Ten major banks are accused of manipulation of the corporate bond market

Deutsche Bank

The German money house is accused of years of manipulation.


(Photo: Reuters)

new York A US lawsuit accuses ten of the world’s largest banks of manipulating the corporate bond market. According to this, the money houses – including Deutsche Bank – have been asking for high prices for almost 14 years, as can be seen from court documents on Tuesday. As a result, investors were financially damaged.

The accused financial institutions include JPMorgan Chase, Bank of AmericaBarclays Citigroup, Credit SuisseDeutsche Bank Goldman Sachs, Morgan Stanley, Royal Bank of Scotland and Wells Fargo. Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and Wells Fargo declined to comment.

More: Ex-top manager of Deutsche Bank sentenced to prison.

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In the corona crisis, trading is a blessing for Deutsche Bank

Christian Sewing

Analysts fear that the corona crisis will spoil the Deutsche Bank boss’s profit targets.


(Photo: Reuters)

Frankfurt The promise is still there: Christian Sewing actually wants to deliver a small operating profit this year. He put a “black zero” Deutsche Bank boss prospects for investors for 2020 – but that was long before the outbreak of the corona crisis.

According to analysts, this goal has long been a waste. On average, the experts expect a loss before taxes of EUR 1.9 billion for 2020, according to a compilation that the bank has published on its website. The net forecasted minus amounts to over two billion euros.

On April 29, investors will get the first important clues as to how bad 2020 will really be for Deutsche Bank. Then the largest domestic bank presents its first quarter results, usually the strongest in banking. On average, analysts anticipate a comparatively small loss of EUR 35 million for the first three months of this year. However, the experts predict a net loss of 437 million euros. For comparison: In the previous year, the bank still had a bottom line profit of 97 million euros.

The quarterly figures of the large US banks have shown how painful the consequences of the crisis can be. For industry leader JP Morgan, earnings fell in the first three months compared to the previous year by around two thirds to at least $ 2.9 billion. The main reason for the slump was the drastically higher provision for impending credit losses. $ 6.8 billion JP Morgan for that back. With the competitor Wells Fargo there were still 3.2 billion.

Opportunities from the crisis

“Because of the poor profitability, the major German banks cannot afford provisions of this size,” warns a top banker. But that may not be necessary. Stefan Hoops, head of corporate business at Deutsche Bank, hopes that Europe’s banks will come through the corona crisis without major injuries. He also blames structural differences between the United States and Europe for this.

For example, European financial institutions are much less involved in the credit card business, which creates high provisions at the US institutions. For Hoops area, the analysts predict a pre-tax profit of 195 million euros for the first quarter. For the retail customer bank, the earnings forecast is 117 million euros and for asset management 125 million euros.

The area that Sewing cut back significantly in the course of the new strategy has proven to be an opportunity for Deutsche Bank: trading, because the dramatic price fluctuations ensure brisk operation in the trading rooms. As part of the new strategy, Deutsche Bank has largely stepped out of its equity business with large customers.

However, the bank is still one of the market leaders in the business of bonds, foreign exchange and derivatives, their traditional strength. Business with the major investment banks has recently been excellent, especially in currencies. In the Citigroup bond, currency and commodity trading revenues rose 39 percent in the first quarter Goldman Sachs by 33 percent. But there has also been a real boom in the placement of corporate bonds in recent weeks.

In retail, the analysts expect revenues of 1.6 billion euros for the first quarter. For the entire investment bank, the experts expect revenues of 1.9 billion euros and a profit before taxes of 225 million euros after 247 million in the previous year. The investment bank is expected to make the largest contribution to Deutsche Bank’s profit – and to become a stabilizing anchor in the pandemic.

More: In the corona crisis, the KfW boss becomes Germany’s most important banker

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Corona recession: banks face further burdens

DIf the banks are facing major challenges, the quarterly figures for Wall Street houses are now available. On Wednesday, Bank of America, Citigroup and Goldman Sachs announced significant drops in profits because they had to put aside several billion for impending credit losses. The pattern already appeared on Tuesday when JP Morgan and Wells Fargo reported their results in the first three months. The fact that the banking supervisors relaxed the capital requirements for loans and the requirements for classifying claims as non-performing after the outbreak of the corona crisis and the associated economic standstill, including slump in growth, does nothing to change the dangers to financial stability.

Markus Frühauf

The Financial Stability Board (FSB) responsible for this and advising the governments of the 20 most important economic countries (G 20) did not rule out further easing of the banking rules on Wednesday in order to ensure the credit supply of companies and households in a recession and thus the prerequisites for a recovery of the To create economy.

