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Monthly Archives: April 2013

Analysts Discuss Paradigm Shift: Breaking Up Banks

“(Reuters) – At least three Wall Street analysts this week have written reports about the possibility of the biggest banks breaking themselves up to boost profitability, signaling that investors may be more willing to embrace an idea that is still toxic to some lawmakers in Washington.

New regulations in areas like capital requirements are imposing higher costs on the biggestinvestment banks, raising doubts about their future profitability. These questions make the biggest global investment banks “un-investable,” wrote analyst Kian Abouhossein, who himself works atJPMorgan, one of the biggest global investment banks.

Breaking up large “universal banks,” could unlock value for shareholders, Wells Fargo analystMatthew Burnell wrote in a report on Wednesday. These “financial supermarkets” typically house investment banking, consumer banking and wealth management operations under one roof.

If these banks broke up into smaller companies, the value of the parts would likely be greater than the current whole, Burnell wrote. He estimated that universal banks currently trade at 25 to 30 percent below publicly traded financial firms that focus on just one business.

CLSA analyst Mike Mayo, a long-time critic of big banks, wrote on Tuesday: “Almost every investor that we speak with indicates that a breakup would be bullish for the stocks.” …”

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$WFC Beats Both Top and Bottom Line, Earnings Rise at Double Digit Rates

“SAN FRANCISCO, Apr 12, 2013 (BUSINESS WIRE) — Wells Fargo & Company WFC -1.01% :

— Continued strong financial results: — Record Wells Fargo net income of $5.2 billion, up 22 percent from first quarter 2012

— Record diluted earnings per share of $0.92, up 23 percent

— Revenue of $21.3 billion, compared with $21.6 billion

— Noninterest expense of $12.4 billion, down $593 million — 58.3 percent efficiency ratio, improved from 60.1 percent

— Pre-tax pre-provision profit (PTPP)(1) of $8.9 billion, up 2 percent

— Return on average assets (ROA) of 1.49 percent, up 18 basis points

— Return on equity (ROE) of 13.59 percent, up 145 basis points

— Continued loan and deposit growth: — Total average loans of $798.1 billion, up $29.5 billion from first quarter 2012 — Quarter-end loans of $800.0 billion, up $33.4 billion

— Quarter-end core loans(2) of $709.1 billion, up $50.8 billion

— Total average core deposits of $925.9 billion, up $55.4 billion from first quarter 2012 — Quarter-end core deposits of $939.9 billion, up $51.2 billion…”

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$JPM Beats Estimates as Mortgage Related Business Jumps 37%, Company Raises Dividend

JPMorgan Chase & Co. (JPM) said first- quarter profit rose 33 percent to an all-time high, beating analysts’ estimates as improving consumer credit quality allowed the bank to cut loan-loss reserves by $1.2 billion.

First-quarter net income climbed to $6.53 billion, or $1.59 a share, from $4.92 billion, or $1.19, in the same period a year earlier, the New York-based company said today in a statement. Twenty-eight analysts surveyed by Bloomberg estimated earnings per share of $1.39 adjusted for a one-time accounting item.

Earnings were buoyed by a drop in late payments as net charge-offs in the consumer bank fell 29 percent to $1.7 billion, allowing the firm to release loan-loss reserves into earnings. While mortgage volume jumped 37 percent, mortgage- banking net income dropped 31 percent to $673 million as record- lowinterest rates squeezed profits. Margins on lending declined to 2.37 percent from 2.61 percent a year earlier.

“We are seeing positive signs that the economy is healthy and getting stronger,” Chief Executive Officer Jamie Dimon, 57, said in the statement. “Housing prices continued to improve and new home purchases are also starting to come back.”

About $5.68 billion of JPMorgan’s record $21.3 billion in 2012 profit came from reserve releases as fewer consumers defaulted on their payments.

