Below is our case study, Citizens Republic – A Recovering Mid-Cap Bank. The subject of this case study, which was originally written for and distributed to our clients in mid-July of 2011, is an example of a bank recovering from the most recent credit cycle. Click to Download»
Insights: Region
100 Bank Mergers
We explain why we believe M&A within the U.S. banking sector will be one of the most significant and compelling investing opportunities in the financial services sector over the next three years, and why we expect over 100 mergers among the publicly traded banks during this time. Click to Download»
U.S. Fiscal Cliff Takes Centre Stage as Europe Recedes (for Now)
Throughout most of the year, the market has moved easily from “risk-on” to “risk-off”, almost exclusively due to changing circumstances/concerns out of Europe. As a result, the last two years have seen some tremendously volatile months, with large corrections being followed by large rallies.
Recovery in Earnings Comes in Advance of Stock Prices
The U.S. banks recently reported another excellent quarter of earnings, with the recovery in earnings continuing to substantially outpace the recovery in bank stock prices. Although lower than Q1-12’s earnings of $28 bln (owing primarily to a $2.3 bln Q/Q decline in trading), Q2 earnings for the publicly traded banks were still a very meaningful $26 bln. This exceeds earnings levels achieved by the banks before…
Policy Makers vs. Markets (Again)
The market continued to move easily between “risk-on” and “risk-off” in July. Last month felt a lot like the past several months, i.e., it was characterized by weak economic data in the U.S. and continued evidence of a recession in Europe. As has been the case for much of the past two years, the European debt crisis continued to be the biggest driver of market volatility,…
Are the Canadian Banks Becoming Too Powerful? (Globe and Mail)
Over the past few years, the Canadian banks have been praised for avoiding the worst of the global financial crisis. This success is firmly rooted in public policy (and good management) since, for much of the past century, Canadian policy makers – i.e., governments and regulators – sought to create a very powerful and Canadian-controlled banking system. Click to Download»
Crunch Time for Europe
It is an understatement to say that the markets were very challenged in May. After a reprieve of several months, the European debt crisis re-emerged with a vengeance as the Greeks failed to form a coalition government after the May 6th election, throwing the country’s future in the eurozone into question. Equally troubling is that the crisis has spread from the peripheral countries to Spain, one of…
Some Thoughts on JPMorgan’s Trading Loss
As no doubt everyone has read or heard, in early May, JPMorgan (JPM) announced a surprise trading loss of “slightly more than $2 bln”, incurred while trying to hedge European sovereign debt exposures. The media attention garnered by this loss has been relentless. The negative coverage is very atypical for this highly successful bank that buttressed its reputation by admirably managing through the credit crisis.
FDIC Data Demonstrates the Divorce Between Stock Performance and Earnings in 2011
As we discussed in our December Thesis Update, 2011 was a terrible year for the banks from a market perspective, as the sector both declined and underperformed the S&P (which was flat) by 25%. From an absolute return perspective, it was the 6th worst year since 1937 (Source: Barclays). From a relative perspective (i.e., versus the S&P 500), it was the 5th worst in 75 years.…
Will Banks Rise in 2012? History Strongly Suggests Yes
2011 was a year the U.S. banks would like to forget. Stocks declined 24.6%, underperforming the S&P 500 by the same amount (SPX ended the year unchanged). This was the fifth worst result since 1937 (i.e., the first year of available return data). It also marked the 7th year out of the last 8 in which the banks underperformed (and it would have been 8 of…
Will Sun Life Financial (SLF-TO) Cut its Dividend?
There is something very unusual going on in the Canadian financial services sector: a large-cap financial, Sun Life Financial (SLF), is being priced for a substantial dividend cut. Even those with a cursory knowledge of Canadian financial services know that investors in the sector consider dividends virtually sacrosanct.
That Was Then, This is Now: Comparing the European Debt Crisis to the Credit Crisis (Globe and Mail)
Europe’s current sovereign debt crisis bears many similarities to the recent U.S. Credit Crisis. Both crises involve(d) two roughly $14 trillion dollar economies weakened under the weight of too much leverage, particularly within the financial system. Both have seen central bankers provide unprecedented monetary accommodation as they struggle for ways to support economic growth. What’s more, bank stocks have acted in both cases as a daily…