In his letter to the G-20 governments, the FSB chairman and Vice President of the Federal Reserve, Randal K. Quarles, identified two challenges for the banking system: First, there was a dramatic increase in the need for credit in the world economy to meet the needs of the banking system To bridge the phase of far-reaching restrictions. On the other hand, there is great uncertainty about the valuations of a wide range of assets, which severely affects the functioning of the markets. This represents a hurdle for the intermediation of credit demand. In its report to the G-20 governments, the Financial Stability Council points out that the extent and length of the corona crisis have not yet been determined and that further burdens on the financial system are therefore possible.

Warning of extensive loosening

Like the Basel Committee on Banking Supervision, the Financial Stability Council is based at the Basel-based Bank for International Settlements (BIS), which manages foreign exchange reserves for the major central banks and is also considered a monetary and economic think tank. BIS chief economist Claudio Borio warned on Wednesday that the banking rules would be loosened too far. “Too far a softening of the banking rules can backfire,” wrote Borio in a paper written together with Fernando Restoy, chairman of the BIS financial stability institute.

For the two authors, it must be made clear to the markets that the easing is only temporary. They fear market participants’ doubts about the stability of the banks should the loosening of the capital rules and the requirements for loans at risk of default impair the transparency of the financial system.

Alluding to the comparison of the Corona crisis with a “war” drawn by many politicians, Borio and Restoy point out that war cannot be won if political measures endanger the important intermediary role of financial institutions. They quote the Chinese military strategist and philosopher Sunzi, who wrote in his book “The Art of Warfare” more than 2500 years ago: “There are roads that you don’t have to follow, armies that don’t need to be attacked, cities that don’t have to be besieged and positions that don’t have to be disputed. “

The Financial Stability Board considers the Corona crisis to be the greatest challenge for the financial system since the financial crisis more than ten years ago. However, the financial system is now more resilient than it was then. The measures taken to strengthen the banking system should therefore not be called into question.

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Dax closes almost four percent in the red

Dusseldorf The German Leading index Dax ended trading on Wednesday with a minus of 3.9 percent at 10,279 points. After an increase of 14 percent in just five trading days on Wednesday, the German stock market started to reverse again.

Sold today Wednesday apparently many foreign investors bought German shares. Because the Dax increased its minus significantly from midday trading to the opening of the US stock exchange, at the same time the euro slipped to $ 1.0918 during this period. Almost all Dax values ​​went out of the market with a minus.

Weak economic data in the US unsettled investors and also weighed on Wall Street prices. The Dow Jones already opened 2.2 percent in the red and then fell even further.

Investors were in the mood for news that the US industry cut production more in March than it had in 1946. The companies produced 6.3 percent less goods than in the previous month, as the central bank (Fed) announced in Washington on Wednesday. Overall production – to which utilities and mining also contribute – shrank by 5.4 percent.

US retailers’ sales also fell 8.7 percent in March from the previous month due to the corona crisis, the Department of Commerce said in Washington on Wednesday.

And last but not least, the US banks are suffering from the corona crisis: Due to provisions in the billions due to bad loans, the profits of Goldman Sachs, Bank of America and Citigroup almost halved.

In Germany, in addition to the weak US data, speculation that the German government was not in such a hurry to relax contact restrictions in the virus crisis caused the Dax to slide ever deeper into the red. And after having won almost 30 percent since the corona crash low in mid-March.

Just yesterday, the prices of some stocks had made investors forget that the world was in the middle of an economic crisis. So the course of the Tesla-Share more than doubled since mid-March. The Dax 30 values ​​could be about Wirecard have increased by around 35 percent in the past four weeks.

“The current crisis is like an accelerator of trends that have worked before,” says Jochen Stanzl from online broker CMC Markets. It was used as an excuse and pretext by companies that had previously had problems to carry out restructuring that was long overdue. And it is the reason for the crisis winners to expand even faster.

However, there are many crisis losers. For example, the engine manufacturer MTU, which was down 6.9 percent on Wednesday at the Frankfurt trading venue at the close of the stock exchange. The growing number of canceled orders from the US rival Boeing does too airbus– investors nervous. The shares of the European aircraft manufacturer lost around 8.7 percent.

After all: The new infections with the Covid 19 virus appear to be stabilizing or decrease. That is why there is talk in many, but not all, countries of easing contact barriers. Governments and central banks are throwing huge support packages on the market and pledging to do more when in doubt. So are you okay?

“I’m afraid the real reality check could still come,” says CommerzbankForeign exchange analyst Antje Praefcke. The market had put up with the previous “shockers” like the US labor market figures relatively well. So far, however, they would not have reflected the full extent of the effects of the “century recession”.

Many questions would remain unanswered: Are the production and supply chains really recovering quickly? Does consumer behavior change permanently? What about the recovery of the economy? “The big end could still come and give the market another cold shower,” says the analyst.

Investor sentiment also expects a sell-off on the German market, even if this may no longer push the Dax towards the 8200 point mark. “Investors should not run after the rising prices,” advises Stephan Heibel after evaluating the Handelsblatt survey Dax-Sentiment.

