JPMorgan Hit with $100M Fine in London Whale Trading Scandal

The bank has been slapped with yet another big fine as it works to clean up and wrap-up the mess created by the London Whale trading scandal. CNN Money reports that JPMorgan will pay $100 million to the U.S. Commodity Futures Trading Commission, conceding "reckless" behavior led to the trading debacle that generated about $6 billion in losses.

Former London-based JPMorgan (JPM) trader Bruno Iksil, whose team is thought to be responsible for the complex derivatives bet, was nicknamed the "London Whale" due to the massive trading position.

The CFTC said in a statement Wednesday that by selling a staggering volume of these swaps in a concentrated period, the bank "recklessly disregarded the fundamental precept on which market participants rely, that prices are established based on legitimate forces of supply and demand."

It's the latest in a series of financial blows to hit the bank. The most recent penalty relates to trading behavior, while earlier fines have punished JPMorgan for failing to maintain proper governance practices.

Last month, the investment bank agreed to pay about $920 million in penalties to U.S. and U.K. regulators to settle charges over the London Whale trades.

Through those fines, the bank acknowledged that it violated banking rules by not properly overseeing its trading operations. In legal language, regulators said that the bank engaged in "unsafe and unsound practices."

The bank is also wrestling with authorities over a possible settlement of government investigations related to mortgage-backed securities.

Chief executive Jamie Dimon met with Attorney General Eric Holder in Washington last month to discuss a potential deal thought to be valued $11 billion.

Mortgage-backed securities became a key cause of the financial crisis when they failed in droves as the housing market collapsed.

JPMorgan is one of several large lenders that have faced lawsuits for allegedly selling securities backed by risky, low-quality mortgages while misrepresenting them as safe investments.

All these legal woes are hurting earnings. The bank's sky-high legal costs led to a loss of $400 million during the third quarter, the first loss since Jamie Dimon took over as CEO in 2004.

Home Builder Confidence Slumps to Four-Month Low Weighed by Gov’t Shutdown

Confidence among home builders declined in October to the lowest level in four months, with mortgage-rate volatility and Washington’s impasse over the debt ceiling hurting builders’ views on single-family-home sales, according to a report released Wednesday.

The National Association of Home Builders/Wells Fargo housing-market index fell to 55 in October from 57 in September. A prior September estimate pegged the level at 58, which matched the highest reading since 2005.

Results above 50 signal that builders, generally, are optimistic about sales trends. Economists polled by MarketWatch had expected an October reading of 58.

“Interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward,” David Crowe, NAHB’s chief economist told MarketWatch. “Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.”

Despite the recent decline, pent-up demand is supporting builder sentiment, which has increased 34% over the past year, outpacing home-construction growth.

“The index has been inexplicably strong in recent months as mortgage applications and new home sales have fallen, so this reading goes some way towards closing the gap, but it still looks far too high,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Either...home builders see real fundamental strength in the market and are unworried about the rise in rates and the weakness of consumers’ confidence, or they are kidding themselves and are headed for disappointment.”

The government was slated to report its most recent data on home construction this week, but won’t because of the shutdown. NAHB created its own estimate, and forecast that the annual rate of housing starts in September reached between 875,000 and 900,000 units, which translates to growth about 2% to 5% from the year-earlier period. NAHB’s range is close to MarketWatch’s consensus forecast of a starts rate of 910,000 in September, which translates to growth of about 7% from the year-earlier period.

Details of NAHB’s report show that each of the three sentiment-index components declined two points in October. The gauge of present sales of single-family homes hit 58, while the barometer of sales over the next six months reached 62, and the gauge of prospective-buyer traffic fell to 44.

Looking at regions, three out of four posted lower housing-market-index results in October. The Northeast saw the biggest drop, with the gauge there falling 13 points to 31 in October from 44 in September. The West saw a five-point drop to 58, and the South had a four-point drop to 54. Meanwhile, the Midwest saw a two-point increase to 65.

Despite some recent signs of softness, economists expect the housing market to continue to add to economic growth this year. Analysts at CIBC World Markets recently forecast that home construction could surge in coming quarters, as buyers look to lock in good deals and it becomes easier to obtain a mortgage. Although mortgage rates have trended higher since early May, they remain relatively low by historical standards.

Still, in recent weeks, there’s been a cloud over the housing market from the protracted partisan debates in Washington over government spending. A shutdown government slowed down loan processing, while a U.S. debt default threatened to send mortgage rates higher.

