Last week, Warren Buffett officially cut Berkshire Hathaway holdings in Bank of America to less than 10% ownership of the bank. Going forward, he will not be subject to prompt disclosures applied to “insiders”. In other words, he will be able to sell BAC shares at a faster pace without making MSM headlines or showing up on social media radars.
How can we blame Warren Buffett considering the poor state of Bank of America’s financials as we have already discussed in detail?
- 22 July: IS WARREN BUFFETT STARTING TO BE WORRIED ABOUT BANK OF AMERICA’S SOLVENCY?
- 14 January: BANK OF AMERICA WENT “CRAZY” IN Q4 (LITERALLY)
Wait, why then am I saying that today everything will be awesome for BAC? If you expect BAC management to suddenly come clean on their mounting problems and growing holes in their balance sheet today, I am pretty confident you will be disappointed.
Last Friday, JP Morgan and Wells Fargo already comfortably beat Wall Street estimates, which are the equivalent of setting the bar at 50cm from the ground in a high jump competition, showcasing resilient revenue and net interest income growth both in their investment banking and retail arms. What about credit losses? Here is where the results released by the first banks that reported on Friday were hilarious, to say the least.
JP Morgan reported $3.1bn of Credit Losses for the quarter, but among these, only $1bn was due to additional reserves put aside for credit losses expected in the future, for a total reserve of ~$10bn accumulated in the books. To put this into perspective, JP Morgan’s total balance sheet is larger than $4 trillion. Who did the bank blame for the additional credit losses? Mostly Credit Card loans. Apparently, the bank sees no issues whatsoever with the real estate sector and fully praises the government for accomplishing a “soft landing” in the economy.
Wells Fargo had a good day last Friday too after beating expectations. I’m not really sure what people found good in the bank’s Net Interest Income declining 11%, its revenues falling from $20.86bn to $20.37bn, and its net income falling from $5.77bn to $5.11bn from the same quarter last year, but they must be seeing things that I struggle to grasp. The most ridiculous part was the bank setting aside $1.07bn for expected credit losses compared to $1.2bn in the same quarter last year as a result of a “soft landing” for the economy.
I started this week writing about EXPOSING THE ILLUSION: HOW MODERN ECONOMICS FUELS WEALTH INEQUALITY AND ZOMBIE MARKETS, and clearly, you can see that very well in play in both JPM and WFC Q3 earnings reports and investor calls with claims the economy is on course for a “soft landing” while objectively it is not.
The script is clear: banks will keep showcasing the revenues while hiding losses in their loan books (especially commercial real estate ones). Who cares about the paper losses on hundreds of billions in US Treasuries and other government bonds when the FED blessed banks to just sit on top of them and wait for those bonds to mature at par, even if it will take decades for it to happen? After all, in case of a liquidity shortage, the FED will flood the banks with fresh USD out of the printer at will. Who cares about credit losses piling up in toxic lending books like those that supported Private Equities’ buying spree and that now cannot repay their debt because the IPO market is shut? Shame on those investors unwilling to pay brutally inflated valuations for companies with questionable balance sheets and unstable businesses.
There is zero incentive for the likes of Bank of America to come clean today or anytime soon when they have such strong support all around them to keep playing “extend and pretend”, hoping for a miracle to save them. Shame on Warren Buffett who doesn’t believe in miracles and doesn’t want to take a chance of losing billions if God lets banks down. Shame on all those who do not embrace the “everything is awesome” mantra because they don’t like seeing their purchasing power evaporating as a result of a constant state of bailout of the global financial system.
Dear readers, enjoy it while all this lasts, for sure for another 3 weeks until the US elections. Parties cannot last forever, and the hangover from one that lasted so long will be brutal to digest once the party is over because it is never different this time.
#JustDario Announcement: after many requests from my readers I decided to start an Instagram account for the blog. For those who enjoy Instagram more than Twitter/X you can follow my updates on @justdarioofficial. As always, thanks to every one of you for your support.