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A second look at those B of A profits
People walk past a Bank of America branch in New York
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Bill Radke: B of A said this morning it turned a $4.2 billion profit in the first quarter. You add that to profits at the other big banks and you have revived hopes for the financial system. Maybe. With the caveats, here's Marketplace's Ashley Milne-Tyte.
Ashley Milne-Tyte: Bank of America's results include the results of Merrill Lynch, which it bought last year.
Christopher Whalen of Institutional Risk Analytics says Merrill's results have helped B of A post a profit. He says Merrill's one of a shrinking number of broker/dealers that's allowed to underwrite government debt. And there's been a lot of that going on lately.
Christopher Whalen: All of the dealers in New York got a huge windfall in the first quarter because the government is now focusing more and more of its business on fewer dealers.
But he says look at the bank's regular customers and its business seems a lot less secure. He says more and more usually reliable borrowers are falling behind on their loans. So he says any celebrations are decidedly premature.
Whalen: You have analysts out with buy recommendations on some of these banks, and yet they're gong into their worst loss experience in the next couple of quarters. So this is not the time to be buying the equity of these institutions right now.
Bank of America says it's put aside more than $13 billion to cover losses from deteriorating debt.
In New York, I'm Ashley Milne-Tyte for Marketplace.
What's apparent is that the Govt is lending money with some pretty tight restrictions which is why the banks seem so eager to pay back the Govt asap.
If part of the government's intent is
to stop the bleeding at banks while
inspiring them to lend, then maybe the government should hedge its bet. The hedge would be to help fund/create new banks to lend money to inspire existing banks through competition to "do right" by the consumer. Something like 70% of the US economy is dependent on consumers spending? While I do not advocate people spending more than they have, there is a demand for credit (despite what the banks claim) at reasonable prices/interest rates. Current banks are somewhat holding the US govt and the US consumer hostage by asking both to bail them out or their failure would completely collapse the economy. Also, if you want to keep the credit you have or get more, then you will pay so much more in fees that there will be lower demand for credit. Could/should the Govt hedge its and the consumers' bets by creating new banks/lenders now to treat the consumers reasonably and lend reasonably to foster demand for reasonable credit? Maybe we & the govt should be creating "big enough to succeed" as fervently as we have attempted to prop up "too big to fail?"
Does any of the bailout money count towards these banks' "record 1st qtr profits?" Whether or not bailout funds do or don't count towards the Q1 profits of the 18 largest banks, there is a troubling trend emerging. While it's great that the banks are making profits as opposed to going under, hundreds of billions of tax payers' dollars have been spent to prop-up these banks so they can begin to lend again as credit is the life-blood of the UD economy. These same banks the taxpayer is propping up is turning around and sticking it to the consumers by drastically raising interest rates and fees (whether they be credit card fees or 401K management fees/ etc). Am I missing something here? The taxpayer who is the consumer is getting screwed and twice over (maybe three times over), and the reason is to keep banks afloat to lend money that's not being lent? How about some good ole fashioned American competition by creating some new banks without the toxic legacy losses who can treat consumers fairly and actually do what they are supposed to do? SUre such banks would need taxpayer money through the US govt to get started, but at least that's the borrower/taxpayer/consumer only getting screwed once. Maybe the govt should be funding/backing banks that don't screw consumers in addition to pushing bank fee reform (how's that pushing been going - not too well). Last question - who do these politicians work for again because banks are making record profits and "joe-consumer" is further indebted through fees and taxpayer money spent than ever before! This has got to be the biggest fleecing of America that has been seen in modern times. US seems big on fighting piracy right on the high seas - how about fighting the piracy happening right here at home?