Meanwhile, there are increasing voices that the stock market lows from the end of March will be tested again. Should such a correction set in, there is a risk of a loss of 20 percent or more, depending on the market.

The problem with such forecasts: If a unanimous opinion has formed, it usually turns out differently. As a result, a full-fledged bear market is threatened with new lows, or the bear market is already behind us.

Look at the individual values

Varta: The battery manufacturer’s share, which traded almost nine percent lower on Wednesday at the close of trading, is moving into the focus of hedge funds that are betting on falling prices. The five participating funds have increased this speculation to 6.31 percent of all freely tradable shares in the past few days – a comparatively high ratio.

Such a short sale, as it is called in the technical language, consists of two different trading activities. For one thing, a hedge fund borrows from you Varta-Shareholder (for example, a mutual fund) share certificates and sells the papers.

Apparently that has happened in the past. On March 31 and April 8, for example, the Varta price fell in the meantime by a double-digit percentage – and this with a high trading volume. Last month, the average volume was around 272,000 pieces per day. On March 31, however, almost 750,000 Varta papers were traded, and on April 8, more than 484,000 pieces.

On April 9, the hedge fund Maplelane Capital reported that it had reached a short sale rate of 0.5 percent. Quotas below 0.5 percent do not have to be reported to the Bafin financial regulator.

But now the second trading activity is pending. The hedge funds must buy back the shares as cheaply as possible and return them to the lender. Not an easy task, as a small calculation example shows.

Because a short sale rate of 6.31 percent means: 2.55 million shares have to be bought back. With an average daily volume of 272,000 shares, this buy-back must be carefully dosed so that the Varta price does not rise rapidly and puts the hedge funds under pressure. Because they want to buy back cheaply.

Adidas: The addition of a billion dollar government loan does not help the share either. Although the paper had been 1.3 percent higher in pre-exchange trading, the shares dropped 4.7 percent from regular trading. The sporting goods group raised three billion euros from the development bank and major banks. Two-thirds of the remuneration of the Board of Management is deleted, and the dividend is also canceled.

Adidas suffers from the fact that practically all of its own stores in the western world have been closed for four weeks – including those of independent sports retailers. The stock had lost almost 50 percent since mid-February, but has risen by around 25 percent in the course of the stock market recovery in four weeks.

Fraport: The travel restrictions to curb the corona pandemic have at the Frankfurt airport operator Fraport led to a slump in business. The number of passengers fell by 62 percent to 2.1 million in March alone. The development continued in April: In the first two weeks, the passenger volume fell by over 95 percent. At the close of trading on Wednesday, the paper was down 4.8 percent.

Kuka: The Augsburg-based supplier has a large order for 5,000 robots for the car manufacturer BMW pulled ashore. This news initially caused the share to rise by 1.4 percent, but by the close of the stock market it had slipped significantly again and was 3.9 percent weaker from trading.

The systems and other technologies for the automation of production are to be delivered to BMW plants worldwide in the next few years, where they will be used primarily in body construction Kuka With. The two groups did not comment on the order value and the delivery period.

Oil prices are slipping

Brent oil from the North Sea is heading for its 18-year low from late March ($ 21.65): It fell 6.6 percent to $ 27.62 a barrel. The prices had already dropped significantly yesterday.

After all, according to the International Energy Agency (IEA), global oil demand will be weaker in April than it has been in a quarter of a century. It will drop by an average of 29 million barrels (159 liters each) a day, the IEA predicted in its monthly report on Wednesday.

“April could be the worst month – it could go down in history as black April,” said IEA chief Fatih Birol. A drop in demand of 9.3 million barrels a day is forecast for 2020. Such a sharp drop in demand cannot be compensated for by a reduction in the oil supply, the organization emphasized.

What the chart technique says

Even if the chart technique gives the Dax potential up to 11,030 points: In the short term, the indicators signal falling prices. Because the leading German index is considered overbought after an increase of 14 percent in the last five trading days before Wednesday alone, so it rose too quickly too quickly.

“At least in the short term, the downward risk seems to be higher than the upward chance, especially since the steep, almost four-month upward trend should not last too long,” say the chart technicians at Düsseldorfer Bank HSBC.

The structural picture of the individual Dax 30 values ​​has not yet brightened. All shares are listed below the 200-day line, which signals the long-term trend and underscores the still dominating, overall downward trend.

“When planning wealth, the rule is: never get out completely!”

Here is the page with the DAX course, here is the current tops & flops in the Dax. Current Short sales of investors can be found in our Short sales database.

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Weak economic data weigh on Wall Street

Dusseldorf Weak economic data unsettles US investors and pushes prices on Wall Street. The US standard value index Dow Jones starts trading 2.2 percent down at 23,423 points. The technology-heavy Nasdaq loses 1.6 percent to 8,549 points and the broad S&P 500 is almost 2.3 percent weaker at 2,781 points.

