Capital Markets at Risk: Jefferies echoing Bear Stearns
Financials
Charles Peabody believes we are in the mature phase of the capital markets cycle, with revenues likely topping out in 2026, while stocks are expected to turn lower well before then. He recommends selling Morgan Stanley and Goldman Sachs on near-term strength. Credit and liquidity stresses are emerging following the automotive credit, Tricolor and First Brands developments, while syndicated loan offerings are being pulled. He sees echoes of Bear Stearns at JEF, noting that MS and BlackRock have ended relations with Bonita Point, the JEF subsidiary housing First Brands receivables, just as this rapidly growing broker reached top-tier status. Sell Capital Markets, Buy NII - he favours Citi, M&T, Citizens Financial and UBS.
Edition: 222
- 17 October, 2025
The secular bull market for Banks gets a midyear tailwind
Financials
US bank stocks can continue to hit new highs and assume a leadership role in the market, according to Charles Peabody. Fundamentals are excellent, balance sheets are strong and capital is abundant. Meanwhile, the next 12-18 months will likely include a reduction in capital requirements as part of the deregulation process. Reducing the CET1 ratio by 1% can add double digit earnings growth to banks either through buybacks or growing earning assets. Deregulation can also reduce expenses by 1-3% annually. While this process is in place, investors have become accustomed to one way headaches from regulators, and thus, deregulation is only reflected in stock prices after it happens. Charles' top picks are Citigroup, M&T Bank and Citizens Financial.
Edition: 215
- 11 July, 2025
A secular bull market for Bank stocks
Financials
Looking back over the past half-century, Charles Peabody has never felt so invigorated about bank stocks. They are poised to generate fundamentals as good as the market, but trade at a substantial discount to the market. Many of the reasons for this discount are likely to abate in the coming years and investors will take note. He discusses the favourable outlook for bank revenues, asset quality, capital generation and regulatory relief. His top picks include Citigroup (a self-help story with a credible CEO trading at 2/3 of TBV) and Wells Fargo (labouring under an asset cap since 2018 that is destined to be lifted), as well as M&T Bank and Citizens.
Edition: 202
- 10 January, 2025
Financials
After earnings beats from JPMorgan, Wells Fargo, Goldman Sachs, Bank of America, PNC as well as Citi why were all the other banks up significantly and Citi was down 5%? Charles Peabody discusses asset caps (Citi is already shrinking itself by shedding its global consumer bank, so an asset cap makes no sense whatsoever) and a probable delay in the Banamex IPO. He argues Citi is one of the best stories in large cap financials and is the only company able to repurchase large amounts of its common stock at a substantial discount to TBV. Expectations are low, the regulatory pressure is high and management is doing all the right things.
Edition: 197
- 18 October, 2024
G-SIB capital buffers under review
Financials
A regulatory attempt to massively increase capital requirements on the large banks, following amateurish behaviour by small banks that failed in 2023, has been delayed and watered down, given unprecedented opposition from banks / lawmakers. As a result, Charles Peabody anticipates a watering down and delay of Barr’s Holistic capital increases. In addition, he sees a possible reduction in G-SIB buffers which specifically benefits the large cap banks substantially (but not the regionals). While the main beneficiary is Citigroup, the bottom line of all this potential capital relief is that the major G-SIFI banks could emerge in 2025 with material excess capital. Thus, Charles expects a material step up in stock buyback programmes next year.
Edition: 190
- 12 July, 2024
Financials
While many are trumpeting the fact that GS is returning to its roots, investors should remember what those roots were and why investors and (GS itself) wanted to transform this organisation into something different. Charles Peabody loves a turnaround story and has been alongside Bank of America in the past, Wells Fargo, and more recently Citigroup, emphasising that it generally takes 5 years to transform a company. GS is no different. He would exit the shares and favours Citi as a turnaround, WFC as a work in progress about to exit a regulatory yoke, BAC as a play on rates, and JPMorgan as a defensive fortress.
Edition: 175
- 08 December, 2023
SVB failure triggers historic sell-off: A buying opportunity for Bank stocks
Financials
Charles Peabody provides a post-mortem on Silicon Valley Bank and points out that historically when banks perform so badly, they turn out to be good buys. Charles thinks rates have peaked on an interim basis, and bank earnings should be a calming influence. Revenues are strong and credit issues remain benign (albeit “normalising”). Most banks have sensible deposit beta assumptions, few are exposed to crypto, and few banks took on interest rate risk like SVB. As these fundamental facts become apparent during previews and actual results in April, bank stocks should snap back. Top Buys include JPMorgan, Citigroup, and Wells Fargo.
Edition: 156
- 17 March, 2023
Financials
Charles Peabody upgrades the stock to Buy - he believes the marketplace will begin to appreciate the integrity of Citi’s balance sheet as management executes on its goals. Charles is projecting a $75 price target based on an 8.5% RoTCE and a projected TBV of $88 by the end of 2023. He thinks that following the successful sale of most of its international consumer banking operations, including Banamex, Citi could resume stock buybacks in the $3-4bn range in 2H23. The stock trades at less than an 8 P/E, 62% of last year’s TBV and offers a 4% dividend.
Edition: 155
- 03 March, 2023
Financials
Downgrades to Sell following 4Q21 results - Charles Peabody cuts his 2022 EPS estimate from $7.50 to $6.65, which implies an RoTCE of ~8.5%. Capital returns should prove constrained and uneven. The fourth quarter fundamental metrics were weak, the monetisation of Banamex will take time to accomplish and the much-anticipated March Investor Day is likely to show that any turnaround is going to be a slow, grind-it-out, multi-year process. In short, there’s no silver bullet that will get Citi back to a 12% RoTCE anytime soon, and those returns are still likely to prove to be subpar relative to its peer group. TP $55 by summer 2022.
Edition: 128
- 04 February, 2022