Category Archives: $BAC

US Financials Update post results….one is great buying opportunity….

US Financials have had a great run since the US election, but have pulled back as the bond markets have rallied following the failed US Health care bill and a FED which does’nt seem to be in any rush to raise rates soon….

The pull back is a potential buying opportunity, especially Goldman Sachs which reported a disappointing quarter where their fixed income trading revenues disappointed – maybe they were caught offside on the bond rally!
Remember MS which reported a terrible quarter about a year ago – but reported a great quarter in Q1 in – with earnings well exceeding expectations – even great companies have bad quarters – look for these bad quarters as a buying opportunity!

Px Vs Fair Values

$JPM 84.5 vs 83 Yield 2.3% [Dimon top CEO!]

$C 58 vs 64 Yield 1% – cheapest to Book value – but seems to be the least liked!

$MS 42 vs 44 Yield 1.9% – reported a great quarter, Gorman is doing a great job….

$GS 217 vs 250 Yield 1.4% [ 1.1 x book value] tough quarter, but they will bounce back!

$BAC 22.5 vs 24.5 Yield 1.4%

Goldmans is now the CHEAPEST of the banks, and a great buying opportunity. Mnuchin and Cohn, 2 key people in the Trump Administration are ex Goldman!

Tax reform and deregulation is coming – and these will help the banks regardless of interest rates and the shape of the yield curve.

2CentView has a core position in Morgan Stanley, added a trading position in MS at 40.5 and plans to add a trading position on Goldman Sachs tomorrow.

Suggested trade: Buy here at 217, Take profit Target 250, Stop 195.

2CentView Themes – Financials

Less regulation and higher interest rates will take bank valuations higher – they have already had a good run, but will go higher if rates rise at faster pace than expected, so keep a long a position in your favourite stock and if possible overall higher weight (20%) in the sector. Also a good hedge against higher rates, which mean higher mortgage payments.

Px vs FV

$JPM 86 vs 80 Yield 2.2% [Dimon top CEO!]

$C 59.4 vs 64 Yield 1%

$MS 42.3 vs 44 Yield 1.9%

$GS 239.5 vs 228 Yield 1% [2 key Trump appointments are ex Goldman Sachs Bankers]

$BAC 22 vs 23 Yield 1.4%

The regional US Banks could also do well, and perhaps consolidate. Top Picks are:

$KEY 18 vs 18 Yield 2%

$FITB 27 vs 25 Yield 2%

If you are not involved recommend buying anyone of the these top US Banks, $MS and $C still lower than Fair value, 2 key appointments are ex-GS Bankers, Jamie Dimon is a great CEO and JPM is a top firm + either KEY Bank or Fifth Third.

—European Banks—

European Banks are still not great shape and the negative interest rates are causing problems – except for perhaps $HSBC, which has performed well this year as Gulliver simplifies the business model and sells assets.

Deutsche Bank has had a good run since hitting a low of EUR 10, but it is not total clear where it will go from here – a rights issue may be required, the fine of $7billion much lower than the $14billion, but still $2billion higher than provisioned – although around $2billion is deferred over 2 years.

Barclays also has the overhang of a law suit from the SEC over mortgage backed securities sales in 2008. The stock is trading at 60% to book value.

Px vs Fair values:
$DBK 17 vs 18

$BARC 221 vs 200 Yield 1.25%

$LLOY 55 vs 62.5 Yield 4.7%

$HSBC 660 vs 675 Yield 4.7%

2CentView has a core position in $MS and $HSBC and a trading position in Barclays opened at 211.

Post Trump Opps: Financials could benefit…

If you are underweight financials – go equal or overweight to around 20%.

The Trump presidency could be the start of the end of low interest rates as growth and inflation picks up. The yield curve has already started to steepen (implying rates will start to rise).

Insurance companies will also benefit – they sit on a lot of cash – and usually invest it in long term assets.

US Banks have rallied – perhaps a bit too much – earnings estimates will be revised , so fair values below are conservative:

Px vs FV

$BAC  19 vs 19   Yield 1.6%

$JPM 76 vs 70 Yield 2.5%

$GS 204 vs 210 Yield 1.27%

$MS 38 vs 36 Yield 2.1%

$C 53 vs 58 Yield 1.2%

So C is the cheapest – it also one of the few banks trading below tangible Book Value.

2CentView has a core position in Morgan Stanley and may add $C (Citi).

$JPM is a great bank with a great CEO in Jamie Dimon but the stock has overrun a bit.

UK Based International Banks

$HSBC 617 vs 580 Yield 5%

$BARC 200 vs 200 Yield 1.49%

2CentView has a core position in $HSBC.

Also think Insurers will do well in a higher rate environment:

US Names:

$AIG $63 vs $62 Yield 2%

UK Names

$DLG 355 vs 400 Yield 6%

$LGEN 229 vs 251 Yield 6%

2CentView has a core position in $DLG and trading position added at 347.

No need to rush into any of the above – if you like $JPM for example, wait for a pull back to 70 before buying.

However, these stocks will benefit from less regulation and hedge you against rising rates – which could lead to higher mortgage costs and lower property prices…..

US Fins feel the pain from JPM results&lower interest rates.$C,$MS,$BAC report this week..

The US Economy is strong – bonds should fall stocks should rise was the belief a month ago – but the complete opposite has happened…10y bonds have rallied 40bp and stocks have sold off!! Is it the prospect of slower growth China? Ukraine/Russia getting out of control? Tax selling? Who knows – it is doesn’t seem to be clear.

Financials do well in a higher rate environment so sold they sold off as rates went lower..

Fair Values below:
$MS FV=33
$C FV=54 [the cheapest – but they recently failed the stress test!]
$BAC FV=18

2CentView pick is $MS – Morgan Stanley, as it re positions itself as a wealth management firm as well as a top investment bank.