Saturday, January 24, 2015
- The financial sector is off to a worse start to the year than even the energy names, with the XLF down 3.9% YTD vs. the XLE's 3.2% decline. The S&P 500 is roughly flat. The SPDR KBW Bank ETF (NYSEARCA:KBE) is off 7.5%, and the Regional Bank ETF (NYSEARCA:KRE) is lower by 6.9%.
- Q4 earnings results haven't been wonderful, but financial names had been savaged well before those reports started coming out. Instead there's a difficult regulatory regime that won't quit, and - for now - it's looking like "wait'll next year" for the rising interest rates that were supposed to drive profit margins higher. The 10-year/2-year spread - already pretty low at 150 basis points to start the year - has narrowed to 137 bps.
- A partial roll call of banks: Bank of America (NYSE:BAC) -12.1% YTD, Citigroup (NYSE:C) -10.1%, JPMorgan (NYSE:JPM) -9.4%, Morgan Stanley (NYSE:MS) -9.4%, Regions Financial (NYSE:RF) -14.7%, KeyCorp (NYSE:KEY) -4.5%, PNC Financial (NYSE:PNC) -5.4%, Bank of New York (NYSE:BK) -9.1%, Capital One (NYSE:COF) -6%, Discover (NYSE:DFS) -13.6%.
- Other spread-starved sector names: MetLife (NYSE:MET) -9.8%, AIG (NYSE:AIG) -8%, Prudential (NYSE:PRU) -10.8%, Schwab (NYSE:SCHW) -9.9%.
- Some of what's working in financials: Blackstone (NYSE:BX) +6.7%, E*Trade (NASDAQ:ETFC) +1.2%, WisdomTree (NASDAQ:WETF) +12.3%, Legg Mason +2.8%.
Friday, January 23, 2015
- "[The recent wave of cuts] is behind us now, so I don't foresee any significant reductions in the workforce going forward," says First Niagara (FNFG +1%) CEO Gary Crosby on the earnings call.
- The cuts which have already taken place will save the bank $27M annually, he says. As for this year's branch closures, the spots have already been identified, and none will affect First Niagara's Western New York base.
- The company's strategic investment plan continues, with $98M spent so far and another $70M set for this year. "We have the people we need and no more than the people we need to implement our strategic investment plan," says Crosby.
- Previously: Income falls from last year at First Niagara (Jan. 23)
- Previously: First Niagara beats by $0.01, misses on revenue (Jan. 23)
- TD Bank (TD +1.4%) has no plans to cut its prime rate in line with the central bank's 25 basis point rate cut this week, and Royal Bank of Canada (RY +1.2%) is also holding off, at least for now.
- "Like the others," says RBC CEO David McKay, "[we] were completely caught off guard ... I need to catch up with my team and digest what’s going on in the market and figure out what we’re going to do from here.”
- Bank of Montreal (BMO +0.6%) and CIBC (CM -0.1%) are keeping mum about their plans at the moment, and Scotiabank (BNS +0.3%) says there will be an announcement if there's any change to report.
- The purpose of the BOC rate cut, says Canaccord's Gabriel Dechaine, was to ease the affordability of Canadians' very high debt loads. He believes there will be "regulatory pressure" for the country's big banks to follow suit.
- ETFs: EWC, CNDA, EWCS, FCAN, QCAN
- Previously: Unexpected rate cut for Canada (Jan. 21)
- It's something Bank of America (BAC -1.6%) hasn't done in more than a decade, writes Deon Roberts - opening a branch in a new market.
- This week, the bank cut the ribbon on a branch in Denver, its first in that state, and BofA says there's more to come. In addition, the bank plans to open its first branch in Minnesota in Q2. It will come in Minneapolis and be followed by other branches in the Twin Cities area over the next two years.
- The moves are particularly noteworthy as BofA is rapidly closing branches in other U.S. markets, but CEO Brian Moynihan is making a point of having retail locations in major markets where the bank is already serving customers and businesses through its U.S. Trust and Merrill Lynch units. “We’ll go to other markets largely just to complete the footprint,” says Moynihan. "You've got to complete the franchise."
- Not just shorting the Ocwen (OCN -22.1%) and affiliate Home Loan Servicing (HLSS -10.9%), BlueMountain Capital is creating its own future by delivering a notice of default against a receivable trust that is a key funding source for Ocwen.
