Thu, Jan. 22, 12:35 PM
- Mercilessly sold since the year turned, banks are putting in a rare session of outperformance, helped along by some earnings beats from regional lenders and the return of animal spirits in M&A with RBC's purchase of City National (CYN +18.6%) for $5.4B.
- The XLF +1.4% vs. the S&P's 0.6% gain today, and the regional bank ETF (NYSEARCA:KRE) is higher by 3.1%.
- Among today's reporters putting in big gains are KeyCorp (KEY +5.5%), BB&T (BBT +2.4%), and Huntington Bancshares (HBAN +2.6%), though Flagstar Bancorp (FBC -4.8%) missed estimates.
- Others: Regions Financial (RF +3.9%), PNC Financial (PNC +1.6%), Synovus (SNV +3.2%), M&T Bank (MTB +3%), Hudson City (HCBK +3.1%), First Horizon (FHN +2.7%), and First Republic (FRC +4.9%).
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, IAI, SEF, IYG, FXO, FNCL, KBWB, QABA, FINU, KRU, RWW, KBWR, RYF, PSCF, FINZ, KRS
- Among the TBTFs, Citigroup (C +2.7%) and Bank of America (BAC +2.5%) are leading the way.
Fri, Jan. 9, 2:37 PM
- Chief Investment Strategist Michael Hartnett makes the case for European energy stocks, U.S. banks relative to Canadian ones, and solar.
- "Unloved European energy is trading at record valuation lows vs. U.S. energy," says Hartnett, noting a 5.5% yield provides a lot of protection against dividend cuts. U.S.-listed ETFs, however, don't include anything dedicated to European plays, so there's the Paris-listed SPDR MSCI Europe Energy UCITS ETF, which has Shell (RDS.A, RDS.B) and Total (NYSE:TOT) among its top holdings.
- It's no surprise Canada is far more exposed to energy than the U.S., and Hartnett notes more than 40 rigs have recently been taken offline, oil sands production is winding down, and the bubbly Canadian housing market is creaking (Canadian property REITs are off 20% in the last two months). Going long the KBWR or KRE vs. a short in the Toronto-listed Capped Financial Index could be a way to play.
- Solar has been punished alongside oil prices, says Hartnett, but competes with gas rather than oil. "The secular trend toward greater solar energy generation remains intact." ETFs: TAN, KWT
Dec. 19, 2014, 12:31 PM
Dec. 5, 2014, 10:06 AM
- Among those counting on higher interest rates to boost profits are banks, insurers, and online brokers, and all are outliers to the upside in today's session after a strong November jobs report has rate hike expectations on the rise. The XLF is up 1%.
- TBTFs: Bank of America (BAC +2.1%), Citigroup (C +1.8%), JPMorgan (JPM +2.2%), Wells Fargo (WFC +1.2%)
- Regionals (KRE +1.9%): Regions Financial (RF +2.6%), KeyCorp (KEY +2.3%), Huntington (HBAN +1.5%), BB&T (BBT +1.6%), Zions (ZION +4%)
- Custodials: BNY Mellon (BNY), State Street (STT +1.6%), Northern Trust (NTRS +1.8%)
- Life insurers: MetLife (MET +2.1%), Prudential (PRU +2.5%), Lincoln National (LNC +2.3%)
- Online brokers: Schwab (SCHW +3.8%), E*Trade (ETFC +3%), Ameritrade (AMTD +2.7%)
- Previously: Short end of yield curve on the move after jobs number (Dec. 5, 2014)
- Previously: Bonds and dollar higher, gold slumps after strong jobs report (Dec. 5, 2014)
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, KIE, IAT, IAI, SEF, IYG, IAK, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, RWW, KBWR, RYF, KBWP, KBWI, PSCF, FINZ, KRS
Dec. 1, 2014, 11:40 AM
- A positive macro outlook for the U.S. (especially compared to the rest of the globe) should boost credit demand, says UBS - upgrading U.S. financials (NYSEARCA:XLF) to Overweight - while the start of a new rate-hike cycle next year bodes well for interest margins.
