Earlier this week, CNN Money ran a story on JPMorgan’s quarterly results. Instead of focusing on the earnings, the author’s (Stephen Gandel) discussed the fact that JPMorgan’s loan-to-deposit ratio (LTD) hit a new low.FORTUNE: – The nation’s large…
Tag Archive for Bank Deposits
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US loan-to-deposit ratio the lowest in 30 years and falling – Sober Look
by Sober Look • • 0 Comments
The chart below shows US total loan balances relative to bank deposits over the past couple of years. The total loan growth rate continues to deteriorate while deposits grow.Source: FRED (5/4/2011=100)In fact the ratio of these two measures, the so-cal…
Contributors- Economic and Financial, Must Read, Taken Down
Bank shares sell-off may be signaling weaker credit growth ahead – Sober Look
by Sober Look • • 0 Comments
The FOMC announcement to hold the status quo on securities purchases resulted in a flatter yield curve.While this surprising decision by the Fed helped a number of “risk-on” assets, it was a negative for banks. Bank shares rallied initially with equity…
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Steepening yield curve benefits banks, but major headwinds remain- Sober Look
by Sober Look • • 0 Comments
The treasury curve has steepened materially over the past few weeks, driven by Bernanke’s seemingly hawkish statements. One group of companies that will benefit from this adjustment is the banking sector.
In fact bank shares have been outperforming the broader market by a significant margin – over 6% in the past couple of months.
The reason is simple. Given the short end of the curve has not budged, banks will continue to pay next to nothing on deposits. But they can now charge much higher rates on new term loans they make. That spread increase (net interest income) will flow right into equity and juice up bank dividends. Bank shareholders and executives should thank Bernanke for this “gift”.
But there are headwinds appearing on the horizon for the banking sector that may negate some of these gains. Here are a few examples:
1. A portion of bank revenue has been generated from mortgage refinancing in the past couple of years. But that game is over (see post) and the refi fee revenue will no longer be there. We’ll let our friends who analyze bank shares quantify that number, but it can’t be immaterial.
2. With rates rising, loan demand in the corporate sector may in fact decline. We are already seeing evidence of that.
On top of reducing origination fees and asset growth for banks, this trend could easily result in slower economic growth, which has been quite fragile to begin with.
3. Treasury and agency securities make up about 10% of bank assets. Even though not all of these securities will get marked to market, the recent bond correction can’t be good for the old P&L. Customer flows in fixed income departments of banks will also decline materially.
4. New regulatory pressures could create tremendous headwinds for the larger banks and could even result in dividends being shut off for years to come as banks are forced to build up capital.
Bloomberg: – U.S. regulators are considering doubling a minimum capital requirement for the largest banks, which could force some of them to halt dividend payments.
The standard would increase the amount of capital the lenders must hold to 6 percent of total assets, regardless of their risk, according to four people with knowledge of the talks. That’s twice the level set by global banking supervisors.
For those who think banks haven’t been lending enough, just wait till such rules go into effect. We will see an outright credit contraction in the US.
Given these headwinds in the banking sector, one should be careful jumping on the bank shares bandwagon. There may be some nasty earnings surprises along the way. And with banks under pressure, those who are predicting the US GDP to grow at 2.5% or higher should go back to the drawing board.
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Banks don’t want to pay for funding when they can get it for free- Sober Look
by Sober Look • • 0 Comments
As US banks continue to grow their deposit base, they are reducing reliance on commercial paper (CP). Why pay for funding when depositors are willing to provide capital for free and in increasingly larger amounts? On the other hand foreign-owned banks,…
Contributors- Economic and Financial, Must Read
Dr. Kevorkian Holds a Press Conference
by Frederick Sheehan • • 0 Comments
Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (Aucontrarian.com, 2009…
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If China can’t get Inflation up, revolution will Destroy the Chinese kleptocracy
by Newswires • • 0 Comments
The following is excerpted from Bronte Capital: The Macroeconomics of Chinese kleptocracy. China is a kleptocracy of a scale never seen before in human history… China has huge underlying economic growth from moving peasants into the modern economy Every economy that has moved peasants to an export-orientated manufacturing economy has had rapid economic growth… This fast…
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JP Morgan Suspends Share Repurchases Because Of Capital Plans – Fox Business
by Newswires • • 0 Comments
Wall Street JournalJP Morgan Suspends Share Repurchases Because Of Capital PlansFox BusinessNEW YORK – JP Morgan Chase & Co. (JPM) suspended its share repurchase program in light of the bank's $2 billion-plus trading loss in synthetic credit …
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Capital Controls Loom in Greece – CNBC
by Newswires • • 0 Comments
It looks increasingly likely that Greece will have to implement controls to prevent capital flight and a banking collapse. To my mind, the only real question is when this will occur. The widespread talk about Greece possibly leaving the euro zone is likely to trigger withdrawal of bank deposits and other financial assets, by those…
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China’s Fall in Bank Deposits May Pinch Lending – Wall Street Journal
by Newswires • • 0 Comments
Wall Street JournalChina's Fall in Bank Deposits May Pinch LendingWall Street JournalBy DINNY MCMAHON BEIJING—Falling deposits at China's banks, as households seek higher returns for their savings, may challenge banks' ability to ramp up …