Bank Of America: Diamonds Are Forever
Fairlight Capital • 107 Comments
Fairlight Capital • 107 Comments
Thu, Jun. 23, 12:47 PM
- An experienced rainmaker, Luca Ferrari was most recently with Greenhill & Co. (he left in October). Prior to that, he served with Goldman Sachs and UBS. In all, Ferrari has more than 25 years in the business.
- He'll start as BAML's (BAC +2.5%) head of M&A for EMEA in July, and be based in London (pending Brexit vote?).
Wed, Jun. 22, 6:01 PM
- Bank of America (NYSE:BAC) has been in discussions with the SEC about paying $400M-$450M to settle allegations it violated rules designed to safeguard client accounts, WSJ reports.
- The SEC has been investigating whether BofA had proper controls for some customer accounts and retail brokerage funds; according to the report, one of the issues is whether BofA used complicated trades and loans to free up billions of dollars in cash for its own uses that it would usually have set aside to meet regulatory requirements.
- A settlement could be announced as soon as tomorrow, the report says; BAC +0.3% AH.
Wed, Jun. 22, 8:39 AM
- The percentage of Americans with subprime credit scores fell to 20.7% in April, the sixth consecutive year-over-year decline, and the lowest level since at least 2005 when FICO started tracking the data.
- The level peaked at 25.5% in 2010.
- The improving trend means revenue-squeezed banks can boost lending without lowering standards. "It will have a positive impact on loan volume, loan growth and revenue,” says Morgan Whitacre, a consumer client underwriting executive at Bank of America (NYSE:BAC).
- Alongside rising credit scores are near-record lows for defaults. Just 0.81% of consumer loan dollars - including mortgages, auto loans, and credit cards - were in default in May, the lowest level on records going back to 2004. This peaked at 5.51% in 2009.
- The result: Consumers are starting to borrow more again ... a good thing until it isn't anymore. Jamie Dimon (NYSE:JPM) earlier in June called the auto-lending market "a little stretched," and Synchrony Financial (NYSE:SYF) just lifted its forecast for credit losses in the coming year.
- Source: Annamaria Andriotis at the WSJ
Tue, Jun. 21, 12:30 PM
Tue, Jun. 21, 8:56 AM
- Jefferies' fiscal quarters end one month ahead of those for JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Citigroup (NYSE:C), and Bank of America (NYSE:BAC), so investors in those banks like to keep an eye out in order to get a preview.
- What they'll get from Jefferies' FQ2 is that fixed-income trading has experienced a sharp reversal to the upside after a lame Q1. Bond-trading revenue at Jefferies was up 55%, the largest quarterly gain since 2014, and the best Mar-May quarter since 2012. Wall Street executives for a few weeks have touted a Q2 trading rebound, and the news from Jefferies backs that up.
- On the downside, stock and bond underwriting income continued to slump.
Wed, Jun. 15, 3:17 PM
- Having already shed value in June as expectations for rate hikes evaporated, the financial sector (XLF +0.7%) is showing relative strength following the FOMC's standing pat and dialing back expectations for the future level of the Fed Funds rate.
- The S&P 500 is higher by just half the amount of the financials.
- Within financials, the banks (KBE +1.1%), (KRE +1.1%) are particularly strong, led by Bank of America (BAC +1.5%), Morgan Stanley (MS +1.3%), Citigroup (C +1%), BB&T (BBT +1.2%), Fifth Third (FITB +2.2%), SunTrust (STI +1.4%), Zion (ZION +1.3%).
Wed, Jun. 15, 7:44 AM
- Thank the digital banking revolution reducing the need for teller and back-office jobs. According to the FT, another 8K retail jobs are set to go at Bank of America (NYSE:BAC), though the lender will be adding sales staff - loan officers, small business bankers, and personal investment advisors.
- Even with those additions, headcount is expected to shrink by several thousand amid a steady drop in the number of customers visiting branches. According to the report, the cuts are mostly to come from attrition rather than outright layoffs.