Bigger Release…”

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WTI Falls Erasing Weekly Gains

“West Texas Intermediate crude fell for a second day, erasing its advance this week. The U.S. benchmark’s discount to London-traded Brent neared its narrowest in more than 14 months.

Futures dropped as much 1.4 percent in New York as Cyprus said it will ask the euro area for further financial aid, while investors awaited a report forecast to show U.S. retail sales stagnated in March. Oil prices may rebound next week, according to a Bloomberg News survey of analysts. WTI’s discount to Brent shrank to as little as $10.40 a barrel today, the smallest gap on an intraday basis since Jan. 26, 2012.

“The supply balance is still a bit weak,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, who forecasts that WTI will average $96 a barrel this quarter. “We are close to the bottom, as we expect the market to tighten, but the bottoming-out process may take some time.”

WTI for May delivery declined as much as $1.26 to $92.25 a barrel in electronic trading on theNew York Mercantile Exchange and was at $92.34 at 12:12 p.m. London time. The volume of all futures traded was 73 percent greater than the 100-day average. The contract has slipped 2.4 percent over the last two days, its biggest decline since April 4. Prices have fallen 0.4 percent this week, paring their gain this year to 0.5 percent.

Brent for May settlement, which expires on April 15, fell $1.29 to $102.92 a barrel on the London-based ICE Futures Europe exchange. The more actively traded June future slid $1.41 to $102.97. The European benchmark grade was at a premium of $10.58 to WTI futures.

Retail Sales…”

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Gold Continues to Falter Amid Recovery Hopes

“Gold fell to the lowest in a week and headed for the biggest weekly drop since February on speculation a strengthening dollar and U.S. economy will curb demand for a protection of wealth. Precious metals declined.

The dollar rose as much as 0.5 percent versus the euro today and U.S. equities reached a record yesterday as data showed U.S. jobless claims fell more than estimated last week. Minutes of the Federal Reserve’s March meeting released April 10 showed several members were in favor of pulling back on its $85 billion monthly debt-buying program this year. Gold fell below a “crucial” support level of $1,550 an ounce today, said Andrey Kryuchenkov, an analyst at VTB Capital in London

“It’s the dollar rebound,” Kryuchenkov said today by phone. “There is a lack of conviction in gold and with equities performing so well, why bother?”

Gold for immediate delivery fell 0.9 percent to $1,547.45 an ounce by 10:55 a.m. in London. Prices reached $1,545.16 and are down 2.1 percent this week. Bullion for June delivery was 1.2 percent lower at $1,546 on the Comex in New York. Futures trading volume was 8 percent above the average in the past 100 days for this time of day, data compiled by Bloomberg show.

Gold hasn’t closed below $1,550 in London since May. It’s down 7.6 percent this year on mounting optimism that the U.S. will help lead a global economic recovery. Holdings in the SPDR Gold Trust, the biggest gold-backed exchange-traded product, fell to 1,181.4 metric tons yesterday, the least since May 2010.

Cyprus Rescue…”

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Volkswagen Sales Fall in March, Company Claims European Headwinds Intensify

Volkswagen AG (VOW), Europe’s biggest automaker, said global sales growth slowed in March and that headwinds in its home region are intensifying.

VW eked out a 0.2 percent rise in deliveries in March to 864,400 vehicles as robust demand in China and North America more than offset shrinking sales across Europe, the Wolfsburg, Germany-based carmaker said in a statement today. In the first two months of the year, VW vehicle deliveries rose 8.3 percent to 1.4 million.

“The data for March clearly show that the markets are becoming even more difficult,” Christian Klingler, VW’s sales chief, said in the statement.

Auto executives are forecasting a sixth straight annual decline for the industry in Europe this year as the region’s waning economy stifles demand for new cars….”

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China Curbs May Have Cut Into GDP Growth in Q1

“Chinese President Xi Jinping’s campaign to rein in lavish spending by officials and state-owned companies is proving so effective that it risks helping end the nation’s economic rebound after one quarter.

