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Old July 15th, 2009 #1
Mike Parker
Senior Member
 
Join Date: Jul 2007
Posts: 3,311
Default Wall Street Profits, Main Street Pain

Goldman Sachs Earnings Easily Surpass Expectations

By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, July 15, 2009

Goldman Sachs yesterday reported the largest quarterly profit in its history as a public company, $3.44 billion between April and June, as the decimation of its Wall Street rivals allowed the investment bank to romp across the financial landscape, buying low and selling high.

The New York firm is only months removed from a federal rescue that included emergency approval to become a bank holding company, $10 billion in direct federal aid and help to borrow billions more to finance its operations. But Goldman's earnings of $4.93 a share, up from $4.58 during the comparable period last year, made clear that the company has emerged stronger than other survivors, allowing it to seize opportunities in the aftermath of the crisis.

The results may cheer investors, offering further evidence that the strongest financial companies can once again be trusted to generate massive profit. Goldman's stock closed basically flat yesterday at $149.66, but its share price has climbed 77 percent this year.

Goldman's success also risks a political backlash, as the company is now on track to pay record bonuses in the midst of a recession that many Americans -- including President Obama -- have blamed in part on Wall Street's lavish pay practices. Goldman said yesterday that it set aside 48 percent of its total revenue, or $6.65 billion, to reward employees for the company's performance. That share is the same as Goldman set aside in 2007, before the crisis.

David Viniar, the company's chief financial officer, said the actual payments would be adjusted to reflect the company's annual results.

"If we don't perform well, we'll reduce compensation levels," Viniar said. "If we do perform well, our employees will be rewarded appropriately."

The success also may renew questions about the government's role in the company's fortunes. Goldman Sachs last month repaid its $10 billion in federal aid, but it has not disclosed to what extent it continues to rely on other federal rescue programs, such as borrowing from the Federal Reserve.

Goldman reported revenue of $13.8 billion in the second quarter, up from $9.42 billion during the comparable period last year. More than three-quarters of that revenue came from the basic business of buying and selling financial instruments such as mortgage-backed securities, corporate bonds and derivatives. Viniar said the company was making unusually large returns in what he described as "plain-vanilla transactions" because of a relative dearth of competition.

Major rivals such as Lehman Brothers and Bear Stearns have collapsed, while others, such as Citigroup and Morgan Stanley, are badly weakened.

Goldman also has the strength and appetite to take larger risks than its weakened rivals. The company said its "value at risk," the amount it estimates its trading operations could lose in a single day, averaged $245 million during the quarter, up from $182 million during the same period last year.

There were areas of weakness. Goldman recorded a large loss in its commercial real estate portfolio, an emerging problem area that is expected to hit commercial banks even harder. And Goldman's high-profile business of advising companies on merger and acquisitions had a quiet quarter.

Other major banks report earnings later this week, including J.P. Morgan Chase on Thursday and Bank of America and Citigroup on Friday.

http://www.washingtonpost.com/wp-dyn...v=rss_business

Obama: Unemployment Likely to Keep Rising

By Kent Klein
White House
14 July 2009

President Barack Obama at the White House

President Barack Obama says the U.S. unemployment rate is likely to continue rising for several months, even as the economy recovers from its worst recession in decades.

President Obama says he expects the nation's jobless rate, which is the highest it has been in 26 years, to get still worse before it gets better.

"My expectation is that we will probably continue to see unemployment tick up for several months," Mr. Obama said.

Unemployment is 9.5 percent in the United States, and Mr. Obama says hiring is usually one of the last areas of a struggling economy to bounce back.

"Even after you start moving into a recovery-positive growth-hiring typically lags for some time after that. That has been the historic norm," Mr. Obama said.

The president spoke in the Oval Office, after meeting with Dutch Prime Minister Jan Peter Balkenende.

More than 2 million jobs have been lost since Congress passed Mr. Obama's $787 billion economic recovery act in February.


People wait in line to enter a job fair in Seattle, Washington (File)

Still, the president says there are reasons for optimism. Among them are signs of stabilization in the U.S. financial markets.

"That means that companies can borrow, and banks are starting to lend again. Small businesses that might have worried just a couple of months ago about closing doors, they are now able to get a little more financing," Mr. Obama said. "That means they are less likely to lay off workers."

Other glimmers of economic hope appeared Tuesday. The Commerce Department says retail sales rose 0.6 percent in June, about twice what economists had expected. The increase appeared to be driven by a 1.8 percent spike in wholesale prices, largely due to higher energy prices.

Still, Mr. Obama is focused on creating jobs, a central message on his Tuesday visit to the economically-devastated state of Michigan.

The president is promoting his initiative to reform and strengthen community colleges, which offer training in various trades and professions. The goal is to help an additional 5 million Americans earn degrees and certificates in the next decade, better qualifying them for the jobs of the 21st century.

"We have got to find new models of economic growth, particularly at a time when consumers are just not going to be spending as much as they were, and that had been driving a lot of economic growth over the last several months," Mr. Obama said.

Unemployment in Michigan is the highest of any of the 50 states - 14.1 percent-largely because of job losses in the U.S. auto industry, which is based in Michigan. However, Mr. Obama says he sees promising signs there, too.

