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: United States
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…
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…
Sector Continues to Grow Earnings Rapidly
The banks reported a very solid second quarter during the month, even if this fact was obscured by the price action or press coverage. Core earnings for the sector grew 14% Q/Q, and 50% Y/Y. Credit continued to improve, with charge-offs declining 12% Q/Q and 41% Y/Y.
Jamie Dimon on the U.S. Banking Environment
Last week, Jamie Dimon, the famously blunt CEO of JPMorgan Chase attended the Sanford Bernstein Strategic Directions conference in New York. The format was a one hour Q&A session. Given the negative sentiment around U.S. banks, we thought it useful to highlight comments from arguably the country’s most important and influential banker.
The Myths (and Realities) of U.S. Banking
Bank reporting season for the first quarter of 2011 is now essentially over. As we were summarizing this quarter’s aggregate results, we thought it would be interesting to discuss some significant myths in U.S. banking. Namely, we will discuss: Myth #1: U.S. Banks Continue to Struggle Myth #2: The U.S. Banking Business Model is Broken Myth #3: Bank Analyst Estimates are Relevant During a Credit Cycle…
Profitability Approaches Pre-Cycle Levels for U.S. Banks
Q1 2011 earnings for the U.S. banks demonstrated overwhelmingly positive trends again this quarter, including: (i) lower credit costs (PCLs/NCOs), (ii) declining “bad loans”, and (iii) higher revenues (rising margins/fee income).
Why We Expect M&A to Accelerate in 2011
Since the downturn began in 2007, there has been very little true M&A activity (i.e., premium transactions) in the U.S. banking sector, with the vast majority of deals being FDIC-assisted takeovers of failed banks. However, within the next six months, we expect premium transactions to accelerate in a significant way in the U.S. for the following reasons… Click to Download»