Today - Tuesday, March 11, 2014
- In one of the great delayed reactions of recent times, Fannie Mae (FNMA -39%) and Freddie Mac (FMCC -36.4%) plunge in wake of the introduction of a bipartisan Senate bill calling for a wind-down of the GSEs. Like Wile E. Coyote after running off the edge of a cliff, the stocks hung around in positive territory for a couple of hours after the news hit ... then they looked down.
- The Fannie "S" series preferred is off 9.9%, Freddie's is down 18.5%.
- There's another downgrade in one of the year's hottest sectors, with Apollo Residential Mortgage (AMTG -0.8%) losing its Buy rating at JMP Securities.
- Previously trading at one of the larger discounts to book value among the mREITs, Apollo's rally this year has brought it to less than a 10% discount to Dec. 31 book.
- Last week: Three valuation-inspired downgrades of mortgage REITs.
- Italy's UniCredit (UNCFF, UNCFY) kitchen sinks it, booking a $20.8B Q4 loss as it sets aside money for bad loans and writes down goodwill from past acquisitions ahead of the ECB's EU-wide review of banks before it takes regulatory control in November.
- The bank also announced plans to cut 8.5K jobs, about 6% of the workforce, along with a stock dividend of $0.10 per share for 2013.
- The stock closed 6.2% higher in Milan, leading the FTSE MIB index to the EU's best performance on the day, +0.4%.
- Buying low and selling high in the GSEs continues unabated as a long-awaited bipartisan Senate bill is introduced to continue government backing of mortgages, but wind down Fannie Mae (FNMA +4.5%) and Freddie Mac (FMCC +4.7%).
- The White House: “We support this effort and believe it is a workable bipartisan approach to complete the biggest remaining piece of post-recession financial reform.”
- A bill in the more conservative House would more or less cut the government out of housing finance. With elections months away, the chance of any sort of reform becoming law this year are probably slim.
- The insurance industry finds an ally in Maine Senator Susan Collins who introduces an amendment to Dodd-Frank seeking to clarify new capital rules for nonbank financials.
- Insurance companies have made the case they're not banks and already meet state-imposed leverage requirements, and thus shouldn't be subject to the same rules as banks, and the Fed - now a regulator of AIG and PRU, and maybe MET soon as well - has asked for guidance about whether Dodd-Frank allows it leeway.
- Not a member of the Senate Banking Committee, Collins testified the Fed does indeed have flexibility and her bill seeks to make that clear.
- Related ETFs: KIE, IAK, KBWI, KBWP
- Accuvant aims to protect clients against cyberattacks and similar threats, and Blackstone (BX -0.7%) will invest $150M for an 80% stake, reports the WSJ. Blackstone's investment is expected to fund expansion of the Denver firm, particularly its consulting arm and its managed security services unit, which helps companies monitor and respond to situations.
- This isn't Blackstone's first foray into the sector - the P-E giant has also invested in Bit9, iSight Partners, Secure Mentem, WatchDox, and Cylance.
- The publication of the 285-page manual marks the start of phase 2 of the ECB's review of EU banks which is expected to run until August. The exam will cover €3.72T, or 58% of the banking system's risk-weighted assets. On average, central bank supervisors will review 1,250 credit files per bank.
- The move is part of a process by the EU to harmonize banking practices across borders, break the (often-toxic) link between governments and their banks, and bring credibility back to the sector. Along with this review, the ECB is conducting stress tests for the largest banks.
- Yesterday: German lenders - including Deutsche Bank (DB) - escape the need to revalue their mortgage portfolios.
- Also among those under review: SAN, BBVA, ING
- "We still maintain that USB shares deserve a premium valuation to the group given its superior profitability measures (ROA and ROTE), low risk profile, and strong management team," writes analyst Chris Mutascio, whose $44 price target reflects a 13 multiple on expected 2015 earnings.
- Thanks to lower expectations for earnings reserve releases and a continuing slide in mortgage revenue, Mutascio cuts his 2014 EPS estimate to $3.17 from $3.25 and 2015 to $3.37 from $3.45.
