Gosh, in these horrible economic times, where the stock market simply has thrown in the towel, due to the complete lack of US Government execution on the economy, particularly on the part of the obstinate, near-sighted Republican leadership in both the US House and the US Senate, you might think that 20% earnings growth for Big Financial Corps in the 2Q 1011 is pretty cool.
But actually it’s not.
The 102 Big Financial Corps, with Pretax Income or Loss of at least $100 mil in either the 2Q 2011 or in the 2Q 2010, did register Total Pretax Income growth of 20% in the most recent quarter. But the earnings quality was just horrendous.
This 20% earnings growth in the 2Q 2011 amounted to dollar growth of $10.6 bil. However, just by itself, the reduction in the Loan Loss Provision Charges for just 29 of these Big Financials Corps from the 2Q 2010 to the 2Q 2011 was nearly double the PTI increase of $10.6 bil!
Also, excluded from this 20% earnings growth was a massive $14 bil of Mortgage Representation and Warranty Provision Charges by just one Big Financial Corp...the Bank of America.
Further, excluded from this 20% earnings growth were the catastrophic losses, from the devastating US tornadoes, recorded by the Big Property Casualty Insurance Corps.
Anyway, below here are the Pretax Income (PTI) of these 102 Big Financial Corps in the 2Q 2011, along with comparison with the prior year’s 2Q of 2010:
..........................................2Q.........2Q............Increase
........................................2011......2010........(Decrease)
.......................................PTI(L).....PTI(L).....Amount....%
...................................(in millions of dollars)...........
JP Morgan Chase............8,127......7,107.......1,020.....14%
Wells Fargo....................6,073......4,659.......1,414.....30%
Bank of America(1).........5,628......3,795.......1,833.....48%
Citigroup........................4,299......3,540.........759.....21%
Berkshire Hathaway(2)...4,096......3,969.........127.......3%
GE Capital Corp..............2,053........626.......1,427....228%
Morgan Stanley..............1,944......1,703.........241.....14%
AIG................................1,806......1,501.........305.....20%
American Express..........1,765......1,595.........170.....11%
MetLife..........................1,720......2,363........(643)...-27%
US Bancorp....................1,637........951.........686.....72%
Goldman Sachs(3)..........1,612......2,598........(986)...-38%
Visa...............................1,543......1,122.........421.....38%
Capital One Financial.....1,395......1,181.........214.....18%
Allstate(4).....................1,253........895.........358.....40%
KKR LP..........................1,208........881.........327.....37%
Prudential Financial......1,172......1,506........(334)...-22%
PNC Financial................1,146......1,087..........59.......5%
Bank NY Mellon.............1,034.......1,006........28.......3%
AFLAC(5).........................981........889..........92.....10%
Travelers(6).....................941......1,320.......(379)...-29%
Discover Fincl Svcs..........926........422.........504....119%
Mastercard.......................892........713.........179.....25%
BlackRock.........................842........622.........220.....35%
ACE Ltd............................729........819.........(90)...-11%
State Street(7)..................715........764.........(49)....-6%
Franklin Resources...........687........495.........192.....39%
Loews...............................551........803........(252)...-31%
Chubb(8)..........................546........702........(156)...-22%
CME Group.......................509........480..........29.......6%
Fifth Third Bancorp..........506........242.........264....109%
Lincoln National...............441........330.........111.....34%
BB&T................................418........249.........169.....68%
Marsh & McLennan(9)......415........311.........104.....33%
Ameriprise Financial........399........462.........(63)...-14%
Charles Schwab................386........338..........48.....14%
Principal Financial...........372........158.........214....135%
Progressive......................358........313..........45.....14%
AON.................................352........244.........108.....44%
KeyCorp...........................346........112.........234....209%
Unum Group....................338........308..........30.......10%
T Rowe Price....................332........257..........75.....29%
Merrill Lynch(10)............278........855.......(577)...-67%
M&T Bank(11)..................272........280..........(8).....-3%
Moodys...........................264........178..........86.....48%
TD Ameritrade.................254........289.........(35)...-12%
Blackstone Group LP........249.......(637).......886....139%
SunTrust Banks................237........(35).........272...777%
Northern Trust.................230.......300.........(70)...-23%
Torchmark.......................219.........181..........38.....21%
