Banks are still attractive
Financials
Charles Peabody provides a comprehensive analysis of recent 4Q23 results and his revised outlook for 2024-25. No bank sharply exceeded expectations, but NII was generally better than anticipated, while credit trends were generally worse. The revenue outlook for 2024 is mixed with high hopes for capital markets revenues and expectations that NII will bottom by mid-year setting up for a robust 2025. Charles favours 1) Citi - epic valuation discount to TBV but is mistakenly ignored by many as a value trap. 2) Wells Fargo - saddled by excessive CRE exposure, but investors forget this company has survived every CRE cycle of our lifetimes. 3) JPMorgan - "over owned" but still benefiting from the First Republic deal.
Edition: 178
- 26 January, 2024
US Banks: Is system deposit flight being contained?
Financials
Galliano's Financials Research
Deposit outflows for 1Q23 in the most affected of the mid-sized US banks were in low double digits, much less severe than the deposit collapse suffered by First Republic. In fact, since the end of 1Q23, some smaller banks have reported slightly positive deposit flows, and the recent usage of Fed and FHLB funding lines is not alarming. Victor Galliano reviews a select group of mid-sized US banks focusing in on a number of key metrics; despite the challenging times, he likes M&T Bank and Western Alliance. Victor also believes that market concerns regarding PacWest’s viability may be overdone.
Edition: 160
- 12 May, 2023
Financials
It is well known that JPM got a good deal in its takeover of First Republic. Simply put, the bank acquired a market yielding asset with considerable funding benefits and significant cost cutting opportunities. While most analysts are plugging $500m ($0.17 a share) of added net income into their earnings models for the next 12 months, Charles Peabody is keen to highlight other dynamics of the deal that suggest that there are a lot more benefits to JPM of which many may be unaware.
Edition: 160
- 12 May, 2023
Financials
Effectively insolvent - Neeraj Monga does not believe that the so-called deposit lifeline changes the underlying economic reality of the bank. Interest expense will rise exponentially, while the liquidity problem is further compounded by an asset-liability mismatch of immense proportions. Moreover, 90% of the loan book of $148bn is dedicated to real estate, of which non-amortizing single-family loans are $51bn and multi-family loans are $11bn. Thus, 43% of FRC’s book of loans is to a sector under intense pressure with the Fed trying to control inflation. FRC is a living and currently breathing Murphy’s Law in action; anything that can go wrong will go wrong, and at the worst possible time.
Edition: 158
- 14 April, 2023