (and another $755,868,381 in products) in 2012. In total, Walmart donated 4.5% of the company’s 2011 pre-tax profits, which helped support about 50,000 different charities. The company gave away 421 million pounds of food in its latest fiscal year, and has donated more than one …read more
Source: FULL ARTICLE at Forbes Latest
By Peter Rudegeair
Unexpectedly large quarterly profits at JPMorgan and Wells Fargo hide a more worrisome forecast for the rest of the year for many U.S. banks. Things could get worse before they get any better.
Wells Fargo’s (WFC) profit was buoyed in the second quarter by consumers rushing to refinance their mortgages and buy new homes, driven by record low interest rates and a recovering housing market. JPMorgan Chase’s (JPM) mortgage lending helped the bank for much of 2012, and second-quarter results this year were by some measures strong too — it made more loans, even if its pretax profits from lending fell 37 percent.
But mortgage lending is likely to be less of a support for banks going forward, as the U.S. Federal Reserve has started talking about tapering off its massive bond-buying program and borrowing rates for home loans have jumped. Thirty-year mortgage rates rose to 4.58 percent at the end of the second quarter, up 0.82 percentage point from the first quarter.
Executives from both banks, which between them make one in three U.S. home loans, said Friday that mortgage lending volumes would decline in the coming months and so profits from the business would fall. JPMorgan Chief Financial Officer Marianne Lake said rising mortgage rates could slash volume by 30 percent to 40 percent. That would result in a “dramatic reduction in profits” in the business, JPMorgan Chief Executive Officer Jamie Dimon said.
At the same time economic growth has not ramped up enough for the rest of these banks’ businesses — such as small business loans and credit cards — to make up for the loss of that income. There may be a lull between the drop-off in mortgage lending and the boost to other forms of revenue from an improving economy and higher long-term interest rates.
“If the economy is getting stronger, it’s not manifesting itself in terms of balance sheet growth of the banks,” said Christopher Mutascio, a banking analyst at Keefe, Bruyette & Woods. “Mortgage headwinds are a bit more instantaneous, and the pick-up in the other business lines may take some time.”
A more complete outlook for the banking industry will emerge next week when both Citigroup Inc and Bank of America report their earnings.
‘No Growth’ in The Mortgage Business
The looming problem isn’t lost on the banks and could lead to further cost cutting as they try to bridge the gap.
JPMorgan’s Lake said depending on market conditions the bank could accelerate its previously announced cost-cutting targets. In February, the largest U.S. bank had said it planned to cut 17,000 jobs by the end of 2014, or roughly 6.6 percent of its workforce. The job cuts were largely targeted at areas such as mortgage …read more
Source: FULL ARTICLE at DailyFinance
In what has been clearly a crazy and volatile week, U.S. stock markets closed at new record highs on Friday. The day was kicked off by solid earnings reports from two major financial institutions, JPMorgan Chase and Wells Fargo, which pushed equities higher in the aftermath of the Bernanke boost. A fire at a 787 Dreamliner in London tanked shares in Boeing, threatening to derail a rally that finally turned back into positive territory. …read more
Source: FULL ARTICLE at Forbes Latest
By Nick Palermo
Ford is lowering the price of its all-electric version of the Focus, cutting the price by $4000 to $35,995. The reduction is further evidence of a price war in the EV market, following the announcement of lower pricing and/or special lease rates for electrics such as the Nissan Leaf, Honda Fit EV, and Fiat 500E, as well as the plug-in hybrid Chevrolet Volt. Ford says the move is intended to make the electric Focus, which is available nationwide, more appealing to customers considering a plug-in vehicle.
The Nissan Leaf is still the most affordable of the aforementioned models, with a starting price of $29,650. It’s also among the most efficient, rated at 115 MPGe in combined city/highway driving. Range for the all-electric Nissan, though, is the lowest in this group at 75 miles. The Focus Electric, by comparison, ekes out one more mile of range despite a lower combined efficiency rating of 105 MPGe.
The $32,600 Fiat 500E is available only in California. The 500E can travel 87 miles on electricity alone and is rated at 116 MPGe combined. The Honda Fit EV, meanwhile, is rated at 118 MPGe combined and has a driving range of 82 miles. It’s priced at $37,415, although it is offered as a lease only. Currently, the Fit EV is available in California, Oregon, New York, New Jersey, Massachusetts, Maryland, Rhode Island, and Connecticut.
