by Larry Gellar
As reported by Reuters, Wall Street employees could see a much-reduced bonus this year. That’ll certainly affect bankers at Goldman Sachs, although more traditional bankers at JPMorgan Chase, Bank of America, and Wells Fargo could also feel the squeeze. Meanwhile, Credit Suisse has been experiencing some unique problems due to its position as a Swiss bank. Clearly, any bank stock right now is quite risky. Let’s see what’s been affecting these 5 stocks:
Credit Suisse Group (CS) stock is skyrocketing, although at least one writer on Seeking Alpha isn’t a fan of the stock. That article explains some problems Credit Suisse has had with representations and warranties, as well as some of the bank’s other shady dealings. Credit Suisse’s balance sheet is also something investors should keep an eye on. Famous bank analyst Richard Bove doesn’t think CS is a very good idea right now either. For Bove, a variety of financial, legal, and economic issues are hurting the bank right now.
Additionally, Credit Suisse’s position as a Swiss bank is actually hurting it a bit as a stronger Swiss franc decreases exports. Credit Suisse is also notable for its exposure to the European debt crisis. Important competitors for Credit Suisse include Deutsche Bank (DB) and UBS (UBS). Those stocks have lower price to earnings ratios, while Credit Suisse’s price to sales ratio is between the other two. Operating margin for Credit Suisse has been about average at 24.02%, although quarterly revenue growth is only 0.20%. As for cash flows, Credit Suisse brought in 13.61 billion CHF during 2010 and 26.909 billion CHF during the first 9 months of 2011. Financing activities has primarily created the recent inflows.
JPMorgan Chase (JPM) has been flat lately, although a new program from Chase Card Services should have investors excited. Specifically, the Ink Bold card is getting some new rewards. Here’s what Richard Quigley, president of Ink from Chase, had to say: “
Just as we did with InkSM Classic and the Ink CashSM cards in the second quarter, we are now offering Ink Bold with an enhanced rewards program designed with the small business owner in mind.”
Meanwhile, JPMorgan Chase is receiving some attention from other writers at Seeking Alpha as well. That article explains that while JPMorgan Chase has a variety of risks, the dividend that it offers might be worth it. Another way to play JPM is through options. In fact, options could be especially good now due to the volatility inherent in bank stocks. In other news, JPMorgan Chase is creating a private equity fund for China. The fund will be yuan-denominated, and the Beijing city government has approved it. One important competitor for JPMorgan Chase is Barclays (BCS). That stock is higher for price to earnings and price/earnings to growth but has a lower price to sales ratio. Operating margin of 38.96% is quite good for JPMorgan Chase, although quarterly revenue growth of 3.60% is a bit low. As this article notes, JPM could hike its dividend soon.
The Goldman Sachs Group, Inc. (GS) has been up and down lately, although the company is now involved in a nifty deal with Peacocks Stores, which is based in the U.K. Essentially, Goldman Sachs will write off some debt in exchange for a larger stake in the company’s operations. Goldman Sachs has also been involved in an on-again-off-again relationship with Italian bank Unicredit. Goldman Sachs was originally slated to help sell shares of that bank, but now Goldman Sachs, Morgan Stanley (MS), and JPMorgan are refusing to do the transaction because of its perceived riskiness.
There’s also been some turnover in Goldman Sachs’ Asia operations. Specifically, Tanvir Ghani will be leaving the firm, and Laurianne Curtil will take over the role as head of capital introductions for the prime brokerage group. Compared to Goldman Sachs’ biggest competitor Morgan Stanley, Goldman Sachs has a higher price to earnings ratio, higher price/earnings to growth ratio, and higher price to sales ratio. As we wrote about here, Goldman remains risky in the short term. As for cash flows, Goldman Sachs brought in $1.497 billion during 2010 and $4.415 billion during the first 9 months of 2011. Positive cash from operating activities has been a big boost in 2011, and the company has also found ways to bring in cash through investing activities.
Bank of America Corporation (BAC) has been about flat recently, although a new report is shedding light on how much money the bank actually borrowed during the peak of the financial crisis. Through documents secured by Bloomberg under the Freedom of Information Act, it appears that Bank of America actually made $1.5 billion of profit from loans it took from the Federal Reserve. That’s the type of bailout that has many scratching their heads, including people from both the Tea Party and Occupy Wall Street movements. In fact, Bank of America still has a variety of problems. As explained in this Seeking Alpha article, Bank of America has made some atrocious decisions the past few years and could continue falling.
One important competitor for Bank of America is Citigroup (C). That stock has about 1.5 times the price to sales ratio of Bank of America, in part because it has a much better operating margin. That number for Citigroup is 22.19%. Meanwhile, Citigroup has been in some trouble of its own, seeing as the SEC has denied its proposed settlement in regards to mortgage-backed settlements. In fact, the SEC is demanding that Citigroup reveal more about its MBS operations. On the other hand, Citigroup would prefer to pay the settlement and call it a day in order to avoid bad publicity and future lawsuits.
Wells Fargo & Company (WFC) is about flat for the past week, and at least one writer on Seeking Alpha likes this stock’s dividends. Indeed, Wells Fargo’s stability should mean that strong dividends keep coming, especially in the future, once factors affecting the industry as a whole clear up. Even Warren Buffett has made some comments that support Wells Fargo as a wise investment choice. Additionally, Wells Fargo has reversed its plan to charge customers for using their debit cards. Customers in the 5 states where the plan was tried didn’t like it (needless to say), and here’s what Ed Kadletz, head of the bank’s cards, had to say:
“As we adjust to changes in our business, we will continue to stay attuned to what our customers want. This means understanding their needs.”
Important competitors for Wells Fargo include Bank of America, Citigroup, and JPMorgan Chase, all of which are mentioned elsewhere in this article. Wells Fargo has the highest price to sales ratio out of those stocks, although price/earnings to growth is pretty low. Operating margin of 35.65% is good, although quarterly revenue growth of 2.2% is a bit low. Investors should note that this stock has a beta of 1.99.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.