qe3
Analysts up bank earnings on QE3
October 2, 2012: 2:03 PM ETBernanke boost, though, could be short-lived.
Fed Chairman Ben Bernanke
Fortune -- Will Bernanke save bonuses? Not likely.
A number of analysts have recently upped their third quarter earnings estimates for the banks based on QE3. In mid-September, Ben Bernanke announced that the Federal Reserve will buy $40 billion worth of mortgage bonds a month until the economy recovers. Mortgage spreads, the amount banks make on home loans, have widened 0.16% since QE3 was announced, and are now at 1.6%, or roughly three times as large as they have been on average for the past decade.
But some analysts may be getting carried away with their QE3 lovin'. When Bernanke announced the bond buying program there were only 12 working days left in the quarter. Yet, Richard Staite, an analyst at Atlantic Equities, estimates that QE3 will goose Wells Fargo's (WFC) bottom line by $105 million in the third quarter alone, or nearly $9 million per QE3 working day.
MORE: Shelia Bair takes on Bernanke
David Konrad, an analyst at Keefe Bruyette and Woods, recently upgraded his rating of Citigroup (C) to an outperform. His No. 1 reason: QE3. JPMorgan's Vivek Juneja says he believes QE3 will boost demand for mortgages in the fourth quarter.
There has been some debate about whether the Fed's bond buying programs will end up being a boon or a bust for the banks. While QE3 has boosted the banks' mortgage business, overall the Fed's efforts to keep interest rates low could hurt elsewhere. Mortgages are often sold off to investors or to Fannie Mae or Freddie Mac. As a result, banks are able to book an immediate profit. But in many other areas, banks often hold onto the loans they make. Lower interest rates mean they will make less money on every loan, perhaps for years. The longer interest rate remain low, the more high interest rate loans disappear. Juneja says he expects long-term net interest margins, which measures the profits banks make on all their loans, not just mortgages, to decline more than expected because of QE3.
MORE: Fed's buying spree may not save the jobless
So the answer has to do with short-term versus long-term. In the short-term, the boost banks are getting from QE3 in their mortgage businesses is greater than the drag on profits in other lending businesses. The question is when will that flip.
The answer could be pretty quick. Atlantic Equities' Staite, for instance, estimates Wells Fargo's Bernanke boost is likely to dissipate to just $150 million for the entire fourth quarter, which translates into $1.6 million per working day. Still positive, but dropping quickly.
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The Fed's bond-buying spree may not save the jobless
Are super-low interest rates really the answer to our economic woes, particularly at a time brimming with uncertainty and tighter lending standards?
FORTUNE – Yet again, the Fed-gasm continues.
To give the U.S. economy an extra boost, Fed policymakers on Thursday launched another round of bond purchases -- an additional $40 billion worth a month. The move would have been an unusual step for the central bank years ago, but since the MORE
Nin-Hai Tseng, Writer - Sep 13, 2012 2:37 PM ET -
Let's be realistic about what the Fed can do for the economy
Keeping interest rates near zero doesn't help much if people are too spooked to spend. A more radical solution may be in order.
By John Cassidy, contributor
FORTUNE -- Can Ben Bernanke pull the U.S. economy out of its double dip? Some investors are betting he will. The Fed's announcement that it intends to keep short-term rates close to zero until mid-2013 was widely interpreted as a signal that further action is MORE
Aug 22, 2011 5:00 AM ET -
Bernanke's pain point: a 17% stock drop
How low would stocks have to go to bring Ben Bernanke off the sidelines?
A 17% drop in the U.S. blue chips would probably suffice, say big fund managers surveyed this month by Bank of America Merrill Lynch.
The S&P 500 would have to hit 1100 to get the Fed buying more bonds to prop up domestic demand for goods and services, according to the survey of 265 managers overseeing nearly $800 MORE
Colin Barr - Jul 20, 2011 9:52 AM ET -
The frozen Fed's 'zone of inaction'
Welcome to the world of the do-nothing Fed.
After three years of frantic activity by Ben Bernanke & Co., the Federal Reserve has entered a period in which its hands are likely to be tied by a limping economy and the toxic politics of inflation. That is, unless there is another crisis. If you feel the walls closing in a bit, you're not alone.
The Federal Open Market Committee's statement Wednesday admits MORE
Colin Barr - Jun 22, 2011 2:00 PM ET -
How the housing depression spells QE3
How much of a mirage was the brief housing rebound?
The double dip in U.S. house prices is raising fears of another recession. But by one measure housing and consumer spending never bounced back in the first place.
The Chicago Fed's personal consumption and housing index, which tracks housing starts, building permits, retail sales and personal spending, hasn't been above zero since December 2006. That's a 52-month stretch that's unparalleled in the 34-year MORE
Colin Barr - Jun 13, 2011 10:45 AM ET -
Jobless wave puts QE3 on the horizon
It's early yet to lose sleep over the job market's one-step-forward, one-step-back routine. Even so, the latest pivot is eye-opening.
A government report out Thursday showed initial claims for unemployment insurance rose 10% from the previous week to an eight-month high. Because the number is weekly, economists tend to take initial claims with a light sprinkling of salt – particularly in a week featuring tornadoes and Japan-related auto industry bottlenecks.
Even so, a look MORE
Colin Barr - May 5, 2011 11:33 AM ET
