Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

U. S. Banks’ Underlying Problem Is Revenue

Recommended Posts

http://www.nytimes.com/2011/01/19/business/19place.html?_r=1&ref=business

The nation’s banks are posting runaway profits for 2010, in a drastic reversal from 2009, when the prospect of widespread loan defaults forced them to set aside billions of dollars to cover losses.

The banks now say they set aside more money than they needed, and so they are withdrawing large sums from loss reserves. A big chunk of the newfound earnings, nearly a third, comes from those withdrawals.

So bank earnings since the peak of the financial crisis in 2008 have been exaggerated to a large degree, in both directions, by the shuffling of money into and out of reserves.

A more reliable gauge of the banks’ health, then, would be not the bottom line of the income statement but rather the top-line revenue, which is not affected by rainy-day reserves.

Here, the picture is less rosy. Industrywide, revenues are off 17 percent from their peak in 2007, and the latest figures are flat or declining.

“This decade for U.S. banks will show the worst revenue growth since the decade of the Great Depression,” said Michael Mayo, a longtime banking industry analyst. “It’s a real issue for long-term investors.”

On Tuesday, Citigroup announced earnings of $10.6 billion for 2010, its first full-year profit since the start of the financial crisis. This came only a month after the federal government sold off the last part of its nearly one-third stake in the company, acquired during the bailouts.

But revenue fell by more than 5 percent from the prior year, to $86.6 billion, hurt by weak trading results and lackluster performance in its domestic consumer lending operations.

Even JPMorgan Chase, which bucked the trend in banking by remaining relatively healthy throughout the crisis, is straining to move the revenue needle. On Friday, it posted a $17.4 billion profit for 2010, helped by a large withdrawal of money it had set aside to cover bad credit card loans and mortgages. Still, its revenue dipped more than 3 percent, to $104.8 billion.

New questions about the industry’s growth prospects will surely come this week, when Bank of America, Goldman Sachs and Wells Fargo release their year-end results.

All told, the banking industry’s profits rose to about $70 billion in 2010, with about $20 billion coming from the release of loss reserves, according to estimates by Foresight Analytics, a research firm. That is nearly a sevenfold increase in net income. Revenue, on the other hand, is down about 1 percent, to about $790 billion.

The challenges are formidable. New regulations, particularly those governing derivatives and credit cards, are only starting to cut into revenue. And unemployment remains historically high. Although bankers report a modest pickup in requests for credit, it is hard to see a surge in new lending so long as a large portion of the work force remains on the sidelines.

What’s more, the lucrative margins that made Wall Street trading businesses such profit engines in the immediate aftermath of the crisis are starting to narrow as corporations and investors return to the markets and demand lower fees. So are the fat returns that banks made off their own investments, as they snap up securities with lower rates.

Still I'm sure the recovery will boost earnings and revenue!!!

The future looks rosy, so all of these earnings are one off's? When they've finished fudging the accounts what will the next trick be? Once your reserves have gone your just asking for trouble. Can we assume our own banks are doing the same?

Share this post


Link to post
Share on other sites

http://www.nytimes.c...=1&ref=business

Still I'm sure the recovery will boost earnings and revenue!!!

The future looks rosy, so all of these earnings are one off's? When they've finished fudging the accounts what will the next trick be? Once your reserves have gone your just asking for trouble. Can we assume our own banks are doing the same?

lack of revenues might just lead to an unexpected and unprecented liquidity issue....I wonder what they will ask for at that point.....

Share this post


Link to post
Share on other sites

Businesses can't really survive falling revenues long term. Because no one in the corporation will accept pay cuts - people expect annual pay increases and promotions. The way out is usually merging and then firing a large number of employees in the bought out company.

The big 4 US banks cannot easily merge with others at this point.

Share this post


Link to post
Share on other sites

Businesses can't really survive falling revenues long term. Because no one in the corporation will accept pay cuts - people expect annual pay increases and promotions. The way out is usually merging and then firing a large number of employees in the bought out company.

The big 4 US banks cannot easily merge with others at this point.

There is a term for the action taken in falling revenue situations...its called...cost cutting...and leads to ...redundancy.

Share this post


Link to post
Share on other sites
Cant they enroll the Chinese or africans into debt slavery?

They do show an uncharacteristic concern for the need of Chinese people to have access to social security and healthcare systems- similar to those they now tell us that the west can no longer afford. :D

I guess it's hard to persuade a guy who is busy saving for a rainy day that he needs to take out a big loan for a shiny new car.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.