- Thomas Wirth was picked to replace Howard Sipzner, effective at the close of business yesterday. Wirth has been an EVP, Portfolio Management and Investments at Brandywine Realty Trust (BDN) since 2009.
- Press release
- Reiterating its Market Perform rating on the stock, Wells Fargo says Sipzner's departure is unexpected, but his communications with the Street had left something to be desired. Replacement Tom Wirth is well-known and regarded by the analyst community.
- Core earnings of $48M or $0.42 per share compare to $9M or $0.09 a year ago. Full year earnings of $198M or $1.92 per share compares to $55M or $0.55 in 2012.
- Risk-adjusted yield on consumer finance portfolio of 21.18%, up 98 bps from a year ago, but off 71 bps from Q3.
- Continued wind-down of legacy business with the sale of $1B of mortgages to three different parties (previous: New Residential buys $900M in mortgages from Springleaf).
- 2014 guidance: Year-end consumer net finance receivables of $3.6B-$3.75B vs. $3.14B at end of 2013; Consumer risk-adjusted yield of 22-23% vs. 22.03%; Pretax earnings of $85M-$105M vs. $110M.
- CC at 10 ET
- Press release, Q4 results
- LEAF -1.5%
- Wells (WFC) last month made news by barring its employees from making loans on peer-to-peer platforms like Prosper and Lending Club. Though growing rapidly, the P2P lending business is but a fraction of the amount of credit extended by Wells Fargo, but the bank's move showed the upstarts are clearly on its mind. Former Morgan Stanley CEO John Mack is on the board of Lending Club and Prosper is headed by former Wells prime brokerage chief Stephan Vermut.
- A fresh review by Wells found loans made by its staff were not "inconsistent with [its] code of ethics ... The P2P market is not uniform and is evolving and expanding rapidly. We will continue to review our guidance as the market evolves.”
- Remove Hagen Saville from the CEO slot and from the board, initiate a Dutch Tender to buy back shares at up to $4.60 each, abandon plans to boost the origination staff, and begin looking for a buyer of the company, urges longtime MCG Capital (MCGC) investor Richard Fearon in an open letter published on Seeking Alpha.
- Fearon notes the curiosity of Saville's plan to add new hires in originations when - on last week's earnings call - Saville said conditions "are consistent with the peak of the credit cycle." Instead, purchases of company stock at the current price (20% discount to NAV) will provide an immediate large return to shareholders, not to mention the additional dividend yield.
- Shares +3.2% premarket
8:26 AM| Comment!
- New Residential (NRZ) agrees to buy $900M of non-agency residential mortgages that were previously securitized by an affiliate of Springleaf Financial (LEAF). The deal is expected to settle this quarter.
- Springleaf's majority owner in Fortress Investment (FIG) which is also the manager of New Residential.
- Press release
- The U.K.'s Financial Conduct Authority has approved the opening of CME Europe as a Recognized Investment Exchanger and the unit will open its doors for business on April 27. A slate of commodity products have been approved and CME hopes to have approvals in place by opening day for a full suite of FX futures products.
- CME Grou Executive Chairman Terry Duffy: "Our global growth strategy continues to be focused on organic growth."
- Press release
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- A Lloyds (LYG) dealer alerted a trader at BP of an impending market order to sell $499M in cable for dollars, reports Bloomberg, citing sources. In the minutes between the time of that communication and when Lloyds began to make the trades, the pound fell 16 pips vs. the greenback. The move cost Lloyds an estimated $750K and the trader told colleagues he probably shouldn't have shared the info.
- The news opens another front in the trading investigations which have previously focused on collusion among banks. Now we have the leak of sensitive information to a nonbank. Lloyds suspended the trader in question in February following inquiries about Bloomberg about the trade.
- Analyst Jeffrey Donnelly notes five points: 1) a well-covered 7.25% dividend yield with moderate growth expected 2) nearing completion of a multi-year renovation program 3) the pace of portfolios crossing over the 1x rent coverage threshold 4) improvements in corporate governance of late 5) ability to display independence should it decide to terminate the Sonesta management contract.
- HPT no trades premarket
6:38 AM| Comment!