XL Group plc....................206........216.........(10)...-5%
Invesco Ltd......................205........275.........(70)...-25%
MBIA(12).........................204........151..........53.....35%
Reinsurance Group...........200........198...........2.......1%
Huntington Bancshares.....195..........62.........133....215%
NYSE Euronext.................193........245.........(52)...-21%
Fidelity Natl Info Svcs.......193........152...........41.....27%
Ally Financial....................192........435.......(243)...-56%
IntercontlExchange..........183........156..........27.....17%
NY Community Bank.........182........203.........(21)...-10%
CNA Financial...................179........446.......(267)...-60%
American Captl Agency.....178.........37.........141....381%
Assured Guaranty(13).......170........247........(77)...-31%
Hudson City Bancorp.........160........236........(76)...-32%
Interactive Brokers...........149..........72.........77....107%
General Motors Fincl.........144........139...........5.......4%
Protective Life...................143..........64.........79....123%
Everest Re Group...............141........160........(19)...-12%
Comerica...........................137..........93.........44.....47%
Annaly Capital Mgt.............134.......(210).......344....164%
SVB Financial.....................133..........35..........98....280%
First Republic Bank............132........108..........24.....22%
Nasdaq OMX Group............131........146.........(15)...-10%
Jeffries Group.....................130........144.........(14)...-10%
Affiliated Managers.............128.........75..........53.....71%
Zions Bancorp.....................127.......(136).......263....193%
Jones Financial Cos.............124........105..........19.....18%
Chimera Investment............118........125..........(7)....-6%
AllianceBernstein LP...........116........110...........6.......5%
KKR Financial.....................115...........81..........34.....42%
BOK Financial.....................111...........98..........13.....13%
WR Berkley.........................110........146.........(36)...-25%
Arch Capital Group..............97........245........(148)...-60%
HCC Insurance.....................97........120.........(23)...-19%
Transatlantic Hldgs..............95........131.........(36)...-27%
American Fincl Grp..............69........158.........(89)...-56%
Lenders Proc Syst................59........130.........(71)...-55%
Regions Financial(14)..........49.......(165).........214....130%
CIT Group..........................(22).......270........(292)..-108%
SLM(15).............................(27).......544........(571)..-105%
Synovus Financial..............(44)......(234).........190.....81%
Radian Group(16)...............(54)......(202).........148.....73%
Apollo Global Mgt.............(101)......(289).........188.....65%
HSBC Finance Corp............(137).....(866).........729.....84%
MGIC Investment..............(162).........18........(180).-1000%
Hartford Fincl Svcs............(165).......144........(309)...-215%
Erie Indemnity..................(174)........(31).......(143)..-461%
Fortress Investment..........(240)......(244)..........4.........2%
First Data..........................(250)......(278).........28.....10%
PMI Group(17)..................(342)......(292)........(50)...-17%
Total 100 before Freddie
…..and Fannie................68,207....58,422.....9,785....17%
Freddie Mac...................(2,371)....(4,999)....2,628.....53%
Fannie Mae....................(2,985).....(1,214)...(1,771)..-146%
Total 102 Big Fincls........62,851.....52,209...10,642....20%
(1) Bank of America reported 2011 PTL of (12,875) was adjusted for Mortgage Representation and Warranty Charge of 14,000, Mortgage Litgation Charge of 1,900, and Goodwill Impairment Charge of 2,603, yielding the above 2011 PTI of 5,628.
(2) Berkshire Hathaway PTI in both years exclude Derivative Losses and Gains on Sales and Redemptions of Investments.
(3) Goldman Sachs 2010 PTI excludes UK Bankroll Tax of 600 and SEC Settlement Charge of 550.
(4) Allstate PTI in both years exclude both Catastrophe Losses, mostly from US tornadoes, and Realized Capital Gains and Losses.
(5) AFLAC 2011 PTI excludes large Impairment Charges related to European Bank Investments.
(6) Travelers PTI in both years exclude Catastrophe Losses, mostly from US tornadoes.
(7) State Street 2010 PTI excludes large Securities Lending Program Charge.
(8) Chubb PTI in both years exclude Catastrophe Losses, mostly from US tornadoes.
(9) Marsh & McLennan 2010 PTI excludes large Alaska Litigation Settlement Charge.
(10) Merrill Lynch, which is also included in Bank of America, has its 2011 PTI above exclude Provisions for Representation and Warranty Charge of 2,741.
(11) M&T Bank 2011 PTI excludes both Gain on Bank Investment Securities and Gain on Acquisition.
(12) MBIA PTI in both years exclude Derivative Gains and Losses.
(13) Assured Guaranty in both years exclude Derivative Related Items.
(14) Regions Financial 2010 PTI excludes large Regulatory Charge.