The Focus Electric now matches the price of the plug-in hybrid Chevrolet Volt, which is available at $35,995 for cash buyers and $36,995 if it’s leased or financed through Ally Financial or Wells Fargo. And although the Volt relieves so-called range anxiety by backing up its battery power with a gas engine, it has a limited electric-only range of 38 miles. On battery power alone, the Volt is rated at 98 MPGe combined; once the gas engine takes over, combined fuel economy is 37 mpg. Chevy recently added the all-electric Spark EV to its lineup, but smaller and priced at $27,495, The Spark EV is not a direct competitor to the Focus Electric. The Spark EV’s availability remains limited to Oregon and California.
- Instrumented Test: 2012 Ford Focus Electric
- Instrumented Test: 2013 Fiat 500E EV
- Instrumented Test: 2013 Honda Fit EV
With EVs commanding less than 1 percent of U.S. market share, automakers are anxious to incentivize sales. Ford addresses some of the driving public’s reluctance to go electric with this price drop, and, as with all EVs, the Focus Electric’s price can potentially be even lower when eligible buyers take advantage of any federal, state, and local tax credits and incentives that are available to them. Concerns about range and long-term reliability, however, still remain considerable obstacles for many would-be EV drivers.
Source: FULL ARTICLE at Car & Driver
By GuruFocus, Contributor Renowned value investor Tom Russo made most his money by investing in companies that produces food, drinks, cigarettes and Berkshire Hathaway. He loves high quality companies with family oriented management. Over the past 5 years, his fund Semper Vic Partners averaged 6.8% a year, while the S&P500 gained just 1.5% a year.
People who can’t sample ice cream without buying a sundae might have a difficult time taking advantage of banking freebies. But if you have the discipline to stick to your financial plan in the face of a high-pressure sales pitch, then bank-sponsored seminars, consultations, and webinars offer a perfect learning opportunity.
Banks offer these informational events as a way to introduce potential customers to their services. And while the intent is obvious, you can glean a lot of good information on everything from buying a home to paying for college to planning for retirement — all while scoping out service providers.
Try Before You Buy
Many banks, large and small, want current and prospective customers to understand the full range of products they offer, and see consultations as a means of finding the right fit.
The idea isn’t a new one, but with as big banks struggle to appear more customer-friendly in the wake of years of banking scandals, those marketing pitches are coming with a softer side that includes personal consultations, for customers and non-customers alike.
And if gaining financial information has never been easier, making sense of it has never been tougher. What is the full cost of a service? What fees are involved? What does the fine print really mean? This is your chance to get those answers before you commit to becoming a customer.
Richele Messick of Wells Fargo says there’s only so much the Internet can do: “There’s no replacement for sitting down with a banker and having that conversation [about] ‘What do I think I have together and what do I not?'”
Smaller, Friendlier Banking
Many credit unions consider increasing financial literacy to be one of their core missions and, like the State Department Federal Credit Union in the metro D.C. area, offer classes in everything from home-buying to financial planning to saving for college.
But some take their outreach a step further. Bay Federal Credit Union in California, for example, offers a comprehensive suite of financial literacy programs for kids, teens, adults and teachers. And it’s hardly the only one. Credit unions across the country frequently offer similar seminars, often without the hard sell of larger, for-profit banks. And because many credit unions link into networks, a member of one can often take advantage of learning opportunities at another.
Get the Most Out of Your Scouting Trip
Before you attend a seminar or one-on-one consultation, think about what you ultimately want from the service provider.
