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IYF vs. ETF Alternatives
The iShares Dow Jones U.S. Financial Sector Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the financial and economic sectors of the U.S. equity market, as represented by the Dow Jones U.S. Financials Index.
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Tuesday, Dec 32013, 3:50 PM
Tuesday, Dec 32013, 3:50 PM| 8 Comments
- The CFTC sets a December 10 vote on the so-called Volcker rule which is supposed to ban banks from prop trading. It sounded so simple when politicians trumpeted it in 2010, but the reality of what banks do is slightly more complex and the text of the rule has mushroomed to 1K pages. GS, MS, JPM, BAC, and C, among others, will be eager to see what the regulations entail.
- Any hopes for a watering-down of the rule likely ended with JPMorgan's $6B London Whale loss.
- The SEC indicates it will act on the rule around the same time as the CFTC (3 other agencies must approve as well).
- Related ETFs: FAS, XLF, FAZ, UYG, VFH, IYF, SEF, IAI, IYG, PFI, FXO, KBWB, KCE, RWW, FINU, RYF, PSCF, FNCL, FINZ, KBWC
Wednesday, Nov 272013, 1:42 PM
Wednesday, Nov 272013, 1:42 PM| 1 Comment
- 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
Wednesday, Nov 272013, 9:22 AM
Wednesday, Nov 272013, 9:22 AM| 7 Comments
- "Mortgage-related litigation has recently gotten a second wind and has expanded beyond investor claims,” says S&P, now estimating legal tab for U.S. banks could be another $56.5B-$104B. The good news is banks have gotten ahead of even these crazy numbers by boosting litigation reserves to nearly $155B.
- The bad news would be if Bank of America's (BAC) $8.5B mortgage settlement with private parties gets tossed out by a federal judge (see Article 77 hearing coverage), the litigation losses could "escalate significantly ... the ability of US banks with the largest exposures to withstand additional expenses is not unlimited.”
- C, WFC, MS, JPM, and GS declined to comment for the story.
- From the Department of Legal Issues Are Going Nowhere: The Federal Home Loan Bank of Pittsburgh - claiming its losses of more than $1B are not covered by the JPMorgan global settlement - asks a judge to force JPM to turn over the draft complain from the DOJ which includes the name of a bank employee described as a cooperating witness for the government.
- Related ETFs: FAS, XLF, FAZ, UYG, VFH, IYF, SEF, IAI, IYG, FXO, PFI, KBWB, KCE, FINU, RWW, RYF, PSCF, FNCL, FINZ, KBWC
Wednesday, Nov 272013, 3:41 AM
Wednesday, Nov 272013, 3:41 AM| 11 Comments
- Eight leading U.S. banks could have to pay a further $56.5-104B to settle mortgage-related claims, S&P reckons.
- However, the largest banks have estimated capital buffers of $155B combined, which would be enough to absorb the losses.
- S&P doesn't expect the legal liabilities to hurt the banks' ratings.
- Banks: JPM, BAC, C, MS, WFC, GS
- ETFs: FAS, XLF, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, PFI, KBWB, RWW, FINU, RYF, PSCF, FNCL, FINZ
Monday, Nov 182013, 11:56 AM
Monday, Nov 182013, 11:56 AM| 8 Comments
- Led by a big move in the TBTFs, the Financial Sector SPDR (XLF +0.6%) hits its highest level since September 2008, though it remains far below the mid-2007 peak.
- Has the easy money been made? Drexel Hamilton's David Hilder notes Bank of America (BAC +1.5%), Citigroup (C +1.8%), and Morgan Stanley (MS +1.2%) all traded well below tangible book value one year ago, and Raymond James' Anthony Polini thinks the 10-year Treasury yield will have to move above 3% and stay there before you'll begin seeing earnings estimates ratcheted up.
- Bank of America hit its highest level in nearly 3 year today and JPMorgan (JPM +1.7%) - for all of its legal troubles - is only about 2% below prices not seen since 2000.
- The relatively clean Wells Fargo (WFC +0.3%) is the group laggard this session.
- Financial sector ETFs: FAS, XLF, FAZ, UYG, KRE, KBE, VFH, IYF, SEF, IAT, IAI, IYG, FXO, PFI, KBWB, RKH, QABA, KCE, RWW, FINU, RYF, KRU, KBWR, PSCF, KRS, FINZ, FNCL, KBWC
Monday, Nov 182013, 4:30 AM
Monday, Nov 182013, 4:30 AM| 6 Comments
- The Federal Reserve could delay by a year the date by which banks will have to comply with all aspects of the Volcker rule. The target at the moment is July 2014.
- Regulators are still finalizing the proposal, which, among other things, would ban banks from proprietary trading using their own money. The regulators are unlikely to release the definitive version until December.
- However, banks would still have to eliminate their pure proprietary trading desks by July next year.
- The sector is concerned that the rule will limit activities such as market making and hedging.
