Bank Earnings Forecasts



From the “spit coffee all over keyboard” bin this morning…

Analysts’ failure to foresee declining earnings per share for the biggest U.S. banks last year hasn’t stopped them from predicting an even bigger profit surge for 2012.

The six largest lenders, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Goldman Sachs Group Inc. (GS), may post an average profit increase of 57 percent this year, according to 184 analysts’ estimates compiled by Bloomberg. A year ago, analysts predicted profit at the banks would climb 32 percent in 2011. Instead, earnings per share probably fell 18 percent as the economic recovery analysts counted on never took hold.

For those who are unaware, banks make money by making loans, primarily.  The only other legitimate source of earnings are through advisory services (such as consulting on mergers, IPOs and similar things) from which in an actual competitive market is relatively modest (it is not subject to being levered as lending is and can be.)

In a world of financial repression there is little profit to be had in the financial sector, except from scams of various sorts.  That is, when you have central banks and governments conspiring in an attempt to prevent the reversion of prices to actual value (like, for instance, in stocks, houses, bonds, oh, pretty much everything!) because these “assets” have been pledged and loaned against time and time again, and that reversion would render all of the protected lenders instantly insolvent as they acted with ridiculous imprudence and recklessness, you’re left with a “financial system” that has no valid way left to earn actual profits.

Eventually all such attempts fail, as was discovered in Japan.  Real Estate prices did not hold, despite the manipulation.  Neither did stock prices — do I need to remind everyone (again) that the Nikkei is trading about about one quarter of where it was during their hayday?

But wait, there’s more!  Remember that people say Japan suffered “Severe Deflation” and thus their stock market in real terms didn’t crash all that badly.  Oh really?  What does FRED say?


I don’t see deflation there!  What I see is a nominally-stable CPI since roughly 1994.  Deflation eh?  No — but what’s important is that despite the ridiculous and incessant attempts to create inflation the Central Bank and Japanese Government failed, instead simply impoverishing itself with crushing levels of government and systemic debt!

In other words the excesses of the banking system and the frauds spread through asset price bubbles were transferred to the public balance sheet and once there couldn’t be ejected without defaulting — and thus collapsing the government.

See a lesson in there?

You should.

PS: If you want to be frightened, look at the FX cross for the yen/dollar, then consider what that CPI graph would look like were it flattened since that cross was, oh, 50.  Had the Japanese Government’s attempts actually succeeded the result would have been the instant impoverishment of 99% of the nation’s citizens as the cost of living in real terms would have literally tripled!  That’s the nightmare that you face when you allow the fraudsters to abuse leverage by creating naked currency shorts, which is exactly what all of the acts that the banksters committed boil down to when looked at analytically.  If you transfer those bogus credits to the actual government’s balance sheet successfully everyone starves and eventually revolts.  If you attempt that transfer and fail you blow up your government balance sheet with insane amounts of debt.  The only correct and defensible choice is to kick the banksters to the curb and then run them over with as many city buses as are necessary until those zombies stop getting back up.  Handcuffs help too, incidentally.

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