Ways to Profit as Banks Add on More Fees

Bank of America (BAC), the largest bank in the U.S. based on the level of deposits, is testing new fee structure for its checking account service, which used to be free. The new pilot program for the customers in Arizona, Georgia and Massachusetts allow the customers to apply for various account types with a monthly fees ranging from $6 to $25. The bank plans to expand the program nationally later this year. Other banks such as JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC) have introduced new fees on the checking account service after the Dodd-Frank financial reform bill restricted banks from charging merchants processing fees on debit card transactions.

We have a price estimate of $16.17 on Bank of America's stock which is about 10% above the current market price.

Bank of America is trying to earn more revenues from its existing customer base by requiring them to use more products and services in order to avoid monthly fees. Under the new pilot program, Bank of America introduced four types of checking account.

"Essentials" is a basic account with a monthly fee and a debit card. "eBanking" accounts have no fees if the customer opts for e-statements and makes deposits and withdrawals online or by ATM. "Enhanced" accounts will have a fee if a customer doesn't keep a minimum of $2,000 balance. "Premium" account requires a minimum of $20,000 balance and provides free money orders and check printing.

New Fees Could Lift Service Fees as a % of Deposits

The service fee as a % of deposits represents the total service fee that Bank of America generates on consumer banking and deposits business as a percent of the total outstanding deposits. The fees include overdraft fees, insufficient funds fees, monthly fees, etc.

Bank of America's service fee as a percent of deposits declined from 1.9% in 2008 to about 1.3% in 2010 as the bank limited overdraft fees for customers and the implemented certain regulations by the Federal Reserves which restricted the bank's ability to charge certain fees. We expect service fees as a percent of deposits to increase back to about 1.7% after the introduction of new checking account fees. If this increased to around 2% by the end of the forecast period, this would add around 1-2% to our price estimate.

Below you can also see our forecast for profit margins on deposits and consumer loans. If we assume that higher profit margins would accompany higher fees for this business and we adjusted 2013 profit margin back to 2008 levels, this would chip in another 3-4% to the price estimate.

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Earnings Preview: GM Expected to Post First Annual Profit Since 2004

It's been a real American rags-to-riches story: With the help of a government bailout, automaker General Motors (GM) -- which descended into bankruptcy during a harrowing 2009 -- racked up solid profits in the first three quarters of 2010 and once again went public in November.

On Thursday, investors and taxpayers will get the latest snapshot of GM's health when the company reports earnings for the fourth quarter and full year. Analysts expect the carmaker to post its first full-year profit since 2004, raking in $5.3 billion, according to estimates compiled by Thomson One Analytics.

On a per-share basis, GM's full-year earnings are expected to reach $2.87 a share, according to a consensus estimate of 14 analysts compiled by Zacks.com. Those anticipated results compare to a loss of $4.3 billion during the second half of 2010, following GM's emergence from its controversial government-backed bankruptcy.

This week's earnings report will provide evidence that the plan worked, Aaron Bragman, an analyst with IHS Automotive, told the Detroit Free Press. GM has done quite well under the program, which has been shepherded along by new management team, Bragman said. "First and foremost, this has to be run like a profitable business."

New Model Costs Will Weigh on Results

GM has sought to keep expectations low for the quarter, which ended in December, after earning $4.2 billion in the first nine months of the year. It has warned that fourth-quarter results will be "significantly lower" than those recorded in previous quarters.

The automaker has cited costs related to the introduction of new models, including the compact Chevrolet Cruze and Volt plug-in hybrid as well as increased engineering expenses, for the anticipated lower earnings. GM also expects to take a $700 million charge to buy back preferred shares held by the U.S. Treasury.

The company said it expects to record positive earnings before charges related to interest and taxes, but it didn't say if it anticipates a net profit in the fourth quarter. Wall Street expects GM to report earnings of 47 cents a share on revenue of $34 billion.

After fellow automaker Ford Motor (F) missed analysts' fourth-quarter estimates last month, investors have been concerned that GM may disappoint, too. That may send its shares, which have traded in a narrow range since rejoining the stock market last fall, tumbling.

Growth and Challenges

GM ended Tuesday's trading down about 2% to $35.77 a share, as stocks on Wall Street lost ground overall on worries of higher oil prices and civil unrest in oil-rich Libya.

