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Shares of financial firms lead the upswing in U.S. markets Tuesday, despite a mixed bag of third-quarter reports. Bank of America shares soared 10.12 percent while JPMorgan Chase shares turned in a 5.9 percent gain as investors, at least for the day, ignored the slump in Europe, which is centered on financial firms with exposure to Greek debt.
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Potentially crippling issues have been held at bay in Europe for nearly two years, with financial leaders finding political willpower is lackluster at best for an all-out rescue of Greece, Ireland, Portugal and, by extension Spain and Italy, if it comes to that. As the International Monetary Fund pointed out Monday, the stampede in Europe to adopt austerity budgets may pull so much demand from the frail economy that it could go down as self-defeating.
Europe waited too long to bail out Greece and now finds it will have to bail out the banks that hold Greece's markers. In that sense, they have moved past Greek solvency and are now dealing with the creditors and their expanded paper value expectations.
The relevancy here is that Goldman Sachs Group this week reported its second quarterly loss since September through December 2008, posting a loss of $393 million after earning $1.9 billion in the third quarter a year ago. Citigroup posted a profit of $3.8 billion, but did so on the back of one-time gains, which accounted for 85 percent of its earnings. Still, it was better than the $2.2 billion in earnings Citigroup made in the third quarter of 2010.
Tellingly, Bank of America, burned by its 2008 purchase of Countrywide Financial Corp., has embarked on a downsizing strategy that included selling $45 billion in assets in the past two years. The financial firms assets race has apparently hit the wall, at least at Bank of America. At the end of the third quarter, BofA was no longer the country's largest bank by assets, which fell to $2.22 trillion from $2.34 trillion in the third quarter of 2010.
JPMorgan Chase posted assets of $2.29 trillion at the end of the third quarter, making it the largest bank at the moment, a dubious distinction given the circumstances.
What went wrong at Goldman Sachs? On one hand, the bank reports it lost $3 billion in stocks and bonds in the third quarter, including a $1 billion loss in its shares of the Industrial and Commercial Bank of China where the stock fell 35 percent August through September.
Perhaps ahead of that curve, Bank of America divested itself of its half of China Construction Bank, a $3.6 billion boost to its bottom line, but not one it can replicate.
In the meantime, pundits who say banking has changed given the new regulations, the restrictions on overcharge fees and the caps on debit card swipes at retail stores are not interpreting the signs correctly.
Bank of America, for instance, has said it will lay off 30,000 workers and banks are in a process of reclaiming stock, which is one way to keep profits concentrated in the hands of a few. In the meantime, fees will pop up in random places and any time bonus checks get smaller, banks find a way to write fewer of them. Sounds like par for the course.
In international markets Wednesday, the Nikkei 225 index in Japan rose 0.35 percent while the Shanghai composite index in China lost 0.25 percent. The Hang Seng index in Hong Kong added 1.29 percent while the Sensex in India gained 2.01 percent.
In Australia, the S&P/ASX 200 index gained 0.64 percent.
In midday trading in Europe, the FTSE 100 index in Britain rose 0.87 percent while the DAX 30 in Germany climbed 1.09 percent. The CAC 40 index in France advanced 0.81 percent while the Stoxx Europe 600 gained 0.76 percent.
