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Both JP Morgan (JPM) and Wells Fargo (WFC) lapped earnings estimates this morning.

Here are the pre-earnings predictions

Wells Fargo Reported:
— Strong business momentum continues:
— Year-to-date revenue up 11 percent
— Average loans up 15 percent from prior year and 13 percent (annualized) from prior quarter
— Average earning assets up 15 percent from prior year and 13 percent (annualized) from prior quarter
— Core deposits up 10 percent from September 30, 2007, and 30 percent (annualized) from June 30, 2008
— Cross-sell of 6.3 for wholesale customers and a record 5.7 for retail bank households
— Credit reserve build of $500 million ($0.10 per share), bringing allowance for credit losses to $8.0 billion
— Previously announced impairment charges for investments in Fannie Mae, Freddie Mac and Lehman Brothers totaling $646 million ($0.13 per share)
— Revenue up 5 percent from prior year despite impact of investment write-downs
— Tier 1 capital of 8.58 percent, up from 8.24 percent in second quarter 2008

Regarding deposits:
“We saw a tremendous inflow of deposits in the latter part of the quarter, especially at the end of September reflecting what we believe is a significant flight to quality,” said Chief Financial Officer Howard Atkins. Core deposits increased $23.7 billion, or 30 percent (annualized), from June 30, 2008. Average core deposits of $320.1 billion increased $13.9 billion, or 5 percent, from a year ago and $1.7 billion, or 2 percent (annualized), linked quarter. Average mortgage escrow deposits were $21.2 billion, down $1.2 billion from third quarter 2007 and down $1.5 billion linked quarter. Average retail core deposits increased $13.2 billion, or 6 percent, from third quarter 2007 and increased $3.8 billion, or 7 percent (annualized), linked quarter. Average consumer checking accounts grew a net 6.1 percent from second quarter 2007, with 8 percent growth in California, the largest increase in net new checking accounts in California in almost four years. Wealth Management group average core deposits of $22.7 billion increased $7.7 billion, or 52 percent, from third quarter 2007.

JP Morgan Reported:
* Acquired Washington Mutual’s (WM) banking operations on September 25:
* Significantly strengthened consumer franchise, with more than 5,400 branches
* Results included estimated1 losses of $640 million (after-tax) for Washington Mutual merger-related items: $1.2 billion charge to conform loan loss reserves and a $581 million extraordinary gain
* Reported net markdowns of $3.6 billion due to mortgage-related positions and leveraged lending exposures in the Investment Bank
* Maintained #1 rankings for Global Investment Banking Fees and Global Debt, Equity & Equity-related volumes for the quarter and year to date
* Grew revenue by 16% and increased branch production at Retail Financial Services
* Achieved double-digit net income growth at both Commercial Banking and Treasury & Securities Services
* Reported the following significant after-tax items:
* $927 million benefit from reduced deferred tax liabilities
* $642 million loss on Fannie Mae and Freddie Mac preferred securities
* $248 million charge related to offer to repurchase auction-rate securities
* Increased credit reserves by $1.3 billion firmwide to $15.3 billion, resulting in loan loss allowance coverage of 3.18% for consumer businesses and 2.11% for wholesale businesses, before Washington Mutual
* Maintained strong Tier 1 Capital of $112 billion, or 8.9% (estimated); raised $11.5 billion of common equity during the quarter

Regarding Deposits:
# Checking accounts totaled 11.7 million, up 1.0 million, or 10%.
# Average total deposits grew to $210.2 billion, up $4.9 billion, or 2%.

Now, this goes back to my post yesterday on the TARP plan. Money is flowing into the surviving banks at an incredible rate. Those surviving all have strong Tier 1 ratios. The problem they all have is, growing loan losses. Growing loan losses will offset the effect of capital injection from the gov’t. If you remove the bad loans, you get a double boost as incoming deposits are then augmented by loan loss reserves being decreased.

My concern and doubt is just how much this plan will actually increased lending. Until banks see loan losses ebb, the intended lending effect of the TARP plan will be muted at best.

