Tomorrow, Jan. 16, US banks will release a flurry of financial statements and data in their third quarter earnings releases. Even to journalists who have to read these things every quarter, the numbers don’t really make sense. Earnings per share are far less important than what the banks themselves are invested in: Do they have exposure to excessive risk? Are they holding the right kind of assets? Are they lending to lots of people, are they making money on lending, or both?
One thing’s for certain: The banks will be talking about cleaning house. An overwhelming number of reports on financial misconduct during and after the financial crisis have come to the fore during the past few months, and banks have repeatedly promised to change their ways. But how much of that change is for real?
Of the largest banks, Bank of America, Citibank, JPMorgan Chase, and Wells Fargo will all talk about how they are preparing to pay their parts of an $8.5 billion settlement with federal bank regulators. The money will attempt to right wrongs in poor foreclosure management practices for homes that were in foreclosure from 2009 to 2010 but, in reality, may do little to blunt the burden of home loss for many foreclosed-on families. Bank of America was hammered with a still further $11.6 billion settlement related to mortgages, this time with government mortgage agency Fannie Mae.
Morgan Stanley, meanwhile, has focused on changing its ways and cutting costs paramount. Not only will it lay off 1,600 workers—6% of its workforce—it decided today to delay bonus payments for senior employees making over $350,000 and receiving more than $50,000 in bonus for 2012. It all fits with CEO James Gorman’s belief that Wall Street is home to “too many overpaid bankers.“
Citi has also been cleaning house, getting rid of 11,000 workers under the new leadership of CEO Michael Corbat. But it’s not clear that meaner and leaner means less risky. For example, both Morgan and Citi plan to cut a bunch of fat in Asia, not the US. Moreover, delaying bonus payments isn’t exactly a new idea on the Street.
But JP Morgan may be the best indicator that changes on the Street are only skin deep. Although the results of an internal investigation into a massive $6.2 billion trading loss—the “London whale” scandal—will likely be released tomorrow, we argued that the Feds probably missed an opportunity to change the way banks assess and manage risk. In fact, the lack of fines for JP Morgan probably means a serious discussion of the “whale” incident will be conspicuously absent from the actual earnings presentations and conference call.