Growth prospects for GM are strongest in China, where it sold more cars last year than it did in the U.S., and in its U.S. truck operations, according to Trefis. The equity-forecasting firm has set a price target of $45 a share on GM stock, which is about 25% higher than its current share price.

Still, GM still faces challenges in streamlining its European Opel and Vauxhall operations to bring them back into profitability. To that end, the company is seeking to reduce plant capacity and labor costs, cut jobs and increase efficiency.

View all Articles » David Schepp has covered business news for more than a decade at news organizations such as Dow Jones, BBC News and Gannett. His beats have included technology, biotechnology, health care and workplace. He lives in New York's Hudson Valley.

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Saks sees profit after sales lift

23 February 2011 Last updated at 16:20 GMT Saks results suggest luxury shoppers are beginning to spend again US department store chain Saks has reported a profit for the fourth quarter of 2010 after it managed to sell more luxury goods at full price.

Saks reported a net income of $25m (£15.3m) against a loss of $4.6m last year, with same-store sales up 8.4%.

Sales had been hit during the economic downturn when shoppers were less inclined to buy luxury goods.

Saks reported a net income of $47.8m for the year, up from a loss of $57.9m in 2009.

"2010 was a year of good progress for Saks. We returned to prudently and profitably growing the business while making investments for the longer term," said chief executive Stephen Sadove in a statement.

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Maersk reports return to profit

23 February 2011 Last updated at 10:55 GMT Maersk owns the world's biggest container shipping company, Maersk Line Danish container shipping firm AP Moller-Maersk has reported a return to profit, after global trade picked up.

Maersk reported a net profit of 28.2bn Danish kronor ($5.18bn; £3.19bn) for 2010 against a loss of 5.49bn Danish kronor the year before.

In 2009, trade and shipping was hit badly by the economic downturn.

However, Maersk has warned that its 2011 profits will not be as good, due to uncertain freight rates and the price of oil.

The results came after Maersk announced it would order 10 container ships from Korea's Daewoo Shipbuilding for $1.9bn, with options for more, to capitalise on growth in shipping routes between Asia and Europe.

The new Triple-E class vessels - measuring 400 metres long, 59 metres wide and 73 metres tall - will be "the largest vessel of any type known to be in operation", Eivind Kolding, chief executive of Maersk Line, told the Reuters news agency.

The new ships will have the capacity to carry 18,000 standard 20-foot containers.

Strong presence

"Looking ahead, we see strong potential in growth markets, where the number of middle-income consumers is booming," said chief executive Nils Andersen.

"In 2011, we will focus the main part of our attention and investments in these markets, where we already have a strong presence."

Maersk Line is the world's biggest container shipping company.

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Lloyds sees £2.21bn annual profit

25 February 2011 Last updated at 22:36 GMT Eric Daniels: "I don't determine my own bonus"

Lloyds Banking Group has returned to profit for the first time since it was bailed out by the government at the height of the financial crisis.

It saw a pre-tax profit of £2.21bn, compared with a £6.3bn loss in 2009.

A recovery in High Street banking offset rising bad debts in the Republic of Ireland, though its overall cost of bad loans fell from £24bn to £13bn.

The group had already revealed outgoing chief executive Eric Daniels would receive a £1.45m bonus.

Speaking to BBC business editor Robert Peston, Mr Daniels said he had not decided whether to take it.

Payment is deferred, he pointed out, and he would decide at a later date whether to accept it.

Mr Daniels said that 2010 had been an "important year, marking our return to profitability, and a further reduction in risk in our business".

"Our significant progress in the year has positioned the group well to become the best bank in the UK for all our stakeholders," he added.

The group added it had trimmed its bad debts thanks to the "slowly improving economic environment", but warned its problems in the Irish Republic had worsened in the last three months of the year, with bad loans hitting £4.3bn from £2.9bn in 2009.

It also cited Australia as a country that was presenting it with "specific economic challenges", because although economic performance had been "robust", property values outside the major cities were "particularly weak".

Lloyds shares fell around 4.5% on the news, although owing to a technical breakdown at the London Stock Exchange, morning share trading was blocked for several hours.

Heavy adjustment

Lloyds, which is 41%-owned by the government, said its profit figures had been heavily adjusted to reflect the acquisition of HBOS - Halifax Bank of Scotland - in 2009 - a deal that was brokered by the then-Labour government.

