As we have indicated in prior commentary, we have zero exposure to the U.S. mega-cap banks, primarily because of their very low EPS growth, mid-single digit ROEs (in the case of C and BAC), and very high regulatory risk (see “Five Reasons We Don’t Own C, JPM and BAC”, June 14th). We favour a portfolio of U.S. banks derived from the nearly 200 publicly traded U.S.…
Insights: United States
Is Wells Fargo Un-investable (for Now)?
As we have written in the past, we strongly favour U.S. mid-cap banks – i.e., those with assets under $100 bln. These 200+ banks are growing (much) faster than their large-cap peers, are generally more rate sensitive, and are merging. And crucially, they have less regulatory risk. Up until recently, the epicentre of regulatory risk among the mega-caps has been banks with global investment banking operations…
Wells Fargo/Deutsche Bank: Some Thoughts on Regulatory/Litigation Risk
Recent events impacting Deutsche Bank (DBK.GY) and Wells Fargo (WFC) underscore – yet again – that the mega-cap banks, particularly those with (1) global investment banks and/or (2) operating in the U.S., continue to face significant regulatory/litigation risk, irrespective of quality. In general, these two categories of banks, which overlap, are not growing very fast (in some instances shrinking), have mid-single digit ROEs, and/or continue to…
Notes from Florida Bank Tour: Commercial Real Estate Lending and M&A under the Microscope
We recently traveled to Florida to meet with a group of mid-cap banks. Of the 12 banks that participated on the trip, 9 are headquartered in Florida (2 Arkansas, 1 from New Jersey), and 10 are publicly-traded[1]. Of the publicly-traded banks, the median asset size is US$5.0 billion, the median market cap is US$841 million (US$1.5 billion average), and the median expected loan growth in 2016…
Four Largest U.S. Banks See Earnings Decline 9% Y/Y in a Tough Operating Environment (While Mid-Caps’ Earnings Rise 9%)
In our Insight “Five Reasons We Don’t Own C. JPM, BAC, GS, or MS” (June 14, 2016), we explained why – despite their low valuations – we held no positions in these widely owned banks/brokers. We outlined that we prefer mid-cap banks over the largest banks, for reasons including: (i) earnings headwinds for the larger banks, (ii) higher rate sensitivity for the mid-caps, combined with (iii)…
Five Reasons Why We Don’t Own C, JPM, BAC, GS, or MS
In this note, we provide five reasons why we do not have positions in Citigroup (C), JPMorgan (JPM), Bank of America (BAC), Goldman Sachs (GS), or Morgan Stanley (MS), despite the fact that these banks/brokers are very inexpensive, trading near or below TBV. In fact, their lower valuations are directly linked to the fact their ROEs remain below their cost of capital (although JPM is close).
On HBG, Five Reasons Why We Don’t Own C, JPM, or BAC
In the Hamilton Capital Global Bank ETF (HBG), we do not have positions in Citigroup (C), JPMorgan (JPM), or Bank of America (BAC), despite the fact that these banks are very inexpensive trading near or below TBV. Their lower valuations are directly linked to the fact their ROEs remain below their cost of capital. Just how low is profitability for these three mega-cap banks? ROEs in…
U.S. Banks Feel the Pressure from Low Oil Prices; Reserve Builds Continue
Last week, Wells Fargo (WFC), one of the largest banks in the United States, announced significant increases in reserves and charge-offs for energy loans as part of the company’s Q1 2016 earnings release. WFC increased its reserves-to-loan ratio to 9.3% of total outstandings[1]. The bank attributed this change to deterioration in financial performance and collateral, driven by lower energy prices (it also disclosed that just 7%…
Another U.S. Bank Pre-Announces Large Increase in Energy Reserves
Yesterday, Hancock Holding Company (“HBHC”) pre-announced significant increases in provisions for energy loans. HBHC, a $22.8 billion (assets) bank which is based in Mississippi and has large operations in Texas and Louisiana, now expects that its provision for losses in the first quarter will total approximately $58-$62 million, potentially bringing the reserve up to ~8.5% of energy loans. Just over two months ago, HBHC management guided…
Part #1 of 2: Why the Global Investment Banking Model is Under Siege
If you follow or own JPM, C, BAC, MS, GS, or European ADRs CS, UBS, DB, you have no doubt observed the relentless stream of negative headlines/announcements underscoring the very challenging operating environment of the global investment banks. In our view these challenges are structural, not cyclical, and we believe that global investment banking model is effectively under siege. In this Insight, we discuss the immense…
Notes from NYC: For Global Investment Banks, Legacy Issues and Volatile Markets Creating Challenges
Along with a group of other investors, we recently attended meetings in New York City with executives from global banks (7 banks, including 6 international). Many of the conversations were focused on the investment banking businesses of these firms and how they are dealing with structural changes to the business model and regulatory environment, which are contributing to the ongoing headlines highlighting the challenges facing the…
JPMorgan Chase: Higher Energy Reserves from Bellwether for U.S. Banking Sector
JPMorgan Chase (JPM) held its 2016 Investor Day on Tuesday and released some notable commentary on its energy portfolio, the capital markets business, and its outlook for the U.S. economy. The stock ended the day down 4.2%, underperforming the KBW Bank Index (BKX), which declined by 2.9%. JPM is down ~16% from its December high, compared to the BKX, which declined ~21%. There were a few significant…