- UBS's three favored U.S. banks are Bank of America (NYSE:BAC), Citigroup (NYSE:C), and Morgan Stanley (NYSE:MS), but TD Bank (NYSE:TD) also makes the buy list thanks to its large American presence.
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, RWW, KBWR, RYF, FINZ, KRS
Nov. 12, 2014, 11:03 AM
- Regulatory headwinds in banking are "plateauing," says BB&T (BBT -2.5%) chief Kelly King, appearing on CNBC after his bank's agreement to purchase Susquehanna Bancorp (SUSQ +32.1%) for about $2.5B. The issues being talked about today are quickly become yesterday's news, he says.
- Speaking with analysts/investors on a conference call, King says the two lenders had been in talks for several months. One wonders if the deal's announcement one week after last week's Republican landslide is just a coincidence.
- BB&T, says King, is very interested in other opportunities, but naturally the price has to be right. Texas? Not interested, he says, as those lenders are asking 2x-3x book (SUSQ looks like it's being purchased for about 1.7x tangible book).
- A move further up the East coast? King says BB&T could eventually move into NYC and Boston, but for now will focus on the Mid-Atlantic and Southeast.
- Possibly helping to push Susquehanna into a sale (and no doubt on the minds of other smaller lenders) are the compliance costs associated with the Bank Secrecy Act and Anti-Money Laundering rules, and King notes SUSQ can now fold those costs into BB&T's.
- Previously: First Niagara on the move after BB&T/Susquehanna deal
- Regional and small-cap bank ETFs: KRE, KBE, IAT, KBWB, RKH, QABA, KRU, KBWR, PSCF, KRS
Nov. 7, 2014, 3:19 PM
- Banks with as little as $50B in assets are currently subject to the Fed's CCAR - fairly absurd as there's roughly zero systemic risk from the failure of a bank with $50B in assets (or even $100B). While health, immigration, and tax reform in D.C. are getting a lot of headlines, banking industry reform may also now be on the way.
- A KBW report finds banks with between $50B and $100B in assets have been limited to a dividend payout ratio of 40% or less, compared to ratios far higher for those lenders with less than $50B. The $50B line is front and center for New York Community Bancorp (NYSE:NYCB) - which currently has $48.7B in assets and a 93% dividend payout ratio. CEO Joseph Ficalora would like to get back to doing acquisitions, but knows the bank can kiss that high payout goodbye if it does so under the current regulatory regime.
- Should a Republican-led Congress push to boost the threshold to, say, $100M, it would find a friend in the Fed's Daniel Tarullo who has already mused about doing so. "I would not expect President Obama to exercise veto power over this," says a financial services attorney.
- Among the players with $50B-$100B in assets: HBAN, KEY, MTB, ZION, CMA.
- ETFs: KRE, KBE, IAT, KBWB, RKH, QABA, KRU, KBWR, KRS
Oct. 23, 2014, 4:49 PM
- Not having had the pleasure of being subject to the stress test and CCAR previously, Deutsche Bank's (NYSE:DB) U.S. unit will be a participant next year
- As in prior years, those BHCs with large trading operations - BAC, C, GS, JPM, MS, WFC - will be required to factor in a global market shock as part of their scenarios.
- Those six, plus STT and BK - thanks to their custodial operations - will be required to incorporate a counterparty default scenario.
- Among the items in the severely adverse scenario is the unemployment rate jumping to 10%, a 60% dive in the stock market, and oil jumping to $110 per barrel (how about oil falling to $10 per barrel?).
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, IAI, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KCE, KRU, KBWR, RWW, RYF, KBWC, FINZ, KRS
Oct. 22, 2014, 10:32 AM
- The MBA index rose 11.6% for the week ended October 17, the largest gain since January as mortgage rates continued to decline - the average 30-year fixed mortgage coming in at 4.1%, the lowest since May 2013.
- Leading the way were refinancings, with that gauge jumping 23.3%, the biggest move since January 2012 (purchase applications fell 4.6%).
