Four more American banks went bust over the weekend, one of the country’s major business financiers, CIT Group, remained locked in talks to avoid bankruptcy and the quarterly results from two big banks left unease in the minds of many investors about their health.
There was some ‘bullish’ news for the economy from home building, but it’s only of limited help at the moment and not the rebound everybody was talking about at the weekend.
This week there’s flood of US results, some important ones in Europe and the Japanese political problems look like taking their toll on the local market and economy if it continues at its present pace.
Eurozone exports and imports improved a touch, but were still negative in May.
Exports plunged 24% year on year but imports fell by 27%, underlining weak domestic and external demand due to the recession.
Germany’s economy ministry said gross domestic product may have bottomed out in the second quarter after a record contraction in the first quarter.
"There is much to suggest that overall economic activity may have stabilized in the second quarter of this year," the ministry said in its monthly report for July.
Australia’s reporting season starts slowly and BHP Billiton’s full year and 4th quarter production report later today will be poured over by investors, governments and others for indicators about the company’s earnings and the direction of demand for the range of commodities the country’s biggest miner producers.
Rio Tinto last week set the tone with stronger than expected first half and second quarter iron ore production and sales from its Western Australian mines.
But while another series of ‘better’ economic and corporate news is expected from some companies and parts of the various economies, the health of the American financial system remains concerning.
The four banks to fail were all of moderate size: two had over $US1 billion in assets each.
The banks were in Georgia, two in California and the fourth was in South Dakota.
Georgia now has an unenviable record: the 10 failures so far this year top the nation.
Friday’s failures will cost the FDIC fund nearly $US1.1 billion, an expensive Friday and brings the total cost for failed banks to $US13.4 billion so far this year. That compares with $US17.6 billion in all of 2008.
Bloomberg pointed out that one of the banks to fail: the Vineyard Bank in California had lost more than $US100 million in the last year as builders defaulted on construction loans.
The construction and commercial property sector is now emerging as the latest problem area for the country’s struggling banks, especially in regional America.
Friday saw a surge in credit losses reported by Bank of America Corp and a weak report from Citigroup, while General Electric Co’s revenue fell sharply and the performance from its troubled finance division was not encouraging.
Bank of America, (the largest US bank) reported a 25% fall in second quarter profit to $US2.42 billion and it warned results would continue to be hurt by troubled loans from credit card, mortgage and business customers due to the weak economy.
"Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010," Chief Executive Kenneth Lewis said in a statement with the results.
BofA’s profit came after it booked a profit of $US5.3 billion gain from its sale of a stake in China Construction Bank during the quarter, and another $US3.8 billion on the sale of its share of a merchants payment company to a joint venture backed by an unnamed investor.
Excluding those profits, BofA would have posted a loss for the quarter.
And that worried investors and analysts on Friday and helped clip much of the optimism from the reports by Goldman Sachs and JPMorgan.
Citigroup reported a $US4.3 billion quarterly profit, thanks to the merger of its brokerage arm into a new venture after struggling to survive the financial crisis.
Without the profit from that sale being booked in the quarter, Citi would have incurred a loss.
Citi, (which is about to cede a 34% stake to the US government) earned a profit compared with a loss of $US2.5 billion a year ago.
But earnings were boosted by a $US6.7 billion gain from the partial sale of Smith Barney, Citi’s brokerage arm, to Morgan Stanley, so without that profit, Citi would have been deep in the red again and seen its sixth loss making period in the past seven quarters.
US analysts pointed out that the results from both banks (and from JPMorgan earlier in the week, confirmed the very poor financial state of US consumers.
Citi and BofA saw losses in their credit card, mortgages and other retail lending businesses continue to rise in the quarter and neither saw any evidence of a peak approaching.
Citi incurred credit costs of $12.4 billion, including $US3.9 billion set aside to cover future loan losses. BofA had credit costs of $US16.4 billion in the three months to June.
Goldman Sachs on Tuesday said quarterly earnings surged 33% while JPMorgan Chase & Co reported a 36% rise on Thursday: Friday’s results from BofA and Citi trimmed the optimism from the two earlier reports.
At General Electric profits fell by nearly half as revenues dropped 17%, worse than forecast by analysts and driven from the widespread impact of the credit crunch and the recession on all of its busine
