Bank of America and JP Morgan Fuel Optimism for Money Center Banks
08 January 2013 - 1:45AM
Marketwired
The outlook for money center banks and financial institutes
continues to brighten as the global economic forecast improves and
companies build upon momentum generated at the end of last year.
There could be setbacks along the way but growth in the near- and
far-terms looks within reach. It is also becoming clearer that
several major money center banks have applied the lessons learned
in the last few years. Budgets are trimmer, lending practices more
secure, provisions for loan losses fewer and operations more
efficient.
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While the outlook for companies is bright, regulatory concerns
will almost certainly factor into the performances of major global
banking operations this year. Bank of America Corp. (NYSE: BAC),
for example, has already set aside $6 billion for additional
lawsuits according to a report from the Financial Times. That
figure may appear foreboding initially but the fact that Bank of
America was able to double its value last year while settling for
billions in suits suggests any hindrances this year may not pose a
major threat to its value. Weeks of negotiations between banks and
Federal regulators may soon near an end this week regarding a $10
billion settlement to resolve the potential abuse of foreclosures
over the last few years. Banks are on board with the deal and much
of the money will go back to homeowners which could further improve
the outlook for the housing market.
The housing market will likely play a more important role this
year than it did in 2012. The effects of a third round of
quantitative easing targeted specifically at the housing market are
beginning to come into focus. Specifically, lending activities for
a few major institutions have risen sharply over the last little
while. At JPMorgan Chase and Co. (NYSE: JPM), third quarter 2012
lending jumped 29% over the prior year's period to reach an
impressive $50 billion in home loans. If the housing market
continues its recovery on its current trajectory, banks like JP
Morgan may see loan activity improve even more along with margins
and its bottom-line. It should be noted though that the industry as
a whole is not completely on board with a housing market recovery
and some continue to shift their focus away from home lending and
into areas they deem more stable. There appears to be more evidence
in favor of continued recovery than against it however. Joblessness
has fallen below 8% and is projected to fall even further
portending a potential release of pent up housing demand.
Investors will want to track the results of the coming rounds of
bank stress testing. The stakes, in some ways, are even higher for
this series of tests. Banks have rebuilt a substantial amount of
goodwill with Federal regulators and in turn have positioned
themselves to garner even more fiscal freedom with a successful
stress test. The general consensus amongst money center banks is
that more capital will be returned to investors in the form of
dividends, share buybacks or a combination of the two. Some banks
will put newly freed capital towards expansion and acquisition
activity as well.
Overall, money center banks will still battle headwinds in the
coming months but optimism continues to surround the industry.
Regulatory concerns and sudden market shifts will be challenging
but by no means insurmountable. Sustained improvement from the
housing market will be important but not vital to profits.
Successful stress tests will be key to investors in the short-term
while also encouraging for the remainder of the year. Moderate
growth looks well within reach for money center banks at the onset
of 2013 but most importantly, they are currently positioned to be
far more stable than they were a year ago.
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