XLF

Summers Bows Out

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Equity markets jumped higher Monday as Federal Reserve Chairman frontrunner Larry Summers ended his pursuit of the position. The news suggested Summers had been President Obama’s preferred successor to current Chairman Ben Bernanke, but several Democratic senators opposed the nomination, and Summers may be bowing out to avoid any chance of embarrassment. With Summers out of contention, Fed Vice-Chair Janet Yellen is the clear frontrunner. As we’ve mentioned before, Yellen is viewed as a consensus builder and receives credit for predicting the housing bubble. Powerful Democratic Massachusetts Senator Elizabeth Warren, who sits on the Senate Banking Committee, supports Yellen and indicated that she would be able to gather the necessary votes for her nomination. Regardless of the politics behind the decision, … Read more

The Mortgage Refinancing Boom Could Be Ending

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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

Legal Costs Cloud Citigroup’s Earnings Potential

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International banking power Citigroup (click ticker for report: ) reported solid second quarter results Monday morning. Revenue increased 7% year-over-year to $20 billion, exceeding consensus expectations. Earnings were even better, growing 25% year-over-year on a non-GAAP basis to $1.25 per share, handily exceeding consensus estimates. Still, return on equity (ROE) was well below that of Wells Fargo (click ticker for report: ) and JP Morgan (click ticker for report: ), both of which reported late last week, coming in at 8.8%. Wells Fargo’s ROE was 14% while JP Morgan’s ROE was 17% in their most recent quarters. On a capital adequacy basis, Citi looks relatively strong, with its Basel I Tier 1 common ratio currently sitting at 12.2% (above the … Read more

Mortgage Originations Heading Lower at JP Morgan and Wells Fargo

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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

Why Valuentum’s Email Transaction Alerts Are Worth Paying Attention To

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Valuentum subscribers have noticed that we’ve been quite busy as of late, adding protection to our portfolio in the form of a broader-market put option and taking some large profits in Astronics (ATRO) and eBay (EBAY). We’ve highlighted our best-in-class hit rate–meaning that a large percentage of the firms we added to the portfolio are outperforming the broad market benchmark. But there are a couple ways of looking at our performance–the first is relative outperformance versus the market since inception, which is at 28 percentage points. Investors duplicating our portfolio are enjoying this outperformance. Another way of looking at our track record, however, is to evaluate the performance of additions to the portfolio on the long side (purchases) since inception–i.e. … Read more

JP Morgan and Wells Fargo Post Solid First Quarters

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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

Improving Credit Quality at JP Morgan and Wells Fargo

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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

Jamie Dimon Agrees; Housing Is Back

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Since the turn of the year, the housing market has been on the mend (click here for when we spotted the recovery), and homebuilders have been posting excellent results as of late. At the end of July, we more definitively announced that we thought the US housing market was back, and subsequent results and commentary have strengthened our thesis. We plan to take a close look at our valuation models of a number of homebuilders today, but we don’t expect any companies’ share prices to fall outside of their updated fair value ranges, which we plan to release this afternoon. During the past several months, many US major banking institutions and mortgage originators have been posting fantastic results. Both JP Morgan Chase (click ticker … Read more

Vikram Pandit and John Havens Step Down at Citigroup after Third Quarter Results

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Citigroup (click ticker for report: ) CEO Vikram Pandit and COO John Havens shockingly stepped down this morning after Citi reported decent third quarter results. Revenues and earnings were both strong, with earnings per share coming in several cents better than consensus estimates. The firm took a large write down on the sale of SmithBarney to Morgan Stanley (click ticker for report: ), but operations were relatively strong. Citi, the “too big to fail” bank with arguably the most promising international business, experienced surging revenues and earnings in Latin America, which grew 8% and 30% year-over-year, respectively. This growth was driven by spectacular performance in Latin American Securities and Banking, which saw profitability surge 75% year-over-year on the back of … Read more