Today - Friday, March 7, 2014
- It's a valuation call for analyst Stephen Laws, noting the stock price about matches his price target of $17.50, a 15% premium to NAV.
- He's also lowering his 2014 NII estimates to reflect lower yields on new investments, but an increase in leverage should help boost portfolio income.
- TCPC no trades premarket.
- Keep an eye on the hot mortgage REIT sector today as Deutsche cashes in its chips on three bullish calls.
- New York Mortgage Trust's (NYMT) cut to Hold is a valuation call, with analyst Stephen Laws acknowledging solid Q4 results and good prospects going forward, but noting the stock price is already near his raised price target of $7.75 (from $7). NYMT is the rare mREIT at the moment trading above book value.
- Neither CYS Investments (CYS), nor American Capital Mortgage (MTGE) are at book, but both have moved a lot closer to it this year, and Laws cuts both to Hold, believing dividends, not capital appreciation will drive any returns from current levels. "Given investor concerns of higher interest rates, we believe it is unlikely that shares of agency MBS managers will trade at or above book value in 2014."
- Deutsche, he says, currently forecasts the 10-year Treasury yield to hit 4% before year-end, likely keeping a lid on price-to-book ratios for the agency players.
- Related ETFs: MORT, MORL, REM
- Bill Gross has accused departing Pimco (BOND) CEO Mohamed El-Erian of "trying to undermine" him, telling Reuters that he has evidence that El-Erian "wrote" a recent WSJ article that described the breakdown in the men's relationship and didn't portray Gross in a particularly flattering light.
- When asked what the evidence was, Gross replied: "You're on his side. Great, he's got you, too, wrapped around his charming right finger."
- Gross also indicated that he has monitored El-Erian's phone calls.
- A Pimco spokesman later denied that Gross made the comments that Reuters attributes to him, while the WSJ hotly refuted that El-Erian "wrote" the article.
- Pimco's parent company is Allianz (AZSEY).
- Pimco funds: AUD, BABZ, BUND, CAD, CORP, DI, FIVZ, FORX, GOVY
Thursday, March 6, 2014
- There's more management turnover at Citigroup (C +0.6%) where longtime exec Cece Stewart is retiring as president of the U.S. Consumer & Commercial Banking business. Current head of residential mortgage lending Jane Fraser will have her role expanded as CEO of U.S. Consumer & Commercial Banking.
- Also stepping down is Gene McQuade from the CEO spot at Citibank, N.A. He will head to board and be replaced in the CEO's job by Citibank, N.A. COO Barbara Desoer.
- After giving a AAA rating to a portion of the first bonds backed by home rental payments to come to market late last year, Moody's is requesting comments on its proposed methodology. Moody's decision on the first deal was based on the liquidation value of the homes under a "heavily-stressed scenario."
- Competitor S&P, as well as Fitch say the paper doesn't yet meet the criteria for them to assign top ratings. In Moody's request for comment, it says when grading the deals it's focused on two sources of cash flow: Rental income and proceeds from the sale of the underlying properties.
- American Homes 4 Rent (AMH +0.3%) is prepping a rental bond of its own, and others in the sector like Silver Bay Realty (SBY +1.4%), American Residential Properties (ARPI -1.9%), and Starwood Waypoint (SWAY +1.2%) no doubt have their own plans. Last year's pioneer Blackstone (BX +0.1%) is surely eyeing up a 2nd offering as well.
- National Bank of Greece (NBG -2.8%) - the country's biggest lender - has a shortfall of €2.18B, according to the Bank of Greece, while the 2nd largest, Piraeus Bank (BPIRY, BPIRF), needs to raise just €425M. Alpha Bank (ALBKF, ALBKY) needs to raise €262M.
- Separately, Piraeus has plans to raise €1.75B to repay €750M of preferred shares and boost its ratios as non-performing loans stand at 36.6% of total loans.
- Related ETF: GREK
- The beaten-up nonbank servicers are having a big session one day after New York's top financial watchdog turned his sights on Nationstar Mortgage (NSM +8.2%), sending the firm a letter and taking to CNBC to air his concerns.
- In addition to Nationstar, Ocwen (OCN +4.3%) - also a Lawsky target - Walter Investment (WAC +8.4%), Altisource Portfolio Solutions (ASPS +3.3%) are all posting big gains.
