The Financial Landscape: Banks Get No Love; OPEC Argues With OPEC

James Dimon
James Dimon

A roundup of news from around the world of finance:

Investors Aren't Banking on Big Banks:
The New York Timesreports that bank stocks, which are "selling at near their lows for the year, and trading at well below the valuation of other large companies," are not even seen as a good deal by many bargain-hunting investors. The Times cites "worries about a possible debt downgrade," "investigations into the role they played in the financial crisis," "weaker-than-expected economic data," and new federal regulations that are "set to cut deeply into revenue on everything from debit card transactions to trading on Wall Street."

A couple of hedge-fund big shots have exited the sector, including John A. Paulson, the subprime mortgage-shorting billionaire who worked with Goldman Sachs (GS) on a deal that earned the bank a civil fraud lawsuit by the SEC (settled for $550 million). Retail investors, who generally like bank stocks for their dividends and reliability, have been left holding the bag. (Despite his apparent prescience on the banks, Paulson's fund -- the world's third largest -- lost close to 6% of its value last month.)

New Faces at the Top of Chase?
According to The Wall Street Journal, a management shakeup is predicted by insiders at J.P. Morgan Chase (JPM), which made it through the financial crisis "with one of the most stable management teams in the financial world," emerging "as one of the strongest banks in the U.S." Among those reported to be in play is Jes Staley, chief of the investment bank, the company's most profitable division. CEO James Dimon (pictured, above) might remain for five more years while various subordinates vie for his position. The newspaper also reports that Goldman Sachs is contemplating a release of documents intended to undermine Sen. Carl Levin's (D-Mich.) report on subprime mortgage-related malfeasance (i.e., securities fraud). Apparently, Goldman has run the numbers and convinced itself it has a strong case against the allegations that it massively shorted the housing market before selling loads of mortgage-backed securities to its clients.

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OPEC vs. OPEC: The Organization of the Petroleum Exporting Countries looks set for an internal battle over whether to raise oil production quotas. Saudi Arabia, Kuwait, and the United Arab Emirates are said to be in favor, but Iranian OPEC Governor Muhammad Ali Khatibi told Dow Jones Newswires, "I don't accept this situation that we need more oil. It is difficult to understand. The market is balanced. It is not fair to change to overproduction. We should respond based on facts and figures, not based on rumors or expectations from OPEC." The split seems to reflect the broader geopolitical situation, in which Iran's rising influence is set against the Arab states.

Airlines Profits Decrease Altitude:
The Financial Timesreports that the world's major airlines will make a net profit of just $4 billion in 2011 compared with $18 billion in 2010, citing the International Air Transport Association. Among the reasons cited are the earthquake and tsunami in Japan, political upheaval in the Middle East and North Africa, and increased oil prices. IATA Director General Giovanni Bisignani said "the airlines' collective profit margin would fall to 0.7% on forecast revenues of $598 billion, compared with last year's 'pathetic' 3.2% on revenues of $562 billion," but also noted that the sector could suffer a collective loss "if fears of a slowdown in global economic growth are realised following poor economic data from the the U.S. last week." (The industry lost money in every calendar year since 2001.) Bisignani sounded almost surprised that the airlines "are making any money at all in a year with this combination of unprecedented shocks."

Bisignani denounced European Union plans to introduce a carbon trading regime in January 2012 ("a $1.5 billion cash grab," in his words). The head of Airbus has also spoken out against the measure, which would be applied to all international carries, warning of trade war with China and "retaliatory measures" from the U.S.

French Minister Likely to Lead Post-DSK IMF:
Bloomberg speculates that Treasury Secretary Timothy Geithner will feel compelled to support French Finance Minister Christine Lagarde in his bid to become the next head of the International Monetary Fund, following Dominique Strauss-Kahn's resignation, since "backing a non-European for the IMF could mean relinquishing U.S. control of the World Bank -- an outcome members of Congress who decide on funding for development banks are not ready to contemplate." (Traditionally, "the IMF has always been led by a European while the World Bank has been headed by an American.") Mexican central bank governor Agustin Carstens is another leading candidate, and many have called for a representative of the developing world to win the appointment. But there appears to be no consensus among the "emerging economies," while European elites have decided to back Lagarde. American officials seem determined to preserve the perceived advantage of controlling the World Bank: According to Marisa Lago, Geithner's assistant secretary for international markets and development, "We have been very well served by the U.S. leadership and the World Bank has been well served."

What's Ahead From the Fed?: Both Geithner and Fed Chairman Ben Bernanke are schedule to speak today at the International Monetary Conference in Atlanta. According to Politico, "markets will listen closely for any sign that Bernanke is concerned enough about weak employment growth to think about more quantitative easing."

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