Now, if Treasury follows this will the second tranche of the $700b being used for loan purchases, then you’ve got something as you both raise equity and lower loan losses.

Until details are unveiled, I am skeptical..

Now that does not mean these bank will not make money. On the contrary they are taking in deposits at rock bottom rates and still getting loan payments 4% to 5% higher. There are also fewer fish in the pond.

Morgan and Well will do just fine. Just don’t expect the TARP plan to do wonders for the rest of the economy.

Disclosure (“none” means no position):Long WFC, none
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“When the tide laps at Gulliver’s waistline, it usually means the Lilliputians are already 10 feet under”

A quote from an excellent article in the Wall Street Journal yesterday. Predictions that the current crisis is the beginning of the demise of the U.S. was rampant.. then the rest of the world caught our cold.

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Nouriel Roubini on Bloomberg tv.

Link to yesterday’s video.

Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, causing the rally in the stock market to “sputter.”

“There are significant downside risks still to the market and the economy,” Roubini, 50, a New York University professor of economics, said in an interview with Bloomberg Television. “We’re going to be surprised by the severity of the recession and the severity of the financial losses.”

The economist said the recession will last 18 to 24 months, driving unemployment to 9 percent, and already depressed home prices will fall another 15 percent. The U.S. government will need to double its purchase of bank stakes and force lenders to eliminate dividends to save them from bankruptcy, Roubini added. Treasury Secretary Henry Paulson said today he plans to use $250 billion of taxpayer funds to purchase equity in thousands of financial firms to halt a credit freeze that threatened to drive companies into bankruptcy and eliminate jobs.

“This will be the first round of recapitalization of the banks,” Roubini said. “The government has to decide to intervene much more directly in the provision of credit and the management of these companies.”

U.S. stocks staged the biggest rally in seven decades yesterday on the government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars. The Standard & Poor’s 500 Index rose 12 percent. It gained as much as 4.1 percent and fell as much as 1.1 percent today.

`Really Tanking’

“The stock market is going to stop rallying soon enough when they see the economy is really tanking right now,” Roubini added.

The U.S. unemployment rate stood at a five-year high of 6.1 percent last month. Home prices in 20 U.S. metropolitan areas fell 16 percent in July from a year earlier, the most since records began in 2001, according to the S&P/Case-Shiller home- price index. Bank seizures may push home prices down further, scaring away buyers in coming months, after U.S. foreclosures rose at the fastest rate in almost three decades in the second quarter, according to the Mortgage Bankers Association.

Roubini said total credit losses resulting from the meltdown of the subprime mortgage market will be “closer to $3 trillion,” up from his previous estimate of $1 trillion to $2 trillion. The International Monetary Fund estimated $1.4 trillion on Oct. 7. Financial firms have so far reported $637 billion in losses, according to data compiled by Bloomberg.

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Nobel, America, Bloggers, Marginspan class=”fullpost”>

– OK….just in case the Al Gore Nobel Prize did not denigrate the whole thing enough, this will

– This is great

– Great…

– Just avoid it

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The following bank have already agreed to the program: Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), J.P. Morgan Chase & Co. (JPM), Bank of America Corp. (BAC), Merrill Lynch (MER), Citigroup Inc. (C), Wells Fargo & Co. (WFC), Bank of New York Mellon (BK), and State Street Corp. (STT). Video at end.

October 14, 2008
HP-1207

Treasury Announces TARP Capital Purchase Program Description

Washington- Treasury today announced a voluntary Capital Purchase Program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy.

Under the program, Treasury will purchase up to $250 billion of senior preferred shares on standardized terms as described in the program’s term sheet. The program will be available to qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities that elect to participate before 5:00 pm (EDT) on November 14, 2008. Treasury will determine eligibility and allocations for interested parties after consultation with the appropriate federal banking agency.

The minimum subscription amount available to a participating institution is 1 percent of risk-weighted assets. The maximum subscription amount is the lesser of $25 billion or 3 percent of risk-weighted assets. Treasury will fund the senior preferred shares purchased under the program by year-end 2008. Institutions interested in participating in the program should contact their primary federal regulator for specific enrollment details.

