Displaying items by tag: banks

(New York)

It is a great time to be an investment bank. That fact became very clear last week when Goldman Sachs and Morgan Stanley earnings destroyed those of more traditional lenders like Bank of America, JP Morgan Chase, and Wells Fargo. Goldman, for instance, may be a great buy. It has much less main street lending exposure than regular banks, and has booming underwriting and trading businesses that are benefitting from low rates and market volatility. Some nice summary comments from an analyst at JMP Securities, saying “Goldman had a phenomenal quarter that allowed the firm to pad its legal reserves and conservatively position itself on loan losses … The bigger story is where the firm is going … Goldman is the biggest transformation story in finance, and the pandemic hasn’t derailed that”.

FINSUM: Firstly, these earnings came with all their employees working from home. So a 50% outperformance versus expectations with home-based traders. To us that is a sign of excellent management. More generally, their business mix—with a majority of institutional and growing, but not huge, consumer-facing revenue lines—seems ideal for the current environment. The stock is also priced below book value.

(New York)

Because of how the polls are trending, very few seem to be thinking about the fact that a Republican sweep of all three chambers of the government could happen. When you step away from the polls and think about the fact that Republicans currently control two of the three chambers, it becomes more realistic; and even more so when you consider that polls are likely skewed towards Democrats because of “silent” Republican supporters. If the Republicans sweep, or even just if Trump wins, then the sectors that will surge are energy, banks, healthcare, and defense. In particular, think names like Marathon Petroleum, Bank of America, Pfizer, and Northrop Grumman.

FINSUM: This may be unlikely, but it is not as wildly unrealistic as some make it sound. Perhaps smart to have a portion of the portfolio in these sectors headed into the election?

(New York)

Godman Sachs has generally been underperforming its competitors for years. However, under the leadership of CEO David Solomon the future is looking increasingly bright. On the one hand, the bank’s bet that trading would return as a huge driver of revenue and profit is starting to look smart (though it took about a decade), but on the other, its new focus on consumer and commercial banking products seems wise. Marcus, the brand under which its consumer-facing high yield savings accounts for consumers and businesses is marketed, has been growing its user base, with Goldman Sachs more generally has entered into many partnership deals in the consumer space. These include a new card with Apple, and a small business lending program in partnership with Amazon.

FINSUM: Goldman has been trying to shed its clubby image, and so far it seems to be making all the right moves. We are bullish on the future.

According to COVID Loan Tracker, big banks are not doing a good job getting money moving to those who have applied for PPP loans. In their latest update yesterday afternoon, with around 8,000 companies reporting around $3.5 bn of loans from all 50 states, the large majority are getting approved through small and regional banks. In fact, JP Morgan Chase seems to be the only bank getting any applications approved, as Wells Fargo and Bank of America are showing very few approvals on COVID Loan Tracker, with Citi showing none.

PLEASE HELP US HELP SMALL BUSINESS OWNERS BY FILLING OUT THE FORM

COVID Loan Tracker was started by small business owners Duncan and Rita MacDonald-Korth to help their fellow small business owners understand when PPP and EIDL advance money starts flowing. The site works by crowdsourcing knowledge on applications and loan disbursements. Our goal is to help the small business community and empower journalists with the data they need to keep the government accountable.

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Small and regional banks have been leading the charge in approvals all over the country. This is reportedly because many small and regional banks were already set up to process SBA loans as part of their normal course of business before the COVID-19 outbreak. This means they were already familiar and connected to the E-Tran system being used to process the loans by the SBA.

Please help us keep the data flowing!

(New York)

The epicenter of the financial crisis accompanying the Coronavirus pandemic has undoubtedly become the commercial real estate space. With so many physical businesses bringing in zero revenue, the huge suspension of cash payments is going to flow through to property owners and then to the lenders that financed those building purchases. Multiple parts of that value chain are going to targeted by markets, but Wells Fargo, in particular, looks exposed. The bank has almost 13% of mortgage market share (residential), around double the exposure of JPMorgan Chase and triple that of Bank of America.

FINSUM: The government’s stimulus package offers some good assistance to help support cash flow (via Ginnie Mae), which could soften the blow. But still, it is going to be a painful period.