People who wait until all their paperwork is in order to schedule a review might be missing out, says Wells Fargo‘s Messick. “We have people who come in like they’re going to their tax adviser: ‘Here’s my portfolio, statements, here’s where I have
1509 – French army under Louis XII enters Alps
1866 – Nitroglycerine at Wells Fargo and Co office explodes
1940 – 1st televised baseball game, WGN-TV, (White Sox vs Cubs exhibition)
1945 – Red Army begins Battle of Berlin
1972 – 1st Colgate Dinah Shore Golf Championship won by Jane Blalock
1989 – Costa Rica beats US 1-0, in 3rd round of 1990 world soccer cup
1904 – Clifford Case, (Sen-R-NJ)
1909 – Herman Uyttersprot, Flemish literature historian
1927 – Pope Benedict XVI [Joseph Aloisius Ratzinger], Marktl, Bavaria, Germany
1958 – Philip Bainbridge, British cricketeer
1965 – Gerardo, rocker
1978 – Matthew Lloyd, Australian rules footballer
69 – Otho, Roman Emperor (b. 32)
1788 – Georges-Louis Leclerc, Comte de Buffon, French naturalist (b. 1707)
1904 – Samuel Smiles, Scottish writer and reformer (b. 1812)
1955 – Abdullah Seif el-Islam, brother of Yemenite king Ahmed, beheaded
1995 – Iqbal Masih, Pakistani child slave labourer, activist (b. 1982)
2005 – Marla Ruzicka, American humanitarian worker and peace activist (b. 1976)
Filed under: Investing
When Warren Buffett was just beginning to build
back in the early 90’s, he gushed over the bank’s top managers, Carl Reichardt and Paul Hazen. In a short “how do I love thee, let me count the ways” tribute in Berkshire’s 1990 shareholder letter, Buffett highlighted three things he particularly liked about the leadership of Reichardt and Hazen:
- The two partners trust and admire each other.
- They pay people at the company well, but “abhor” having a bigger headcount than necessary.
- They “attack costs as vigorously when profits are at record levels as when they are under pressure.”
Reichardt and Hazen no longer run Wells Fargo. Nor does Dick Kovacevich, who followed Hazen. But it appears that current CEO John Stumpf may be carrying on in the same tradition — and is likely making Mr. Buffett very happy in the process.
There were plenty of reasons for investors to be upset with the bank’s first-quarter results. Low interest rates continued to squeeze Wells’ net interest margin as it fell to 3.48% from 3.56% in December, and 3.91% in the first quarter of last year. Mortgage banking revenue — a significant contributor to the bank’s non-interest income — started to drop as well.
Despite the soft spots, the bank still managed to top analysts’ estimates, posting $0.92 in earnings per share versus the expected $0.88.
How did it manage that? By continuing to cut costs and right-size the bank (see: Nos. 2 and 3 above). Non-interest expenses at Wells Fargo were down 8% from the December quarter and nearly 6% from the year-ago March quarter. Lower expenses took the (post-provision) efficiency ratio for Wells from 67.8% in the first quarter of 2012 to 63.4% in this most recent quarter.
Wells Fargo‘s stock was down more than 1% in Friday’s afternoon trading. Some might describe that outcome thusly: “Investors were disappointed with Wells Fargo‘s earnings.” The conclusion would probably be backed up with detail about the drop in mortgage-banking income or tight margins.
I’ll save you that short-sighted interpretation of the results and instead hold this up as a good illustration of why Buffett has made Wells Fargo Berkshire’s top equity holding, and why you’ll only end up confused and poor if you try to take your cues from what Mr. Market is doing.
Is it time to buy Wells Fargo?
Wells Fargo‘s dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure
Filed under: Investing
The U.S. energy renaissance has been one of the bright spots in American industry, and its success has also brought an unforeseen boom in manufacturing. Much of the recent boom has been from unconventional sources such as shale, a resource that wasn’t even mentioned in the Energy Information Administration‘s Energy Outlook Report 10 years ago. Today, it accounts for more than 30% of total natural gas production in the United States.
We aren’t the only ones with reserves, but we harnessed these unconventional sources effectively and economically, and we did it faster than any other country. According to a panel of experts at the 2013 Energy Forward Conference, only China will be able to effectively match the U.S. in terms of shale gas production for 10 to 15 years.
Let’s take a look at a few reasons we won the shale gas race.
Regulations and governmental structure
Unlike many other countries around the world, the U.S. has a robust system that protects individual property and patents. According to a Wells Fargo panelist at the 2013 Energy Forward Conference, the U.S. is one of the few countries in the world where an individual landowner has mineral rights for anything found on his or her property, and contract rights can be structured for extraction from that individual landowner.