- Should the trend continue, the now-lean mortgage operations at places like Wells Fargo (WFC +0.2%), JPMorgan (JPM +0.2%), and Bank of America (BAC +0.2%), among others, should provide a nice boost to Q4 results.
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, KBWR, RWW, RYF, FINZ, KRS
Oct. 15, 2014, 10:49 AM
- Bank earnings models will no doubt need to be tweaked as the sure thing of higher rates becomes somewhat less sure, with the 10-year U.S. Treasury yield plunging all the way down to 2%, and 30-day Fed Funds futures - just weeks ago pricing in 100% chance of a rate hike by June 2015 - now sees no move until December 2015.
- The XLF is lower by 1.9% and the Regional Banking ETF (NYSEARCA:KRE) is down 2.1% (the S&P 500 is off a mere 1.1%). Among individual names, KeyCorp (KEY -6.4%), First Bancorp (FBP -6.4%), Regions Financial (RF -4%), U.S. Bancorp (USB -2.2%), Fifth Third (FITB -2.6%), Bank of America (BAC -4%), Citigroup (C -3.3%), JPMorgan (JPM -2.8%), Wells Fargo (WFC -1.9%).
- Financial ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, RWW, KBWR, RYF, FINZ, KRS
- Life insurers were also waiting on higher rates and they're slipping more than the averages as well. MetLife (MET -3.7%), Prudential (PRU -2.9%), Manulife (MFC -3.5%) Sun Life (SLF -3.4%), Lincoln Financial (LNC -3.9%).
- Insurance ETFs: KIE, IAK, KBWP, KBWI
- Previously: BofA call: Assumption about higher rates not so sure anymore
Oct. 13, 2014, 8:00 AM
- When you're a hammer, everything looks like a nail. In what smells like another foray by the Consumer Financial Protection Bureau, with other agencies possibly joining in, banks are reportedly under investigation for lending ... this time for automobiles.
- Amid an otherwise sluggish loan market - especially for mortgages - auto lending has experienced rapid growth over the past few years, particularly subprime lending, and those in that business - Santander Consumer being one - are already under examination by the CFPB.
- At issue for banks is not just the direct auto loans they're making, but the financing they're providing to shops like Santander Consumer.
- Wells Fargo (NYSE:WFC) is the largest U.S. auto lender, with $50.8B in loans outstanding at the end of last year, roughly $15B of which was subprime. In addition, the bank has extended since 2011 more than $1.5B of credit lines to the country's largest subprime lenders. Other sizable players include Capital One (NYSE:COF) and JPMorgan (NYSE:JPM).
- "Banks are making a lot of money off these (auto) loans in many different ways," says the head of a consumer advocate group. Isn't that what they're supposed to do?
- "The subprime auto sector appears too small to present a systemic risk," says BAML's Michael Hanson.
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, KBWR, RWW, RYF, KRS, FINZ
Oct. 10, 2014, 12:52 PM
- The banking industry is very close to resolving too big to fail, says Jamie Dimon (JPM +0.6%), speaking publicly for the first time since his cancer diagnosis (other than his July earnings call appearance). He's appearing at a conference roundtable alongside Morgan Stanley's (MS +0.8%) James Gorman, Deutsche's (DB -0.9%) Anshu Jain, and Bank of America's (BAC +0.7%) Brian Moynihan.
- Webcast here
- The most pointed remarks so far come from Deutsche's Jain, who tells those who would continue to further strangle the banks with more regulation to look to Europe. Straightforward banking - taking deposits and making loans - is far more the norm there then here, he says, and the forcing of banks to trim businesses and balance sheets is a large contributor to the Continent's stagnant growth.
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, IAI, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KCE, KRU, KBWR, RWW, RYF, KBWC, KRS, FINZ
Sep. 18, 2014, 12:53 PM
- Banks, insurers, brokerages and anything else starved for yield continue to gain following yesterday's FOMC news. Among the gainers are Bank of America (BAC +1.9%) - which breaks above $17 for the first time since April - Citigroup (C +2.7%), Wells Fargo (WFC +1.1%), PNC (PNC +1.1%), Fifth Third (FITB +1.7%), SunTrust (STI +1.2%), Schwab (SCHW +2.3%), Prudential (PRU +2.5%), and Lincoln National (LNC +2.4%).