- The bank has already cut nearly 40K jobs from its consumer division since 2009, bringing headcount down to about 68.4K at the end of Q1. Speaking at a conference this week, Thong Nguyen, head of retail banking, told an audience to expect that number to get to the low 60s.
Tue, Jun. 14, 3:48 PM
- The S&P 500 is down just 0.25%, but the financial sector (XLF -1.5%) is taking a far larger beating as the idea of higher interest rates fades, with German 10-year yields falling below zero, and the U.S. 10-year Treasury yield within sight of its all-time low. KBE -2.3%, KRE -2.3%
- The FOMC concludes its two-day policy meeting tomorrow, at which updated economic projections and dots will be unveiled, along with a Janet Yellen press conference.
- How much of the panic into fixed-income is due to concern about the U.K. exiting the EU will become evident next Thursday night as that country's Brexit votes are tallied.
- Bank of America (BAC -2.5%), Citigroup (C -3.1%), Wells Fargo (WFC -2.5%), Regions Financial (RF -2.9%), KeyCorp (KEY -3.7%), PNC Financial (PNC -2.4%), Fifth Third (FITB -2.6%), SunTrust (STI -2.8%), E*Trade (ETFC -2.6%), MetLife (MET -1.6%), Prudential (PRU -1.8%), BNY Mellon (BK -2%)
- ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, BTO, IYG, FNCL, SEF, FXO, RYF, FINU, RWW, XLFS, FINZ, JHMF, FAZZ, FNCF
Tue, Jun. 14, 7:59 AM
- Speaking at conference in D.C. last night, Bank of America (NYSE:BAC) CEO Brian Moynihan said publicly what is strikingly obvious: That the stress tests are probably forcing banks to restrict lending.
- "If you think of any business decision you’re going to make, you’d have to assume that the business decision was going to go wrong at the worst possible time and hold capital ... That's the stress test."
- "Over the next 10 to 15 years, people will ask whether we got it right," says Moynihan, speaking about banks' boosted capital requirements.
Mon, Jun. 13, 2:25 PM
- Not very excited about the prospects for bank stocks given the significant flattening in the yield curve as potentially signaling a deteriorating H2 and 2017 environment, a bank stock analyst nevertheless needs to recommend bank stocks.
- Given low expectations as reflected in its cheap valuation, its highly asset-sensitive balance sheet, and the chance for good news from CCAR, Bank of America (BAC -1.3%) is the team's top bank idea.
- Looking at regionals, they like the M&A optionality in Comerica (CMA -1.1%), but don't see much value in names like Citizens Financial Group (CFG -1.1%), Regions Financial (RF -1.1%), SunTrust (STI -0.9%), and Zions Bancorp (ZION -0.9%). Baird also sticks with its Underperform rating on M&T Bank (MTB +0.3%), which trades at 13.5x 2017E EPS vs. about 11x for the peer group.
Thu, Jun. 9, 2:48 PM
- The Dodd Frank stress test (DFAST) results are due on June 23 and the Comprehensive Capital Analysis (CCAR) on June 29.
- Noting a severely adverse scenario even more rigorous than in the past, Morningstar's Dan Werner says it will be hard to read anything negative into a bank's passing the test.
- Barclay's Jason Goldberg points out Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) as two poised to thrive if the government were to allow them to draw down capital, but "when" is the big question as next year's tests are expected to be even harder. The two are trading at about 1x book and sport ROEs of roughly 10% - both gauges were about twice those amounts prior to the financial crisis.
- JPMorgan's Kian Abouhossein expects Citizens Financial (NYSE:CFG), Citigroup (NYSE:C), Bank of America (NYSE:BAC), and SunTrust (NYSE:STI) to have outsized increases in capital return this year, driven mostly by buybacks.
- One wild card: This year's tests requires banks to model for negative interest rates.
Mon, Jun. 6, 3:28 PM
- "It's a machine, no doubt about it," says one getting disgruntled customer of Wells Fargo (NYSE:WFC), which is one of only two U.S. companies which have produced at least $5B of net income in each of the last 14 quarters (Apple is the other).