This negotiation process with multiple stakeholders fosters a competitive environment for drilling companies to be as efficient as possible and create the highest rate of return. In the case of most other countries, a drilling company will need to negotiate with a regulatory body for a petroleum contract that will regulate the amount of costs it can recover from drilling operations, and all land negotiations will need to go through that regulatory body, according to Robert Beck of Anadarko Petroleum.
Another reason that shale gas development has not as quickly developed is a lack of clear patent protection laws, especially in China. While both Schlumberger and Haliburton have expressed an interest in developing Chinese shale gas, a lack of intellectual-property protection has them hesitant to going all in. Rather, both companies have taken minority interests in smaller, Chinese-based companies and plan to take orders of drilling fluids and equipment. These kinds of moves are not necessary in the U.S. and have allowed companies to protect and profit from their expertise.
Much of the technology that sparked gas boom got started years ago, but it wasn’t until around 2009 when it really took off as a viable source of production.
At that time, natural gas prices were high, and the cost for using new drilling technology was still economically feasible. Even though natural gas prices fell for the next couple of years, gas companies got very good at finding high-probability sites for wells and reducing well completion costs. From 2006 to 2012, gas specialist Ultra Petroleum reduced drilling costs by 30%. Today, the average shale gas well costs somewhere in the range of $3 million to $4 million.
Filed under: Investing
“Yay! I got charged a fee.”
Most of the time, consumers realize most fees charged by businesses or people are unavoidable, and they cough up the dough being demanded without too much of a fuss. However, when it comes to fees charged on their bank accounts, consumers become red in the face and declare that great injustice has been imposed against them.
What is it about bank fees that make consumers so angry, while other fees don’t conjure up the slightest peep? Every day, people shell out their hard-earned dollars to drive on toll roads. When stepping onto a city bus or metro train, passengers pay the fare without thinking twice. And these are public services that are funded by taxpayer money! On the other hand, Bank of America and Wells Fargo are private enterprises that provide financial solutions to their customers and reserve the right to charges fees, as long as they are clearly communicated.
Are banks just plain evil?
The cries against account fees have surely intensified because these banking products used to be free. Any time you’re getting something for fee, you are going to be slightly annoyed when you suddenly have to pay up for the same service. However, these banks are not trying to slip fees past customers and deceitfully pick their pockets. Bank of America clearly states all of the fees associated with its deposit accounts in the product overview section of its website and has a tab dedicated to inform customers which actions can be taken to avoid any fees.
Do these big banks want to annoy customers? No. Despite the obvious missteps most financial institutions took before, during, and after the financial crisis, these institutions are not inherently evil organizations dead-set on wreaking havoc on the American consumer. In many cases, these new fees are a direct response to the changes average Americans demanded. When legislation was passed to limit interchange fees banks collected from merchants, and credit card reform reduced the banks’ ability to reprice risky customers, the banks had billions of dollars in revenue swiftly ripped away while all of the expense infrastructure remained.
How support can backfire
Despite the overwhelming support to pass this legislation that stifled the banks’ options, many of those supporting the change might not have ever even been hit with a punitive fee. The number of people actually hit with an egregious overdraft fee, when a customer draws on an account with insufficient funds, may have been relatively small in the scheme of a particular bank’s customer base. But when those fees went away, banks felt to the pressure to make up that lost revenue elsewhere.
Imagine a 100-spot parking garage. There are rules: If you arrive before 9:00 am and leave before 6:00 pm, then parking is completely free. However, if you fail
Filed under: Investing
You’d be excused for thinking that the nation’s first and fourth largest banks by assets, JPMorgan Chase and Wells Fargo , reported horrible first-quarter earnings of Friday.
Here’s a headline from The Wall Street Journal: “J.P. Morgan, Wells Fargo Struggle.” This one’s from DealBook: “Fewer Home Loans Start to Affect Banks.” And here’s my favorite from Reuters: “JPMorgan’s lukewarm results put Dimon under more pressure.”
The general tenor of the articles is the same. To quote Reuters, “The top U.S. bank by assets reported tepid first-quarter results on Friday. Income in its biggest businesses — investment banking and consumer lending — fell, excluding accounting adjustments. Outstanding loans grew by just 1 percent, and profit margins on lending narrowed. Stock and bond trading revenue fell.”
