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Is This What Passes For Banking These Days?…

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    July 18, 2012

    A headline in yesterday’s Financial Times: ‘U.S. Banks step up oil trade role!’ “Wall Street firms are wading deeper into the business of supplying oil as they compete with oil merchants selling crude to refineries. JP Morgan Chase, Morgan Stanley, and Goldman Sachs have all recently struck deals to supply U.S. refineries. Goldman is now the largest supplier of crude oil, and the largest customer of refined products from refineries owned by Alon USA in California, Louisiana, and Texas. . . . The bank’s increasing role in oil supply comes as U.S. regulators proceed with rules limiting the size of oil derivatives positions held by financial traders. But banks can use physical oil cargoes to offset their quota of derivatives positions.”

    It was interesting that another headline noted that ‘Oil and Gas Hit by Most UK Bribery Cases.’ “The oil and gas industry was subject to the most prosecutions for bribery and fraud in the U.K. of any sector over the past four years.”

    Oil trading sure is another interesting activity for our banks to now be entering.

    HSBC Bank executives are scheduled to testify before U.S. law-makers tomorrow in a multi-year investigation of possible money-laundering connected to the illegal drug trade in Mexico.

    Wachovia Bank has already reached a $160 million agreement with the Department of Justice to settle allegations that it laundered money for the Mexican drug cartels. Court records show that Wachovia “accepted and acknowledged responsibility” for money laundering.

    These are not criminal activities that send ordinary people to prison?

    But at last a banking individual is headed to court. Yet another article on banking in FT is headlined ‘Ex-Citi Banker On Trial Over CDO Sales.’ “U.S. regulators will face their first courtroom test in a case involving an individual banker accused of misleading buyers of a mortgage-related product at the start of the financial crisis. The case comes amid intense pressure on U.S. authorities to hold individuals accountable for the crisis.”

    In the case, the SEC alleges a now former director in CitiGroup’s derivatives group failed to tell investors that Citi helped select the assets that were in the package being sold, and for its own account had placed a $500 million bet that they would decline in price while hyping them to investors.

    But the SEC is still being criticized that it is only charging Mr. Stoker and others with negligence rather than intentional misconduct.

    To read my weekend newspaper column ‘The Banking Industry/Regulations Time-Bomb!’click here.

    2nd quarter earnings are lousy but no matter, they’re beating Wall Street’s estimates.

    How do they do that? How is Wall Street able to monitor the limited data released by a multi-billion dollar international corporation during a quarter, and be aware of the many huge transactions it undertakes through a three-month period, the good things that happen at its various divisions, and the problems that are encountered, and come up with an estimate of what its earnings will be, usually within a penny?

    This morning’s big reports were that Johnson & Johnson (JNJ) reported its Q2 profits fell 49% from $2.78 billion in Q2 last year, to $1.41 billion. But adjusted for one-time costs it came out to $1.30 a share, and Wall Street had forecast only $1.29 a share. Beat the Street’s forecast.

    Coca-Cola (KO) reported its earnings were flat at $2.79 billion versus $2.8 billion a year ago. But its earnings per share rose to $1.21 a share from last year’s $1.20 due to fewer outstanding shares. And Wall Street had all the complexities of that global company nailed, with its estimate of $1.19 a share.

    State Street Bank reported its earnings fell to $480 million, or $98 cents a share, as its revenue declined 3% to $2.42 billion from $2.49 billion a year ago. But Wall Street had that one nailed too with its forecast of earnings of 98 cents a share on revenues of – you guessed it – $2.42 billion.


    For a market that’s been down 7 of 8 days.

    For a market that’s been down 7 of the last 8 days it doesn’t look so bad at all, especially after Friday’s big bounce off of trend-line support.


    Subscribers to Street Smart Report: In addition to the charts and signals in the premium content area this morning, the next issue of the newsletter will be available late in the day tomorrow in the subscribers’ area of the Street Smart Report website.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!