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Bank
of America said Thursday that it has allocated less money to cover bad
loans during the first three months of the year than it has since before
the financial crisis in 2008.Since
Bank of America serves about half of the country's households, the
results can be seen as a statement about the progress Americans have
made in managing their household finances, saving more and paying back
debt.The
bank said it put $ 2.4 billion for bad loans, down from $ 3.8 billion
in the same quarter a year ago and the lowest since the third quarter of
2007, a year before the financial crisis.It earned $ 653 million in the first quarter, down 68 percent from last year. The profits were hurt by a $ 4.8 billion accounting charge that the bank had to take because the value of its debt rose.Like the U.S. households, is Bank of America has been to cut costs and pay back debt. CEO Brian Moynihan has been on a mission to simplify the behemoth bank."Our strategy pays off,'' he said Thursday.Revenue fell 17 percent to 22.5 billion kroner. Analysts expected $ 22.8 billion. The stock fell 15 cents to $ 8.77.Investors seemed pleased that there were no big hits to key parts of Bank of America business. Last
year, the bank took a $ 8.5 billion charge for a mortgage settlement
with investors, and in 2010 the bank wrote down $ 10.5 billion in its
credit card division because of losses associated with new regulation.Bank of America has had some bruising few years. It
took 45 billion dollars in government bailouts during the financial
crisis and has suffered deep losses since the mortgage-related losses
and settlements.Not all investors think a comeback is complete. Matt
McCormick, a portfolio manager and banking analyst at money manager
Bahl & Gaynor, points out that first quarter profit pales in
comparison with 72 percent gain in Bank of America shares."The story is that Bank of America has steadily improved, but there are still underlying weaknesses,'' said McCormick.The mortgage hangover continues in the bank. It is still losing money in its mortgage business and buy back soured loans from the government. Losses were narrow in the quarter to 1.1 billion dollars from 2.4 billion dollars.Income from real estate rose slightly, to 2.7 billion dollars and the bank said it refinanced loans.The
homes were a major driver of earnings at Bank of Americas rivals Wells
Fargo and JPMorgan Chase in the first quarter as the housing market
begins to recover.Mortgage rates hit a historic low in February, and job growth has mostly improved in recent months. The government also expanded a program that helps Americans with troubled home loans to refinance.Bank
of America did not get much pop from the mortgage because it stopped
writing mortgages for third-party lenders in the fourth quarter last
year. Glenn
Schorr, banking analyst at brokerage firm Nomura, noted that the bank
has issued 73 percent fewer loans in the first quarter.Bank of America income from its banking customers decreased $ 587,000,000 to 1,500,000,000 $. The collected less in fees from the stores that processes debit card transactions because of new rules that limit these fees.Bank revenues from investment banking was flat at $ 1.6 billion over the same period last year. The company bounced back from fourth quarter with a 11 percent increase.In
the last two quarters, sales and trading has been light because of
turbulence in the markets, but Bank of America's fourth quarter results
were worse than its peers.
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ASTON,
Pa. - As the White House ramps up its efforts to woo young voters by
encouraging Congress to avert a planned increase in student loan
interest rate, beat GOP Presidential frontrunner Mitt Romney back on
Monday, throwing its support behind an expansion of the Current prices for a campaign event outside Philadelphia.
The
former Massachusetts governor made the statement at a press
availability with Senator Marco Rubio, the first joint appearance Romney
and the Florida Republican whose name is often floated as a top choice
for his running mate.
"There
is one thing I wanted to mention that I forgot to mention in the
beginning, and that was that particularly the number of college
graduates who can not find work or who can only work well below their
skill level, I fully support out
efforts to extend the low interest rates on student loans, "Romney said
at the end of a seven-minute joint press conference with Rubio.
"There
was some concern that it would expire halfway through the year, and I
support extending the temporary relief on the interest rates for
students as a result of student loans, of course, partly because of the
extraordinarily poor conditions in the labor market."
The
announcement comes in the wake of an Associated Press report showing
that half of recent college graduates are unemployed or underemployed.