Yet the numbers appear to tell a different story. For example, look at the banks’ first-quarter earnings per share.
Both reported massive EPS growth on a year-over-year basis. Wells Fargo earned $0.92 per share, equating to a 23% increase. And JPMorgan’s first-quarter EPS of $1.59 translates into a 33% gain. Indeed, from a profit perspective, it was the best quarter that either bank has ever recorded.
The counterargument is that the devil is in the details. In JPMorgan’s case, the nation’s largest bank by assets benefited to the tune of $1.15 billion from lower loan loss provisions. And in Wells Fargo‘s case, its net interest income continued to decline, contributing to a drop in total revenue, and its mortgage origination volume waned.
For long-term investors, however, these concerns are much ado about nothing. There’s simply no question that lower loan loss provisions are a good thing. Did they juice JPMorgan’s earnings? Sure, if that’s what you want to call it. But banks provision different amounts every quarter. What matters, in other words, is the trend. And a downward trend is unequivocally preferable to an upward one.
The concerns about net interest income are also short-sighted. We’re in a low-interest-rate environment. That’s the reality we live in. And that’s bound to continue. Until the unemployment rate decreases considerably or inflation starts to pick up, the Federal Reserve won’t abandon its current policies. Investors simply have to take this as it is. In fact, I’d be more concerned about a bank that’s increasing its net interest margin, as that would suggest to me that it’s stretching for yield irrespective of risk.
Finally, what about mortgage origination volumes? These were down at Wells Fargo. And they were down a lot, coming in at $109 billion. In the same quarter last year, they were $129 billion. Yet JPMorgan’s volume came in nearly $15 billion higher on a year-over-year basis. What matters, then, is whether the other large lenders replicate Wells Fargo‘s performance or JPMorgan’s. And it’s simply too early to say.
Over the past 12 months, both JPMorgan and Wells Fargo have underperformed the S&P 500 . That and the headlines I cited aside,
Filed under: Investing
The news that banks have been able to generate enormous profits by levying overdraft fees on customers surely rankles many — particularly during tax season, and considering that many Americans are still feeling pinched by the effects of the Great Recession.
It doesn’t have to be this way. Many consumers can avoid paying all sorts of banking fees — including overdraft penalties — by following some common sense advice. Where, you ask, can you find these money-saving tips? Surprisingly, you need look no further than the websites of the nation’s biggest banks.
Something everyone needs to know
Managing money is important to everyone, and a subject that is very often the subject of online research. According to the Google Adwords Keyword Tool, the term “personal finance” is searched for more than 200,000 times each month, just here in the U.S. For comparison purposes, the phrase “make more money” generates a mere 60,500 monthly searches.
Where is the best place to find such advice online? After writing about the astounding $32 billion banks made last year from overdraft fees, I decided to take a look at their websites to see if they offered anything helpful regarding personal finance, or made any effort to help customers understand how to manage their accounts more efficiently.
I have to say that I was pleasantly surprised by the amount of information available on the largest banks’ websites, and how easy it was to comprehend. Here is a quick summary of the highlights each bank site offers.
Bank of America
Despite all the vitriol heaped upon this bank by the general public, I was quite impressed with the breadth of information available on its site. Its Money Management page provides consumers with myriad links to subjects such as saving on daily expenses and budgeting, with several pages available to browse. The bank’s Personal Finance 101 gives some very down-to-earth advice on creating a budget, as well as other helpful tips such as how to set up alerts on your credit card accounts so as to avoid going over your limit.
B of A’s overdraft FAQ page is extremely detailed and includes ways to conveniently stay on top of account balances in order to avoid overdrafts. An especially juicy nugget: Beginning in the fall, Bank of America’s ATMs will alert customers when withdrawing money puts an account in danger of triggering an overdraft fee.
This megabank’s Account Tips page offers several useful articles, from setting up a workable household budget to decreasing debt, and some excellent tips on how to improve your credit score. The Quick Tips section gives several ways to keep an eye on your account balances, including setting up free alerts, whereby the bank will text you when your funds reach a specific level.
