Big bank profits will highlight the unofficial start of the third quarter earnings season this week, with investors looking for sequentially improving performance, as well as a guide on economic trends heading into the final months of the year. 

With the Federal Reserve keeping its cap on dividend and buybacks in place until at least 2021 in order to ensure that lenders have enough capital to absorb a protracted downturn triggered by the coronavirus pandemic, investors will be looking to see how each of the largest U.S. banks will manage both their credit provisions and near-term economic forecasts as they publish third quarter earnings throughout the week.

Under the Fed’s restrictions, banks will be limited to paying dividends that are either in line with payouts from last year or equal to an average of earnings for the previous four quarters. 

The six biggest U.S. banks — JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs Morgan Stanley and Wells Fargo — have booked around $60 billion in loan loss provisions so far this year, including $34.6 billion over the three months ending in June, as they took advantage of accounting changes that allowed them to front-load the economic costs of the pandemic.

Below is a brief snap shot of analysts’ expectations for Big Six earnings this week, starting with JPMorgan’s third quarter update, which is slated for around 6:45 am Eastern time on Tuesday.

JPMorgan Chase & Co.  (JPM) – Get Report: The country’s biggest bank is expected to report a 17.2% decline in core earnings, to $2.22 per share, on revenues of around $20.13 billion. 

JPMorgan isn’t expected to add to its loan loss provisions in the third quarter, following a front-loaded $10.5 billion increase in the three months ending in June, and investors are likely instead



a group of people sitting at a table


© Provided by Quartz


A major hack that compromised Uganda’s mobile money network has plunged the country’s telecoms and banking sectors into crisis.

The Oct. 3 hack was a result of a security breach on a consumer finance aggregator, Pegasus Technologies, which mainly affected bank to mobile wallet transfers, according to an Oct. 8 statement by MTN Uganda, the country’s largest mobile phone company. Kampala-based Pegasus Technologies provides financial and billing solutions for various companies including all the affected entities.

At least $3.2 million is estimated to have been stolen in this latest incident with some reports quoting a much higher figure. The hackers used around 2,000 mobile SIM cards to gain access to the mobile money payment system, according to local papers. They then instructed the banks to transfer millions of dollars to telecommunication companies who then paid out mobile money to these different SIM cards across the country.

Loading...

Load Error

MTN Uganda and Airtel Uganda, suspended mobile money service transactions between their networks, indefinitely, following what they termed as an “unprecedented technical challenges” in a joint statement signed by their respective chief executive officers. The services are yet to be restored.

More than $20 billion worth of transactions was channeled through the mobile money system in 2019, according to Bank of Uganda, the country’s central bank. MTN alone has over 11 million subscribers and an 80% market share of mobile money transactions in the East African country.

According to MTN Uganda, only transactions via Stanbic Bank Uganda, MTN to Airtel and Sendwave, a cross-border payments service operating in six African countries including Kenya, Uganda, Tanzania, Ghana, Nigeria, Senegal, and Liberia are affected.

On Oct. 6, MTN Uganda upgraded its system according to a statement issued to customers. During the period, data, voice and mobile money services were interrupted.

A rare regime-change in economic policy is under way that’s edging central bankers out of the pivotal role they have played for decades.

Fiscal policy, which fell out of fashion as an engine of economic growth during the inflationary 1970s, has been front-and-center in the fight against Covid-19. Governments have subsidized wages, mailed checks to households and guaranteed loans for business. They’ve run up record budget deficits on the way — an approach that economists have gradually come to support, ever since the last big crash in 2008 ushered in a decade of tepid growth.

And the public spending that put a floor under the pandemic slump is increasingly seen as vital for a sustained recovery too. When it looks like drying up, as it did in the U.S. last week, investors start to worry.

Digging Deeper

Short of room to cut interest rates, developed economies have relied more heavily on fiscal stimulus in the current recession.

How long to keep the taps open will be a key theme at this week’s International Monetary Fund meetings — and the biggest challenge for politicians in charge of national budgets, once they emerge from crisis-fighting mode. Right now their own inhibitions about debt look like the main obstacle, as traditional barriers melt away.

Financial markets, where bond vigilantes were once reckoned to exert a powerful check on deficit-spending governments, are ready to lend them money at very low interest rates. The short-run concern for investors is that politicians will stall the recovery by spending too little. JPMorgan predicts that this year’s big fiscal boost to the global economy may turn into a 2.4 percentage-point drag on growth in 2021, as virus relief programs expire.

The same worry weighs on monetary authorities, whose autonomy from the rest of government was designed so they

DEEP DIVE



a sign in front of a building: D.A. Davidson senior analyst David Konrad recommends buying shares of Morgan Stanley and J.P. Morgan Chase because of their varied business mixes, strong capital and an expected decline in credit costs.


© Getty Images
D.A. Davidson senior analyst David Konrad recommends buying shares of Morgan Stanley and J.P. Morgan Chase because of their varied business mixes, strong capital and an expected decline in credit costs.

(Updates article with comments from David Konrad of D.A. Davidson about Morgan Stanley’s deal to acquire Eaton Vance and loan-loss provisioning activity.)

Loading...

Load Error

Bank stocks typically drop during recessions. This time around, with the big players well-capitalized, largely free from the worst of loan loss set-asides and benefitting from a rebounding economy, investors may be looking at an opportunity staring them in the face.

And the biggest banks have clear advantages: fees from investment banking and asset management. (Below are tables showing expected and historical provisions for loan losses, non-interest income, earnings per share and analysts’ ratings for the largest dozen U.S. banks.)

The hot space — asset management

Morgan Stanley (MS) has been making moves to become a premier asset manager. On Thursday, the firm said it would acquire Eaton Vance Corp. (EV) for $7 billion in cash and stock. Eaton Vance had $507 billion in assents under management as of July 31, and Morgan Stanley said the merger would bring assets under management for its Morgan Stanley Investment Management unit to $1.2 trillion.

Just on Oct. 2, Morgan Stanley completed its acquisition of discount broker E-Trade Financial. At that time, the bank said the firm’s total assets under management (AUM) had risen to $3.3 trillion. That makes for a pro forma total of $3.8 trillion in AUM, assuming the Eaton Vance acquisition is completed following regulatory approval.

A Twitter posting from Stephanie Link of HighTower Advisors underlined how hot the asset management business is:

Most banks have steered clear of the Federal Reserve’s loan program designed to buoy midsize businesses. One Florida lender is diving in.

Miami-based City National Bank of Florida has embraced the Fed’s Main Street Lending Program, which made its first loan this summer. Of the 252 loans issued through the program in its first three months, City National made nearly 100 of them, extending loans of up to $50 million to companies in states as far away as California and Wyoming.

But otherwise the program, which lets banks make loans to businesses and then sell most of the loan to the Fed, has received a lukewarm reception at best. Fewer than 100 banks have used it, as of the end of September, issuing about $2 billion of loans in a $600 billion program. More than $500 million of that was through City National. None of the nation’s largest banks have made one of the loans.

City National, a subsidiary of Chilean bank Banco de Crédito e Inversiones, said it is confident in its lending. “We’re in the risk management business,” City National Chief Executive Jorge Gonzalez said in an interview. The program’s terms, he said, seem more than reasonable, and the bank has made the loans largely to existing customers.

Using the Main Street program leaves a bank with less additional debt on its books and free to make more loans to other borrowers. Banks also earn fees from borrowers for making the loans.

City National made an early decision to sign up for the program, translating the Fed’s lengthy details into easy guides for customers. Loan officers at the 30-branch bank talked to Fed staffers frequently over the summer.

Miami-based City National Bank of Florida issued