Bank of America Corp. is among 12 of 41 respondents in a Bloomberg News survey who estimate first-quarter expansion was at or below the previous period’s 7.9 percent pace. The world’s second-largest economy probably grew 8 percent in the January- March period from a year earlier, according to the median forecast ahead of data due April 15 in Beijing, down from an 8.2 percent projection in February.

Xi’s efforts are restraining consumer spending and making it tougher for the new government to boost domestic demand asfactory output slows. Large-restaurant and catering sales fell for the first time in more than three decades in the first two months of the year, while demand and prices for luxury items such as Moutai liquor and Longjing tea have slumped.

“The anti-corruption action by Xi is creating unprecedented phenomena, including an absolute fall in high-end restaurant sales,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, who previously worked for the European Central Bank. “It’s certainly a big factor dragging down short-term growth.”

October-December growth in gross domestic product represented the first acceleration in two years, up from the third quarter’s 7.4 percent rate. For the full year, expansion was 7.8 percent, the slowest since 1999.

March Figures….”

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Tepco Faced With Dumping Radioactive Water Into the Ocean

Tokyo Electric Power Co. (9501)’s discovery of leaks in water storage pits at the wrecked Fukushima atomic station raises the risk the utility will be forced to dump radioactive water in the Pacific Ocean.

Leaks were found in three of seven pits in the past week, reducing the options for moving contaminated water from basements of reactor buildings. Water in the basements is from the months after the earthquake and tsunami disabled the plant two years ago, when disaster teams used hose pipes and pumps to try and cool the reactors….”

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$INFO Tanks 20% on Poor Earnings and Guidance

Infosys Ltd. (INFO), India’s second- largest software services exporter, plunged the most in 10 years in Mumbai trading after forecasting annual sales growth as slow as half the pace analysts estimated.

Infosys shares plummeted 21 percent to 2,296.65 rupees at the close, the biggest decline since April 2003. Bigger competitor Tata Consultancy Services Ltd. (TCS), which will report earnings on April 17, fell 1.6 percent and Wipro Ltd. (WPRO) dropped 4.8 percent. Infosys was the biggest loser on the S&P BSE Sensex, dragging the benchmark 1.6 percent lower.

An uneven global recovery poses a challenge for the information-technology services industry, Chief Executive Officer S.D. Shibulal said after the European Central Bank last month cut growth and inflation forecasts. Infosys said it charged customers less last quarter, underscoring concerns about the ability of service providers to raise prices.

“It is a real disaster for Infosys, primarily because of their low guidance along with their fourth-quarter revenue,” said Amar Mourya, a Mumbai-based analyst at India Nivesh Ltd. “Their confidence seems to be shaken with such a broad forecast, and visibility looks poor.”

The company, based in Bangalore, expects revenue to increase 6 percent to 10 percent in the year ending March 2014, it said. Analysts estimated sales at 454.7 billion rupees ($8.3 billion), up 12.7 percent, based on the average of 66 estimates compiled by Bloomberg. It didn’t provide an earnings per share forecast as the “unknowns are substantial,” Shibulal said in a conference call with analysts.

Spending Budgets…”


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Pimco’s Australian Division Sees Longer Term Upside in Bonds and the Aussie Dollar

“Australian government bonds are poised to extend the best rally among top-rated nations as local policy makers cut interest rates in response to global monetary easing, according to Pacific Investment Management Co.

“Hyperactive monetary policies underway across the vast majority of the developed world” will keep the Australian dollar strong, Robert Mead, head of portfolio management at Pimco’s Sydney office, said at the Bloomberg Australia Economic Summit this week. “The escape valve becomes monetary policy once again and that probably starts to show up sooner rather than later.”

The country’s 10-year yields fell 31 basis points over the past month to 3.31 percent, the biggest drop among 10 sovereign markets with AAA scores from all three major ratings companies. The notes offer more than twice the average for top-rated peers even after the yield plunged 2.3 percentage points in two years.