- Worrying analysts though is that customers like the one above - his family has nine Wells products - appear to have had their fill, writes Ben McLannahan in the FT. Wells' lauded cross-sell ratio has fallen from an average of 6.36 products per household in Dec. 2013 to 6.29 a the end of last year."
- While the bank trades at a premium to U.S. peers in terms of multiple of net assets, that premium has shrunk to half the level of two years ago, and Wells recently cut some financial targets.
- Without a big rise in interest rates, says Standard Life's Chris Haimendorf, "it is very difficult to see how things can get even better from here."
- CEO John Stumpf - though acknowledging the low-rate issue - says there are plenty of avenues for growth. He notes peers like BofA (NYSE:BAC) and Citigroup (NYSE:C) closing branches or even pulling out of certain cities. Wells, on the other hand, is keeping its footprint, but adjusting its format with smaller "bodega branches."
- Stumpf: “All of our new account acquisition happens at one of our branches. If you shut that down, at least today, you shut down your front engine."
Mon, Jun. 6, 3:44 AM
- Goldman Sachs (NYSE:GS) received more than a quarter of a million applications from students and graduates for jobs this summer, a rising number that is way more than the bank could ever employ.
- The trend is mirrored at several other large banks such as JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), BofA (NYSE:BAC) and Citigroup (NYSE:C).
- According to figures provided to the Financial Times, the number of these applications has risen more than 40% globally since 2012.
Fri, Jun. 3, 9:47 AM
- At the moment, it's looking like "wait till next year," for the higher interest rates much of the yield-starved financial sector has been waiting for. This morning's disappointing jobs numbers has traders quickly reversing bets on a rate hike this summer.
- Meanwhile, the 10-year Treasury yield has crumbled to a two-month low of 1.70%.
- The XLF is down 1.9%, leading the S&P 500's 0.5% decline. The SPDR KBW Bank ETF (KBE -3.5%), the SPDR Regional Banking ETF (KRE -3.4%).
- Among the Too Big To Fail names, Bank of America (BAC -4.7%) and Citigroup (C -4.8%) are hardest hit. In regionals, Regions Financial (RF -4.4%), KeyCorp (KEY -4%), BB&T (BBT -3.3%), Fifth Third (FITB -4.4%).
- State Street (STT -3.5%), Northern Trust (NTRS -3.8%), Schwab (SCHW -5.4%), E*Trade (ETFC -5.8%), Ameritrade (AMTD -5.5%), MetLife (MET -3.6%), Prudential (PRU -3.2%), Lincoln Financial (LNC -4.1%)
- ETFs: XLF, FAS, FAZ, KRE, UYG, VFH, KBE, IYF, BTO, IAT, IYG, FNCL, SEF, FXO, KBWB, QABA, KBWR, RYF, FINU, KRU, RWW, XLFS, FINZ, KRS, JHMF, WDRW, FAZZ, DPST, FNCF
Thu, Jun. 2, 11:24 AM
- In separate public comments today, Fed governors Daniel Tarullo and Jerome Powell said the Fed will require the eight largest U.S. banks to hold even more capital if they want to pass stress tests.
- The goal, says Powell, is to make capital requirements so difficult that the largest lenders have to honestly assess whether it would be a better idea to break themselves up.
- For now, the Fed is going to make 2015's capital surcharges permanent, which alone makes things tougher. "Really quite significant, probably the most significant additional potential capital requirement on the horizon." says former OCC Director John Dugan.
- The eight: Bank of America (BAC -0.1%), Citigroup (C -0.3%), JPMorgan (JPM -0.4%), Morgan Stanley (MS -0.7%), Wells Fargo (WFC -0.5%), State Street (STT -0.7%), Goldman Sachs (GS -0.7%), BNY Mellon (BK -0.5%)
Thu, Jun. 2, 10:09 AM| Thu, Jun. 2, 10:09 AM | 5 Comments
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