Jan. 14, 2014, 9:30 AM| Comment!
Nov. 27, 2013, 1:42 PM
- American Express (AXP +0.4%), Discover (DFS +0.3%), U.S. Bancorp (USB +0.2%), and Wells Fargo (WFC -0.1%) are best positioned to be allowed large capital returns (about 70%) after the Fed's early 2014 stress tests, says Credit Suisse's Moshe Orenbuch, while Ciitgroup (C +0.2%) and PNC Financial (PNC +0.9%) are likely to show the biggest improvement from last year.
- Overall, his team expects large cap bank capital returns to be 65% next year vs. about 48% in 2013. The median dividend payout ratio is expected at 22%, level with this year.
- Orenbuch notes the CCAR will be tougher this time around - notably by assuming a global, not just domestic meltdown, and assuming a significant reversal in the property market - with commercial real estate exposure particularly harshly judged.
- Balanced against that and likely winning, however, are far stronger capital positions of the banks, says Orenbuch.
- Financial and banking ETFs: FAS, XLF, FAZ, UYG, KRE, KBE, VFH, IYF, IPF, SEF, IAI, IAT, IYG, FXO, PFI, IXG, KBWB, RKH, QABA, KCE, FINU, RWW, KRU, RYF, KBWR, AXFN, PSCF, KRS, FNCL, FINZ, KBWX, KBWC
Nov. 18, 2013, 11:01 AM
- Looking for an edge, Discover (DFS) will begin providing customers credits scores for free on their monthly bills. The company says it's the first major credit-card issuer to offer such service.
- Customers of the "Discover it" card will begin getting free scores starting today and the service will roll out to all other clients in the next few months.
- Press release.
Oct. 21, 2013, 8:07 PM
- The Discover (DFS) earnings miss looks to have been driven by an unexpected loan-loss reserve build of $42M vs. last year's reserve release of $167M - made especially curious given current benign credit trends. Eliminating both years' reserve actions has EPS of $1.25 this Q, well ahead of $1.22 expectations and 12% higher than a year ago (see slide 3 of earnings call presentation).
- Immediately pressed on this during the earnings call (transcript), CFO Mark Graf says the key issue requiring the reserve build "was very clearly what we perceived to be something good" - the current book of business is having such good credit experience that the "recovery buckets" from a large block of soured loans are not getting refilled. Net charge-offs will therefore increase because the company isn't getting as much benefit from recoveries. "We don't see any situation where there is any type of a meaningful deterioration in credit in the near-term horizon at all," says Graf.
- Previous: Q3 results.
- Shares -4.2% AH to $51.50.
Oct. 21, 2013, 5:47 PM
Oct. 21, 2013, 4:23 PM
- Direct banking pretax income of $918M off 6% from a year ago.
- Discover card sales volume of $28B up 3% Y/Y. Credit card loans of $50.4B up 4%. Total loans of $62.7B up 5%, with private student loans of $387M up 5%, personal loans of $830M up 26%.
- Net interest margin of 9.65% gains 26 basis points from a year ago thanks to lower funding costs offsetting lower loan yields. Net interest income of $122M up 9%.
- Delinquency rate for credit cards over 30 days pas due falls 16 bps to 1.67%, but is up 9 bps from Q2. Credit card net charge-offs of 2.05% is off 29 bps from a year ago and from Q2. Student loan charge-offs of 1.33% is up 50 bps from a year ago.
- Loan loss reserve build of $42M due to lower expected recoveries on aged charge-offs and loan growth. Last year's Q3 saw a provision release of $167M.
- Payment services income of $28M Is off $20M from a year ago.
- About 7M shares repurchased during Q for $350M, cutting the float by 1%.
- Conference call at 5 ET.
- Q3 results, press release.
- DFS -4.2% AH.
Oct. 21, 2013, 4:12 PM
Oct. 21, 2013, 12:10 AM
Oct. 20, 2013, 5:35 PM
Oct. 16, 2013, 5:41 PM
Oct. 14, 2013, 8:06 AM
- "A compelling growth story within financials over the next consumer leveraging cycle," says analyst David Ho, seeing above average loan growth even in the current sluggish macro environment, and continuing as loan demand accelerates.
