Exclusive Analysis for the Discerning Investor
Let’s examine a number of reasons why we don’t prefer banking entities and take a look at recent performance from industry constituents. A challenging rate environment and declining mortgage originations offer key headwinds.
Two of the US’ most important financial institutions reported third-quarter results Friday morning. The stories were slightly different, but equally fascinating. Let’s take a look at how these banks performed after passing their self-administered stress tests. JP Morgan JP Morgan’s (click ticker for report: ) third quarter results were relatively solid in spite of a laundry list of legal problems. Book value declined slightly sequentially to $52.01 per share, though that number is an increase of 4% year-over-year. Earnings per share, adjusted for litigation expenses and reserve releases, were roughly flat year-over-year at $1.40 per share. Year-to-date, the firm has achieved a return on equity of 11% — above our estimate of its cost of capital. Capital Ratios The Basel … Read more
The cohort of “too big to fail” banks such as JP Morgan (click ticker for report: ), Bank of America (click ticker for report: ), Goldman Sachs (click ticker for report: ), Wells Fargo (click ticker for report: ) and Citi (click ticker for report: ) recently released self-administered “stress tests” to see if they could withstand turbulent economic conditions. According to the banks, they are all in great shape and can meet minimum capital requirements in the event of adverse economic conditions. These tests, self-administered, are secondary to the annual March stress test performed by the Federal Reserve. However, these tests have the similar assumptions to mimic how well the banks would hold up if economic conditions returned to … Read more
Early Wednesday morning, the Mortgage Banker’s Association (MBA) announced that refinancing activity declined 20% from one week earlier. Adjusted for the Labor Day weekend, total mortgage applications dropped 13.5% from the previous week. Consistent with the dramatic upward movement in interest rates, refinancing activity is down 71% since it peaked during the week of May 3, 2013. Why Do We Monitoring Refinancing Activity? When homeowners refinance, a couple outcomes can occur that pump more dollars into the economy. First, with a refinanced mortgage, owners may choose to take equity out of the home, allowing for large purchases like vehicles or even home remodeling. CoreLogic recently reported that 2.5 million more residential properties have returned to positive equity in the second quarter … Read more
Wednesday afternoon, shares of Best Ideas Newsletter portfolio holding Visa (click ticker for report: ) recovered modestly on news that the Federal Reserve will appeal US District Court Judge Richard Leon’s ruling that the current cap on debit card transactions of $0.21 was inconsistent with the intent of the Durbin Amendment. Between now and the appeal, it seems likely that debit card caps will remain at $0.21 per transaction. Bad Idea from the Start? Because Visa and rival MasterCard (click ticker for report: ) have often been the target of regulatory scrutiny, it seems unlikely that any government-affiliated organization would show support. However, we think the Fed is well-aware of the unintended consequences of the debit card transaction fee cap. … Read more
Banking giant JP Morgan Chase (click ticker for report: ) posted strong second-quarter results Friday morning. Revenue exceeded consensus expectations at $25.2 billion, 14% higher than the year-ago period. Earnings per share climbed 32% year-over-year to $1.60, also better than consensus estimates. Return on tangible common equity increased 200 basis points year-over-year to 17%. Mortgage king Wells Fargo (click ticker for report: ) also reported solid second-quarter results Friday morning. Revenue was up approximately $89 million year-over-year to $21.4 billion, a touch better than consensus expectations. Earnings per share surged 20% year-over-year to $0.98, several cents better than consensus estimates. Pre-tax pre-provision profit increased 3%, to $9.1 billion. Return on equity advanced 116 basis points year-over-year to 14%. Capital levels … Read more
This week was packed with companies raising their cash dividends. Below we provide a list of firms that upped their dividends for the week ending May 24. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports, please click here. Firms Raising Their Dividends This Week AAON (AAON): now semi-annual dividend of $0.10 per share, was $0.08. American States Water Company (AWR): now $0.405 per share quarterly dividend, was $0.355. Bristow Group (BRS): now $0.25 per share quarterly dividend, was $0.20. Bunge Limited (BG): now $0.30 per share quarterly dividend, was $0.27. Center Bancorp (CNBC): now $0.075 per share quarterly dividend, was $0.055. Donaldson (DCI): now $0.13 per share … Read more
Credit and debit payment network provider Visa (click ticker for report: ) announced fantastic second-quarter results Wednesday afternoon. Revenue for the quarter jumped 15% year-over-year to $3 billion, easily exceeding consensus estimates. Earnings per share, adjusted for a one-time tax benefit during the second quarter of the prior year, increased 20% year-over-year to $1.92. Due to litigation expenses, free cash flow does not look great year-to-date, but management is confident the company can generate $6 billion in free cash flow for the full-year. Considerable focus on the call addressed the company’s new exclusive card branding with JP Morgan’s (click ticker for report: ) credit unit—not surprising given CEO Charlie Scharf’s previous position as Chase’s retail financial services chief. The deal … Read more
Although not surprising, two of the United States’ largest banks, JP Morgan (click ticker for report: ) and Wells Fargo (click ticker for report: ) kicked off the first quarter with terrific earnings. JP Morgan exceeded earnings expectations, generating a record $1.59 per share in earnings on revenue of $25.8 billion. Wells Fargo’s results weren’t too shabby either, boasting record earnings per share of $0.93 on revenue of $21.3 billion. JP Morgan Much of JP Morgan’s quarter was driven by strong performance from the mortgage business, which earned a return on equity of 14% (image source: JPM Q1 2013 presentation). Originations grew 37% year-over-year and 3% sequentially to $52.7 billion. Net interest margins on mortgages continue to compress, and CFO … Read more
Over the past week, both JP Morgan (click ticker for report: ) and Wells Fargo (click ticker for report: ), two of the nation’s most important banks, reported fourth quarter results. JP Morgan reported better than anticipated earnings of $1.39 per share, but the firm’s net interest margin (NIM)—return on deposits less the cost of deposits—continues to decline. As the graph below shows, the bank’s NIM has fallen to 2.4% in the most recently-reported quarter from 3.42% in fiscal year 2009 (Image Source: JPM Q4 2012 Earnings Presentation). Such a trend remains an ongoing problem with the banking sector as a whole, but the weakness is not tragic and does not alter our long-term thesis on the group, which is tied to improving real … Read more