During the lecture, export data from China and a slight decline in corona deaths had given investors hope. But now the US economic data are disillusioning.

Because in March the US industry cut its production more than it has since 1946. The companies produced 6.3 percent less goods than in the previous month, as the central bank (Fed) announced in Washington on Wednesday. Overall production – to which utilities and mining also contribute – shrank by 5.4 percent.

“A clear recovery is not to be expected in April, as the number of infections in the USA continues to rise and the lockdown continues,” said Heleba economist Patrick Boldt.

The consumption data also cause pessimism. US retailers’ sales fell 8.7 percent in March from the previous month due to the corona crisis, the Department of Commerce said in Washington on Wednesday. This is the sharpest decline since statistics began in 1992.

Consumers were reluctant to buy clothing and cars, while the food and beverage business grew 25.6 percent. But: “The panic purchases in grocery stores cannot compensate for the spending cuts we are experiencing in other areas,” says economist Tim Quinlan of Wells Fargo Securities explained.

Private consumption contributes around two thirds to the gross domestic product of the world’s largest economy and is therefore the pace for the economy. The International Monetary Fund (IMF) expects the US economy to collapse by 5.9 percent this year.

Because of weak US economic data, the dollar index rose 1.1 percent.

US banks’ profits collapse

The corona crisis also hits the US banks hard. Because the financial institutions have to arm themselves against bad loans with provisions worth billions, the profits of Goldman Sachs, Bank of America and Citigroup almost halved.

The US investment bank Goldman Sachs’ profit fell 49 percent to $ 1.12 billion in the first quarter, the institute said on Wednesday. Provisions for bad loans quadrupled to $ 937 million at the end of March, from $ 224 million a year earlier. The papers are currently trading at minus 1.1 percent.

Bank of America net income decreased 49 percent to $ 3.5 billion in the first quarter. The share is 5.6 percent in the red. Citigroup’s earnings slumped 46 percent to $ 2.5 billion in the first quarter, and paper lost 4.7 percent.

JP Morgan already started the quarterly season on Tuesday, together with Wells Fargo. At both US banks, billions of loan loss provisions had plummeted profits. Morgan Stanley presents numbers on Thursday.

America’s banks suffer three times in the corona crisis: from the slump in the economy, which has largely come to a standstill. Among credit defaults and high provisions that they have to cover for future defaults. And under the key rate that the US Federal Reserve (Fed) set back in the first quarter in an emergency measure back to the range of 0 to 0.25 percent to support the economy as much as possible.
With agency material.

More: Read also how the German stock market developed on Wednesday.

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US banks are clearly feeling the corona crisis

Bank of America, Citigroup and Goldman Sachs clearly felt the corona crisis in the first quarter of 2020. All three American banks did better than their competitors J.P. Morgan Chase and Wells Fargo, who reported drastic 69 percent and 89 percent profit falls the previous day’s quarter. Bank of America earned 45 percent less in the first quarter of 2020 at exactly $ 4 billion ($ 3.7 billion), Citigroup reached $ 2.5 billion, a decrease of 46 percent. And Goldman Sachs’ net income was $ 1.1 billion, 49 percent less than a year earlier.

Hanno Mussler

The banks are facing the upcoming recession as a link in a longer chain of shocks: Since workers can be fired quickly in the United States, the crisis hits people straight away. 17 million Americans have just applied for unemployment benefits for the first time. Even the 22 million jobs that have been created since the financial crisis could have been cut again in the past four weeks, says Torsten Slok, chief economist at Deutsche Bank. The chain, which is unpleasant for banks, is already continuing: Apparently 2 million Americans have now suspended interest and principal on their home loans. Credit card payments are also less often covered by bank balances. The banks are threatened with credit defaults in retail banking. In addition, loans to companies are becoming more shaky, such as those to the oil industry struggling with low prices or to companies that are severely affected by the shutdown.

This can already be seen in the first quarter of 2020: Bank of America had to postpone $ 4.8 billion in bad debts, the most recent amount in 2010. Citigroup also put back almost $ 5 billion in bad debts and loan loss at Goldman Sachs quadrupled $ 937 million. JP Morgan had even deposited more than 6 billion euros in bad loans.


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To detailed view

Despite the high burdens, all American banks have so far remained profitable and in the past quarter of the crisis often still earned more than major German banks in a whole year. This is mainly due to the securities trading business, which has delivered ample earnings in the first quarter of 2020 in particular. Market leader JP Morgan reported record sales of $ 7.2 billion there – equity trading revenues were 28 percent higher in the turbulent markets thanks to brisk customer activity, and 34 percent higher in bond trading than a year earlier.