- ETFs: FAS, XLF, FAZ, UYG, VFH, IYF, SEF, IAI, IYG, FXO, PFI, KBWB, KCE, RWW, FINU, RYF, PSCF, FINZ, FNCL, KBWC
- Related tickers: BAC, GS, JPM, C, BK, WFC, MS
Tuesday, Nov 122013, 3:31 PM
Tuesday, Nov 122013, 3:31 PM| Comment!
- The net closing of bank branches continues a mutliquarter trend, according to SNL Financial, which finds a net loss of 390 locations in Q3 as more customers do more routine banking business online, and banks - in a sluggish revenue environment - look to the low-hanging fruit of shuttering underperforming stores. The 390 figure is about inline with Q2, but higher than prior reads.
- "There's almost nobody in the branches," says bank consultant Jim Adkins. "You could shoot water balloons all over the place and not hit anybody."
- In addition to costs and technology, there's also M&A, and one of the first things to be done after an acquisition is to close overlapping branches.
- Leading the way in terms of net closings in Q3 were SunTrust (STI) and Bank of America (BAC). Not getting in the spirit of things is JPMorgan (JPM) which opened more branches than it closed in Q3.
- Related ETFs: FAS, XLF, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, PFI, KBWB, RWW, FINU, RYF, PSCF, FINZ, FNCL
Friday, Nov 82013, 10:41 AM
Friday, Nov 82013, 10:41 AM| 5 Comments
- Up sharply as interest rates fly higher (the 10-year is up 15 basis points to 2.75%) are the life insurers - all of whom have had their investment returns more than a little constrained by puny yields. IAK +2.4%
- MetLife (MET +5.9%), Prudential (PRU +4.5%), Lincoln National (LNC +6.8%), Hartford (HIG +3.1%).
- Also set to benefit from a steeper yield curve (if we're to believe their models) are the banks, and they're leading the S&P 500 higher. The TBTFs: Bank of America (BAC +3.3%), JPMorgan (JPM +3.1%), CItigroup (C +3.3%), Wells Fargo (WFC +2.6%). The regionals (KRE +3.4%): Huntington (HBAN +2.6%), Regions (RF +4.2%), PNC (PNC +2.8%), FIfth Third (FITB +3.4%), First Niagara (FNFG +2%), Keycorp (KEY +3.5%), Zions (ZION +4.1%), Comerica (CMA +3.1%).
- The XLF +1.9%.
- FInancial sector ETFs: FAS, XLF, FAZ, UYG, KRE, KBE, VFH, IYF, KIE, SEF, IAT, IAI, IYG, IAK, FXO, PFI, KBWB, RKH, QABA, RWW, FINU, RYF, KRU, KBWR, PSCF, KBWP, KBWI, KRS, FINZ, FNCL
Thursday, Nov 72013, 2:04 PM
Thursday, Nov 72013, 2:04 PM| 1 Comment
- How aggressive have banks been with loan price competition as they seek to add mortgages to their books, asks Redwood Trust (RWT +0.8%) management in its must-read Redwood Review. During Q3, some were offering 30-year fixed-rate mortgages at more than 25 basis points less than conforming rates, when typically these are 25 bps higher.
- "We have never witnessed jumbo loan pricing quite like this," says Redwood, and it's particularly curious why banks would want long-duration assets just at the time when rates look to be headed higher. The answer is an abundance of liquidity and a desire for loan and interest income growth trumping the potential consequences down the road. "It is difficult to estimate how long this condition might persist."
- Last night, Redwood reported taxable EPS of $0.24 and book value slipping $0.04 to $14.65 in Q3 after payment of a $0.28 dividend.
- Related ETFs: FAS, XLF, FAZ, UYG, KRE, KBE, VFH, IYF, SEF, IAT, IYG, FXO, PFI, KBWB, KME, RKH, QABA, RWW, RYF, KRU, FINU, KBWR, PSCF, KRS, FINZ, FNCL
Monday, Oct 72013, 3:52 PM
Monday, Oct 72013, 3:52 PM| Comment!
- 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.
Monday, Sep 302013, 2:02 PM
Monday, Sep 302013, 2:02 PM| Comment!
- Headline risk and falling long-term interest rates (flattening the yield curve) are behind S&P Equity Strategy Group's downgrade of the financial sector (XLF -0.6%) to Neutral. The team's estimate of earnings growth is expected to slow to 5.6% next year from 11.4% in 2013.
- S&P needs to take a number for its downgrade as the earnings estimate cuts are flying all over the place over the last two weeks. The big banks have made little secret that mortgage and trading slowdowns are going to deliver a big hit to Q3 earnings.
- Other relevant ETFs: IYF, PFI, VFH, RYF, RWW, FAS, UYG, FAZ, SKF, SEF, IAI, FXO, PSCF, KBWD, KBWB, IYG, FINU, FINZ, KBE, KRE.
Wednesday, Sep 252013, 9:43 AM
Wednesday, Sep 252013, 9:43 AM| Comment!
