Friday, October 12, 2012

Mixed markets on sluggish bank earnings

Dow was up 10, advancers slightly ahead of decliners & NAZ slid 2.  The Financial Index lost 2+ to the 213s as the first bank earnings were not encouraging.  The MLP index was off a fraction to the 407s & the REIT index was up a fraction in the 262s where it has been for over 2 weeks. Junk bond funds edged higher & Treasuries inched higher.  Oil headed for its first weekly gain in a month as increasing MidEast tension prompted concern that supplies will be disrupted.  Gold slipped $4.

AMJ (Alerian MLP Index tracking fund)

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U.S. 10-year


CLG13.NYM...Crude Oil Feb 13...93.64 ...Up 0.17  (0.2%)

GCX12.CMX...Gold Nov 12.....1,764.30 ...Down 5.10  (0.3%)

  • <p>               FILE - In this  Friday, Sept. 21, 2012, file photo, Karl Hock, left, and Duane Varner unload onions for the food distribution at the Food Bank of Eastern Michigan, in Midland, Mich.  A second month of sharp gains in gasoline costs drove wholesale prices higher in September. But outside of the surge in energy, prices were well contained. Wholesale prices rose 1.1 percent in September following 1.7 percent gain in August which had been the largest one-month gain in more than three years, the Labor Department said Friday, Oct. 12, 2012. (AP Photo/The Bay City Times, Yfat Yossifor) LOCAL TV OUT; LOCAL INTERNET OUT
Photo:   Yahoo

A 2nd month of sharp gains in gasoline costs drove wholesale prices higher in Sep.  But outside of the surge in energy, prices were well contained.  Wholesale prices rose 1.1% following a 1.7% gain in Aug which had been the largest one-month increase in more than 3 years, according to the Labor Dept. In both months, overall prices were pushed higher by gasoline, which rose 9.8% in Sept following an even larger 13.6% gain in Aug.  Core prices, excluding food & energy, were unchanged, the best showing since they held steady in Oct 2011.  In Aug, core prices rose 0.2%.  Food prices, which had jumped 0.9% in Aug, showed a smaller 0.2% rise in Sep.  In the last 12 months ending in Sep, overall prices have increased just 2.1% & core inflation is up 2.3%.  Low inflation means consumers have more money to spend, which helps the economy. It also gives the Federal Reserve more room to keep interest rates low in an effort to spur economic growth.  The 0.2% rise in food prices in Sep was the smallest change since prices dropped for 2 months in Apr & May.  In Jun - Aug, prices showed larger gains, reflecting in part the severe drought in the Midwest.  In addition to big gains in gasoline prices, the cost of diesel fuel was up 9.2% & home heating oil rose 3.1%. 

JPMorgan Profit Beats Estimates as Mortgage Revenue Soars

Photo:   Bloomberg

JPMorgan, a Dow stick & the biggest US bank, posted a record Q3 profit that beat estimates as mortgage revenue soared 72%.  EPS rose to $1.40 from $1.02, a year earlier.  Earnings, which included a loss on accounting adjustments, beat the average estimate of $1.20.  Losses on its remaining wrong-way bet on credit derivatives were “modest” in Q3 after the bank lost $5.8B in H1.  CEO Dimon got help restoring investor confidence from historically low interest rates & gov programs that fueled demand for home loans.  “The housing market has turned the corner,” Dimon said. “We were encouraged that credit trends continued to modestly improve, and, as a result, the firm reduced the related loan-loss reserves by $900 million.”  Revenue climbed 6% to $25.9B from $24.4B last year. Investment-banking revenue fell 1% to $6.28B from $6.37B.  Fixed-income & equity-markets revenue was virtually unchanged at $4.76B from a year earlier & in Q2.  The investment bank’s credit portfolio, which contains the remaining credit derivatives position, generated $9M in revenue, down from $578M in Q3 last year.  Retail banking, which includes home loans & checking accounts, earned $1.41B, up 21% from $1.16B a year earlier.  The net interest margin, which measures the profit margin on lending, narrowed to 2.43% from 2.66% a year earlier.  Making money is made easier when borrowing costs are near zero.  The stock slipped back a nickel.

JPMorgan Beats Profit Estimates on Mortgage, Trading Revenue

JPMorgan (JPM)

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Wells Fargo Posts Record Profit as Mortgage Banking Rises

Photo;   Bloomberg

Wells Fargo, the largest mortgage lender, dropped 3.4% after posting a 22% rise in EPS to 88¢, from 72¢ a year earlier.  While record-low rates spurred homeowners to refinance, boosting the mortgage unit, that also curtailed interest income on the loans & other investments.  WFC has taken market share in US mortgages, where the bank accounted for 1 in 3 home loans.  This helped blunt the impact of lower interest rates as older, higher-yielding investments expired & the bank said it took more cautious stance by reinvesting in shorter maturities.  Mortgage banking helped offset a 0.25 percentage point decline in the net interest margin to 3.66%.  The margin was 3.91% at the end of Jun.  The drop was worse than guidance from CFO Timothy Sloan, who said on Sep 11 the Q3 margin might narrow by about the same as last year’s 0.17 percentage point.  The decline doesn’t represent what will happen in future qtrs, Sloan said today.  “While the economic and interest-rate environments continue to present challenges for us and our industry, our diversified model and focus on our customers continued to produce strong quarterly results,” Sloan said.  Revenue advanced 8.1% from a year earlier to $21.2B & was little changed from Q2.  Mortgage banking income rose to $2.81B, up 53% from last year’s Q3 but the total declined $86B from the Q2.  WFC said guidance from regulators compelled the bank to write down the value of some performing consumer loans.  The stock lost 1.17 (3%).

Wells Fargo Slides as Low Rates Squeeze Third-Quarter Margin

Wells Fargo (WFC)

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Markets continue on their meandering ways.  The first bank earnings were inconclusive & that's giving the benefit of the doubt.  They report a maze of numbers which are difficult to understand at the big picture level.  In addition, earnings are helped with borrowing costs near zero.  Other companies which sell products & services are sending early guidance which is weak to negative.  Next week their reports will begin.  Meanwhile, Apple (AAPL), while up today, is still down more than $70 from its recent highs.  Dow is  stuck in neutral, below 13½K.

Dow Jones Industrials

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