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Deutsche Bank is Muddling Along, Aiming for Self Help

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Image Shown: Deutsche Posted Meager Second Quarter Results. Image Source: Deutsche Bank 2Q2020 Earnings Presentation While Deutsche Bank is working on a five pillar self-help plan with the goal of an 8% return on tangible equity by 2022, and seems to be making some progress on these fronts, the fact that the end goal is so timid shows just how overbanked the German and greater European markets are. The CEO is calling for consolidation in the medium term, but it cannot come fast enough, especially for those banks with very little in the way of earnings power, which must deal with a pandemic and the broad effect on the economy and the client base in the meantime. By Matthew Warren … Read more

BNP Paribas’ Shares Could Have Upside Potential

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BNP Paribas’ shares are trading at a fraction of tangible book. If the bank can contain its cost of risk through this cycle and produce double-digit returns on tangible equity on the other side of this crisis, shareholders would do quite well in such a scenario. That said, we point out that Europe is overtraded when it comes to banking, which pressures earnings power at even the stronger banks like BNP Paribas. We’re paying close attention to the key banking players in Europe to assess the likelihood of a global financial contagion that may accompany the global pandemic that has become COVID-19. By Matthew Warren BNP Paribas SA (BNPQF, BNPZY) reported relatively better results than many large global bank peers, … Read more

Lloyds Banking Group Navigates Competitive Markets

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Image Source: Lloyds. The UK banking market is highly competitive with too many players, and we think this is the cause for the low returns on capital across the cycle. We’re paying close attention to the key banking players in Europe, including Lloyds Banking Group, to assess the likelihood of a global financial contagion that may accompany the global pandemic that has become COVID-19. By Matthew Warren Lloyd’s Banking Group (LYG) posted a very difficult first quarter, results released April 30, with net income (IFRS equivalent of GAAP revenue) down 11% to GBP 4.0 billion and statutory profit before tax down 95% to GBP 74 million. One can see many of the highlights (or more realistically lowlights) in the graphic … Read more

Deutsche Bank Suffering From Lack of Earnings Power

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On April 29, Deutsche Bank reported another measly quarter in a long string of them. While Deutsche Bank is well-capitalized with a Common Equity Tier I ratio of 12.8% and its Investment Banking segment grew earnings nicely this quarter during rapid client trading and bond origination activity as the markets melted down in March, it suffers from a lack of earnings power at this stage. We blame this on the bank itself, but also on the overcapacity in European banking in general, which pressures margins across the entire industry. By Matthew Warren On April 29, Deutsche Bank (DB) reported another measly quarter in a long string of them, with revenue in the first period of 2020 flat at EUR 6.350 … Read more

Santander Remains Well-Capitalized

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Europe is overbanked with too much capacity, which means little or no earnings power for many of the players involved, including Santander Europe. We’re paying close attention to the key banking players in Europe to assess the likelihood of a global financial contagion that may accompany the global pandemic that has become COVID-19. By Matthew Warren Banco Santander (SAN) reported tough first-quarter results April 28, with total income (the IFRS equivalent of GAAP revenue) down 2% and attributable profit down 82% to EUR 331 million. Profit before the provision build would have been up 1%, so clearly the expectations for upcoming bad debts are what really sunk the quarterly results, which one can see in the below graphic. Image Source: Santander … Read more

Banking Entities: The Technicals Tell the Story

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Image: The Financial Select Sector SPDR ETF has experienced a tremendous amount of pain in recent weeks. From Value Trap: “It’s likely we will have another financial crisis at some point in the future, the magnitude and duration of which are the only questions. My primary reason for this view is not to be a doomsayer, but rests on the human emotions of greed and fear and the nature of a banking entity’s business model, which does not hold a 100% reserve against deposits. Our good friend George Bailey, played by actor Jimmy Stewart, in the movie It’s a Wonderful Life knew this very well when he tried to discourage Bedford Falls residents from making a “run” on the beloved … Read more

Dividend Increases/Decreases for the Week of August 12

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Below we provide a list of firms that raised their dividends during the week ending August 12. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                AirSculpt Technologies (AIRS): now $0.41 per share special dividend. Alpha Metallurgical (AMR): now $0.392 per share quarterly dividend, was $0.375. Badger Meter (BMI): now $0.225 per share quarterly dividend, was $0.20. Barclays (BCS): now $0.105 per share semi-annual dividend, was 4.0p. Barnwell (BRN): now $0.015 per share dividend. Berry (BRY): now $0.62 per share quarterly dividend, was $0.06. Broadridge Financial Solutions (BR): now $0.725 per … Read more

Worst in Energy Not Over, Stay Away from Leveraged Enterprises, Seeds of Financial Crisis Sown?

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Image Shown: The energy and banking markets continue to be experiencing pain. Since we removed the Energy Select Sector SPDR (XLE) and Financial Select Sector SPDR (XLF) from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, the XLE has fallen more than 50% and the XLF has fallen 13%, while the SPY has held up roughly 2%. We continue to believe staying away from energy and financials/banks will be a source of significant alpha. These are challenging times. The oil price swoon has complicated an already-dire situation with COVID-19. We’re seeing cracks in the credit markets, and the European banking system is far from healthy. The US banks may face knock-on impacts from energy loan defaults and hold … Read more

Dividend Increases/Decreases for the Week of August 11

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Below we provide a list of firms that raised their dividends during the week ending August 11. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                          AdvanSix (ASIX): now $0.16 per share quarterly dividend, was $0.14. Annaly Capital Management, Inc. PFD SER G (NLY.PG): now $0.6136 per share quarterly dividend, was $0.4062. Annaly Capital Management 6.95% PFD SER F (NLY.PF): now $0.6582 per share quarterly dividend, was $0.6345. Ashtead Group plc (ASHTY): now $0.85 per share interim dividend, was $0.55. AstraZeneca (AZN): now $0.93 per share interim dividend, was $0.465. … Read more