Displaying items by tag: banks

(New York)

If you want to pick up some great bank stocks at a great discount, now is the time to do it. Despite great earnings, JP Morgan still looks inexpensive. Goldman Sachs does too. Both banks saw big trouble in their trading divisions in the first quarter, which has led to some attractive valuations. The problem for investors is that markets that keep doing what they have will not be bullish for the banks (i.e. low volatility), so options strategies may be the best way to play the situation.

FINSUM: Nothing would be better for this trade than if there was another big market disturbance that drove a bunch of volatility, which is quite good for trading revenue.

(New York)

Something very worrying happened yesterday if you are an investor in bank stocks. Bank of America released what were widely considered to be stellar earnings, yet the stock fell. We don’t just mean stellar in the “oh, they beat estimates” sense, but that the company looks healthy even as some other banks (e.g. Goldman Sachs) look weak. However, the stock fell because the bank indicated that its cost pressures were rising, and coupled with the fact that yields are now lower, means the bank will have higher expenses and lower interest income, putting a squeeze on margins.

FINSUM: This does not seem to be unique to B of A, as the whole industry has the same interest margin and cost pressures.

(New York)

Goldman Sachs investors took it on the chin this week. Earnings numbers just released look pretty grim, especially as compared to some other banks, like JP Morgan, which had good showings. The bank got hit by a triple whammy of lower trading revenues, weaker private equity profits, and lower fees from investment banking, all of which conspired to bring earnings down by 20% in the first quarter. David Solomon, CEO, is promising the company is undertaking a “front to back” performance review of Goldman’s businesses.

FINSUM: This looks particularly poor because JP Morgan was able to achieve the highest ever quarterly profit of a US bank during the same period.

(New York)

Investors are always looking for good yields. While bonds are seeing higher yields now, high paying stocks offer something special because of the chance of capital appreciation. Such investors might be tempted by financial stocks right now, which are sporting juicy yields. However, Goldman Sachs is warning that investors need to beware. JP Morgan and other banks have been beaten up over the last year and are sporting payouts of above 3% in some cases. However, the big risk that is financial stocks are highly rate sensitive and tend to lose value as rates fall because of their lower profitability in such times. This pushes up dividends, but moves prices lower.

FINSUM: If you think we are even close to heading into a recession, buying financials is not a good idea. If you think this is a false signal, then banks may be a great buying opportunity right now.

(New York)

When you first read that headline, you probably thought it was pretty counterintuitive. Bank stocks saw a big selloff and it is looking ever more likely that we are headed towards a recession—certainly not bullish for bank shares. However, RBC Capital markets argues that bank stocks may actually do well. “The recent sell-off in bank stocks provides an opportunity for investors to buy bank stocks”, says RBC. The reason why is that in periods where the economy slows, but an outright recession is avoided, bank shares outperform. This happened from 1994 to 1998.

FINSUM: This could be a good value play if we avoid a recession, but that seems like a gamble with asymmetric risk to the downside.