XFO

Morgan Stanley Expecting Substantial Improvements

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Morgan Stanley is guiding return on tangible equity to go from 12.9% this year to 13-15% in two years and to 15-17% in the longer term. Management was quite clear that they are using the assumption that the economy and markets move ahead at normal levels, meaning no severe recessions or booms. That said, if the company hits these goals, it will drive fundamentals ahead at a steady clip, requiring a reset higher in its valuation. By Matthew Warren Morgan Stanley (MS) put up solid fourth-quarter results, released January 16, beating the consensus of analyst earnings-per-share forecasts by a decent margin. Net revenues advanced 8% and net income applicable to Morgan Stanley common shareholders was up a modest 1%. Adjusted … Read more

Goldman Hit By Charge Related to 1MDB

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Aside from dominating the global revenue pools for investment banking and trading, Goldman is doing other things right. The firm has rapidly gathered deposits in the US and UK over the past year, bringing in a lower cost of funds to help facilitate its balance sheet. Goldman has also built up Marcus, Apple Card, and the bank is in the process of growing its asset management business to better serve institutional clients. By Matthew Warren Goldman Sachs (GS) posted mixed fourth-quarter results, released January 15, beating consensus revenues but missing on the bottom line by a substantial amount as a result of a $1.24 billion charge related to the ongoing 1MDB (1Malaysia Development Berhad) scandal potential upcoming resolution. 1MDB is … Read more

Bank of America Gaining Share

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We are increasing our fair value estimate of Bank of America to $40 per share, as we view the market share gains at the bank and steady loan and deposit growth to be more sustainable than we had previously envisioned. We like the bank’s solid franchise, the management team, and we like the shares here as it tries to catch up with larger peer JPMorgan. By Matthew Warren While Bank of America (BAC) put up middling results for the fourth-quarter, report released January 14 , they did come in better than analyst expectations on the top- and bottom-lines. Total net revenue was down 1% in the quarter and net income was down 4%, but large share buybacks meant that diluted … Read more

Citigroup Succeeding at Cross-Selling

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Citigroup is finally out-earning our estimate of its cost of capital with a return on tangible common equity (ROTCE) of 12.4% in the quarter, and the shares have rallied substantially more recently as a result. Management lowered expectations for the degree of return on tangible equity improvement going into 2020, but continued improvements would be welcome, nonetheless. By Matthew Warren Citigroup (C) posted impressive fourth-quarter results January 14 with revenue up 7% and earnings per share up a whopping 34% given significant share buybacks, beating analyst consensus estimates on both the top and the bottom lines. Fixed income trading grew substantially against a weak quarter last year. As you can see in the below graphic, Citi’s revenue growth accelerated in … Read more

Wells Fargo Remains an Inefficient Bank Despite Regulatory Overhang

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Wells has been forced to do a lot of hiring related to remediating its problems with regulators, but the problem is simply larger than that. This is an inefficient bank, which is very odd considering the massive scale that it benefits from. By Matthew Warren Well Fargo (WFC) reported terrible fourth-quarter results January 14. The company earned 60 cents per share, down from $1.21 in the same quarter last year, missing analyst consensus estimates for both the top and bottom line. While it is a messy quarter with a large litigation write down related to previous scandals and other “one time” items, the main theme is that expenses are simply too high and going in the wrong direction at Wells … Read more

JPMorgan’s Quarter Shows Higher Sustainable Growth Potential

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“We are raising our fair value estimate of JPMorgan to $160 per share to reflect higher sustainable growth than we’d previously been expecting.” — Matt Warren By Matthew Warren JPMorgan Chase & Co (JPM) reported an impressive set of results, and in fact, a record fourth quarter, with managed net revenue up 9% and net income up 21%, beating on both the top and bottom lines versus analyst consensus estimates. The bank continues to churn out best-in-class return on tangible capital for the money center banks at 17% in the quarter. JPMorgan’s efficiency ratio came in at an impressive 56%, or 55% on an adjusted basis. For a bank with such a sizable i-bank and capital markets business (where efficiency … Read more