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.…
Insights & Commentary
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…
Will Sun Life Financial (SLF-TO) Cut its Dividend?
There is something very unusual going on in the Canadian financial services sector: a large-cap financial, Sun Life Financial (SLF), is being priced for a substantial dividend cut. Even those with a cursory knowledge of Canadian financial services know that investors in the sector consider dividends virtually sacrosanct.
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»
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)…
U.S. Banks Buck a Powerful Q4 Trend (And Why it’s Bullish)
The U.S. banks reported a very solid, albeit messy, fourth quarter, completing the first year of what we expect to be a three year recovery. Of interest, this quarter saw the banks buck a very powerful historical trend in credit, as credit losses (or net charge-offs, NCOs) declined in Q4 versus Q3. This bodes very well for not only the durability of the credit recovery, but…
Expected Dividend Increases = More Evidence of Belief in Recovery
In January, the “stress test” banks (i.e., those 19 institutions stress-tested under the U.S.’s Supervisory Capital Assessment Program in 2009) submitted capital plans to the Federal Reserve, many of which (JPM, WFC, PNC) are expected to have included requests to raise their dividends. For these banks, dividend increases (and buybacks of any size) have been on hold until the Federal Reserve gives its blessing, while some…