Too soon for banks to feel bailout effect
Share Now on:
TEXT OF STORY
Scott Jagow: We haven’t seen much evidence that the bailout money given to banks has increased lending. But it might be allowing banks to get their houses in order a bit more. That won’t make their investors feel much better during this earnings season, though. This morning, JP Morgan Chase said profits fell 76 percent last quarter.
We’ll be getting more of these bank reports in the coming days, and they’ll probably all have a similar story. Marketplace’s Ashley Milne-Tyte reports.
Ashley Milne-Tyte: Many banks signed up for a piece of the $250 billion cash infusion program launched by the Treasury last October.
But Standard and Poors equity analyst Stuart Plesser says that didn’t do much to prop up fourth-quarter earnings. It’s still too early, he says, for that money to have a positive effect. In fact, having that cash on hand could mean even worse results.
Stuart Plesser: I think that some of the banks feel that because they have this capital from the government that they can be more aggressive with the write-downs they take.
Now they’ve got the money, he says, banks could use it to take massive write-downs they couldn’t afford to absorb before. In the meantime, the earnings outlook for smaller regional banks isn’t much better.
Plesser says they aren’t nearly as exposed to the complex securities that got so many big-name banks in trouble, but they hold plenty of mortgage and credit card loans. And default rates on those just keep going up.
In New York, I’m Ashley Milne-Tyte for Marketplace.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.