(15) SLM 2011 PTL includes huge Loss on Derivatives.
(16) Radian Group PTL in both years exclude Gains and Losses on the Change in Fair Value of Debt Instruments.
(17) PMI Group PTL in both years exclude Gains and Losses on the Change in Fair Value of Debt Instruments.
And below here are the 29 Big Financials, which registered huge drops in their Loan Loss Provisions from 2Q 2010 to 2Q 2011, along with their PTI change from the 2Q 2010 to the 2Q 2011. The Total reduction in the Loan Loss Provision of $19.7 bil was nearly double the related increase in PTI of $10.2 bil.
.................................2Q 2011 vs. 2Q 2010
...................................................Due To
..................................................Loan Loss
.....................................PTI.......Provision
.................................Increase....Decrease
................................(Decrease)..(Increase)
..................................(million of dollars)
JP Morgan Chase.........1,020.........1,553
Wells Fargo.................1,414..........2,151
Bank of America..........1,833.........4,850
Citigroup.......................759.........3,342
GE Capital Corp...........1,427.........1,196
American Express.........170...........295
US Bancorp....................686...........567
Capital One Financial.....214...........380
PNC Financial..................59...........543
Discover Fincl Svcs.......504...........548
Fifth Third Bancorp.......264...........212
BB&T.............................169...........322
KeyCorp........................234...........236
M&T Bank........................(8)............22
SunTrust Banks..............272..........270
Northern Trust...............(70)...........40
Huntington Bancshares...133..........157
Ally Financial................(243).........167
Hudson City Bancorp......(76)..........20
Comerica..........................44...........79
Zions Bancorp.................263.........228
BOK Financial....................13..........33
Regions Financial............214.........253
CIT Group......................(292)........162
SLM...............................(571)..........91
Synovus Financial...........190.........179
HSBC Finance Corp..........729.........810
Freddie Mac..................2,628.....2,500
Fannie Mae..................(1,771)...(1,507)
Total 29 Financials......10,208....19,699
The Obama Administration has taken wise steps to pull out the Financials from what was sure to be a depression. However, when I review the above numbers related to these Financials, I have to conclude that we still have a very long way to go.
And then when I see Fannie Mae and Freddie Mac causing such a huge drain on the US Deficit each year, the US Government just has to do more here.
It has to figure out a wise way to have the underwater first and second home mortgage principals written down. There are two ways to go here.
The first option is that the US Government could acquire, at the fair market value, the portion of the first and second mortgage that is underwater, or perhaps even better, a bit more than the portion of the mortgage that is underwater. The US Government then writes down the mortgage acquired to the fair market value it paid for it. And the US Government charges a below-market interest rate on its now second mortgage with the homeowner.
The second option is that the US Government could give huge wisely-designed tax incentives to get the financial institutions to write down the principal balances of first and second mortgages to the extent that the mortgages are underwater.
Also, given where we are, I think extremely bold steps are needed to drive US demand.
Given just how horrible unemployment, underemployment, and these financial institutions are, I think it might be best to do something like a Double Barreled Manufacturing Tax Credit, with an embedded Jobs Tax Credit, tied to increases in payroll counts, where both the purchaser and the seller of property get a tax credit for the remainder of 2011 and all of 2012. Giving the seller of the property also a healthy tax credit is a new twist that should especially help stimulate demand.
The most important initiative to reduce the US Debt is to grow real US GDP as much and as quickly as possible. Also, you have to make sure that this GDP growth directly results in substantial reductions in both US unemployment and US underemployment. Both enhanced GDP growth and significant reductions in US unemployment and underemployment will result in huge drops in US Debt.
The longer you put off highly stimulative measures, the worst the US economy will get.
=======================================
.............................................................................Increase
.................................................PTI.......PTI.........(Decrease)
................................................2011......2010....Amount....%
..................................................(millions of dollars)
Late Additions on Aug 18, 2011
H&R Block.....................MO....1,077.....1,110........(33)....-3%
Western Union...............CO.......333........272.........61.....22%
Simon Property Group...IN........251........185.........66.....36%
Public Storage(A)...........CA.......201........176.........25.....14%
Richard Ellis Group.........CA.......115..........64.........51.....80%
Iron Mountain................MA........96........101.........(5)....-5%
Springleaf(B)..................IN......(110)........(10)....(100)....NM
(A) Public Storage 2011 PTI excludes Foreign Currency Gains. Its 2010 PTI excludes Foreign Currency Losses.
(B) Springleaf 2011 PTI excludes Gain of Debt Extinguishment.
