Today - Friday, December 6, 2013
11:42 AMMinus sector giants, mREITs head higher
- There's a bit of green spreading across the mREIT sector this morning as Treasurys reverse an early plunge following the strong jobs report - the 10-year yield is now off 3 basis points to 2.85% after climbing to 2.93% just after the 8:30 ET release.
- However, there's no relief for sector leaders Annaly (NLY -1%) and American Capital Agency (AGNC -1.5%), both of which continue to reel following Goldman's Sell recommendation yesterday - each have carved out new 52-week lows this morning. There may be plenty of players in the mREIT sector, but for the institutional big boys who have the Goldman report on their desks, there's just NLY and AGNC. Others in the red include: Armour (ARR -0.7%) and CYS Investments (CYS -1.1%).
- Posting gains: Chimera (CIM +0.8%), Invesco (IVR +0.2%), Hatteras (HTS +0.2%), Dynex (DX +0.7%), New York Mortgage (NYMT +0.3%), Apollo Residential (AMTG +0.7%), Javelin (JMI +1.1%), AG Mortgage Investment (MITT +2.3%).
- Related ETFs: REM, MORT, MORL.
11:17 AMConsolidation possibilities in apartment REITs
- "It’s very hard to grow in size by doing one-off property acquisitions and one-off property developments,” says REIT analyst Jeffrey Langbaum of the M&A shopping spree for apartment REITs. “If you want to grow in earnest, a big portfolio is one way to do that. You’ve had companies taking advantage of those opportunities.”
- Essex Property Trust (ESS +0.3%) is the latest with its reported $5B bid ($64-$65 per share, though it would probably not be all-cash) for BRE Properties (BRE -0.1%). The deal - should it happen - would add to $22B in apartment REIT purchases in 2013. Before the report of the bid, BRE traded at a 13% discount to its NAV, and next up on the block could be Home Properties (HME +0.6%) and Post Properties (PPS +0.9%), both of which also trade as discounts. A November 22 Citi report pegs Post's NAV at $58.16 vs. a current price $46, and Home's at $73.17 vs. a current $56.
- Associated Estates Realty (AEC -0.3%) is another takeout possibility, says Sandler's Alexander Goldfarb, who estimates NAV at $21.90 vs. the current stock price of $16.33.
- While investors have complained about BRE management's performance, apartment REITs in general have been under pressure amid rising rates this year even as business remains strong. "You have a lot of mismatch in the valuation of apartment buildings or apartment REITs,” says “Long-term factors here are still very stacked on the side of solid growth.” says another analyst.
- Others in the sector: Equity Residential (EQR +0.2%), AvalonBay (AVB +0.4%), UDR (UDR -0.7%), Apartment Investment and Management (AIV +0.4%), Camden (CPT -1.3%), Mid-America (MAA +0.4%).
10:18 AMKBW defends Citi after downgrades
- Citigroup (C +0.9%) remains "a compelling investment on both an absolute and relative basis," says KBW's Fred Cannon, defending the name after it was dropped from Goldman's Conviction Buy list earlier this week, and Deutsche cut it to a Buy.
- Cannon notes Citi is the only big-cap U.S. bank still trading below tangible book value, yet it has one of the strongest capital positions. He expects book to hit $65 during 2015, so if the stock can trade up to book, it's nice upside from today's $51.48.
9:25 AMRBC boosted to Buy at TD Bank
- "Since we initiated coverage on the banks in October, Royal (RY) has moved from a 7% premium to the group back to its long-term average of 3%.," says analyst Mario Mendonca, upping the stock to a Buy with C$80 price target (about $76 in USD terms vs. last night's close of $64.04).
- "We continue to believe that the strong retail results as well as the shift to corporate lending, underwriting, and M&A from pure trading and considerable improvement in domestic commercial loan growth support a premium multiple ... Additionally, we like the diversification Royal’s large capital markets business offers and the improved stability in the capital market business. Importantly, the bank’s fixed income trading business held in better than we expected given the sharply weaker results from the U.S. investment banks."
