The money center banks-- as represented by the KBW Bank Index ($BKX)-- is up almost 20% YTD, compared to the less than 9% rise in the broader markets as represented by the S&P 500 index. The money center banks are among the largest financial institutions that are usually located in major economic centers such as London, Hong Kong, Tokyo and New York. They typically do not borrow from or lend to consumers, and generally, the larger part of their borrowing and lending activities are with governments, large corporations and regular banks. Their reach is typically beyond a particular state or region of the country, and very often they have international operations.
In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the money center banks that are being accumulated and those being distributed by legendary or guru fund managers, such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, that are well-known for their savvy in picking winning stocks year after year. Taken together, these guru managers are slightly bearish on the money center banks, cutting a net $2.10 billion in Q4 from their $30.60 billion prior quarter holdings in the group (for more general information on these guru funds, please read the end of the article).
The following are money center banks that these guru fund managers are most bullish about, and that also trade at a discount to the peers in their group (see Table):
Goldman Sachs Group Inc. (GS): GS is the world's leading investment bank. It provides investment banking, securities and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Guru funds together added a net $194 million in Q4 to their $529 million prior quarter position in the company, and taken together guru funds hold 1.2% of the outstanding shares. The top guru fund buyers were guru Donald and Stephen Yacktman's $12 billion Yacktman Asset Management ($78 million) and billionaire investor Ken Griffin's Citadel Advisors ($44 million). The top holders were Pzena Investment Management ($166 million) and Ruane Cunniff & Goldfarb ($165 million).
GS stock has been rallying since it reported its Q4 on January 18th, up more than 25% YTD, in which it handily beat analyst earnings estimates ($1.84 v/s $1.22). The stock currently trades at 8-9 forward P/E and 0.9 P/B, compared to averages of 14.5 and 1.5 for its peers in the investment banking group.
JP Morgan Chase & Co. (JPM): JPM is a global financial company providing private, commercial, and investment banking and treasury services in over 60 countries. Guru funds together added a net $121 million in Q4 to their $2.26 billion prior quarter position in the company, and taken together guru funds hold 1.4% of the outstanding shares. The top guru fund buyers were Andreas Halvorsen's Viking Global Investors ($157 million) and Chicago-based Harris Associates LP, manager of the Oakmark Funds ($110 million), and the top holder was Harris Associates ($832 million). JPM shares have rallied this year, up over 30% YTD, and they trade at a discount 7-8 forward P/E and 1.0 P/B compared to averages of 9.3 and 1.0 for the major regional banks group.
Bank of America (BAC): BAC is a global financial services company providing banking and financial services to individuals, small- and middle-market businesses, corporations and governments primarily in the U.S., and also internationally in over 40 foreign countries. Guru funds together added a net $56 million in Q4 to their $2.33 billion prior quarter position in the company, and taken together guru funds hold 2.6% of the outstanding shares. The top guru fund buyers were Capital Growth Management ($195 million) and Eric Mindich's multi-strategy hedge fund Eton Park Capital ($176 million), and the top holder was Bruce Berkowitz's hedge fund Fairholme Capital Management ($919 million).
BAC shares have rallied strongly this year, up over 50% YTD. They trade at a discount 8 forward P/E and 0.5 P/B compared to averages of 9.3 and 1.0 for the major regional banks group, while earnings are projected to fall from $1.30 in 2011 to $1.06 in 2013.
The following are some additional money center banks that guru funds accumulated in Q4 (see Table):
- HSBC Holdings Plc (HBC), a global provider of commercial and investment banking, and other services, via a network of over 7,200 offices in 85 countries, in which guru funds together added a net $17 million in Q4 to their $18 million prior quarter position in the company; and
- UBS AG (UBS), a Swiss financial services firm that provides wealth management, asset management, and investment banking products and services to private, corporate, and institutional clients worldwide, in which guru funds together added a net $7 million in Q4 to their $187 million prior quarter position in the company.
Besides these, based on their Q4 trading activity, guru funds indicated that they are bearish on the following money center banks (see Table):
- Citigroup Inc. (C), a global financial services company providing consumers, corporations, governments and institutions with a range of financial products and services, including banking, investment, insurance and credit card and other services in more than 160 countries, in which guru funds together cut a net $1.94 billion in Q4 from their $4.70 billion prior quarter position in the company;
- Mitsubishi UFJ Financial Group (MTU), a holding company for the Bank of Tokyo-Mitsubishi and UFJ Bank, in which guru funds together cut a net $209 million in Q4 from their $301 million prior quarter position in the company;
- Wells Fargo & Company (WFC) is a diversified financial services holding company with 9,000 offices primarily in the U.S., and provides retail, commercial and corporate banking services, in which guru funds together cut a net $193 million in Q4 from their $16.53 billion prior quarter position in the company;
- Morgan Stanley (MS), that provides financial products and services to corporations, governments, institutions and individuals worldwide, and operates via three segments, namely, Institutional Securities, Global Wealth Management Group, and Asset Management, in which guru funds together cut a net $136 million in Q4 from their $725 million prior quarter position in the company;
- Banco Santander SA (STD), a global holding company for Banco Santander and other banks providing a wide range of banking and financial products via operating over 14,000 branches in Europe, Latin America, U.K. and U.S., in which guru funds together cut a net $61 million in Q4 from their $194 million prior quarter position in the company;
- Mizuho Financial Group Inc. (MFG), a global financial firm that provides banking, securities, trust and asset management services via over 430 branches in Japan, in which guru funds together cut a net $11 million in Q4 from their $79 million prior quarter position in the company; and
- Barclays Plc (BCS), a British financial services company operating in commercial and financial banking, insurance, financial and other related services in over 50 countries worldwide, in which guru funds together cut a net $5 million in Q4 from their $43 million prior quarter position in the company.
General Methodology and Background Information: The latest available institutional 13-F filings of over 85+ legendary or guru hedge fund and mutual fund managers, such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, were analyzed to determine their capital allocation from among different industry groupings, and to determine their favorite picks and pans in each group. The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 85-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles that can be accessed from our author page.
These legendary or guru fund managers number less than one percent of all funds, and yet, they control over ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.