Wells’ money management tips lay out in a no-frills format exactly how to keep track of
Filed under: Investing
Global beverage titan Coca-Cola has for a long time been one of Warren Buffett‘s largest holdings at Berkshire Hathaway . Buffett began purchasing Coke stock in 1988, and the stock saw tremendous gains for the next decade, leading some observers to call Coca-Cola one of his greatest investments. Yet the stock‘s performance since 1998 has been decidedly mediocre.
Coke stock has joined in the recent market rally, more than doubling off its Great Recession low. That said, I’m skeptical that the company will be able to grow its bottom line enough to justify its generous P/E ratio of 20.7. Coca-Cola may therefore continue its long run as one of the biggest dogs of Buffett’s portfolio.
A love affair with Coke
Coca-Cola has been the largest holding in Berkshire Hathaway‘s equity portfolio for much of the past two decades. In the earliest 13F filing available online from the SEC — for the first quarter of 1999 — Berkshire Hathaway reported holding 200 million shares of Coke stock, valued at $61.375 a share, or more than $12 billion in total.
Buffett is often associated with the “buy and hold forever” investing strategy, and this is exactly what he has done with Coca-Cola. Berkshire Hathaway still owns every one of those shares — although a recent stock split means that Berkshire now owns 400 million Coke shares, valued today at more than $16 billion. That makes it the second largest holding in Buffett’s portfolio, only recently eclipsed by Wells Fargo.
Yet Coca-Cola has basically been a dud in Buffett’s portfolio for the past 15 years. While the stock has recovered very nicely from the global recession in the past four years, it still sits below the all-time high it touched all the way back in mid-1998:
Of course, the stock market as a whole hasn’t performed too well for the past 15 years, either. There was a crash at the end of the bubble period in 2000, followed by a second crash associated with the 2008-2009 recession. Still, the S&P 500 has outperformed Coke stock by nearly 40% over the whole 15-year period:
Poor total return
From a total return perspective — which includes the benefit of dividends — Coca-Cola has still been a poor investment since 1998. Since June 1998, Coke stock has generated a total return of 33%. Obviously, that’s a lot better than losing money; however, it represents a less than 2% annualized return. Buffett could have done better in government bonds!
In short, this means that Buffett and Berkshire Hathaway investors have had a lot of money tied up in an underperforming stock for a very long time. Coca-Cola was a great investment in the 1990s, but in retrospect, Buffett clearly should
Filed under: Investing
In this series, we’ll explore the data announcements and events that may impact the performance of bank stocks during the upcoming week.
It’s the beginning of earnings season for the banks, and with two already under our belts, it’s important that bank investors keep an eye on the news for the next week. As we saw, record earnings weren’t enough to propel the reporting banks higher — so watch out for more declines in the days to come.
- Earnings — Citigroup announces its first-quarter earnings Monday morning. Following on the heels of two record-high earnings reports from JPMorgan Chase and Wells Fargo , Citi will be under a lot of scrutiny from shareholders. Though the record earnings didn’t save the other two banks from falling Friday, largely because of investors looking for more quality along with the quantity of profits.
- Housing Market Index — as the housing market continues its slow but steady recovery, bank investors should look for signs of increased activity. One of the biggest takeaways from this week’s batch of earnings reports was a decrease in mortgage activity — a lead generator of revenue for the banks. This index provides a glimpse of the prospective buyer trend, giving bank investors a feel for how much new business could be coming to the banks.
- Housing starts — another sign of the rebounding housing market, housing starts give investors the data on how many new homes will be entering the market shortly. This provides a continued look at the stream of new mortgage loans that may be originated by the banks.
- Earnings — Bank of America announces earnings for the first quarter. With plenty of pressure on the bank to show shareholders more progress, the news from JPM and Wells Fargo‘s earnings calls are not giving investors much confidence in what B of A will report. Continued pressure on net interest margins are expected, which creates increased stress on the banking sector’s ability to generate more revenue.
- MBA purchase applications— Last week saw a big improvement in mortgage applications, with a 5% increase overall. Refinancings were the main driver of the gain, but this is important news for the banks, which generate most of their revenue through loans and application fees. Bank investors should watch this week’s numbers as a continued trend higher could signal returning business to the banks.
- Bank reserve settlement — it’s that time again. Every two weeks, the Federal Reserve requires banks to check in with their capital reserve balances. While some banks have no problem meeting their required threshold, others may have to scramble to gather up enough cash to meet the requirements — leading to increases in inter-bank lending, which can influence movement in the Federal Funds Rate.
