Tuesday, May 25, 2010

Financials Asset managers, Mortgage insurers, Asset managers $GS $XLF


· FINANCIALS: Coming off of their worst levels, the sector still weighs on the tape as concerns continue to mount over credit markets (esp short-term funding), foreign banks and financial regulation. Representative Barney Frank's commentary aided in providing a lift to the sector and market (Frank says would be tough to try and tax financial transactions....also says not a fan of harsh Lincoln derivs language). Volumes were heavy early, but have since started trailing off. Flows are likewise heavier than yesterday, and have shift from a heavy HF sell-side skew early to being more balanced. Vanillas have been relatively quiet, only trimming small positions. HFs much more active, turning from a better seller (all long stock) to being more balanced. Small cap names much more active than their larger cap peers. The two primary catalysts for the group will be the ongoing changes in credit markets as well as additional information on the regulatory front.

· Brokers – GS is the standout performer, up 1.5% on the day; MS is off 1.2% and a mild outperformer vs. the rest of financials. 

· Asset managers – the group is down ~2-4% across the board.  LM, EV, AMG, WDR are lagging (dwn 3-4%) while AB, JNS, TROW outperform (off bit more than 1%). 

· Life insurers off 3%  still a lot of worries about the portfolios of some of these companies and any exposure they may have to European sov and bank debt.  AFL off 3%.  PNC, PFG, HIG, PRU, etc, all off 3%+. 

· AIG – the stock continues to come for sale – off another 5% today. 

· Banks – the group acts OK today; major money centers off ~1-2%; the regionals are slightly outperforming.  CMA, CYN, PNC, STI, USB, PBCT are all down less than 1% while RF and KEY are actually higher. 

· Mortgage insurers are ticking higher – a pos. mention in the WSJ this morning on the group is helping; the TransUnion delinquency stats out this morning is also helping. 

GS strength – some thoughts on the stock strength

· technically - is holding the ~$140 level pretty well (this was support last May-Jul)    shrs have bounced in the high $130s for last ~week and held

· settlement spec w/SEC - this was out Fri morning (although recall the WSJ late on Fri said a settlement wasn’t close)  

· regulators not pursuing criminal charges against AIG (this was out late Fri/sat) helping take away tail risk for GS (recall the SEC charges are civil ….the WSJ reported a few weeks back that the Manhattan's DA office was looking into the charges on criminal grounds but the fact charges not being pursued against AIG helping sentiment)

· optimism that conferencing process will take some of the rough edges off the Dodd bill (Frank was on the tape this morning saying the Lincoln bill goes too far)

· recall GS was an aggressive buyer of their own stock in Q1 - from the Q1 conf call: " the Firm repurchased 13.2 million shares for approximately $2.3 billion. Despite these share repurchases our common shareholders equity still increased by $2.2 billion to $66 billion"

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