"We are pleased to see that GM and Chrysler have gotten out of bankruptcy. They have an opportunity to compete internationally," Mr. Obama said. "Had it not been for the steps that we took with respect to GM and Chrysler, the situation in Michigan, I think it is fair to say, would be far worse."

Meanwhile, Steve Rattner, whom Mr. Obama appointed in February to oversee the bailouts of GM and Chrysler, announced Monday he is stepping down. He will be replaced by Ron Bloom, a former union official.

http://www.voanews.com/english/2009-07-14-voa44.cfm
 
Old July 16th, 2009 #2
Mike Parker
Senior Member
 
Join Date: Jul 2007
Posts: 3,311
Default

JPMorgan profit soars, but warns on loan losses

By Jonathan Stempel Jonathan Stempel – 1 hr 22 mins ago

NEW YORK (Reuters) – JPMorgan Chase & Co said record investment banking fees helped drive a 36 percent rise in quarterly profit, topping Wall Street forecasts, but warned that credit quality in consumer mortgages and credit cards is deteriorating faster than it expected.

Though the second-largest U.S. bank is widely considered among the healthiest of the nation's major lenders, the amount set aside for bad loans in the quarter more than doubled from a year earlier, to $9.7 billion.

It said a surge in credit card and loan losses was likely to worsen.

Second-quarter results benefited from improving credit markets as well as federal regulators' efforts to stimulate the economy by keeping borrowing costs low, bolstering mortgage and other lending activity.

Chief Executive Jamie Dimon's bank skirted the worst of the credit crisis by largely avoiding losses and writedowns on complex debt and mortgages that hurt many rivals. Among the six largest U.S. banks, JPMorgan is the only one not to lose money in any quarter since the recession began in 2007.

"The performance of JPMorgan relative to consensus is generally much more patchy than Goldman Sachs, but it's clear that the bank has done reasonably well on the trading side and less well on the home and private lending side," said Commerzbank economist Peter Dixon in London.

Goldman Sachs Group Inc posted better-than-expected quarterly earnings on Tuesday . Bank of America Corp and Citigroup Inc, JPMorgan's main rivals, may fare less well when they report results, expected Friday.

JPMorgan shares fell 26 cents to $36.00 in premarket trading but are solidly higher this year. Through Wednesday, the shares were up 15 percent in 2009, compared with a 14.4 percent drop in the KBW Bank Index.

PROFIT, REVENUE HIGHER

Second-quarter net income rose to $2.72 billion from $2 billion a year earlier. Profit per share fell to 28 cents from 53 cents as the number of shares outstanding increased. Net revenue jumped 41 percent to $27.71 billion.

Analysts on average expected profit of 4 cents per share on revenue of $25.91 billion, according to Reuters Estimates.

Results included per-share charges of 10 cents to bolster a federal deposit insurance program and 27 cents tied to last month's repayment of $25 billion taken from the government's Troubled Asset Relief Program. JPMorgan has said it will let the Treasury Department auction the attached stock warrants.

Dimon, on a conference call with reporters, said it is unlikely the bank will make money in 2010 in credit card operations or raise its dividend before early next year. It lowered the payout by 87 percent in February.

Still, Dimon said loan loss reserves are probably "getting pretty close to their peaks," and the bank sees "a little bit of a leveling off of delinquencies." JPMorgan said losses in the Washington Mutual Inc banking units it bought last September are in line with its forecasts.

Dimon expressed opposition to an Obama administration plan to create a consumer finance protection agency, echoing other banks. "The more agencies, the more politics and bureaucracy," he said.

HAVES VS. HAVE-NOTS

"It looks like good, strong numbers, and it looks pretty broad-based," said Michael Hecht, an analyst at JMP Securities. "We are in an increasing world of haves and have-nots, and we know where JPMorgan and Goldman fall."

Profit in JPMorgan's investment bank more than tripled to $1.47 billion. Revenue rose by one-third to $7.3 billion, including a record $2.24 billion of investment banking fees and a record $4.93 billion from fixed-income trading.

Though investment bankers were paid 15 percent less than a year earlier, Dimon acknowledged more pressure from competitors to attract talent. Exiting TARP freed JPMorgan from some pay limits. Goldman, which also exited TARP, could be on pace for record payouts to its employees.

"It's just going back to where it was," Dimon told reporters, discussing compensation. "We will be facing the real compensation issues when we get to the end of the year."

Credit card operations posted a $672 million loss. JPMorgan boosted its projected losses on cards and sees a loss rate of about 10 percent for this quarter. It expects the loss rate from Washington Mutual to be 24 percent by year-end, the high end of a range it forecast in April.

Consumer banking's profit nearly vanished, falling to $15 million from $503 million, hurt by soaring credit losses tied to housing, including from Washington Mutual. Mortgage lending volume rose 9 percent from the first quarter to $41.1 billion.

JPMorgan now expects near-term quarterly losses of about $600 million from prime-quality mortgages, up from $500 million it forecast in April, and $500 million from subprime mortgages, up from a previous forecast of $375 million to $475 million. (Reporting by Jonathan Stempel; Additional reporting by Steve Eder; editing by John Wallace)

http://news.yahoo.com/s/nm/20090716/...1vcmdhbnByb2Y-
 
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