However, the capital base of American banks is often below that of European banks. At the end of March 2020, Bank of America and Wells Fargo had core capital ratios of less than 11 percent. The head of Bank of America, Brian Moynihan, was nevertheless convinced on Wednesday that the bank would come out of the crisis more than it went into it. Unlike in Europe, bank supervisors have so far not been able to assert themselves among American banks with their demand for a dividend ban. Only the share buyback programs were suspended.

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America’s banks are hit hard by the corona crisis

Bank of America, Citigroup and Goldman Sachs clearly felt the corona crisis in the first quarter of 2020. All three American banks did better than their competitors J.P. Morgan Chase and Wells Fargo, who reported drastic 69 percent and 89 percent profit falls the previous day’s quarter. Bank of America earned 45 percent less in the first quarter of 2020 at exactly $ 4 billion ($ 3.7 billion), Citigroup reached $ 2.5 billion, a decrease of 46 percent. And Goldman Sachs’ net income was $ 1.1 billion, 49 percent less than a year earlier.

Hanno Mussler

The banks are facing the upcoming recession as a link in a longer chain of shocks: Since workers can be fired quickly in the United States, the crisis hits people straight away. 17 million Americans have just applied for unemployment benefits for the first time. Even the 22 million jobs that have been created since the financial crisis could have been cut again in the past four weeks, says Torsten Slok, chief economist at Deutsche Bank. The chain, which is unpleasant for banks, is already continuing: Apparently 2 million Americans have now suspended interest and principal on their home loans. Credit card payments are also less often covered by bank balances. The banks are threatened with credit defaults in retail banking. In addition, loans to companies are becoming more shaky, such as those to the oil industry struggling with low prices or to companies that are severely affected by the shutdown.

This can already be seen in the first quarter of 2020: Bank of America had to postpone $ 4.8 billion in bad debts, the most recent amount in 2010. Citigroup also put back almost $ 5 billion in bad debts, and Goldman Sachs’ risk provisioning quadrupled $ 937 million. JP Morgan had even deposited more than 6 billion euros in bad loans.


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To detailed view

Despite the high burdens, all American banks have so far remained profitable and in the past quarter of the crisis often still earned more than major German banks in a whole year. This is mainly due to the securities trading business, which has delivered ample earnings in the first quarter of 2020 in particular. Market leader JP Morgan reported record sales of $ 7.2 billion there – equity trading revenues were 28 percent higher in the turbulent markets thanks to brisk customer activity, and 34 percent higher in bond trading than in the prior-year quarter.

However, the capital base of American banks is often below that of European banks. At the end of March 2020, Bank of America and Wells Fargo had core capital ratios of less than 11 percent. The head of Bank of America, Brian Moynihan, was nevertheless convinced on Wednesday that the bank would come out of the crisis more than it went into it. Unlike in Europe, bank supervisors have so far not been able to assert themselves among American banks with their demand for a dividend ban. Only the share buyback programs were suspended.

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US banks’ profits halved due to corona crisis

Bank of America

Bank of America suffered a slump in profits due to high provisions for bad loans.

(Photo: AP)

New York, Charlotte The profit of the US investment bank Goldman Sachs has halved in the Corona crisis due to impending credit defaults and increased costs. Earnings fell 49 percent to $ 1.12 billion in the first quarter, the institute said on Wednesday.

In contrast, earnings decreased only one percent to $ 8.74 billion, due to the increased trade in stocks and bonds during the recent stock market turmoil. Net interest income grew as customers overdrawn their accounts and charged their credit cards more.

Provisions for bad loans quadrupled to $ 937 million at the end of March, from $ 224 million a year earlier. According to Goldman CEO David Solomon, the group is well equipped to help its customers and society to recover from the crisis.

The economic standstill in the Corona crisis also affects them Bank of America hard. Because of high provisions for bad loans, net income decreased 49 percent to $ 3.5 billion in the first quarter, the US money house said on Wednesday.

As before JP Morgan and Wells Fargo Bank of America is preparing for high credit losses due to the virus pandemic. The institute increased bad debt provisions by $ 3.6 billion to $ 4.8 billion.

However, CEO Brian Moynihan emphasized that the company is well prepared for an impending recession: “We ended the quarter with higher liquidity reserves than we started”.

In the three months to the end of March, the bank increased its net income by one percent to just under $ 22.8 billion. While net interest income fell two percent, income from investment banking increased, among other things, thanks to higher fee income in the corporate bond business and higher income from securities trading, which picked up in the wake of the corona virus pandemic.

Also the Citigroup is preparing for high credit losses due to the Corona crisis. As a result, earnings plunged 46 percent in the first quarter to $ 2.5 billion, the major US bank said on Wednesday.

By contrast, earnings rose 12 percent to $ 20.7 billion thanks to flourishing stock and bond trading. “Our first quarter result was significantly impacted by the Covid 19 pandemic,” said chief executive Michael Corbat.

Citigroup topped up bad debt provisions by nearly $ 5 billion.