Obama
dedicated his weekly address to the subject of federal student loans,
are pushing for a renewal of the Congress of 2007-the law to keep rates
at 3.4 per cent. The rates will return to 6.8 percent in July if Congress fails to act. According to the White House, more than 7 million students will be affected by trends in interest rates.
On Monday, called the White House, Romney support for enlargement in accordance with previous training aid cuts.
"Mitt Romney continues to make promises that he can not keep," said Lis Smith, a spokeswoman for the Obama campaign. "While
he has previously approved the Ryan budget, which would make deep cuts
in Pell Grants and allow student loan rates to double, and last week
said he would gut the Department of Education to pay his tax plan today,
we heard yet another - and contradictory - position from Romney on student loans. "
Also
on Monday, said Sen. Tom Harkin (D-Iowa), chairman of the Education
Committee, he plans to introduce a bill later this week that would
extend the lower interest rate for one year. He
said that lawmakers could then consider adopting a more permanent
change when the Higher Education Act comes up for renewal next year.
"Unfortunately, the clock is ticking," he said in a conference call with reporters. "We need Republicans in Congress to work with us."
Harkin
said he opposed using other cutbacks in education to pay for the
expansion, estimated to cost $ 6 billion, but he had not yet determined
how to pay for it. Obama is slated to speak at Harkin homeland on Wednesday about the rising costs of college education and mounting student debt.
The
Office of House Speaker John A. Boehner (R-Ohio) responded to Romney's
move by noting that members of both parties on both sides of the Capitol
"will be working on this issue in the coming months."
But the top House Republican also framed the expected increase in Stafford loan rates as a result of Democratic policies.
"The
rising cost of tuition is a serious problem for students and their
families, so it's unfortunate that Washington Democrats introduced a
bill that would double the student loan rates," Boehner spokesman
Michael Steel said.
Senator
Charles E. Schumer (NY), the No. 3 Senate Democrat and the party's
messaging chief in the upper chamber, said that "what Mitt Romney said -
after the president's lead - is a good thing, but proof is in the
pudding."
"It
is unclear whether this is just a way to get on board a popular topic,
or an attempt to actually get something done," Schumer said. "We'll
see how it unfolds over the next few weeks. If Mitt Romney says the
Senate and the House Republican leadership," Find a compromise pay-for,
"it would be very helpful.
"But
if they just going to say we are for it - but not to pay for it in any
way that can pass, not for failing to pay for it - it's a game," he
added.
Obama's
reelection campaign has been searching for ways to breathe new life
into the young voters who provided much of the enthusiasm that helped
propel the president to victory four years ago. A
poll last week at Georgetown University and the Public Religion
Research Institute found that the top issues for young voters are jobs
and unemployment. Education was virtually tied with the federal deficit for second place.
"We're
not particularly concerned about the President's appeal to young
voters. We think he has the right vision and the right answers that are
gonna appeal to the voters," Obama's campaign policy director, James
Kvaal, said Monday. "The issue we have discussed today is a good example of why."
On
Tuesday Obama will travel to Colorado and North Carolina to continue
its student-loan pressure with campaign events at the University of
Colorado at Boulder and University of North Carolina at Chapel Hill. On Wednesday, he will visit the University of Iowa.
Romney
has often been the case along the path that young people should support
his campaign rather than Obama's because of the country's economic
struggles.
Romney
renewed this argument on Monday, claims that young voters' questions at
the support they gave Obama three and a half years ago. "
"I
think the young voters in this country have to vote for me if they
really think about what is in the best interest of the country and what
is in their personal best interest, because the president's policies
have led to extraordinary statistic, "Romney said.
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In a surprise move, reduced the Reserve Bank of India (RBI) in short-term loans
RBI has advised banks to offer all customers basic savings association deposit accounts without minimum balance requirements. It has also guided the banks not to charge prepayment penalties on mortgages.
Experts
believe that while the repo rate cut will soon be passed on to
customers through ease in interest rates, the average cost of funds does
not fall out of the same magnitude. On
the other hand, they see a marginal impact on the elimination of
pre-payment fees that many banks are already not charging any penalties
on prepayment.
While
some banks such as ICICI Bank, PNB, IDBI Bank, Syndicate Bank and Bank
of Baroda have already cut their base rate by 25 basis points each,
other lenders are expected to follow suit.
