After reading through this, it looks like continue slogging through the bad loans and weakening U.S. economy. I did notice the banks loan loss reserves have fallen a considerable amount, likely to their view that the loan book is less risky than it was a year ago. The problem now is with Washington D.C. and dealing with the deficit, profligate spending and large entitlement programs that will need to be reformed is they are to remain viable.
We will just need to sit tight and watch. I would continue to reduce debt and build savings while we grind this out. I believe we have another major leg down and another recession in the works before we start really gaining traction. Traditionally we have seen large market moves in the fall so hopefully we are not seeing the lull before the storm.
Reuters - Bank of America said it plans to slash costs by $3 billion annually in commercial lending, investment banking and wealth management, becoming the latest big bank to take aim at expenses in a sluggish economy. The second-largest U.S. bank announced the cost cuts as it posted second quarter results that illustrate the pressure it is under. Bank of America said its loan book shrank from the same quarter last year, its interest income fell 15 percent, and each of its divisions except for mortgage lending posted lower revenue.
I think what we are seeing here is not about JPMorgan as a large financial institution, but more on what can go wrong with derivatives when they basically unregulated and in a sense, naked, being that little or no capital is being set aside to cover these bets. Personally, I think we have way too many derivatives period, but regardless, deposit taking banks should not be in this market at all, it is totally irresponsible because with out regulators track record, it ultimately puts the tax paying citizenry as risk because this banks are so large that we politically at this point can’t fathom letting them fail if they got out of hand.
In this reality, we should tell them how it is going to be and force the banks that take deposit or are covered by the FDIC, move these operations on to a hedge fund that they would capitalize separately. With this new company, you can let it fail and the bank shareholders and bond holders would lose out, but only what they put into it. I am hoping this will be the learned lesson we need to enforce this. I am not saying their is no place for derivatives (still debatable), but we need to be prudent.
We should not let the influence of any powerful institution curtail us for doing what is needed even if it is unpopular. I have faith in banks and other financial institutions that they will always find out new innovations to make money and get in trouble with. But this issue here is a dead horse at this point and it should be easy for us to put in simple rules and a timeline so the banks can divest these assets and put them into the proper vehicle. They can not have their cake and eat it too on our dime, they need to spend their own (and they have many).
New York Times - Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.
You have to appreciate the honesty in headlines like this. It highlights that this current rally or recovery in the markets are in most part due, to the massive stimulus our central bank as provided through bond purchases and historically low interest rates.
Correspondingly, it makes sense that without that assistance that markets prices would drop lower with the potential reality of that not being available. I believe without the unprecedented support the Federal Reserve and U.S. Treasury has provided, we will resume natural deflation to bring asset prices across multiple classes back to a level that can be sustainable with the available credit & money to support them. This will be look down upon from most mainstream economist and commentators but in the end it will be the most sustainable path forward and as such, it should be looked to as positive development.
CNBC - Stocks were headed for their worst day in a month Wednesday after the Federal Reserve signaled that it may be less willing to provide more stimulus to the U.S. economy.
Breaking News: CEO Jon Corzine of MF Global allegedly orders customer funds to be used for covering overdraft
This could be very damning evidence if this turns out to be true. To be fair, this email just surfaced and we need to let the authorities to do their job and determine the validity and authenticity of this email. What is interesting is that the transfer is to a JP Morgan Banking unit in London.
I would have to believe this may be tried to the bets MF Global made on Europe that would force credit lines and positions to be covered. It doesn’t look good and we will need to stay on top of this to see what happens. Customers are largely still without over $1 billion in deposits and this needs to be gotten to the bottom of so that confidence can be fully restore that deposit taking institutions can not take client funds and use them to cover their own bets.
Jon S. Corzine, MF Global Holding Ltd., chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in one of the brokerage’s JPMorgan Chase & Co. (JPM) accounts in London, according to an e-mail sent by a firm executive.
Good to see the government unload their shares back to the private sector. They did not really involve themselves much in management or compensation issues other than the general TARP mandate so this will take the overhang off the stock. Citigroup is the posterboy for the “Too Big to Fail” Koolaid that everyone was drinking for the last 24 months.
This has got to stop and if any large bank commits such bad mistakes then they need to pay the ultimate price like any other company. Until we understand that no matter what the cost, the long term cost will always be greater if we let bad companies stay in business and keep good companies prosper the lessening of competition as well as preventing new entrants from entering the field because of the embedded players.
This is at the very core of our problems in this country, we shun the dynamism that failure brings to our economy. We want to support existing companies even when it does not make a business case for having them around. This only helps our foreign competitors. If we are using our resources to support failing companies then we are not letting those resources go to where the future jobs will be generate along with natural growth.
USA Today – The Treasury Department said Monday that its first sales of Citigroup stock (C) will cover up to 1.5 billion shares.
That would amount to about 20% of the 7.7 billion shares of Citigroup common stock the government owns.
It received the shares as compensation for the financial support it extended to the bank during the height of the financial crisis.
In a statement Monday, Treasury said it plans to proceed with the sales of the Citigroup common stock “in an orderly fashion under a pre-arranged trading plan with Morgan Stanley, Treasury’s sales agent.” Treasury did not disclose in its brief announcement exactly when the stock sales would begin or how long the sales would last.