The senior preferred shares will qualify as Tier 1 capital and will rank senior to common stock and pari passu, which is at an equal level in the capital structure, with existing preferred shares, other than preferred shares which by their terms rank junior to any other existing preferred shares. The senior preferred shares will pay a cumulative dividend rate of 5 percent per annum for the first five years and will reset to a rate of 9 percent per annum after year five. The senior preferred shares will be non-voting, other than class voting rights on matters that could adversely affect the shares. The senior preferred shares will be callable at par after three years. Prior to the end of three years, the senior preferred may be redeemed with the proceeds from a qualifying equity offering of any Tier 1 perpetual preferred or common stock. Treasury may also transfer the senior preferred shares to a third party at any time. In conjunction with the purchase of senior preferred shares, Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15 percent of the senior preferred investment. The exercise price on the warrants will be the market price of the participating institution’s common stock at the time of issuance, calculated on a 20-trading day trailing average.

Companies participating in the program must adopt the Treasury Department’s standards for executive compensation and corporate governance, for the period during which Treasury holds equity issued under this program. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers.

The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. Treasury has issued interim final rules for these executive compensation standards.

Nine large financial institutions already have agreed to participate in this program, moving quickly and collectively to signal the importance of the program for the system. These healthy institutions have voluntarily agreed to participate on the same terms that will be available to small and medium-sized banks and thrifts across the nation.

Here is the term sheet for companies using it:

Video:

Disclosure (“none” means no position):Long WFC, C, GS, none
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Here it is for those who were wondering…

October 14, 2008
2008-10-14-9-5-0-19994

Treasury Announces Executive Compensation Rules Under the Emergency Economic Stabilization Act

Washington- The U.S. Treasury Department today announced the development of three programs under the Emergency Economic Stabilization Act and corresponding executive compensation and corporate governance standards. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers. Any firm participating in the following three programs will be required to adopt these standards.

Troubled Asset Auction Program- Treasury continues to develop a program to purchase troubled mortgage-related assets through an auction format, and will be issuing program guidance for this program in the coming weeks. Treasury is issuing guidance for the executive compensation requirements that will apply to firms participating in this program. As prescribed by the Act, any financial institution that sells more than $300 million of troubled assets to the Treasury via an auction would be prohibited from entering into new executive employment contracts that include golden parachutes for the term of the program. Treasury is releasing Treasury Notice 2008-TAAP regarding this restriction. Furthermore, under the Act, (1) the financial institution may not deduct for tax purposes executive compensation in excess of $500,000 for each senior executive, (2) the financial institution may not deduct certain golden parachute payments to its senior executives and (3) a 20-percent excise tax will be imposed on the senior executive for these golden parachute payments. Treasury is releasing I.R.S. Notice 2008-94 regarding these new tax rules.

Capital Purchase Program- The Treasury is issuing guidance for this program designed to provide equity capital under standardized terms directly to certain financial institutions, further strengthening their capital structures to facilitate their continued lending in the capital markets. Any financial institution participating in the Capital Purchase Program will be subject to more stringent executive compensation rules for the period during which Treasury holds equity issued under this program. The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. Treasury is issuing interim final rules for these executive compensation standards.

Programs for Systemically Significant Failing Institutions- The Treasury Department is currently developing a third program to potentially provide direct assistance to certain failing firms on terms negotiated on a case-by-case basis. Treasury is issuing guidance for the executive compensation standards that will apply to the firms participating in such programs and their senior executives (Treasury Notice 2008-PSSFI). These standards are similar in all respects to the Capital Purchase Programs executive compensation standards described above, with one significant difference. In situations where Treasury provides assistance under the systemically significant failing institutions programs, golden parachutes will be defined more strictly to prohibit any payments to departing senior executives.

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Press conferences coming this morning at 8am..

Part 1:

Part 2:

The FDIC deposit insurance raise is a no brainer and should have been done years ago. This seems like a better way than just buying massive amounts of debt because it removes the “value” issue of the loans they were buying.

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Tolerance, TV, 1929, Election

– I love it …..liberal “tolerance” on display

– Best TV moment ever compliments of the Newlywed Game

–

– A good election overview

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This is the fourth such purchase for Wells Fargo in the insurance field this fall.