"Deposits
raised by banks in the past three years represent about 80 percent of
deposits. Thus, the effect of high cost deposits raised in this period
will be visible in 2012-13. Therefore, interest margins (NIMS) is
expected to fall by 10-15 basis
points during 2012-13 as competitive pressures and sluggish credit
offtake will reduce pricing power of banks, "says Dharmkirti Joshi,
chief economist at Crisil Ratings.
The latest RBI data on 6 april
show that deposit growth had retraced to 14.3 percent in the past year,
but loan growth remains high at 18.7 percent year on year. If this trend continues and deposit rates are below 16 percent, then there would be pressure on banks' spreads.
SBI
will reprice a portion of its deposit base of Rs 10,00,965 crore as
domestic deposits is Rs 9,41,432 crore and deposits in foreign offices
is Rs 59,533 crore. Of
the deposit base is about 47 percent lower cost current account savings
account (Casa) deposits that are around Rs 4,47,358 crore, which the
bank pays only 4.50 per cent interest rate. Retail deposits, where repricing will occur constitutes 78.56 percent of the total deposit base of Rs 3,88,144 crore.
A
Krishna Kumar, Managing Director, State Bank of India said: "Due to the
large composition of Casa deposits, tax reduction is expected to affect
its margins, only the extent of 6 to 7 basis points for the first few
months until the higher cost retail deposits get repriced. "
SBI has the largest home loan book in excess of RS 1 lakh crore by ICICI Bank followed, over Rs 50,000 crore.
Chanda
Kochhar, Managing Director & CEO of ICICI Bank said in a release
immediately after reducing the rates by 25 basis points, "With the
easing of systemic liquidity, we have already seen some correction in
wholesale deposit rates. We expect that cost of funds to gradually come down. "She believes that the cost of funds moving in line with the deposit rates.
Squeeze in margins
As
far as foreclosure charges as they were perceived as a restrictive
practice discourage borrowers from switching to cheaper sources. Experts believe the abolition of these charges, the transmission of monetary policy be much faster than before. They said that this may lead to increase in competition between banks and few of them may see some pressure on return on assets.
Saday
Sinha, banking analyst at Kotak Securities pointed out that at present,
large banks such as SBI, ICICI Bank and Axis Bank, together with all
existing housing finance companies do not charge prepayment penalties,
the impact on bank earnings will not be very material.
"The
abolition of the prepayment penalty or foreclosure charges on variable
loans have been made with an objective to reduce the discrimination by
banks between existing and new borrowers. We believe it will increase
competition between banks and in turn, would result in finer
pricing of home loans with variable interest rate. This can benefit the
existing borrowers, where banks can not be very interested to reduce
lending rates in a declining interest environment. Therefore, many banks
are experiencing some pressure on their return on assets, "Sinha said .
Rajiv
Mehta, AVP of banking and infrastructure sector at IIFL said: "It would
be wise if you look at the portfolio of banks. For PSUs that retail
portfolio constituting about 20 percent of the total portfolio. Retail
Portfolio will include personal loans,
car loans and mortgages and so on. Therefore, if we see the possibility
of prepayment penalties case, they would get. In addition, many private
and PSU lenders have already fallen out such sanctions before the RBI
guidelines. "The analyst believes that as interest rates is
concerned, it is too early to see a significant impact on credit
offtake demand among consumers to determine which companies would seek
loans.
Vivek
Mahajan, head of research at Aditya Birla Money said: "This is slightly
negative for banks that have large home range, as it will bring them on
par with vacation NBFCs."
Q4 earnings
So far, the results announced by HDFC Bank and Industrial Bank mind was robust. HDFC
Bank reported a 30.40 percent increase in net profit to RS 1,453 crore
for March quarter, thanks to healthy growth in lending. "HDFC
Bank has delivered another quarter of margin expansion, healthy deposit
growth, stable asset quality and adequate capital with decent return
ratios. We expect the bank to witness 24 per cent CAGR in the loan
portfolio in FY12-14E," says Kashyap Jhaveri from Emkay Global Financial Services.