- "This will translate into positive EPS revisions over time from likely better than expected NIM trends, benign credit costs, meaningful excess capital and high-margin payment assets," he says, starting Discover (DFS) at Buy with $62 price target.
Oct. 10, 2013, 7:53 AM
Oct. 7, 2013, 3:52 PM
- Among banks and credit card names, FBR favors those picking up new teams/market share - namely Signature Bank (SBNY -1.4%) and Discover (DFS) - as well as those trading near book value, like HomeStreet (HMST -0.6%). PNC Financial remains a favorite for its strong growth prospects, as well as servicers like Nationstar (NSM +0.2%), Walter Investment (WAC -2.3%), and New Residential (NRZ -0.3%).
- Those most exposed to a protracted government shutdown are smaller community banks in the D.C. area like Eagle Bancorp (EGBN -1.4%), and Cardinal FInancial (CFNL -0.2%). Capital One (COF -1.9%) - by dint of its Chevy Chase acquisition - would also feel a pinch.
- On mREITs (REM -0.1%), the team expects Q3 book values to increase slightly, but warns its estimates are based on relatively static portfolios - "but for most names, portfolios are anything but that." With all the volatility, most mREITs may have hedged away the recent MBS rally. Starwood Property Trust (STWD) remains FBR's best idea thanks to its commercial real estate exposure.
- Financials ETFs: XLF, IYF, PFI, VFH, RYF, RWW, FAS, UYG, FAZ, SKF, SEF, IAI, FXO, PSCF, KBWD, KBWB, IYG, FINU, FINZ.
Oct. 4, 2013, 1:04 PM
- Despite expenses moving in the wrong direction and what he expects will be a declining trend in earnings, Capital One (COF +1.7%) is KBW's Sanjay Sakhrani top pick among the credit card lenders. Even with Q3 EPS expected at $1.78 vs. $2.01 a year ago, CapOne still trades at 10.1x 2014 consensus P/E - low for a stock with return on tangible common equity of nearly 18%, he says.
- The far-better performing (stock-price wise) Discover (DFS +0.3%) - trading at 10x 2014 earnings - is also rated a Buy as Sakhrani sees plenty of room for boosted buybacks. He predicts $350M of repurchases in Q3 vs. $340M in Q2, and a total of $1.3B for all of 2013.
- Though relatively pricey at 13.8x 2014 consensus P/E, American Express (AXP +0.1%) is also rated a Buy thanks to its long history of double-digit ROE (it was 23.6% in H1, down from 26.6% a year ago).
Sep. 10, 2013, 4:15 PM
- Discover (DFS +1.9%) and Capital One (COF +2.5%) are similarly valued at 10x 2014 estimated EPS, but Sandler O'Neill prefers Discover, saying the stock deserves a premium due to superior credit quality and loan growth. Discover grew credit card loans 4.9% Y/Y in Q2, while CapOne was negative. Discover's 30-plus day delinquency rate of 1.58% was below that of all U.S. banks at 2.52%. Finally, Discover's net charge-offs of 2.34% compares to 3.51% for the industry.
- Discover also trades at an undeserved discount to regional banks (KRE). Acknowledging the differences in Discover's and the regional banks' business models, Sandler still believes the discount is excessive again given superior loan growth and improved credit quality. Finally, Discover's net interest margin has consistently exceeded 9%.
Sep. 9, 2013, 12:56 PM
- As other banks get out of the student loan business (JPMorgan is the latest), they're leaving more for Wells Fargo (WFC +0.1%) which continues to up its presence, and is now 2nd in the nation behind Sallie Mae.
- Toss in Discover Financial (DFS +0.9%) and the 3 originate more than 75% of the country's private student loans, according to S&P.
- For the bank, the loans offer a better interest rate than mortgages or auto loans, but also heightened regulatory oversight. Wells is currently working with the CFPB on modification programs for those loans that become delinquent.
- "It's no longer sustainable and not the right place to allocate capital in the future," said HSBC in 2007 when it shut down its subprime unit. Are student loans next?
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