SAN

Deutsche Bank is Muddling Along, Aiming for Self Help

by

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

Staying Focused on the Long Term

by

Image Source: The final lesson to learn from financial crises. Value Trap: Theory of Universal Valuation. — By Brian Nelson, CFA — Dear members, — Hope you and yours are well, and staying safe during this crisis. I know it’s difficult to be optimistic during these challenging times, but sometimes it’s okay to take a step back and relax. Things are going to be alright. Many of you have read my book Value Trap: Theory of Universal Valuation. In it, I talk a lot about the lessons from the Great Financial Crisis. Above any other, however, what I’ve found is that the most difficult lesson to accept is that moral hazard will (once again) be rewarded. — As I outlined in our prior note, … Read more

Deutsche Bank Suffering From Lack of Earnings Power

by

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

by

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

by

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

Malkiel Balks, Yellen Talks

by

Let’s first address how research in the financial industry is becoming more and more open to combining value and momentum considerations. We’ll also cover a few takeaways from the stress tests and some ‘strong’ talk from Fed Chair Janet Yellen. By Brian Nelson, CFA It was 1973, and a Princeton economist by the name of Burton Gordon Malkiel had just published A Random Walk Down Wall Street, a book that would turn into one of the most influential studies in support of the efficient markets hypothesis. The book would suggest that asset prices typically exhibit signs of a “random walk,” and as a result, an investor could not consistently outperform market averages in part due to powerful reversion-to-the-mean tendencies. Three … Read more

Brazil: Sorry For Your Losses

by

The Brazilian equity markets are in free fall. “Brazil is in a deepening recession, which may grow into depression, as unemployment continues to rise and corporate credit quality deteriorates. Those that made a bundle investing in Brazil’s commodity-driven export boom have been looking to cash out, if they haven’t already, and the real continues to weaken on deteriorating sovereign credit and rampant inflation. Any interest rate hike by the US could have the unintended effect of sending Brazil’s local yields to the mid-teens to account for incremental currency risk and credit deterioration, which would only exacerbate debt service costs as a percentage of the country’s shrinking GDP. This, in turn, could be the catalyst for even more asset flight out … Read more

Breaking the Bank…

by

Image Source: Tony Webster By Brian Nelson, CFA Financial institutions (XLF, KBE) are unique entities. In good times, the growth of pre-tax pre-provision earnings and return on equity often have more influence over banking entities’ stock prices than anything else, but in bad times, the health of their loan/derivative books and the strength of their capital bases are the most important factors when it comes to buying and selling activity. Throw in outsize leverage, huge derivatives books, and market psychology, and you have, in my opinion, still one of the riskiest sectors out there. As followers know, we don’t like firm-specific exposure to the banking sector. We perform valuation exercises on banks in a rather straightforward way, using a residual … Read more

Debt, Debt and More Debt

by

Image Source: Michael Fleshman Many readers may be familiar with the rhetoric of the Presidential Election Cycle of 2016 and Democratic hopeful Bernie Sanders’ view on making “college tuition free and debt free.” You can take a read of the 6 steps Bernie will take as president to make college debt-free here. Many may find his last point rather intrusive to the heartbeat of the American economy and the driver behind innovation and standard-of-living improvements, but we’ll leave that conversation for another day. But what’s the shocking statistic, right? Get this – and I hope you are sitting down. According to an article by the Journal, “more than 40% of Americans who borrowed from the government’s main student-loan program aren’t … Read more

Dividend Increases/Decreases for the Week October 29

by

Below we provide a list of firms that raised their dividends during the week ending October 29. 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 A10 Networks (ATEN): now $0.05 per share quarterly dividend. AbbVie (ABBV): now $1.41 per share quarterly dividend, was $1.30. Alliance Resource Partners (ARLP): now $0.20 per share quarterly dividend, was $0.10. Amphenol (APH): now $0.20 per share quarterly dividend, was $0.14. Arbor Realty Trust (ABR): now $0.36 per share quarterly dividend, was $0.35. Armada Hoffler Properties (AHH): now $0.17 per share quarterly dividend, was $0.16. B. … Read more