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Although Lloyds is back in the black for the first time since the great crash of 2008, its profits actually fell in the second half of last year compared with the first half”

End Quote Robert Peston Business editor, BBC News The 2009 pre-tax loss figure of £6.3bn assumes Lloyds owned HBOS for the whole of the year, even though the merger happened part way through it.

Eric Daniels said he was highly satisfied with the figures.

"Clearly when you have a bank of this size and a troubled portfolio, as we inherited from HBOS, you're going to see some swings and roundabouts, but it was a very, very good year, and probably the most pleasing part was we also reduced risk while we were doing it.

"We repaid a lot of central bank funding last year, £61bn. We also announced this morning that we repaid a further £13bn, and we've reduced the balance sheet quite considerably. So all in, a very good set of results."

Chris Skinner, chairman of the Financial Services Club, told the BBC that the bank's performance had been good enough to justify Mr Daniels taking his bonus.

"I think he deserves it. He's been there since 2003. This was a shotgun marriage that they had to made happen and work.

"He's made it work. There's a new chief executive coming in in March, so as a recognition of his success he has been successful and should take the money."

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Russian tax hits Carlsberg profit

21 February 2011 Last updated at 09:24 GMT Carlsberg manufactures some 300 brands Danish brewer Carlsberg has reported a fall in fourth-quarter net profit due to an increase in excise duty in Russia, designed to combat alcoholism.

Net profit for the last three months of 2010 fell to 301m Danish kroner ($55m; £34m) from 383m kroner in the same period the year before.

Carlsberg's market share in Russia is 40%.

For the whole of 2010 the firm reported a net profit of 5.4bn kroner, up from 3.6bn kroner the year before.

Carlsberg said beer volumes in Eastern Europe last year fell by 9%.

This was mainly driven by destocking in the first quarter and significant price increases in Russia following the 200% excise duty increase on 1 January 2010.

"For 2011 we believe market dynamics will improve slightly, not least in Eastern Europe where we anticipate the Russian market to return to growth," said chief executive Jorgen Buhl Rasmussen.

Carlsberg also manufactures Tuborg, San Miguel and Kronenbourg beers.

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Hartford Financial Services - Profit Rises on Wealth Unit

It seems like the economic is getting better for Hartford Financial Services Group Inc. On Wednesday, this company reported larger profit on fourth-quarter of 2010. Thanks to the varieties of cost pressures offset on their property and casualty insurance business leading to improving results for the wealth management unit. It allows the company doubled its quarterly dividend and based on Wall Street expectations, it is forecasted that the company will get higher profit this year. The effect is improving shares value by 3.1 percent after-hours trading.

As information, Hartford Financial Services is among only three insurers to get bailout from US Government throughout the financial crises. To streamline and improve company focus, reorganization was initiated in 2010. According to Liam McGee, the Chief Executive, the improvement on the company execution and expanding distribution gave more benefits instead of the improving economic environment. A new strategy to use property insurance division forselling life insurance from wealth management unit to business owner is one of the examples how the improvement is made.

The fourth-quarter report mentioned $619 million profit, $1.24 per share. It was an improvement compared to $557 million, or $1.19 per share made earlier year. When the investment gains and losses excluding but still include market-related accounting gains and benefits from releasing reserves, profit of $1.06 per share was reported on that core basis, expected as 96 cents per share. 401(k) sales strength prevented annuity business from continuous decline and led wealth management profits tripled. As the acquisitions integration is finalized, the company retirement business is improving, according to McGee. New products for annuities launched in the second quarter, part of a broader business strategy, will be shrunk two thirds from the peak value. It is also reported that wealth management total deposit rebounded almost entirely from massive decline on the third quarter. Retail mutual funds performance helped it happens. Combination of improved market and inflows in non-annuities business rose under management asset by 5 percent.

In other hand, the company faced significant profit declining on property and casualty insurance business in both commercial and consumer lines. Lower capital gains combined with huge losses and reverses positive released became the reasons. However, as the company has narrowed its focus on consumer side, there was a decline on written premiums but the increasing of auto and homeowners policies could cover it. While on commercial side, written premiums were increasing faintly as the retention remained steady. Hartford Financial Services Group forecasted its 2011 earnings of $3.70 to $3.90 per share while $3.78 per share is the number expected by the analyst.

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Rio Tinto ready to reveal a record profit – and this time, investors want less of it spent

The mining company continues to benefit from soaring demand for commodities, but shareholders are becoming wary of big miners' propensity for grandiose and unsuccessful takeover bids

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