Wells Fargo today announced

Wells Fargo Insurance Services — part of Wells Fargo & Company (NYSE:WFC) — said today it has acquired the EMAR Group, one of the nation’s largest independently-owned commercial insurance agencies, headquartered in Livingston, New Jersey, with an office in Florida. Terms of the agreement were not disclosed.

Founded in 1971 by Emil Solimine in New Jersey, EMAR is a leading local agency in the Tri-state Region. It serves middle market and upper middle market clients as well as risk management customers. The agency works with businesses in diversified industries with a significant concentration in transportation, construction, real estate, and financial institutions industries. EMAR also has access to specialty market programs in small business niches including the limousine services and restaurant industries.

“Risk management is a key product area for our middle market customers and large corporate clients,” said Dave Zuercher, head of Wells Fargo’s International and Insurance Services Group. “EMAR will significantly expand and build on our commercial insurance capabilities on the east coast. It’s another opportunity for Wells Fargo to gain new customers and to achieve our vision of satisfying all of our customers’ financial needs and help them succeed financially.”

“Joining up with the EMAR team will increase our presence significantly in New Jersey,” said Gary Tully, head of Wells Fargo Insurance Services Northeast, Inc. “With our recent acquisition of Herder-Terricone Associates in Three Bridges and the expansion of Wells Fargo Regional Commercial Banking in the Tri-state region, we’re in a strong position to meet even more of the financial needs of New Jersey companies and consumers.”

“We’ve reached a point in the development of our agency that the breadth of products and services provided by Wells Fargo will help bring our business to the next level,” said Solimine. “The majority of our customers have been with us a long time because we bring honest, experienced people to every relationship, a practice we know we can continue as part of Wells Fargo.”

Solimine and his son, David, will continue bringing the EMAR relationship business model to companies in Florida and New Jersey.

Wells Fargo Insurance Services, Inc. (wellsfargo.com/wfis) is the fifth-largest insurance brokerage in the world with 170 offices in 37 states. Its 7,200 insurance professionals place $11.5 billion of risk premiums with expertise in property, casualty, benefits, international, personal lines and life products.

This current banking malaise will pass and when it does, after the Wachovia (WB) buy and these insurance moves, Wells Fargo will be a monster.

JP Morgan (JPM) will be the class of the industry and Citi (C) and Bank of America (BAC) will be the second tier institutions. BAC will struggle with the ramifications of the awful decision to double down on a losing multi billion dollar investment in Coutrywide (CFC) and Citi, well until Citi becomes far less bloated, it will struggle.

Disclosure (“none” means no position):Long WFC, C, none
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May not sound like a lot but it could boost eps 10%.

Silicon.com Reports

Fibreglass giant Owens Corning claims it will boost company profits by $20m in one year using a new data warehouse and business intelligence system.

The company has spent $3m on the 60 day implementation of the data warehousing system from Kalido, which was spun-off from its parent company Shell last year.

Klaus Mikkelsen, global development leader of information systems at Owens Corning, told silicon.com the system will help improve profit margins by some $20m.

“We expect that to be over the first 12 months of operation,” he said.

The new technology will underpin Owens Corning’s Information Access Project (IAP), which will provide more accurate reporting and analysis of which business processes have the biggest impact on gross margins.

Mikkelsen said the IAP has already been used to identify products that were being sold at a loss or very low margins and provided data for managers to identify the problems.

The system is now used by 600 employees and Mikkelsen said the functionality will also be extended throughout the year.

“One of the things we have just completed is the sourcing of sales data. We have also moved forward with sales planning and production statistics,” he said.

Owens Corning (OC) has done a brilliant job diversifying away from housing to composites. Any stabilization in housing will lead to a surge in eps as composite are growing double digits.

Disclosure (“none” means no position):Long OC
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Don’t believe me……in his own words..

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Faber, editor of the “Gloom and Doom” reports talks about the current state of affairs. He says US Treasuries are the next “shoe to drop”

Part 1

Part 2

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