Friday, March 12, 2010

Financials Update for the week 03.12.10 $BAC $C $WFC $XLF

Financials Update for the week

· Financials Update – after trading in a relatively flat trading range for the last few months, the banks made an important technical break-out this week to the upside. The smaller-cap regional banks led the way higher, but the larger money centers participated too (although while a bunch of regional banks set new highs this week for the rally, all the Big 4 money centers, inc. C, BAC, and WFC, failed to hit fresh levels). The banks have been creeping higher since the start of the year (just as tech has been for sale for most of ’10) but on Wed of this week finally made an important technical break-out. Helping the regionals on the upside were sanguine updates by mgmt teams at this week’s Citi Financial Services Conf (the banks talked about credit continuing to show improvement, NPA formation slowing/contracting, charge-offs coming in flat-to-down Q/Q, NIMs stabilizing/expanding, etc). For C specifically, the St is looking forward to Mar 16, the date on which the Treasury can start to dispose of its 7B+ shr stake (Citi’s CEO V Pandit was asked about this during his presentation at the Citi Fin Service Conf this week – all he said was that given the recent stock rally and the improving economy, he wouldn’t be surprised if they did something;

Pandit did note though that the government would file a prospectus if they decide to dispose of the stake). In addition to these upbeat outlooks, there were a couple articles talking about large foreign banks (inc. Barclays and TD Bank) potentially being on the lookout for US acquisition candidates (the WSJ/FT said that Barclays was looking to buy a US depository institution to add to its BarCap franchise). The desk noted a lot of short covering in the banks, esp. the regional ones, but also some long buying (mostly value-oriented HFs); on a relative basis, the group still is underowned by the large long-only MFs. Away from the banks, there were some other developments this week. SCHW issued an update on its monthly trends and earnings outlook, both of which disappointed (DARTs rebounded in Jan following a weak Dec but fell back down in Feb). On earnings, SCHW talked about how it was going to be ramping up its spending and that EPS would miss the St by a few cents. DFS issued an earnings update Thurs night (ahead of its actual report this Tues) and said its provisions would be higher than anticipated in Q1 although indicated the its balance of delinquent assets may have peaked in Q4. Also on the card front this week – COF spoke at the Citi Financial Services Conf and said NCOs would peak in Q1 and that it saw the potential for sig. more reserve releases in ’10 due to improving NCO outlook and falling loan
balances. For the insurers, we saw a bunch of non-life companies issue updates on their loss forecasts stemming from the recent earthquake and European wind storm; on the whole these types of events could wind up being a positive for the industry as high losses leads to better pricing, although it doesn’t seem like the monetary losses in this case will be large enough to really drive pricing.

· Best Performing SP500 financials for the week: AIG, C, ZION, HBAN, MET, PLD, STI,

· Weakest performing sp500 financials for the week: IVZ, XL, NTRS, SCHW, STT,

· Financials to watch for the week coming up – the calendar is pretty quiet in financial land. For credit cards, the industry will be posting master trust #s throughout the day on Mon and DFS will report earnings after the close on Tues (keep in mind that DFS already issued a preannouncement for the current Q). There are a handful of European releases to watch, inc. UBS on 3/15, DB on 3/16, Unicredit on 3/17, and National Bank of Greece on 3/18. On Mar 16 the Treasury can start to dispose of its stake in Citigroup and investors will be watching for any movement on this front.

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