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 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.