Posts Tagged ‘stress tests’
In 2012, This Is What A Good Financial Stock Will Look Like
Okay, 2011 was a terrible year for financial stocks. But it’s over.
The only thing you can do now is think smarter about the characteristics of a good financial stock in 2012. According to the Wall Street Journal, that means looking at banks that don’t have to worry as much about stress tests, capital requirements, and Dodd-Frank — small banks with assets below $10 billion.
“For 70 years, regulators viewed large, diversified banks as safer and thus able to make do with lower reserve levels,” says Frederick Cannon, director of research at Keefe, Bruyette, and Woods. “Now they’re taking the opposite view.”
Smaller banks may have fewer assets, but they’ll have more liberty to turn those assets into bigger profits in the years to come. So here’s what you should be looking for:
- Keefe Bruyette and Woods like Bank of Marin Bancorp, based in California, Bryn Mawr Bank in Pennsylvania, and CVB Financial out of Ontario because they’ve all been seeing high returns on their assets.
- If you want a bank with a lot of cash, look at Washington’s Columbia Banking System, Pennsylvania’s F.N.B., and People’s United Financial in Connecticut.
- If you’re a mutual fund investor look at the the Powershares KBW Regional Banking Portfolio, it’s an ETF made up of smaller banks. It costs $35 a year for every $10,000 invested and has a dividend yield of about 2%.
- You may also want to consider actively managed mutual fund, FBR Small Cap Financial Investor. It’s returned 6% a year for the past decade. It costs $151 per $10,000 invested.
- Another ETF to look at is the SPDR S&P Regional Banking ETF. It’s made up of companies with an average stock market value of $2.7 billion. It costs $35 a year for every $10,000 invested and has a dividend yield of about 1.9%.
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Here’s What You Could See At An Upcoming Bank Of America Yard Sale
There’s really little doubt about it, American banks are going to have to deal with higher capital requirements.
And according Reuters, Bank of America is lagging behind its peers in the capital raising game, so it’s looking at ways to collect some cash by selling assets. One analyst estimates that the bank will need to raise around $45 billion by 2019.
But what to sell? CEO Brian Moynihan has said he does not want to sell more shares, and since 2010 the bank has already sold $50 billion worth of assets, including most of its stake in China Construction bank.
So, the truth is, the bank is going to have to dig deeper to find big items to put up for sale.
Right now, it’s considering selling its Indian back-office processing processing operation, some real estate holdings and private equity investments (odds and ends, really).
The real money would come from selling parts of Bank of America’s investment bank or from selling the Merrill Lynch brokerage. They’ll also need to sell off risky loans and and retain profits, but all of that takes time.
Whatever the bank’s executives decide, they’ll have to figure it out fast. Next month it has to submit a capital plan to regulators that will lay out whether or not it will buy back stock or raise its dividend. Plus, the Fed is going to subject the bank (and its peers) to stress tests.
Read the full article at Reuters>>
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BRAND NEW NUMBERS: 20 Banks That Are Praying Europe Doesn’t Go Bust
The newest round of European Banking Authority tests of bank capital came out this week, and one thing is clear: everyone’s deleveraging, and fast.
The EBA has told EU banks that they must raise a total of €114.69 ($153.31 billion) in quality capital to meet the 9% core capital to liabilities ratios stipulated in October. But that’s worrisome for European Central Bank President Mario Draghi, who says leaders must ensure that banks don’t raise that capital level by simply deciding not to lend anymore.
When the first round of stress tests came out in July, we weren’t so sure we could trust the EBA’s tests or fundraising recommendations. So we conducted our own round of stress tests by comparing total bank exposure in a specific country to common equity. Our guesses for which banks were under the most stress appear to have been right on the mark, with the failure of Dexia and now the weakness of Commerzbank.
This set of tests provided less information than the last—in July we chose to compare total exposure rather than simply sovereign debt exposure—but we’ve nonetheless repeated our tests, comparing total holdings of PIIGS sovereign debt to common equity in 40 of the largest European banks.
With EU leaders dithering over adequate short- and long-term solutions to the crisis, these are the banks praying that their sovereign debt does not suddenly become worthless.
#20 Barclays (U.K.)
PIIGS sovereign debt exposure: €13.13 billion ($17.56 billion)
Common Equity: €46.83 billion ($62.62 billion)
Market Cap: $36.56 billion
Sovereign Debt Exposure as % of Common Equity: 28.04%
Our Total Exposure Ranking: #18
Source: EBA Capital Exercise (exposure and common equity) and Bloomberg (market cap)
#19 Societe Generale (France)
PIIGS sovereign debt exposure: €30.97 billion ($41.42 billion)
Common Equity: €30.97 billion ($41.42 billion)
Market Cap: $19.91 billion
Sovereign Debt Exposure as % of Common Equity: 41.58%
Our Total Exposure Ranking: #21
Source: EBA Capital Exercise (exposure and common equity) and Bloomberg (market cap)
#18 SNS Bank (Netherlands)
PIIGS sovereign debt exposure: €1.63 billion ($2.17 billion)
Common Equity: €10.30 billion ($13.78 billion)
Market Cap: $675.90 billion
Sovereign Debt Exposure as % of Common Equity: 43.75%
Our Total Exposure Ranking: #44
Source: EBA Capital Exercise (exposure and common equity) and Bloomberg (market cap)
See the rest of the story at Business Insider
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US Futures Are Tanking, Hong Kong Is Getting Slammed, China Data Comes In Weak
And the beatings resume!
Following the directionless action in the US market today, Dow futures are tanking after hours, and the other indices are pointing to losses on the order of 1%.
News about the Fed doing fresh stress tests isn’t helping calm fears.
Also, Chinese preliminary November PMI came in at 48 (contraction) vs. 51 in the previous month.
And finally, there’s chatter about the Dexia bailout being on the rocks.
Hong Kong is getting slammed again in the early going.
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Some Quick Thoughts On The Big "Summit To Save The World"
From BTIG’s Dan Greenhaus, some general ideas ahead of tomorrow’ big summit:
While earnings have proven to be an interesting and worthwhile distraction, attention focuses squarely on the Euroarea once again as tomorrow brings the all important “Latest Summit to Save the World.” While there is a fair bit of uncertainty as to what exactly will be announced (the WSJ is reporting tonight that debate still exists), we do have an idea of what might be announced:
- A haircut for Greek bondholders on the order of at least 40% if not 60% (this is still being fought forcefully by the banks)
- A bank recapitalization on the order of €100 billion using the remaining funds from the EFSF (about €300 billion)
- Some EFSF leveraging that will provide the fund with more “firepower”
The last point above apparently remains quite contentious as there is considerable debate as to how this leveraging will be achieved. Indeed, up until the last minute, some parties favor IMF involvement, others want to lure in BRIC nations while others remain focused on ECB participation. Further, the second point, if finalized, is likely to disappoint markets (the FT is currently running a story discussing this exact idea). There is quite a bit of dispersion between sovereign debt value estimates but marking down Italian and Spanish debt by say 10% or so is going to disappoint markets that seem to believe their “true” value is much less. The first point is equally contentious in that it signals, more or less, a Greek default.
Again, as we noted, at this point, if they conclude anything of substance, markets may be very shocked.
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See Also:
- Citi’s Steven Englander: European Leaders Are Ignoring One Thing, And It Will Come Back To Haunt Them
- Hilarious Line From SocGen On The Bank Stress Tests
- SocGen Explains Why ‘Italy’s Growth Engine Is Broken’
