Monthly Archives: February 2016

JPMorgan Chase: Higher Energy Reserves from Bellwether for U.S. Banking Sector

JPMorgan Chase (JPM) held its 2016 Investor Day on Tuesday and released some notable commentary on its energy portfolio, the capital markets business, and its outlook for the U.S. economy. The stock ended the day down 4.2%, underperforming the KBW Bank Index (BKX), which declined by 2.9%. JPM is down ~16% from its December high, compared to the BKX, which declined ~21%. There were a few significant takeaways from the presentation. Read More»

Notes from Florida: KBW Financial Services Symposium

In early February we attended the KBW Winter Financial Services Symposium in Florida, which was attended by other investors and representatives from U.S. banks and capital markets firms. Of the +70 primarily U.S. mid-cap banks in attendance, only five had assets over $50 bln. There was a clear division in sentiment between company executives, who are not seeing major issues with their operations, and investors, who have witnessed equity values plummet in 2016. With year-to-date declines in the U.S. financials and U.S. regional banks of ~11% and ~12%, respectively, investors were morose in Florida. The meetings and presentations offered a great opportunity to discuss the economic environment, energy prices, and M&A activity. Read More»

Notes from the Field: BofAML Insurance Conference 2016

We recently attended Bank of America Merrill Lynch’s 2016 Insurance Conference in New York, where we took in presentations by 27 insurance companies, with representatives from the life, property and casualty (P&C), reinsurance and mortgage insurance sub-sectors. Most of the companies presenting were U.S.-based (and listed), with several Bermuda and Europe-domiciled reinsurers, and a Canadian P&C insurer also in attendance. Notwithstanding the location of their headquarters, most of the companies have some international exposure. Read More»

Notes from Texas Bank Tour: Is This Time Different from Previous Downturns?

Last week we traveled to Texas with a group of investors to meet with management teams from 15 different banks (14 are publicly traded). With the exception of six banks, all are headquartered in Texas, and all but one has notable energy exposure in their loan portfolios (Oklahoma, Mississippi, Arkansas, and Louisiana banks also participated). The stocks of most of these banks have dropped over the past 12 months in unison with the massive decline in energy prices, with average declines of 8% and 19% in 2015 and YTD, respectively. As oil is still hovering in the low $30 price range and with the banks having just reported, these meetings were quite timely. Read More»

European Banks: “Now” vs. Peak Sovereign Debt Crisis (in Charts)

The global financials, particularly the banks, have had a very difficult two months, correcting significantly off of their early-December highs. The macro-driven correction has been indiscriminate, with the U.S. large-cap banks (BKX), U.S. mid-cap banks (KRX), U.S. financials (S5FINL), global financials (SGFS), and European banks (SX7P) falling 20%, 20%, 15%, 16%, and 25%, respectively, from their December highs. Read More»

Chinese Banks Part #3: Are Chinese Banks Solvent? Q&A on the Sector

In this series on Chinese banks, we have been evaluating the risk that distress in the system triggers a global sell-off. In the first two parts, we assumed that the Chinese government’s reported statistics are unreliable and hence obscuring the true financial distress of the sector. Then, to help investors understand these systemic risk issues, we presented the arguments supporting the bear case (Part #1), as well as the bull case (Part #2). Read More»

Chinese Banks Part #2: For BULLS, Four Reasons Why Macro Risk from Chinese Banks is Overstated

In this three part series, we discuss macro risk posed to the markets by the enormous Chinese banking sector. In Part #2, we take the perspective of the ‘bulls’, providing reasons why the macro risk posed by the Chinese banking sector is overstated. In Part #1, we provided the perspective of the ‘bears’, discussing why the sector could be the epicentre of a further global sell-off and/or additional macro uncertainty (see previous post). In Part #3, we review the financial results of the Chinese banks. Read More»

Chinese Banks Part #1: For BEARS, Four Reasons Why Chinese Banks’ Distress Could Amplify the Global Sell-Off

In this three part series, we discuss macro risk posed to the markets by the enormous Chinese banking sector. In Part #1, we take the perspective of the ‘bears’, discussing why the sector could be the epicentre of a further global sell-off and/or additional macro uncertainty. In Part #2, we take the perspective of the ‘bulls’, providing reasons why many believe the macro risk posed by the Chinese banking sector is overstated (see next post). In Part #3, we review the financial results. Read More»

Global Growth – Economists vs. the Markets

In this comment, we discuss the seemingly large gap between economists’ growth expectations for the global economy and those of the market. The former is forecasting comfortably positive growth, while the latter’s worries have prompted a global sell-off in equities. We also address the most likely trigger of a global downturn, while reviewing the impact of the European sovereign debt crisis. Read More»

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