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Yesterday, 2:37 PM
- Oil's lower by 3.3% today, but it's the financial sector (XLE -3.1%) again leading the S&P 500's 2.15% decline.
- For the year, the XLF is down by 17.9%, easily outpacing on the downside energy (down 13%) and the S&P 500 (down 11%).
- With the 10-year yield plunging all the way to 1.6% and short-term rates markets now beginning to price in Fed rate cuts this year, the banks are being hit particularly hard: Bank of America (BAC -8.1%), Citigroup (C -7.6%), JPMorgan (JPM -5.1%), Wells Fargo (WFC -2.9%), Goldman Sachs (GS -5.4%).
- Leading regionals (KRE -4.4%) lower are KeyCorp (KEY -5.9%), Huntington Bancshares (HBAN -4.9%), Fifth Third (FITB -5.4%), and PNC Financial (PNC -4.4%).
- ETFs: XLF, FAS, FAZ, KRE, UYG, VFH, KBE, IYF, BTO, IAT, IYG, SEF, FNCL, FXO, KBWB, QABA, RYF, FINU, KBWR, KRU, RWW, FINZ, KRS, XLFS
- Previously: Lots of negative rate talk at Yellen hearing (Feb. 11)
- Previously: Insurers punished as rates plunge (Feb. 11)
Mon, Feb. 8, 2:24 PM
- It is the European banks and contagion concerns that are freaking out the markets today - not just the Fed, China and crude oil - according to David Rosenberg, noting that some of the European banks are trading at 2008 crisis levels after the group has tumbled 18% YTD vs. 11% for the STOXX 600 index.
- European financial firms are taking a beating amid fears of "a chronic profitability crisis that makes it impossible for banks to build up barely-adequate capital bases," WSJ reports.
- Deutsche Bank (DB -9.8%) is down another ~10%, bringing its YTD loss to nearly 40% while its valuation has fallen to ~30% of book value, and its credit default swaps spiked to their highest levels since 2012.
- News of major withdrawals out of Credit Suisse (CS -4.2%) caused its shares to sink 11% last week, hitting a 24-year low, and Santander (SAN -6.2%), BBVA (BBVA -5.4%), and UniCredit (OTCPK:UNCFF -5.5%) are down to lows seen during the last eurozone financial crisis.
- "Oil and the flatter yield curve alone do not explain the 12% plunge we have seen in S&P Financials so far this year," Rosenberg says, adding that BofA (BAC -6.1%), Citigroup (C -6.2%) and Wells Fargo (WFC -3.5%) all briefly touched 52-week lows last week - "an ominous signpost."
- ETFs: XLF, FAS, FAZ, UYG, VFH, PSP, IYF, EUFN, BTO, IPF, IAI, IYG, SEF, FNCL, FXO, PFI, IXG, PEX, RYF, FINU, KCE, RWW, KBWC
- Earlier: Markets extend two-day rout; gold gets 3% boost
Wed, Feb. 3, 1:00 PM
- Bank of America (BAC -3.7%) has been especially punished in this year's selloff, losing 24% of its value vs. about a 13% drop in the XLF. Even though a rising rate scenario once again appears to be off the table, writes David Reilly, the stock trading at less than 60% of book value has priced in too dire of an outcome.
- On last week's earnings call, the bank said it could lose $700M over the next nine quarters if oil stays at $30 per barrel, and Bernstein's John McDonald estimates losses in a stressed scenario in excess of current reserves of $1.2B - equal to just 0.5% of tangible common equity, or roughly 5% of what the bank should earn this year.
- As for rates, even with a 10-year yield of just 1.75% one year ago, the bank had a NIM of 2.17% - it can still make money.
- With weak returns and a need for even more aggressive cost-cutting, BofA probably deserves to sell at a discount to book value, acknowledges Reilly, but 40% is just too much.
- A catalyst? Should the valuation remain this low much longer, activists are likely to boost the pressure on CEO Brian Moynihan, including calling for a potentially value-creating breakup.
Tue, Feb. 2, 12:52 PM
- Alongside energy's underperformance today is the financial sector (XLF -2.4%). The long-awaited hope of a sustained rise in interest rates appears dashed once again - at least so far this year.