More: Industry leader JP Morgan and Wells Fargo’s numbers provide a first glimpse of the damage the virus is causing to the economy and Wall Street.

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Bad loans let JP Morgan’s profits plummet

Denver, Frankfurt The corona virus has ended the series of successful US banks. After years of record profits, the large institutes are now in crisis mode. The profit from JP Morgan Chase, America’s largest bank, slumped 69 percent in the first quarter to $ 2.9 billion, the lowest since 2013. At Wells Fargo, the institute with the most small and medium-sized corporate customers, saw its profit drop 89 percent to $ 653 million.

Compared to the competition from Europe, the US banks have had one decisive advantage so far: they have left the financial crisis much faster and benefited from tax cuts and a booming labor market, especially under US President Donald Trump. That filled their coffers: JP Morgan made a profit of a good $ 36 billion in 2019 alone – more than ever before a bank.

However, because the social network in the USA is much thinner than in Europe, the corona crisis is now taking hold much faster: applications for unemployment benefits have risen since mid-March like never before. The 22 million jobs that have been created since the financial crisis could have been wiped out in the past four weeks, believes Torsten Slok, chief economist at German bank.

The banks are also feeling this. The corona crisis hits them three times over: the dormant economy, high loan loss provisions and lower key interest rates, which the Federal Reserve cut to almost zero in March.

JP Morgan has now had to significantly increase loan loss provisions. It rose to $ 8.3 billion. A year ago it was 1.5 billion. Return on equity, an important measure of bank profitability, fell from 16 percent to four percent.

graphic

“It is extremely difficult to predict whether loan loss provisions will be sufficient,” says Octavio Marenzi from Opimas, the capital market consultancy. Finally, another wave of layoffs is imminent – with the risk that fewer and fewer Americans or companies in need of help can service their loans. “That could mean a loss for the bank in the second quarter,” believes Marenzi. It would be the first quarterly loss since the 2008 financial crisis.

Fear of a severe recession

JP Morgan CEO Jamie Dimon had already sent a letter to shareholders in early April warning that the bank would not be immune to the serious economic consequences of the corona crisis. On Tuesday, he assumed a “fairly severe recession” and spoke of “unprecedented challenges” in the opening quarter, which is usually the strongest for banks over the course of the year.

Dimon, who is working full-heartedly after an emergency heart operation at the beginning of March, advocated reopening the US economy as soon as possible, “but it has to happen in a way that is safe,” he said in a conference call with journalists clear.

The extent to which the crisis will affect credit quality also depends on how quickly the government’s many bailout programs take effect, stressed JP Morgan’s chief financial officer Jennifer Piepszak. The first consumer checks in the amount of $ 1200 have been sent to consumers, as the tax authority told IRS at the weekend.

JP Morgan has currently paid out $ 9 billion from the $ 350 billion Paycheck Protection Program (PPP) through which banks provide government-backed loans to small and medium-sized businesses. But there are delays everywhere and time is short. Even healthy medium-sized companies in the USA have hardly any reserves to cope with severe sales losses for more than two months.

Many corporate customers stretched their credit lines in the first quarter, totaling $ 50 billion, Dimon said. In March, the bank extended more than $ 25 billion in additional loans to businesses. The demand for new credit cards also increased. “In March alone, we opened half a million new accounts for our credit card customers,” said Dimon. But high risk provisions are necessary for the rapidly growing credit card business. Therefore, the profit in the consumer business fell particularly sharply at 95 percent.

The crisis is putting the banks in a dilemma. They emphasize that they are there for their customers, especially in difficult times. At the same time, they don’t want to take on too high risks. After all, the extent of the slump is still not foreseeable.

Wells Fargo profit collapses

Wells Fargo is also facing this problem and is already feeling the effects of the corona crisis clearly. Profits shrank to $ 653 million from $ 5.9 billion a year earlier. Revenue plummeted 18 percent to $ 17.7 billion. The San Francisco institute also significantly increased loan loss provisions to be prepared for a wave of loan defaults: it is now around four billion dollars, an increase of more than three billion dollars compared to the previous year. Another $ 950 million was spent on write-downs on securities.

“We have taken extensive steps to help customers, employees and communities. For our customers, we have, among other things, suspended foreclosures for residential properties, cut fees and granted deferrals of payments, ”emphasized bank boss Charlie Scharf, who has headed the crisis-ridden institute since the end of October.

More than 1.3 million private and corporate customers benefited from the fee suspensions alone. The latter also claimed over $ 80 billion in loan commitments in March alone. The bank’s foundation is also donating $ 175 million for food, housing and health care to victims of the crisis, Scharf said.

With the current figures, Wells Fargo is particularly susceptible to the severe economic downturn expected by US economists. A look at the estimates shows how badly the bank failed to meet analysts’ expectations in the first quarter. The analysts had expected an average profit of 38 cents per share – in the end, the value was one cent.