- Jobless claims — the last few weeks have been all over the map in terms of the labor market data. Since the Easter holiday and varying spring break holidays
In McDaniels, et al. v. Wells Fargo Investments, LLC, et al. (9th Circuit, April 10, 2013), Plaintiffs are former employees of Wells Fargo, Morgan Stanley, and Merrill Lynch: Douglas McDaniel and Bryan Clark are former Wells Fargo financial advisors (Wells Fargo Investments, Wells Fargo Bank, and Wells Fargo Advisers collectively referred to as “Wells Fargo”). Holly Hanson, John Rennell, Marcia Bloemendaal, and David Notrica formerly worked for what is now known as Morgan Stanley. Kristen Heilemann and Marcella Lees worked as financial consultants and portfolio managers for Merrill Lynch. While employed at Wells Fargo, Morgan Stanley, and Merrill Lynch, the employees were denied the ability to open self-directed brokerage accounts at other firms. The employer firms argued that federal law requires brokerage firms to promulgate rules and regulations reasonably designed to supervise their employees in order to deter the misuse of material, nonpublic information. Accordingly, the employers claimed that their denial of employee requests to open outside self-directed trading accounts promoted sound compliance policies and furthered the federal requirement to properly supervise.
By MarketNewsVideo Wells Fargo (WFC) announced that it earned $5.2 billion, or 92 cents per share, up from $4 billion, or 75 cents per share, in the same period last year. Analysts had expected the company to earn 88 cents per share. Mortgage banking noninterest income was lower by 2.6% to $2.8 billion and net interest margin fell to 3.48% from 3.91%.
Wells Fargo again booked record-high quarterly profit even as its key mortgage unit lost ground.
Filed under: Investing
There has been some consternation recently regarding the first-quarter reports of the biggest banks, as some analysts fear that slower mortgage activity so far this year may put a damper on earnings. Two of the biggest banks have reported this morning, JPMorgan Chase and Wells Fargo , which will give investors some insight on this mortgage issue.
1. Profits are record-breaking
Despite the effects of the pre-announced mortgage slowdown by CFO Tim Sloan, he noted that the $5.2 billion in net income is the highest quarterly profit ever for the company, up from $5.1 billion year over year. The earnings per share of $0.92 beat analysts’ estimates and represents a substantial rise from the year-ago earnings of $0.75 per share.
Although revenue of $21.3 billion fell short of last year’s $21.9 billion, Sloan noted that sectors such as credit cards and brokerage advisory fees were up more than 10%.
2. The loan machine is still humming
Wells noted that consumer mortgage originations did indeed decrease year over year, by approximately 16%. Despite a reduction in home mortgages, Wells was able to bulk up its total loan growth by 4.2%, primarily by increasing commercial lending. In other mortgage-related news, the bank showcased its lower-than-average delinquency and foreclosure ratios, both of which trail the industry average. Wells’ delinquency rate, for example, is nearly half of that of Bank of America , and 31% lower than JPMorgan. Considering its dominance in the home mortgage industry, that’s saying something.
3. Deposits are up, capital reserves continue to grow
Wells saw retail deposits rise 8% year over year, even as the cost of those deposits fell by 1 basis point. Deposits grew 4% in the Wealth, Brokerage and Retirement section, as well, and were up very slightly in Wholesale Banking.
In addition, the bank’s capital cushion has expanded quite nicely, showing a healthy 10.38% for the current quarter, up from 10.12% sequentially, and 9.98% year over year. Wells also notes its plans to return capital to its investors this year in the form of stepped-up share repurchases — as well as a hike in the dividend from $0.25 to $0.30 per share.
Wells is ready for the mortgage slowdown
The mortgage-lending slowdown will likely affect all the big banks, and JPMorgan CEO Jamie Dimon commented in that bank’s report that the first quarter saw an industrywide decrease in home loan activity.
For Wells, the reduction in that arena will likely hurt less — despite its heavy involvement in that business — because it has been planning for just this occurrence for some time. For Bank of America, which reports next week, the problem may be the harbinger of tough times to come, since CEO Brian Moynihan has made it