- The 10-year Treasury yield is lower by seven basis points to 1.88% - a nine-month low - and short-term rate markets are now pricing is less than one 25 basis point rate hike for the remainder of the year.
- TBTFs: Bank of America (BAC -4.4%), Citigroup (C -4%), Goldman Sahcs (GS -4.4%)
- Regionals: U.S. Bancorp (USB -2.5%), Regions (RF -3.1%), SunTrust (STI -4%)
- Life insurers: MetLife (MET -3%), Prudential (PRU -3.2%), Lincoln Financial (LNC -3.7%)
- Online brokerage: Schwab (SCHW -4.2%), E*Trade (ETFC -3.8%), Ameritrade (AMTD -3.6%)
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, BTO, IAT, SEF, IYG, FXO, FNCL, KBWB, FINU, QABA, KRU, KBWR, RWW, RYF, FINZ, KRS, XLFS
Sun, Jan. 31, 8:53 AM
- Barron’s says it’s a good time to bet on the big banks after a rocky start to the year.
- The 10 biggest U.S. banks are trading for 8x-12x 2016 estimated earnings; the S&P 500 trades at 16x.
- Exposure to distressed U.S. energy companies is manageable.
- While leading Democratic presidential candidates are pushing for a breakup of the biggest banks, that possible eventuality could be a positive since many trade below their sum-of-parts.
- The following banks all have 20% upside: Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), BB&T (NYSE:BBT), PNC (NYSE:PNC), Suntrust (NYSE:STI), U.S. Bancorp (NYSE:USB).
Barron’s also mentions Citizens Financial (NYSE:CFG) and Region’s Financial (NYSE:RF) favorably.
Fri, Jan. 29, 11:14 AM
- The stock trades at a 20% discount to year-end estimated tangible book value of $17 per share, says CLSA's Mike Mayo. That's worse than the recessions in the early 1990s and early 2000s, despite better balance sheet strength today.
- Further, the bank could grow book value even if the U.S. goes into recession.
- There's also the chance BofA (BAC +1.1%) could become an "event-driven" stock, says Mayo. First, the 67% efficiency ratio is worst among the large U.S. banks, so there's plenty of room for improvement. Second, a sum-of-the parts analysis yields a result 40% higher than the current market cap. Third, shareholders are starting to speak up - while an activist is an outside shot, increased owner pressure seems likely.
- He upgrades from Sell to Outperform, with price target of $16 up from (suggesting upside of less than 20%).
- Previously: Mike Mayo calls bottom in BofA (Jan. 29)
Fri, Jan. 29, 9:47 AM
- Saying the stock trades at a recession-level price to tangible book value ratio despite the absence of a recession, CLSA's Mike Mayo upgrades Bank of America (BAC +1.1%) to Outperform from Sell.
- BofA is lower by 18.5% YTD and about 25% over the last six months. By comparison, Wells Fargo is down 9% YTD and 15% over the last six months, and JPMorgan 12% and 18%.
Wed, Jan. 27, 2:33 PM
- Like JPMorgan, Bank of America (BAC +1.4%) is also developing ATMs allowing customers to perform transactions using smartphones instead of debit cards, reports CNBC.
- "We're going to spend a lot of money on the ATM network this year," says CNCB's source.
- Better security, quicker transaction times, bigger appeal to millennials, and hopefully lower costs are among the benefits of removing plastic cards from the equation.
- Previously: JPMorgan rolling out card-free ATMs (Jan. 26)
Thu, Jan. 21, 3:15 PM
- The stock has given up another 2.6% today, even as the broader market rallies and its TBTF peers are just modestly lower. Shares are lower by 20% YTD, and 13.4% Y/Y.
- Holding court at Davos, CEO Brian Moynihan says the job cuts will continue this year after more than 10K reductions in 2015. Total headcount at the bank is 213.3K. The efficiency ratio at BofA for 2015 of 68.6% is far worse than competitors like Citigroup (57%) and Wells Fargo (57.8%)
- Cost cuts are nice, but revenue growth can also help that ratio. Expect that to remain challenging, however, even as the U.S. economy improves, says CFO Paul Donofrio.