The West Coast Bank is hit by the crisis at a particularly delicate time. Wells Fargo is still struggling with the aftermath of a gigantic reputation scandal. For years, employees had created bogus accounts for customers without their knowledge in order to meet internal growth targets and earn premiums. CEO Tim Sloan crashed over the scandal in 2019; the bank hired Scharf as an external cleaner. It was only in February that Wells Fargo reached an agreement with the investigating authorities to pay a $ 3 billion fine to settle most of the scandal.

Wells Fargo, the bank with the largest number of small and medium-sized companies, is overwhelmed by the flood of government loan requests. The Fed mitigated an existing growth stop for the bank, which now enables it to lend significantly more government-backed loans. But Wells Fargo has repeatedly asked its customers to apply for the loans at other companies as well, because the bank’s capacities are simply overloaded.

Only securities trading is booming

Lay this Wednesday Goldman Sachs, Bank of America and Citigroup their quarterly results. Analysts expect a similar picture: slump in profits and high risk provisions. However, like JP Morgan, the institutions will benefit from strong securities trading. The industry leader reported record sales of $ 7.2 billion. Turnover from equity trading increased by 28 percent in the turbulent markets, bond trading even increased by 34 percent.

JP Morgan also posted a record for new issues with high credit ratings. Companies are very keen to provide themselves with sufficient liquidity, said Dimon. Therefore, many would not only have drawn their lines of credit, but would also have obtained fresh money on the capital market.

JP Morgan, like other institutions, is holding on to the dividend for the time being and bought back $ 6 billion in shares by mid-March. The major banks then jointly announced that they would not buy back shares until the end of the second quarter.

Sheila Bair, the former chief of US deposit insurance, had also called for no bonuses and dividends. However, this is not yet an issue in the US, even though a number of institutions in Europe have already suspended the dividend. The Goldman Sachs CEOs, Morgan Stanley, Bank of America and Citigroup recently pledged not to shake the dividend.

In his letter to shareholders, JP Morgan boss Dimon at least admitted that the distribution could be canceled in “an extreme situation”, such as a 35 percent drop in economic performance. However, the bank’s economists are currently anticipating a less dire scenario.

All in all, Dimon, the longest-serving head of a large US bank, was full of drive. His emergency operation did not change his plans to run the bank for several years, he emphasized. He is “dazzling”, likes to work and, with a view to the corona pandemic, he hopes that “we as a society will learn what we can do better”.

More: US economist Rogoff warns of “crisis of a new dimension”.

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The crisis will triple burden US banks

Denver The upcoming balance sheet season for US banks could be a big surprise. Several times in the past few weeks, analysts have revised their forecasts down and then referred to bright spots. “This quarterly outlook is the hardest of our careers because there is simply no precedent,” admitted Chris Kotowski from Oppenheimer.

The corona crisis was not comparable to the market crash of 1987, the terrorist attacks of September 11, 2001, or the global financial crisis. This time, analyst estimates could therefore be particularly inaccurate and cause further corrections to the forecasts.

However, one thing is clear: America’s banks are exposed to a so-called “triple whammy” in the corona crisis, as it is colloquially called on Wall Street. They suffer three times: from the slump in the economy, which has practically come to a standstill in large parts. Among credit defaults and high provisions that they have to cover for future defaults. Under the key interest rate that the US Federal Reserve (Fed) set back in the first quarter in an emergency measure back to the range of 0 to 0.25 percent to support the economy as much as possible.

Investors reacted promptly: the KBW bank index collapsed by 43 percent in the first quarter. The broader S&P 500 index, on the other hand, fell significantly less strongly with a minus of 20 percent. Recently, however, the courses have recovered somewhat.

Analysts have long been preparing for a sustained recession. A rapid recovery that the US government initially hoped for has become increasingly unlikely. Brian Kleinhanzl, analyst at Keefe Bruyette & Woods, expects profits for universal banks to be industry leaders JP Morgan Chase and Bank of America will decrease by 58 percent this year. He expects a minus of 50 percent for 2021.

The effects in the first quarter, on the other hand, will probably not be quite as strong since the US corona crisis only really became apparent in March. In the long term, Kleinhanzl believes that JP Morgan and Goldman Sachs could emerge more from the crisis.

“JP Morgan is well positioned to weather a recession and then emerge stronger than many other banks,” he wrote in a recent analysis. The bank could use its total assets to gain market share. The stock of the largest US financial institution is therefore a good opportunity for investors to add to their portfolio.

Even in the best of cases, if the recovery starts after six months, global universal and investment banks will not make any profits this year, according to a report by Morgan Stanley and the consulting firm Oliver Wyman. However, it is more likely that banks will have to face high losses. Because the institutes, especially in the USA, are better capitalized than before the 2008 financial crisis.

“But profitability before a crisis has never been so low,” the report says. As a result, the consequences of Corona could also reveal weaknesses in the business models of some banks.