- Led by Andrew Feldstein, BlueMountain is notable for having been on the other side of JPMorgan's London Whale trading losses in 2012. The fund is a major player in the CDS market and - believing the recent NY sanctions against the company have put some of the company's credit sources into default - BlueMountain has bought the paper and shorted the stock.
- ASPS -8.8%, AAMC -12%, RESI -1.7%
- "We now see a more credible pathway to unlocking the substantial trapped value in the E"Trade (ETFC +8.8%) franchise," says Credit Suisse, upgrading to Outperform from Neutral following Q4 results last night.
- Compass Point reiterates its Buy rating and lifts the price target to $28 from $24.
- Alongside the earnings beat, the company announced regulatory approval to operate E*Trade bank at a 9% leverage ratio and to remove its broker dealers from under the bank - the result of which will allow a Q1 capital distribution to the parent of about $430M. The company plans to request another $75M in Q2, along with quarterly dividends equal to what the bank earns.
- "We are now faced with the high quality challenge of what to do with the capital and I assure you it is top of mind for us," says CEO Paul Idzik on the earnings call (transcript), suggesting cutting debt by $400M is at the top of the list.
- Previously: E*Trade +4.3% after beat, green-light for bank dividends (Jan. 22)
12:29 PM| Comment!
- Self-storage REITs are ahead by 9.6% in the first three weeks of January, according to TreppWire, adding to returns of 31.44% in 2014 and 9.49% the year before that.
- Fundamentals are strong, but 2015 could be a year of M&A in an industry which remains highly fragmented, with thousands of small and mid-sized owners ready to be scooped up by the larger REIT players and their lower cost of capital.
- Expect cap rates to be low - in the 5% range for the best properties - meaning perhaps instead of M&A, new construction could end up being a better idea.
- Players: Public Storage (PSA -0.6%), Sovran Self Storage (SSS -0.6%), CubeSmart (CUBE +0.4%), Extra Space Storage (EXR +0.2%).
- Already the number one mutual fund company in the world, Vanguard has moved into the number two spot in ETFs, displacing State Street (NYSE:STT), but still well behind #1 BlackRock (NYSE:BLK).
- BlackRock's ETFs (iShares) have $756B in AUM, Vanguard $433B, and State Street $431.8B. It's the Big 3's world, as AUM at firm #4 - Invesco PowerShares - fall all the way to $94.7B.
- State Street's SSgA unit isn't going away, writes ETF.com's Olivier Ludwig, and may yet retake the #2 spot, with interest still high in giant funds like SPY and GLD, and the company's leading-edge focus on active and factor-focused ETFs.
- Q4 earnings of $531M or $0.64 per share vs. $443M and $0.63 one year ago. Share count of 833.8M up from 705.3M. Tangible book value per share of $10.81 vs. $6.68.
- Net interest income of $2.978B vs. $2.849B a year ago. Loan loss provisions of $797M vs. $818M.
- Loan receivables of $61B up 7% Y/Y. Purchase volume up 11%.
- Conference call is underway.
- Previously: Synchrony Financial beats by $0.04, beats on revenue (Jan. 23)
- SYF +3.1%
- SunTrust climbs aboard the big run higher in CubeSmart (CUBE +0.5%), upgrading to a Buy with price target lifted to $28 from $22.
- The upgrade is also notable for coming alongside three REIT downgrades from SunTrust today - though the downgrades were all on office REIT stocks.
- Previously: SunTrust rings the register on office REITs (Jan. 23)
- "We are increasingly confident about the company’s ability to continue to improve organic growth trends and deliver operational leverage over time," says Jefferies' Daniel Fannon, reiterating his Buy rating and lifting the price target to $20 from $18.
- "Flow trends within the legacy Janus (NYSE:JNS) equity products are gaining traction despite ongoing headwinds within key products (i.e. Perkins). We believe the company remains in the early stages of its turnaround and 2015 will mark a year of consistent growth and capital return."
- He lifts his 2015 EPS outlook to $1.30 from $1.27.
- Previously: Janus soars as Gross' impact is felt in Q4 results (Jan. 22)
- Updating its strategic plan, Investors Real Estate Trust (NYSE:IRET) is exploring the sale this year of substantially all of its commercial office and retail properties, thus allowing the company to narrow its focus to just multifamily and healthcare assets.
- IRET has hired CBRE to assist in the sales process, and expects sales packages to be available before the end of February.
- Proceeds from any sale would go towards paying down debt and as capital towards further acquisitions.
- Source: Press Release
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