Thu, Jan. 21, 10:27 AM
Tue, Jan. 19, 11:06 AM
- Expenses at Bank of America remain "way too high," says Oppenheimer's Chris Kotowski. "We are are still more struck by how far Bank of America (BAC -1.5%) still has to go to generate a competitive level of profitability.” The bank's efficiency ratio improved to 70.2% in Q4 from 74.9% a year ago. ROTCE of 7.3% rose from 7.1%.
- Addressing the oil crash, new CFO Paul Donofrio says it's more supply than demand, He knows this, he says, because if demand for energy was dropping, it would show up in the asset quality of the bank's non-energy-related loans, and this isn't happening. Donofrio says energy makes up just 2% of the bank's loan portfolio.
- As for consumer benefits, CEO Brian Moynihan says spending on credit and debit cards rose 4% Y/Y, but without the oil decline, it would have risen 5.7%. Putting a dollar number on it, that's $20M per day in savings to the bank's credit and debit card customers.
- Earnings call presentation slides
- Previously: Bank of America beats by $0.02, misses on revenue (Jan. 19)
- Previously: Bank of America higher after bottom line beat (Jan. 19)
Tue, Jan. 19, 7:41 AM
- Consumer Banking net income of $1.799B vs. $1.654B a year ago. Net interest income of $5.059B vs. $4.967B. Noninterest income of $2.733B vs. $2.792B, with lower mortgage banking income a drag. Noninterest expense of $4.343B vs. $4.419B. Provision for credit loss of $654M flat.
- Global Wealth and Investment Management net income of $614M vs. $705M a year ago.
- Global Banking net income of $1.378B vs. $1.520B a year ago.
- Global Markets net income of $185M vs. a loss of $75M a year ago. Sales and trading revenue of $2.4B up from $1.7B, with notable improvements in rates and credit products.
- Legacy Assets and Servicing net loss of $351M vs. $379M a year ago. Delinquent loans down 46% to 103K. Number of employees down 35% to 11.2K.
- Total provision for credit loss of $810M vs. $219M a year ago. Net charge-offs of $1.144B vs. $879M. Net charge-off ratio of 0.51% up 11 basis pints. Energy is the culprit. Adjusted net reserve release this quarter of $195M vs. $509M a year ago.
- CET 1 ratio of 10.8% up 80 basis points Y/Y.
- Earnings call at 8:30 ET
- Previously: Bank of America beats by $0.02, misses on revenue (Jan. 19)
- BAC +1.8% premarket amid a general rally is U.S. stocks ahead of the open.
Tue, Jan. 19, 6:59 AM
Mon, Jan. 18, 5:30 PM
Thu, Jan. 14, 1:35 PM
- Taking out the noise, the UBS team led by Brennan Hawken says JPMorgan earned $1.30 per share in Q4, ahead of consensus by a nickel and ahead of UBS's estimates by a full $0.11.
- That's not bad considering the negative sentiment surrounding the bulge bracket firms, and it should be enough to provide some near-term relief for names like Citigroup (C +1.2%), Bank of America (BAC +1.6%), Goldman Sachs (GS +1.5%), and Morgan Stanley (MS +1.1%).
- As for the outlook, the moderate headwind from mortgage banking was the only notable item.
- Previously: Dimon on energy provisions: "I'd put up more if I could" (Jan. 14)
- Previously: More on JPMorgan: Benign credit cycle ends (Jan. 14)
- Previously: JPMorgan higher after earnings beat (Jan. 14)
Mon, Jan. 4, 2:44 AM
- Fidelity Investments is dropping long-time credit card partners American Express (NYSE:AXP) and Bank of America (NYSE:BAC), ending a 12-year partnership that had generated billions of dollars in fees.
- The switch is another setback for American Express, which is already reeling from its lost deal with Costco.
- Fidelity, which has 24M customers, said its new partners will be Visa (NYSE:V) and U.S. Bancorp (NYSE:USB).
- AXP -26% vs. V +16% in 2015.
Bank of America Corporation is a bank holding and a financial holding company. Through its subsidiaries, it provides banking and non-banking financial services and products throughout the United States and in selected international markets.
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