The authors of the study assume that the return on equity of some institutions could drop below five percent, well below the ten percent mark or more, which investors see as a healthy measure. Large institutes that can count on economies of scale would therefore get through the crisis better and presumably emerge as winners.

JP Morgan starts the quarterly season on Tuesday, along with Wells Fargo. Goldman Sachs, Bank of America and Citi. Morgan Stanley presents numbers on Thursday. These topics could also become important:

1. Trading business and bond issues are booming

Despite all the bad news, analysts estimate that a number of banks will also be able to set new records – especially in the trading business. “The trading turnover of the investment banks has risen sharply due to the high transaction volume and higher spreads between supply and demand,” says a new report by the rating agency Standard & Poor’s.

The volatile markets caused a flood of orders. According to industry estimates, Goldman Sachs, Morgan Stanley, JP Morgan and Citi have posted record sales for many products, especially stocks and derivatives. That should more than make up for weaknesses in mergers and acquisitions business in investment banking.

Bond issues were also in high demand. JP Morgan CEO Jamie Dimon announced in his letter to shareholders on Monday that the bank had issued more bonds for companies with high credit ratings than ever before in the first quarter. Jason Goldberg, analyst of Barclays, assumes that other institutes will also be strong in this area. To arm themselves against a lack of sales, companies have placed new bonds and drawn their credit lines.

But given record sales, some JP Morgan and Bank of America traders appear to be under pressure from their superiors to get back to the office earlier, U.S. media reports. Work in the retail halls works better than at home, so some department heads apparently sense competitive advantages when as many employees as possible come back to their desks.

Those who do not parry fear income loss or job loss in the coming year if the institute’s job guarantee is lifted. However, this contradicts the announcement of their CEOs, who insured last week that they would let employees work from home whenever possible.

2. How well does lending to SMEs work?

Banks play a central role in the corona crisis in order to pump as many loans into the economy as quickly as possible. Firstly, by increasingly using their own total assets. And secondly as an intermediary for the programs of the Ministry of Finance and the central bank. Time is short, companies have long since started firing their employees on a grand scale.

Applications for unemployment benefits have skyrocketed to over 16 million since mid-March – people haven’t lost their jobs so quickly in any other crisis. Janet Yellen, the former head of the Fed, believes that the unemployment rate could currently be as high as 12 to 13 percent, higher than in the 2008 financial crisis.

Since early April, small and medium-sized businesses have been able to apply for government-guaranteed loans. The $ 350 billion Paycheck Protection Program (PPP) is designed to encourage companies to retain employees and continue to pay rents. Those who abide by the rules will get the loans canceled later. The Federal Reserve continued on Thursday, launching $ 2.3 trillion programs to help small and medium-sized businesses alongside smaller communities.

Because the start of the PPP was bumpy, which is why tensions between Wall Street and Washington are increasing: banks are still overwhelmed by the many inquiries. They point to the poor preparation and poor system of the SBA, which ultimately distributes the funds. The outdated SBA system keeps crashing, bankers complain, which further delays the already lengthy processing process.

According to the SBA, 661,000 loans worth $ 168 billion had been approved by Friday afternoon. But how many of them were actually paid out is not known. Entrepreneurs and associations complain that they either fail to get to their bank and still have not received any money.

SBA employees, on the other hand, accuse banks of not being committed enough to the program. However, due to the high level of demand, PPP could soon be expanded by another $ 250 billion.

The Fed also mitigated a fine on Wells Fargo on Wednesday to speed up small business lending. The central bank had ordered the bank to stop growing in 2018 until the many compliance violations involving fake accounts had been remedied. Since then, total assets have not been allowed to exceed $ 2 trillion – the size the bank had at the end of 2017.

However, the institute counts most small and medium-sized companies among its customers and is therefore in an important position to grant the $ 350 billion loan from Washington. The Fed announced that the restriction on loans granted through the state program has been lifted temporarily.

But also on their own initiative, some banks have extended lending to SMEs. Goldman Sachs boss David Solomon announced that the available funds in the balance sheet total would double to 500 million dollars. However, the banks are in a dilemma. They want to be there for their customers right now, but on the other hand they don’t want to take too high risks, which can later lead to high losses.

3. What about the dividend?

The large banks had already announced in mid-March that they would not buy back shares until the end of the second quarter. Sheila Bair, the former head of US deposit insurance, had also called for no bonuses and dividends.

However, this is not yet an issue in the United States, even though a number of institutions in Europe have already suspended the dividend. The CEOs of Goldman Sachs, Morgan Stanley, Bank of America and Citigroup have recently stated that they intend to keep the dividend.

In his letter to shareholders, JP Morgan CEO Dimon at least admitted that the distribution could be canceled in “an extreme situation” such as a 35 percent slump in economic performance.

More: Which banks cut board remuneration in the corona crisis – and which don’t

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