- Typically making up 20-25% of Berkshire Hathaway's (BRK.A, BRK.B) insurance units' investment holdings ($186.8B AUM), fixed-income assets dropped to just 14% as of the end of the year. Stocks account for $114.8B of the holdings. Cash of $48.2B is up from $47B a year ago and $30.6B at the end of 2009, and of the fixed-income the units do hold, there's a decided tilt away from duration.
- Investment income in the insurance units was $3.7B in 2013, but this could drop as nice-yielding deals with Mars, Inc, Swiss Re, Goldman, and GE wound down and Buffett has only been able to replace a portion of that money with equally lucrative plays (i.e., Heinz). “Investment opportunities currently available will likely generate considerably lower yields ... We continue to hold significant cash and cash equivalents earning very low yields.”
- Broad fixed-income ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, GVI, ISTB, GBF, DI, LDUR, MINC, FWDB, GIY, AGND, AGZD
- Lauding the company for executing as promised during its road show, UBS analyst Ross Nussbaum, notes the stock now trades at a premium to NAV (vs. a 7% discount at the IPO), Blackstone's (still a 77% owner) lock-up expiration is in early May, the company has elevated leverage vs. its peers, and external growth plans remain concerns.
- Earlier: UBS removes Buy rating on Brixmor.
- Yet another suspension amid the ongoing foreign exchange-rigging investigations, this time it's Joseph Landes, head of spot trading for EMEA for Bank of America (BAC +1.2%). The move is notable as previous to this BofA had not been on the list of those banks taking internal action in this matter.
- Earlier: BNP Paribas suspends head of spot currency trading.
- Wells (WFC +0.6%) and the two insurance companies where it bought the insurance - Assurant (AIZ +1%) and QBE - agreed to repay certain homeowners up to 11% of the premiums paid. Documents don't show how many homeowners how much the total amount is.
- The suit stems from mortgage servicer practice of buying homeowners insurance when the homeowner doesn't do so. Banks typically opt for very expensive policies and sometimes get commissions on the policies they force place.
- The judge overseeing the Wells case last week granted final approval to a similar settlement involving JPMorgan and Assurant. He's also ordered an agreement be filed within a week on another case against Bank of America, and last month Citigroup and Assurant agreed to pay $110M in another forced-placement suit.
- It's latest effort to try and wring revenue from its most basic banking product (and a loss leader), Bank of America (BAC +0.9%) today begins offering "Safe Balance" - a checkless account for customers with low balances for a monthly fee of $4.95. The account won't allow overdrafts, so it could make sense for those depositors whose balances sometimes fall to zero, causing them to get stuck with overdraft fees.
- This effort looks to be a little more well-prepared than previous efforts in 2011 and 2012 which drew swift regulatory and customer blowback and were quickly withdrawn. "We've been doing a lot of listening to customers, doing a lot of meetings with regulators and [consumer] advocates," says BofA's Andrew Plepler. "Predictability, safety, no surprises, no hidden fees is a recurring theme."
- The stock hit a 4-year high earlier in the session, before pulling back a bit.
- After its members got bounced from United Airlines' and American Airlines' airport lounges, American Express (AXP +1.2%) is opening their own and trying to one-up the airline clubs with even nicer amenities.
- The booting of AmEx's top members comes amid the merger of United/Continental and American/US Airways, with both moving to give exclusive access to their main credit-card partner, Chase.
- Growing in splendor across the globe, the clubs won't cover their costs, but AmEx sees them as another selling point for their cards.
- JPMorgan's (JPM +1.2%) goal of $27B or $7.10 per share in profits four years from now is "disappointing," says Erica Najarian, considering her team is at $7.00 in 2016, but the bank's numbers are based on some pretty conservative projections.
- Among those is no rise in short-term interest rates, no reduction in share count through repurchases, and no loan/fee growth from a continued economic recovery. Her conservative analysis suggests a number more like $29B, or $7.75 in EPS, and $9 in EPS if the bank can shrink its share count by 15% over the next four years.
- "In our view, the market often underestimates JPM's potential upside to rising rates and improving loan growth - focusing instead on volatile [investment banking] (6% of revenues) and trading (20% of revenues), and overlooking spread income (44% of revenues)."
- She retains her Buy rating and $68 price target.
- Another casualty in the probes over foreign-exchange trading mischief is Bob de Groot - the head of spot currency trading for BNP Paribas (BNPQF, BNPQY) - who has just been suspended from his position, reports the WSJ. More than twenty traders have been placed on leave, suspended, or fired by global banks since the investigations began, and the BoE suspended a staff member earlier this week, though it says it found no evidence of any wrongdoing as it pertains to manipulating rates.