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…
Insights: Banks
March 2016 Update | Australian Banks: Profitable Banking Sector in a Wealthy Country
In this note, we provide a review of the Australian economy and banking system, highlighting the most important issues facing the sector. Australia is a wealthy country with an oligopoly banking sector, with banks known for their profitability, strong credit metrics, and high dividend yields. Current headwinds facing the economy, which will impact the banking system, include elevated real estate prices and a downturn in the…
European Bank Reported Earnings Up ~54% in 2015 (after Rising ~55% in 2014)
Although obscured by the very difficult market sentiment, reported earnings[1] for the largest publicly traded European banks, representing total assets of over €25 trillion, rose by ~54% in 2015, almost exactly the same as the 55% increase the sector experienced in 2014. ‘Core’ earnings[2] – i.e., excluding unusual items – rose a very consequential ~20% in 2015, after rising ~43% in 2014 (see chart below).
ECB Easing Measures Seen as Positive; European GDP Growth Remains ~2%
Today, the ECB announced greater than expected easing measures, which the market interpreted as constructive for the eurozone economy and its banking sector (note, eurozone represents ~60% of total Europe GDP). Key components of the announcement include:
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…
Notes from Florida: KBW Financial Services Symposium
In early February we attended the KBW Winter Financial Services Symposium in Florida, which was attended by other investors and representatives from U.S. banks and capital markets firms. Of the +70 primarily U.S. mid-cap banks in attendance, only five had assets over $50 bln. There was a clear division in sentiment between company executives, who are not seeing major issues with their operations, and investors, who…
Notes from Texas Bank Tour: Is This Time Different from Previous Downturns?
Last week we traveled to Texas with a group of investors to meet with management teams from 15 different banks (14 are publicly traded). With the exception of six banks, all are headquartered in Texas, and all but one has notable energy exposure in their loan portfolios (Oklahoma, Mississippi, Arkansas, and Louisiana banks also participated). The stocks of most of these banks have dropped over the…
European Banks: “Now” vs. Peak Sovereign Debt Crisis (in Charts)
The global financials, particularly the banks, have had a very difficult two months, correcting significantly off of their early-December highs. The macro-driven correction has been indiscriminate, with the U.S. large-cap banks (BKX), U.S. mid-cap banks (KRX), U.S. financials (S5FINL), global financials (SGFS), and European banks (SX7P) falling 20%, 20%, 15%, 16%, and 25%, respectively, from their December highs.
Déjà vu? European Banks Now vs. U.S. Banks in 2011 (and what followed)
Déjà vu? In this 3 slide presentation, we highlight how European banks continue to mirror the recovery of U.S. banks at the same stage of the credit cycle in 2011, up to and including the most recent macro-driven correction. Click here to view the presentation
Chinese Banks Part #3: Are Chinese Banks Solvent? Q&A on the Sector
In this series on Chinese banks, we have been evaluating the risk that distress in the system triggers a global sell-off. In the first two parts, we assumed that the Chinese government’s reported statistics are unreliable and hence obscuring the true financial distress of the sector. Then, to help investors understand these systemic risk issues, we presented the arguments supporting the bear case (Part #1), as…
Chinese Banks Part #2: For BULLS, Four Reasons Why Macro Risk from Chinese Banks is Overstated
In this three part series, we discuss macro risk posed to the markets by the enormous Chinese banking sector. In Part #2, we take the perspective of the ‘bulls’, providing reasons why the macro risk posed by the Chinese banking sector is overstated. In Part #1, we provided the perspective of the ‘bears’, discussing why the sector could be the epicentre of a further global sell-off…
Chinese Banks Part #1: For BEARS, Four Reasons Why Chinese Banks’ Distress Could Amplify the Global Sell-Off
In this three part series, we discuss macro risk posed to the markets by the enormous Chinese banking sector. In Part #1, we take the perspective of the ‘bears’, discussing why the sector could be the epicentre of a further global sell-off and/or additional macro uncertainty. In Part #2, we take the perspective of the ‘bulls’, providing reasons why many believe the macro risk posed by…