- The XLF +1.2%, KBE +1.5%, and KRE +2%.
- Financial sector ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, KBWB, FNCL, RKH, QABA, FINU, KRU, KBWR, RWW, RYF, KRS, FINZ
- Lit up bright red is the utility sector (XLU -1%), led by Southern Company (SO -1.1%), Dominion Resources (D -1.2%), Duke Energy (DUK -1.4%), and Pinnacle West (PNW -1.9%).
- Utility ETFs: XLU, IDU, VPU, UPW, RYU, FUTY, PUI, FXU, SDP, PSCU
Sep. 17, 2014, 3:16 PM
- Leading markets higher as the reality of higher interest rates gets nearer is the financial sector (XLF +0.9%). Whether its banks, brokerages, or insurers, a higher benchmark rate for some time has been considered a key bullish catalyst. An especially large move is being seen in the online brokerage names who have been forced to forego money market fees for years thanks to ZIRP: E*Trade (ETFC +3%), Schwab(SCHW +3.2%), Ameritrade (AMTD +2%).
- Morgan Stanley (MS +1.8%), Bank of America (BAC +1.2%), JPMorgan (JPM +0.9%)
- U.S. Bancorp (USB +1.1%), Regions Financial (RF +2%), New York Community Bank (NYCB +0.8%), Huntington Bancshares (HBAN +1.3%), KeyCorp (KEY +1.3%)
- MetLife (MET +0.6%), Voya Financial (VOYA +0.7%).
- Chubb(CB +0.4%), AIG (AIG +1.1%), Hartford (HIG +0.8%)
- Financial sector ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, KIE, IAT, SEF, IYG, IAK, FXO, KBWB, FNCL, RKH, QABA, FINU, KRU, KBWR, RWW, KBWP, RYF, KBWI, KRS, FINZ
Aug. 12, 2014, 3:46 PM
- More than a third of executives surveyed by Sageworks have little or no familiarity with a proposed new FASB rule which could force lenders to boost reserves held against troubled loans. More than half say they're not planning on modifying their processes until after the rule is implemented (could come by year-end).
- The changes wouldn't take effect until 2017 or 2018, but banks need to start getting ready to amass data now, says Sageworks, as they'll "need a lot more granular data" on individual loans - three or four years worth - to deal with the new regime.
- The new rule would require banks to record losses based on future projections of loans going bad, rather than the current practice of waiting to record losses until they actually occur.
- ETFs: KRE, KBE, IAT, KBWB, RKH, QABA, KRU, KBWR, PSCF, KRS
Jun. 26, 2014, 3:11 PM
- "Five years ago, if the risk group recommended against a strategy or product, it might just be one part of a debate," says Wells Fargo (WFC -0.4%) chief risk officer Michael Loughlin. Now, "when we say no, it's usually no."
- The naysayers are gaining power and multiplying across the banking industry as lenders bow to pressure from regulators to simplify and make safer their operations in the hope of preventing the next financial collapse. For its part, Wells has 2.3K employees in its core risk-management department, up from 1.7K two years ago, and the unit's annual budget has doubled to $500M over that period. Earlier this year, Goldman Sachs (GS -0.2%) made its chief risk officer part of the trader/rainmaker-dominated company management committee for the first time ever.
- The changes are expensive and come at a time of sluggish loan growth and trading revenue, but the banks have no choice as regulators wield the power given them by Dodd-Frank.
- KeyCorp (KEY +0.1%), for instance, used to pay loan officers for meeting profit goals. Now those bonuses can be lost if their work falls short of new risk-management standards. It's no doubt one factor behind sharply lower loan commitments for construction and real-estate development.
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAI, IAT, SEF, IYG, FXO, KBWB, FNCL, RKH, QABA, FINU, KCE, KRU, KBWR, RWW, RYF, KRS, KBWC, FINZ
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