The Aussie dollar reached a 28-year trade-weighted high this week after the Bank of Japan (8301) surprised forecasters on April 4 by doubling monthly bond purchases to almost match the Federal Reserve’s extraordinary monetary easing. The erosion in export earnings, along with a slowdown in China, will damp Australia’s economy and pressure the Reserve Bank to cut rates to a record, according to Pimco, which runs the world’s biggest bond fund.

28-Year High….”

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The Aussie and New Zealand Dollars Conrinue to Rally on Positive Data Out of China

“The Australian and New Zealand dollars were set for a weekly gain as the bigger nation’s Treasurer Wayne Swan said he’s optimistic about China’s outlook.

The so-called Aussie was near a three-month high before Chinese data next week forecast to show the world’s second- largest economy grew last quarter at the fastest pace in a year. The New Zealand dollar’s value relative to its trading peers was close to an all-time high amid speculation the Bank of Japan (8301)’s monetary easing will encourage domestic money managers to increase their investments overseas.

“The Australian and New Zealand dollars are likely to remain resilient,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co. in Tokyo, a unit of Japan’s third-biggest financial group by market value. “The rising optimism toward China’s economy is underpinning both currencies.”

Australia’s dollar added 0.1 percent to $1.0550 at 4:39 p.m. in Sydney after reaching $1.0582 yesterday, the strongest since Jan. 11. It has gained 1.6 percent this week, set for the biggest five-day advance since the period ended March 15.

The New Zealand dollar, known as the kiwi, fell 0.1 percent to 86.22 U.S. cents. It has risen 2.3 percent since April 5, poised for the biggest weekly advance since the period ended June 15.

The kiwi’s trade-weighted currency index climbed to a record 79.67 yesterday, according to data from the Reserve Bank of New Zealand going back to 1985. It’s at 79.17 today.

China’s Economy

China’s gross domestic product probably expanded 8 percent in the three months ended March 31 from a year earlier, the fastest growth since the first quarter last year, according to the median estimate of economists in a Bloomberg News survey. The figures are due for release on April 15…..”

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The Eroding Premium of Truth and Trust

“The premium in America has shifted from truth to self-serving distortion, and from trust to manipulation.

The premium we place on truth and trustworthiness is self-evident. Truth is uniquely productive feedback from the real world. Truth (including factual data) is indispensable, for it alone enables us to correct errors, learn from mistakes and improve our effectiveness and communication.

We pay a premium for trust because the cost of dishonesty and artifice is steep.Would you pay more to buy a used car from someone you trust? If you place no premium on trustworthiness, then you buy the “great deal” used car you found online: oops, the “new” battery was spray-painted black, the crankcase leaks, the engine is shot and doesn’t pass smog, and the certificate of ownership is forged.

The premium on truth and trust is eroding under the constant onslaught of officially manipulated data and markets, and a vast array of distortions and propaganda designed to serve the interests of ruling Elites and key constituencies.

We all know the negative premium placed on fact: telling the truth will get you fired. And not just in the corporate world: politicians from the President on down all worship at the altar of the carefully distorted unemployment rate.

The officially sanctioned lying and manipulation are now shameless. Never mind that millions of people have become statistical phantoms (i.e. not in the workforce) to generate that low rate, and college graduates working 3 hours a day (if they’re called in at all) are gleefully counted as employed, as if there is no difference between a full-time job and a marginal one.

President Obama is touting rising auto sales as proof of the “recovery” (and implicitly, of his wise stewardship), studiously avoiding the fact that these stupendous auto sales are the result of offering low-interest rate auto loans to marginal borrowers with near-zero collateral (i.e. skin in the game).

How did blowing a credit bubble and securitizing the debt turn out last time?

Never mind: here we go again. Via Doug Nolan at Prudent Bear:

Springleaf Finance Corp., the lender to borrowers with poor or limited credit, sold $604 million of bonds last month backed by personal loans secured by household goods from furniture to electronics, its first such deal. Demand for riskier asset-backed bonds has grown as the Federal Reserve holds its benchmark interest rate at almost zero for a fifth year. Sales of securities linked to subprime auto loans doubled to $4 billion in January from a year earlier.