- Shares +0.6% premarket
9:17 AMPNC settles with Freddie Mac for $89M
- The agreement resolves substantially all indemnification and repurchase obligations on 900K loans originated and sold by PNC to Freddie Mac (FMCC) between 2000 and 2008. PNC will pay Freddie $89M (less credits of $8M).
- This follows an agreement in principal between PNC and Fannie Mae. Both deals require final approvals from the FHFA.
- Press release
7:56 AMWealth management drives revenue gain for Scotiabank
- FQ4 net income of C$1.703B up 12% Y/Y, with EPS of C$1.30 up 10%. Net interest income of $301M up 12% thanks to a 13% increase in assets (ING Direct Canada acquisition) as NIM fell 3 basis points.
- Net fee and commission revenue of $1,788B up 9% Y/Y, driven primarily by higher wealth management revenue. Provisions for credit losses of $329M are about the same as last year. Operating expenses of $2.949B up 9%, with acquisitions accounting for half the growth. Productivity ratio of 53.7% improves from 54.9% a year ago.
- FQ4 results, press release
- Presentation slides
- BNS no trades premarket
7:27 AMCiti and Wells Fargo sued by L.A. over lending practices
- Citigroup (C) and Wells Fargo (WFC) find themselves the subject of a lawsuit by the city of Los Angeles which claims lost tax revenue due to their alleged discriminatory mortgage lending practices.
- Citi and Wells "engaged in a continuous pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by imposing different terms or conditions on a discriminatory and legally prohibited basis," says L.A. city attorney Mike Feuer in the filing. "The misconduct has profound financial consequences for the cities in which mortgaged properties exist, and banks should be responsible for those financial consequences. Banks should reimburse such cities for lost tax revenues due to discriminatory lending."
7:22 AMCME Europe nears regulatory approval
- The launch of CME Europe is near, says CEO Phupinder Gill, with the exchange in the final stages of talks to get approval from the Bank of England. The opening of the exchange - which will start with currency futures and options - has been delayed twice as CME awaits the BOE decision.
- CME's launch will come as the Liffe - London's largest derivatives market - moves to IntercontinentalExchange (ICE) following the takeover of NYSE Euronext.
Thursday, December 5, 2013
4:24 PMNewStar sale process on hold amid CCAR
- The Fed stress tests put the potential sale of NewStar Financial (NEWS -3%) on hold, with the lender reportedly extending into 2014 the time suitors have to submit another round of bids.
- Capital One is among the banks who have expressed interest, but like 29 other lenders with at least $50B in assets, it has until Jan. 6 to submit a capital plan and won't get test results until March.
3:39 PMCarlyle again tries to cash in its Brazilian travel agency
- "If they thought the moment for an IPO last year was unfavorable [last year], maybe now things are just as bad, or even worse, which will probably have quite an impact on the demand," says analyst Rodolfo Amstalden of Carlyle Group's (CG +0.6%) plan to revive the offering of Brazilian travel agency CVC Brasil Operadora e Agencia de Viagens SA.
- The offering will try and raise up to $418M and would be just the 10th this year in Brazil, which is the world's worst-performing major stock market in 2013.
- Hurting the IPOs prospects even more - its purpose is to allow Carlyle (a 63% owner) and other investors to cash out, rather than the company raising money. The 2014 World Cup and 2016 Olympics can't come fast enough for the slumping economy and market.
3:25 PMMorgan Stanley looks to boost business with smaller clients
- Looking to grow its wealth management business in new ways, Morgan Stanley (MS -2.8%) is waving a ban on paying brokers for servicing households with less than $100K in assets at the firm under one condition: The clients must divulge to Morgan assets held outside of Morgan.
- In the past, brokers have complained the restrictions have cut them off from clients with growth potential, and Morgan isn't the only brokerage giving wealth managers a higher payout percentage as revenue rises.
