Insights on the Global Financials

Event: Hamilton Capital Opens TSX, Celebrating the Launch of Hamilton Capital Global Financials Yield ETF (HFY;TSX)

On February 8, 2017, Hamilton Capital, and its partners, joined Dani Lipkin, Head, Business Development, Exchange Traded Funds, Closed-End Funds, and Structured Notes, TMX Group to open the market to launch Hamilton Capital Global Financials Yield ETF (HFY;TSX). HFY commenced trading on the Toronto Stock Exchange on February 7, 2017.

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WFC: A Canadian Bank Counterfactual as it Enters Year #4 of No Growth

We generally have minimal exposure to the global mega-cap banks primarily because of their very low EPS growth, higher regulatory risk, and relative to their mid-cap peers, materially lower interest rate sensitivity. In this Insight, we explain why we believe “slow growth” WFC basically represents a Canadian bank counterfactual. Read More»

OCC Letter Shows WFC is Not Out of the Regulatory Woods Yet

As we have written in prior Insights, Wells Fargo (“WFC”) – like its other mega-cap peers – continues to struggle to generate earnings growth. The mega-caps also struggle with regulatory risk; before the recent U.S. election, we cautioned that the risk that regulators were shifting their focus from the capital markets banks to the largest regionals appeared to be rising. WFC was a prime example, coping with a scandal surrounding its cross-selling practices, which prompted our October note, “Is Wells Fargo Un-Investable (for Now)?” in which we explained our concerns about potential material – yet unquantifiable – regulatory risk. Read More»

U.S. Banks: C, JPM, BAC, and WFC Continue Multi-Year Trend of Close to Zero EPS Growth

As we have indicated in prior commentary, we have zero exposure to the U.S. mega-cap banks, primarily because of their very low EPS growth, mid-single digit ROEs (in the case of C and BAC), and very high regulatory risk (see “Five Reasons We Don’t Own C, JPM and BAC”, June 14th). We favour a portfolio of U.S. banks derived from the nearly 200 publicly traded U.S. mid-cap banks given they have greater and more consistent EPS growth, are more rate sensitive, have lower regulatory risk, and are merging. Read More»

Canadian Banks: Revisiting our “End of an Era” Thesis (Five Years Later)

In May 2011, we wrote an essay entitled “The Canadian Banks – The End of an Era”. In this essay – which was excerpted in the Globe and Mail – we explained why the Canadian banks were entering a period in which their two-decade period of double digit EPS/dividend growth was ending. Specifically, we identified three reasons supporting this thesis: (i) the drivers of the sector’s tremendous growth from 1989 to 2010 were fading/gone, (ii) with domestic consolidation nearly complete, capital deployment would shift decisively to foreign acquisitions, which have historically been more dilutive to EPS growth and ROE (than domestic targets), and (iii) that regulatory risk was likely growing, including higher mandated capital levels. Taken together, we concluded that the result would be more “normal” EPS growth of mid-single digits; good, but a large step-down from the 10%+ achieved by Canadian banks in previous two decades. Read More»

Canadian Banks: Housing Correction Concerns Increasing Regulatory Risk

As we have highlighted in numerous Hamilton Capital Insights, regulatory risk is a key risk in global banking, and one we attempt to minimize our exposure. It is most intense for the mega-banks in the U.S. and Europe, particularly those with global investment banking operations (i.e., C, BAC, JPM, CSGN.VX, UBS.VX, DBK.GY, BARC.LN). Although post-crisis, those global banks have been the epicentre of regulatory risk, the recent troubles facing WFC suggest the focus of regulators is shifting into commercial and consumer banking Read More»

Is Wells Fargo Un-investable (for Now)?

As we have written in the past, we strongly favour U.S. mid-cap banks – i.e., those with assets under $100 bln. These 200+ banks are growing (much) faster than their large-cap peers, are generally more rate sensitive, and are merging. And crucially, they have less regulatory risk.

Up until recently, the epicentre of regulatory risk among the mega-caps has been banks with global investment banking operations (i.e., in the U.S., C, JPM, BAC, MS, and GS and in Europe, BARC.LN, DBK.GY, CSGN.VX, and UBS.VX). Which brings us to Wells Fargo (WFC), long considered one of the best large-cap banks in the world. The market appeared to have the mistaken belief that its consumer focused strategy translated into materially lower regulatory risk than its more capital markets focused peers. Read More»

Wells Fargo/Deutsche Bank: Some Thoughts on Regulatory/Litigation Risk

Recent events impacting Deutsche Bank (DBK.GY) and Wells Fargo (WFC) underscore – yet again – that the mega-cap banks, particularly those with (1) global investment banks and/or (2) operating in the U.S., continue to face significant regulatory/litigation risk, irrespective of quality. In general, these two categories of banks, which overlap, are not growing very fast (in some instances shrinking), have mid-single digit ROEs, and/or continue to face significant regulatory risk. Read More»

Notes from Florida Bank Tour: Commercial Real Estate Lending and M&A under the Microscope

We recently traveled to Florida to meet with a group of mid-cap banks. Of the 12 banks that participated on the trip, 9 are headquartered in Florida (2 Arkansas, 1 from New Jersey), and 10 are publicly-traded[1]. Of the publicly-traded banks, the median asset size is US$5.0 billion, the median market cap is US$841 million (US$1.5 billion average), and the median expected loan growth in 2016 is 27%[2]. On the trip, we also had the opportunity to meet with a real estate expert who has been investing in the Florida market for over 30 years. Read More»

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