Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Friday, April 12, 2013

JPMorgan Chase, Wells Fargo Report Record Profits As Lending Remains Constrained

BOSTON -- JPMorgan Chase and Wells Fargo, two of the biggest US banks by assets, kicked off Wall Street’s earnings season on Friday by reporting record profits thanks to cost-cutting and lower provisions for potentially bad loans.

But revenue fell at the two banking giants. And a popular measure to gauge lending activity also showed that JPMorgan isn't making enough loans to spur significant economic growth, sowing doubts about its ability to continue posting record earnings.

JPMorgan’s first-quarter profit surged 33 percent year-on-year to $6.5 billion, bolstered by gains in its investment bank and the division housing its chief investment office, which was responsible for significant trading losses in the same period last year by a group of traders led by the so-called "London Whale." The combined $1.8 billion increase in earnings for the two divisions offset the $350 million decrease in the bank’s consumer unit, which reduced lending and reported lower margins and revenues.

Profit at Wells Fargo, the nation’s fourth-largest lender and the largest lender of home loans, jumped 22 percent year-on-year to $5.2 billion, the bank’s eighth consecutive quarter of record earnings, according to Barclays analysts. Reduced interest income was more than offset by fewer expenses, lower provisions for loans that may sour in the future and increased fees on products like deposit accounts and cards. The 2010 overhaul of U.S. financial regulation known as Dodd-Frank and a separate 2009 law reforming credit cards had originally been forecast to lower these kinds of fees.

Home mortgages, which last year boosted earnings at many of the largest U.S. banks, are unlikely to benefit their bottom lines this year like in 2012, according to JPMorgan and Wells Fargo. Last year, increased refinancings and investor demand for securitized loans produced near-record mortgage profits at big banks, which benefited from the historically high spread between what homeowners paid in interest rates on their loans and yields commanded by investors that purchased slices of the loans after they had been bundled into securities.

Both banks said Friday that they estimate reduced mortgage-related margins for the rest of the year. Both also reported lower profits off home loans.

Yet while Wells Fargo increased its total loans 4 percent to $800 billion and JPMorgan grew its lending 1.1 percent to $728.9 billion, both lenders are failing to take advantage of the flood of cheap deposits that historically has led to increased loan activity.

Analysts and regulators measure banks’ willingness to lend by their ratio of loans to deposits. By that measure, JPMorgan’s enthusiasm for lending fell last quarter to 60.6 percent, the lowest level it has reached in at least five years.

The falling ratio comes despite an improving economy, which in normal times would translate into increased lending.

On a conference call with reporters, Jamie Dimon, JPMorgan's chief executive, ticked off bright spots in the economy, such as increased employment, higher stock market valuations, rising home prices, a healthier financial system and stronger business balance sheets. “We’re in pretty good shape," Dimon said of the U.S. economy.

Three years ago, however, JPMorgan was lending the equivalent of 77.1 percent of its total deposits.

"The issue here is that we grew our deposits much faster than the market overall this past year," said JPMorgan spokesman Joseph Evangelisti. "On the other side, demand for loans from consumers, small businesses, and medium-size businesses, has declined, and large companies are tapping the bond markets instead of the loan markets when they borrow."

“So the bottom line is we have plenty of capital to lend, but demand is lower across the industry,” Evangelisti added.

Wells Fargo’s loans-to-deposits ratio also fell, though it is still considered to be robust at 79.1 percent. To equal Wells Fargo’s ratio, JPMorgan would have to increase lending by roughly $223 billion.

The U.S. banking industry’s ratio of loans to deposits equaled 77.3 percent as of March 27, the latest data available from the Federal Reserve.

Policymakers and lenders alike have bemoaned the lack of credit creation in the wake of the Great Recession. The improving economy has not been accompanied by a significant increase in lending, which many have said is stifling economic growth.

JPMorgan’s relatively low ratio may bolster arguments by policymakers, legislators and activists who wish to forcibly restructure the largest and most complex U.S. financial groups. Richard Fisher, president of the Federal Reserve Bank of Dallas, has argued that the largest Wall Street banks, such as JPMorgan, are impeding the Fed’s ability to spur borrowing across the economy because they are refusing to lend.

Original Article
Source: huffingtonpost.com
Author:  Shahien Nasiripour 

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