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
Banks announce capital plans after passing Fed stress test
Financials
Charles Peabody believes the banks conducted themselves well in fairly harsh stress tests that indicate an excess of capital in the sector. If regulators don’t panic, the path from crisis to normalisation can proceed even if we confront a mild recession. Charles favours the fundamental strength of JPMorgan but notes the underappreciated capital power of PNC and Wells Fargo. He is attracted to the adjusted yields of Citizens Financial and M&T while commenting that Morgan Stanley and Goldman Sachs also fare well in this category.
Edition: 164
- 07 July, 2023