Bank Profits Double While Americans Languish, Unemployed
WSJ - U.S. bank profits swelled during the summer to their highest level since mid-2007, but banks struggled to generate more revenue in a sluggish economy.
According to a report released Tuesday by the Federal Deposit Insurance Corp., the industry noted a collective net profit of $35 billion, up nearly 50% from a year earlier, in the quarter ending Sept. 30.
While the profit gain is welcome on its face, the growth primarily reflected banks putting aside less cash to cover bad loans rather than the traditional activity of making loans and collecting interest—as has been the case for two years, FDIC officials said.
"That can't go on indefinitely," acting FDIC chairman Martin Gruenberg said. "At some point, in order to generate income and revenues, lending is going to have to expand."Lending increased slightly in the third quarter, for a second consecutive quarter. Banks' total loan balances rose by a net $21.8 billion, just 0.3%, in the period. Loans to commercial and industrial customers rose by $44.8 billion. Residential mortgage balances also rose by $23.7 billion, the largest increase since 2007. Those gains, however, were offset by declines in other types of loans.
"After three years of shrinking loan portfolios, any loan growth is positive news for the industry and the economy," but activity remains far below "normal levels," Mr. Gruenberg said.Because of slow loan growth, revenue coming in the door remained relatively flat from the previous quarter, and would have marked its third decline in a row except for some accounting gains at a few large banks, the FDIC said.
Officials at Regions Financial Corp. of Birmingham, Ala., have seen some of their larger business clients "much more engaged and active in growing their business," as well as pockets of growth among small-business customers, including those in the agriculture and health-care industries, said Lynetta Steed, the bank's executive vice president of business and community banking.
But overall loan demand from small businesses is weaker due to continued economic uncertainty, she said. Unemployment remains high, driving consumers to spend less, and "small businesses see that and they're not going to put the money into expanding or hiring new people."
In another bright spot in the FDIC's quarterly report, the agency's list of troubled institutions shrunk in the third quarter for the first time since the same period of 2006. The report listed 844 institutions on the agency's "problem" list at the end of September, down from 865 at the end of June.
During the July-September period, 26 banks failed, four more than in the second quarter, but 15 less than in the same quarter a year ago. Meanwhile, the fund that the agency uses to cover the cost of failed institutions rose to $7.8 billion by the end of September, up from $3.9 billion at the end of June.
Mr. Gruenberg said the U.S. has "relatively limited" direct exposure to the European sovereign-debt crisis.
"The key risk for U.S. institutions, as well as for the global economy is really the potential of contagion effects if a serious financial crisis should develop in Europe," he said.Mr. Gruenberg said the agency has been "actively engaged" with foreign bank supervisors on the issue.
The National Memo - Unemployment hit 9.2% in June, the highest rate in 2011, a sign that the real American economy is stalling. But on Wall Street, it's a different story.
The Wall Street Journal reports that Citigroup's profits "jumped 24%," adding up to $3.34 billion in profits. Resorting to "investment mode," Citi was cushioned by an improved credit rating and a $2 billion reserve release. Despite the falling dollar and and falling profits from capital markets, Citi posted a 69% revenue increase.
Similarly, JPMorgan, which was forced to pay out hundreds of millions of dollars in recent weeks to settle a series of federal fraud allegations, reported a $5.4 billion profit, reflecting "robust gains" that are assuaged the fears of many investors, and proving wrong the many analysts who were predicting overall losses across the industry. CEO Jamie Dimon has taken Barack Obama and Ben Bernanke to task over the last year for actions that he said would hurt the banking system. Overall, JPMorgan's second-quarter revenue climbed 7%.
Likewise, Google, whose revenues increased by 32%, beat expectations, and shares surged 11%.
“We had a great quarter, with revenue up 32% year on year for a record breaking over $9 billion of revenue,” said Larry Page, CEO of Google. “I’m super excited about the amazing response to Google+ which lets you share just like in real life.”
July 14, 2011
The Next Web - Google had its Q2 2011 earnings call today where it announced revenues of $9.03 billion for the quarter ended June 30, 2011, representing an increase of 32% compared to last year at this time. This figure far surpasses Wall Street’s expected revenues of $6.55 billion.
Google-owned sites generated revenues of $6.23 billion, or 69% of total revenues, in the second quarter of 2011, representing a 39% increase over second quarter 2010 revenues of $4.50 billion. Google’s international revenue continues to rise, which are now at 54% and picking up about 1% per quarter.
Through its AdSense programs, Google’s partner sites generated revenues of $2.48 billion, or 28% of total revenues, in the second quarter of 2011, representing a 20% increase from second quarter 2010 network revenues of $2.06 billion. The Internet behemoth shared $2.11 billion with advertising partners this quarter, which is 24% of its income from advertising, and $1.75 billion of that number was paid out to Adsense partners.
As its revenues rise, Google’s costs continue to rise too. Costs of revenues are now 12%, up from 11% year ago- representing a market fear point: As Google grows, will its costs be containable to allow for continue high margin status?
Google’s operating expenses also rose – sharply – to 33% of revenues, a number that is sure to set some people on edge. Total operating expense were up roughly $1 billion from the same time last year. GAAP operating income dropped from 35% of revenues to 32%, reflecting the company’s higher costs.
Google now sits on a pile of cash and short term investments that is worth over $39 billion dollars. Its stock is now up 12% after hours trading, showing that the market is more excited about the revenue and profit numbers then it is about the company’s rising costs.