A number of important themes are emerging in the financial services sector, which in North America alone includes over 1,000 companies, and over $4.5 trillion of market capitalization. Macro risks remain, but we believe that over the next 24 months, several themes offer excellent investing opportunities. Here is a description of just three…
Insights & Commentary
Why We’re Not Short (or Long) the Canadian Banks
There has been a lot of discussion in recent months about the potential for a material decline in Canadian home prices and the possible fallout for Canadian financials, and the banks, in particular. The speculated financial services sector impact – should such a decline occur – has ranged from: (i) slower economic growth causing slower revenue/earnings growth (most likely), to (ii) a credit downturn (a possibility),…
Are MICs the “Canary in the Coal Mine”?
Over the past several months, there has been a lot of discussion about the potential for Canadian home prices to fall and the possible impact on the Canadian financials (and banks, in particular). After a near-vertical rise in over the past decade (see chart), Canadian home prices appear vulnerable to a decline. The speculated impact of a decline on the domestic financial services sector has ranged…
Moody’s Bizarre View of Royal Bank
This past January, the once-powerful rating agency, Moody’s, downgraded the long-term credit ratings of four of the “Big five” Canadian banks. The downgrades, which were attributed to the economic risks posed by the high level of consumer debt and hot housing market in Canada, were largely ignored by the debt and equity markets. Click to Download»
For MICs, Time to Exercise Caution?
We were recently asked to look at and give our opinion on mortgage investment corporations, or MICs. Given the ultra-low interest rate environment, high yielding MICs have become a popular product among retail investors. What we found behind these high yield products was concerning to us, particularly given the potential for a generalist investor to significantly underestimate the actual credit risk of certain MICs.
Case Study: Citizens Republic (U.S. Mid-Cap Bank)
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»
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,…
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.