- Speaking at BAML's Banking and Insurance Conference in London, Deutsche Bank (DB -1.6%) co-CEO says the bank expects a "significant" drop in Q3 trading revenue.
- The announcement isn't unexpected, and follows a similar warning from Citigroup over the weekend, numerous other rumblings from investor conferences this month, and Jefferies' already reported ugly (from a trading standpoint) Q3.
- Previous: FICC trading revenue has been slipping for years and should be in analyst models by this point.
- Banks (KRE -0.6%), (KBE -0.4%) again are leading the market decline.
- Financials ETFs: XLF, IYF, PFI, VFH, RYF, RWW, FAS, UYG, FAZ, SKF, SEF, IAI, FXO, PSCF, KBWD, KBWB, IYG, FINU, FINZ.
Monday, Sep 232013, 10:23 AM
Monday, Sep 232013, 10:23 AM| 2 Comments
- The financial sector (XLF -1.2%) leads the market lower following Citigroup's warning about Q3 trading revenues. SPDR KBW Bank ETF (KBE -1.3%). Not necessarily exposed to trading activity, regional banks are nevertheless not spared, the Regional Banking ETF (KRE -1.3%). The TBTF banks are all off between 2 and 3 percent.
- Related ETFs: XLF, IYF, PFI, VFH, RYF, RWW, FAS, UYG, FAZ, SKF, SEF, IAI, FXO, PSCF, KBWD, KBWB, IYG, FINU, FINZ, KBWB, IAT, KBE, KRE, RKH, QABA, KRU, KRS, KBWR.
Monday, Sep 162013, 2:18 PM
Monday, Sep 162013, 2:18 PM| 6 Comments
- Bank of America's (BAC +0.7%) Tier 1 common capital ratio would remain above the regulatory minimum, falling to 9.2% by mid-2015 in the "severely adverse scenario" of its self-administered stress test, which - like Citigroup and Goldman - models for a number of Armageddon-like scenarios with the exception of one: sharply higher interest rates. Is the Fed really that omnipotent?
- The Fed's own stress test results - the CCARs - are due in March of next year.
- BofA's Mid-Cycle Stress Test Results.
- Earlier: Citigroup and Goldman.
- More: Keycorp (KEY) says it will come in at 10%, Capital One (COF) at 12.5%.
- ETFs of interest: KBE, KBWB, KRE, KCE, KBWC, XLF, IYF, PFI, VFH, RYF, RWW, FAS, UYG, FAZ, SKF, SEF, IAI, FXO, PSCF, KBWD, KBWB, IYG, FINU, FINZ.
Wednesday, Sep 112013, 7:46 AM
Wednesday, Sep 112013, 7:46 AM| 9 Comments
- The 13.5% plunge in mortgage applications last week was adjusted to reflect the Labor Day holiday.
- The Refinance Index dove 20%, now off 71% from the May peak, and at the lowest level since June 2009. The Purchase Index dipped 3%.
- The average contract rate for a 30-year fixed mortgage rose 7 bps to 4.80%, with points increasing to 0.46 from 0.33.
- Amid numerous investor presentations by the banks this week, nearly all have warned about ugly Q3 mortgage production (and gain on sale) numbers coming up. Regional players like MTB, BBT, ZION, HBAN, as well as larger names like WFC and JPM will take note.
- ETFs of note: XLF, IYF, PFI, VFH, RYF, RWW, FAS, UYG, FAZ, SKF, SEF, IAI, FXO, PSCF, KBWD, KBWB, IYG, FINU, FINZ, KBE.
Tuesday, Sep 102013, 3:38 PM
Tuesday, Sep 102013, 3:38 PM| 1 Comment
- U.S. Bancorp (USB +1%) is among those making significant accounting changes - moving bonds from the "available-for-sale" bin into "held-to-maturity." The move gives lenders near-term capital relief, but forces them to hold onto the paper no matter what.
- U.S. Bancorp's held-to-maturity portfolio ballooned to $34.7B or 46% of its investment portfolio in Q2, up from just $1.5B in 2010. The bank did it to cope with new capital regulations, but is now stuck with billions in low-yielding assets as rates begin to rise - the weighted-average yield on the held-to-maturity portfolio is just 1.89% compared to 2.72% in the available-for-sale portfolio.
- Texas bank Cullen Frost (CFR +0.2%) was forced to do likewise as regulators seemed "incapable" of removing a requirement to subtract paper losses on securities from capital ratios, according to the bank finance chief. "That was absolutely ridiculous for a bank like ours," which never had any funding issues, says CIO Bill Sirakos.
- The bottom line: The banks made their arrangements with the federales a long time ago. They're just going to have to deal with it.
- Financial ETFs: XLF, IYF, PFI, VFH, RYF, RWW, FAS, UYG, FAZ, SKF, SEF, IAI, FXO, PSCF, KBWD, KBWB, IYG, FINU, FINZ, KBE.