Bank of America Turns to Q3 Profit, Misses Sales Forecast

Bank of America swung to a profit in the third quarter after breaking even last year. Investors cheered the bank's results, pushing shares of Bank of America (BAC) up more than 2% Wednesday afternoon.

Despite the unfolding debt ceiling crisis in Washington, CEO Brian Moynihan sounded upbeat. "The economy and business climate will improve even more quickly as conditions normalize, and we are well positioned to benefit from that," Moynihan said in a release.

Bank of America managed to beat analysts' profit expectations for the third quarter, but it failed to meet revenue forecasts. The slowdown in mortgage lending weighed on Bank of America's revenues. However, cost cutting and $800 million from the sale of its stake in China Construction Bank (CICHY) helped Bank of America generate a profit, reports CNN.

Unlike most of the big banks that have reported earnings so far, Bank of America reported increased revenues in its consumer banking franchise helped by higher use of the bank's credit and debit cards. Small business lending rose more than 31% from last year.

Revenues dipped slightly in the bank's global markets business, which includes trading. Profits fell in that unit too. Bank of America's stock trading revenues increased but not by enough to offset the dip in bond trading that has hit all the major banks.

Bank of America has been aggressively cutting costs, largely by reducing its headcount. Since last year, Bank of America has eliminated more than 24,600 jobs, or 9% of its employees.

On a conference call, Moynihan said Bank of America will continue to cut staff that worked specifically on mortgage lending and refinancings. Moynihan warned that Bank of America could continue to take a hit from the drop in mortgage refinancings.

One set of costs that still worry analysts: litigation expenses. Bank of America recorded $1.1 billion in costs due to ongoing litigation related to the financial crisis and the bank's subprime lending. That was down from $1.6 billion in litigation costs a year ago but more than double what the bank spent in the second quarter.

Bank of America's CFO Bruce Thompson noted that litigation expenses were elevated but wouldn't predict whether or not costs would remain at these heightened levels.

The key numbers: Bank of America reported earnings of 20 cents per share on $2.5 billion on revenues of $21.7 billion. Analysts had expected the bank to report a profit of 18 cents per share on revenues of $22 billion.

Bank of America's stock is up 23% this year. Financial firms have been among the biggest winners in the market rally this year despite concerns about rising interest rates and the debt ceiling drama.

Citigroup Posts Worse-than-Expected Q3 Financial Results

Citigroup (C) is the latest big bank to disappoint investors. The company reported third quarter profits and revenues that fell short of analysts' expectations.

Despite the earnings miss, Citigroup CEO Michael Corbat said in a press release that the bank "performed relatively well in this challenging, uneven macro environment." Corbat touted the company's cost cutting, but the quarterly results show that Citigroup is having trouble trimming costs quickly enough to compensate for declining sales.

Citigroup's revenues dropped 5% from the same period a year ago, while its expenses were down 4%.

Revenue and profits at Citigroup's consumer banking franchises and its trading and investment banking units fell in the third quarter.

The rising interest rate hit: The spike in interest rates over the summer caused a slowdown in new mortgages and refinancings, as well as bond trading.

Citigroup noted that it took a big hit from the slump in mortgage lending. In North America, mortgage lending declined by 20% from last year.

The bank's bond trading unit reported a 26% drop in third quarter revenues compared to last year.

Citigroup is often deemed the world's financial supermarket because it caters to consumers and investors in all corners of the world. In the third quarter, that global footprint hit earnings, as revenues and profits in its consumer banking operations plunged in most corners of the world.

Chief financial officer John Gerspach noted the "high level of volatility in emerging markets" during the third quarter in a conference call with reporters. He said those regions took an outsized hit from worries over whether the Federal Reserve might cut back its bond buying program. The Fed wound up holding off on so-called tapering for now. But the damage was already done in markets like India, Brazil and Indonesia.

Citigroup continues to shrink the size of its so-called bad bank "Citi Holdings" -- which owns toxic assets from before the 2008 credit meltdown. During the third quarter, Citi Holdings' assets declined 29% from the prior year. But with $122 billion in assets remaining in the unit, it will take more time to completely exorcise Citi's financial crisis demons.

The key third quarter numbers: Citigroup reported $1.02 per share in third quarter earnings on $18.2 billion in revenues. Analysts were forecasting a profit of $1.04 per share on $18.74 billion in revenues.

Although the stock was set to fall on following its earnings release Tuesday, Citigroup's shares are still up 25% this year. Big bank stocks in general have been helping to lead the market higher.