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…
Insights: Banks
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…
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…
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 Canadian Banks – The End of an Era (Globe and Mail)
On May 26th, the Globe and Mail featured our piece entitled, “The Canadian Banks – The End of an Era”. This article is based on material researched for our investor luncheons last fall by the same name. This “Special Comment” expands on the contents of the article with additional commentary for the benefit of our investors. Click to Download»
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»
Why Credit Creation Will Return
Negative loan growth is a very important issue since many believe only when the “banks start lending again” will the U.S. economy recover. Each week, the Federal Reserve releases its H.8 report detailing the assets and liabilities for the U.S. commercial banks. Although the weekly change in total loans may swing positive or negative, this report (excluding the impact of an accounting change in March 2010)…