- The tweak is just one of several Morgan and other brokerages are trying out. "They are figuring out how to make a little bit more money in the aggregate without angering any one person enough to get them to leave," says Danny Sarch, a recruiter of retail stockbrokers.
3:15 PMDodd-Frank has community banks reassessing growth plans
- At least a caution sign for those hoping for a wave of bank M&A is the $10B red line in assets, above which increased regulatory scrutiny kicks in courtesy of Dodd-Frank. SNL Financial takes note of those lenders close to the $10B line and says they may need to think twice about growth from here: ONB, MBFI, CFFN, HTH.
3:02 PMGraseck: Goldman to take biggest hit from Volcker rule
- The Volcker rule is expected to be voted on and approved next week, but implementation is likely to be pushed out, says Graseck, to ensure effective compliance. "We expect more rules-based trading with documentation and paperwork needed to demonstrate trading activity is not prop.”
- Goldman (GS -1.4%) generates 50% of its revenue from trading, with FICC contributing 30%, says Morgan Stanley's Betsey Graseck. Additionally, the bank gets 17% of revenues from investing and lending. "We think 25% of this revenue could be at risk," she writes.
- Earlier: The London Whale assures Volcker rule to have sharp teeth.
1:17 PMAnnaly and American Capital lead mREIT decline after Sell rating
- A check of the mortgage REITs following Goldman's interestingly-timed initiation of Annaly (NLY -1.6%) and American Capital Mortgage (AGNC -1.1%) with Sells finds the sector (REM -0.8%) again underperforming the broad market.
- To review: Annaly is off about 40% in 8 months and American Capital is off about 42% in 7 months. Yes, higher interest rates have delivered a hit to their portfolios (which tend to be longish in duration), but investor distaste for the names also has both trading at roughly 20% discounts to their book values.
- So is the call late? Maybe. On the other hand, one well-known hedge funder defines a 50% loss as holding a stock that goes from being down 80% to being down 90%.
- Other names of interest: CYS Investments (CYS -0.4%), Western Asset (WMC -1%).
- Related ETFs: MORT, MORL
12:56 PMDeutsche Bank sets cuts in commodities unit
- The decision to exit dedicated energy, agriculture, dry bulk, and base metals trading as well as transfer its financial derivatives and precious metals desks to the fixed income and currencies division will have "no material impact" on earnings, says Deutsche Bank (DB -1.1%).
- The moves mean about 200 Deutsche employees will be out of work unless the bank can sell the businesses they work for, says a source. Deutsche's investment banking and trading unit employed more than 25K at the end of Q2.
- “The decision to refocus our commodities business is based on our identification of more attractive ways to deploy our capital and balance sheet resources,” says Colin Fan, co-head of Deutsche's investment banking and trading unit.
12:01 PMBlow to banks' hedging in Volcker Rule
- The Too Big To Fail banks lead to the downside amid a report the set-to-be-voted on Volcker rule will not contain language allowing portfolio hedging - trades supposedly designed to protect against losses in a broad portfolio of assets.
- Banks can thank JPMorgan's (JPM -1.7%) London Whale fiasco for this as the Whale's trades were ostensibly set up for this portfolio hedging, but ended up costing the bank $6B.
- The move is a big blow to the banks which had sent their big lobbying guns in to try and prevent the disallowing of this practice. Banks often hedge to offset risks from trading with clients, but often there is no great hedge, and this is where portfolio hedging comes in ... or used to.
- "Volcker has morphed a bit, thanks to the Whale," says UBS' Brennan Hawken. "Now a big component of it has become about hedging. What can you hedge, and what can't you? It's really unclear." The CFTC and SEC are each set to vote on the rule on Dec. 10.
- Citigroup (C -1.9%), Bank of America (BAC -1.2%), Goldman Sachs (GS -1%), Morgan Stanley (MS -2.2%).