Stronger than anticipated fee income helped Indu Mind Bank clock, year-on-year 30 percent growth in PAT. "Apart
from improving profitability and strong growth that the bank continues
to deliver on all its Cycle II growth strategies, and like HDFC Bank, it
is well positioned to deliver strong PAT growth in FY13," said Adarsh
Parasrampuria, research analyst at Prabhudas Lilladher.
Stock Performance
Interest-sensitive banking shares have outperformed the benchmark Sensex this calendar. BSE bankex rose 33.07 percent year-to-date compared to 11 percent increase in the BSE Sensex. Shares Yes Bank, Industrial Bank mind, Axis Bank and SBI have risen 40-55 per cent. IDBI
Bank, Kotak Mahindra Bank, Bank of India and Canara Bank has gained
38.17 percent, 37.69 percent, 30.56 percent and 30.35 percent,
respectively. Major private lenders HDFC Bank and ICICI Bank jumped 29.77 percent and 28.22 percent, respectively.
Nitin
Kumar, an analyst with Quant Capital said, "The reduction in rates,
which banks will affect their margins with a few basis points. Bank with
large home loan portfolios as State Bank of India and ICICI Bank will
be affected more than others. Other retail loans like car loans and personal loans are all fixed rate loans where the impact will be minimal. "
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Not even hardcore economists would follow the Reserve Bank (RBI), so eagerly as me, `` quipped my friend, a home loan borrower.
She is employed with a retail multi-national company, but will always say that she worked for a bank.
This was because the bank (which she got her loan) would take a chunk of his salary towards EMIs every month!
`` Did you know that in the past two years, the RBI hiked repo rates 13 times? `` She asked.
The pain of having serviced rising issuers for the past few years, it was clear in her eyes. The history of all home loan borrower `s life, I thought!
But with larger-than-expected 50 basis points cut in repo rate last week, my friend hopes that her EMI would come down. Will the benefits available only to new borrowers, or will it be passed on to existing customers?
Here `sa quick story about what you can expect if you are already a borrower or plan to become one soon.
Existing borrowers
For starters, RBI `s decision to cut rates a clearly positive if you are already servicing a floating-rate loans. But how much of a `positive` is, is yet unknown.
For one, most loans linked to banks `base rate. So will your issuers come down when banks cut their base rate.
And it may take awhile, as most banks will look to reduce their deposit rates first to bring down the cost of funds.
So while you can expect your EMIs to get cheaper, you will have to wait. Even then, there `sa possibility that banks would initially lower rates only available on certain loan products.
When and how much you benefit will depend on which bank you borrowed from.
While
SBI chairman has gone on record saying that his bank would make a
substantial reduction in lending rates, others, such as Vijaya Bank and
Indian Overseas Bank said they may take some time to follow suit.
IDBI Bank, on the other hand, became the first lender to actually announce a cut in its rates. The Bank has announced a 25 basis point cut in base rate to 10.50% with effect from 20 april.
ICICI Bank, one day later announced a 25 basis point reduction in its base rate (effective April 23). PNB and Bank of Maharashtra has also reduced their base rate by 25 bps and 10 bps respectively. Most banks will have to huddle together in an asset-liability committee before they decide on their future movements. So no matter which bank you borrowed, seems to messages in this connection for more clarity.
More power in your hands
But what happens if your EMIs do not come down?
Fret
not, because, without having to pay penalties to your bank, you can now
borrow from another bank that offers a lower interest rate.
RBI is invalid banks charge foreclosure fees or prepayment penalties on home loans at a variable rate. You might also consider a loan conversion option with your bank.
But do note that you will stand to get out of repo rate cut only if your loan is floating. Fixed loans wouldn `t see any decrease in their issuers by virtue of their permanent nature.
New borrowers
If
you have been stalling your purchase of assets (home, car, etc.) only
because interest rates were too high, the stars to align in your favor! New borrowers will certainly stand to benefit from this move. A
few weeks before the repo rate cut, had IDBI Bank and Canara Bank cut
variable home loan rates by 25-175 basis points for new sanctions across
the board.
Watch for more such competitive loan products in the coming months. Needless to say, it will make much more sense to choose a variable rate loan now.
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