Manipulation and carefully crafted distortion erode trust, not just in the individuals employed to repeat the lies but in the institutions that issue them. The ruthless pursuit of self-interest is now the norm; truth is a terribly risky disruptor that must be hidden, masked or countered with plausible lies.

As a nation, we’re like the obese person who looks at himself in the mirror and sees his body as normal–the distortion of truth is so complete that we literally no longer recognize reality. Untruth no longer arouses any moral indignation; we are either too jaded to care, or our moral compass now spins aimlessly from one manipulation to the next.

There can be no trust if there is no truth. How can we trust people who lie to us constantly, who issue one self-serving justification after another for their own parasitic predation? We cannot. How can we trust institutions whose credibility now rests on the continuation of lies that are so embedded in our financial sector and State that their collapse will bring down the entire house-of-cards debtocracy? We cannot.

The premium in America has shifted from truth to self-serving distortion, and from trust to manipulation. This spiritual and moral rot will end gloriously, have no doubt, for the stock market’s permanent ascendancy dissolves all other narratives. ….”

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The Bulls Grab More New Highs


images (6)


DOW up 61

S&P up 5


Gold up $2

WTI down $1.17

[youtube://http://www.youtube.com/watch?v=-XyTpENuoCI 450 300]

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Government Spending Per Household Exceeds Median Income

“As reported in my new book, “Completely Predictable,” the combined spending of federal, state and local governments per American household actually exceeded the median household income for 2010, which is the latest year for which all relevant government data are available.

In fiscal 2010, according to numbers published by the Census Bureau and the Office of Management and Budget (OMB), net spending by all levels of government in the United States was $5,942,988,401,000. That equaled $50,074 for each one of the 118,682,000 households in the country.

In that same year, according to the Census Bureau, the median household income was $49,445.

That means total net government spending per household ($50,074) exceeded median household income (49,445) by $629.

Government in the United States, of course, has not always spent more per year than the median household earns. As recently as 2000, the relationship between government spending and household income was dramatically different.

Data from the Census Bureau and the OMB show that in that year net spending by all levels of government was $3,239,913,876,000. That equaled $29,941 for each of the nation’s then 108,209,000 households. In 2000, the median household income was $41,990.

Thus, between 2000 and 2010, government in this country went from spending $12,049 less than the median household income to spending $629 more.

This is how I derived these startling numbers…”

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HARP To Be Extended for Two More Years

“The federal regulator for Fannie Mae FNMA -6.79% and Freddie Mac FMCC -9.09%will extend a popular refinancing program for two more years.

The Home Affordable Refinance Program, or HARP, allows homeowners with loans backed by the mortgage-finance companies to refinance even if they don’t have any equity. So far, more than two million homeowners have refinanced under the program. HARP had been set to expire at the end of this year, but the Federal Housing Finance Agency said Thursday that the program would now run through 2015.

“We are extending the program so more underwater borrowers can benefit from lower interest rates,” said Edward DeMarco, the acting director of the FHFA.

The Obama administration rolled out HARP in early 2009, and the program was initially set to end on June 10, 2010. In addition to extending the end date of HARP several times, the program has undergone a series of overhauls in a bid to reach more borrowers amid disappointing initial results….”

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The EU Plans Another Round of Bank Stress Tests Vowing to Cleanup Toxic Assets

“BRUSSELS—Europe is embarking on a new attempt to pull its banks out of the molasses of its debt crisis, hoping an aggressive cleanup of toxic assets will get banks to lend again and kick-start its flailing economies.

The push is being led by several key officials in Brussels and Frankfurt, who want to see a new round of much-tougher stress tests before the European Central Bank becomes the euro zone’s main banking policeman next year, according to four European officials familiar the talks.

They are backed by the continent’s richer countries, including Germany, the Netherlands and Finland, which don’t want to pick up the bill for weak lenders in their poorer neighbors.

The proponents of strict stress tests will launch their campaign at a meeting of European Union finance ministers in Dublin on Friday. That debate follows a first discussion of the exercise among senior national finance-ministry officials last week.

Efforts to rid banks of bad assets and then boost their capital buffers face formidable challenges: Previous stress tests have been watered down as national governments lacked the willingness and financial capacity to deal with the results. Even now, officials caution that key players—including the ECB and the European Commission, the EU’s executive—haven’t made up their minds on how intrusive they want the new stress tests to be.

But a group of key crisis managers believes cleaning up weak banks is the only way to get Europe’s economy to grow again, after superlow interest rates and large-scale liquidity injections from the ECB have failed to produce the desired results. These officials see continued doubts over the health of many lenders as the main reason banks are reluctant to lend to companies, especially in the continent’s weaker countries…..”

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Criminal Charges Filed Against KPMG Partner, Insider Information Revealed on 5 Clients

“Federal prosecutors in Los Angeles filed criminal charges Thursday against a former KPMG LLP partner who has admitted to passing on inside information about his clients.

Scott London, the partner in charge of audits of Herbalife Ltd. HLF +4.11% andSkechers USA Inc. SKX +1.57% until he was fired from KPMG on Friday, also was hit with civil securities-fraud charges by the Securities and Exchange Commission. The development is the latest in a scandal that led to the accounting firm resigning as auditor of the two companies.

Mr. London was charged with one count of conspiracy to commit securities fraud through insider trading, according to the criminal complaint. He faces up to five years in prison and a $250,000 fine. The complaint said the trades generated a profit of more than $1 million for his friend, Bryan Shaw.

The complaint also says Mr. London tipped off Mr. Shaw about five KPMG clients, more than was previously known.

In exchange, according to the criminal complaint, Mr. London received bags containing $100 bills wrapped in $10,000 bundles, concert tickets, and a Rolex watch.

According to the SEC’s civil complaint, Mr. London was the lead partner on several KPMG audits, including Herbalife and Skechers, and he was the firm’s account executive for Deckers Outdoor Corp. DECK +1.28% In those roles, Mr. London was able to obtain material, nonpublic information about these companies prior to their earnings announcements or release of financial results.

Mr. Shaw, who lives in Lake Sherwood, Calif., is accused of trading at least a dozen times on the inside information he received from Mr. London. He allegedly grossed profits of more than $714,000 from trading based on confidential financial data about Herbalife, Skechers, and Deckers, the complaint says.

The SEC alleges that Mr. London also gained access to inside information about impending mergers involving two former KPMG clients—RSC Holdings and Pacific Capital Bancorp. Mr. London allegedly tipped Mr. Shaw with the confidential details….”

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AMG Expects Hybrids to be the Super Cars of the Future

“Mercedes-Benz in-house tuner AMG is best known for its thunderous, cacophonous V-8 gasoline engines. The brand’s latest model is something of a departure, though.

The 2014 Mercedes-Benz CLA 45 AMG still offers ballistic performance, but uses only a 2.0-liter, four-cylinder engine–albeit turbocharged to 355 horsepower.

AMG has now said that it’s a trend it expects to continue — while hybrids knock high-performance diesels aside in the pursuit of both power and economy.

According to Edmunds (via our sister site Motor Authority), AMG Chairman Ola Källenius thinks hybrids will be the future of performance vehicles.

Diesel, says Källenius, doesn’t deliver the aggressive characteristics of a gasoline engine — nor its pure throttle response, nor the NASCAR-style sounds common to many AMG products.

Hybrids, on the other hand, still allow automakers to use gasoline engines as a main source of propulsion, without sacrificing too much in the way of efficiency.

AMG will produce a hybrid vehicle “when the market is ready for it and in markets [that require it] due to their regulations”….”

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