Friday, July 16, 2010

FINANCIALS: Sector weighs heavily on the market as money center earnings come in with worse quality than hoped for $bac $GS $SCHW

· FINANCIALS: Sector weighs heavily on the market as money center earnings come in with worse quality than hoped for. This marks our third consecutive day in the red following six straight days in the green. Volumes are heavy on the back of several large earnings releases but are drying up as the day goes on. Flows are very active in financials and mainly focused in the banks, brokers and credit card names. Overall, we're much better for sale (~2:1) as HFs hold down the sell button today. In banks, the group is heavy for sale across the board (mainly by HFs long) following disappointment on the quality of results across earnings last night and this morning. Regional banks continue to show short sellers out there. Not seeing any buyers willing to stand still in either large cap and regional banks. In the brokers, GS is outperforming following its settlement with the SEC which was announced last night. We're seeing long-only buyers in that name. In the online brokers, SCHW is also an outperformer after beating earnings ests. Vanilla buyers are also being seen there. In the credit cards, we're seeing HFs cut exposure to the space following negative readthroughs from BAC's conference call this morning. Next week, expect a ton of bank earnings releases, continued economic data and the official passage of financial reform.

· Banks – the big story of the day – BAC shrs are off ~8% on the day after its earnings disappointed expectations (NPLs up, FI revs off 50% Q/Q, and v neg. comments re the impact from Durbin).  C hangs in better – that stock is down “only” 4% (seems like people not all that disappointed w/the C report but BoA weighing on everyone). 

· Regional banks – selling off on back of the BoA report; CMA, FITB, MI, STI, TCB, USB, ZION some of the weakest (off 6-7%); some signs at the margins within the bank earnings so far that signal credit improvement stalling (or at least that the pace of improvement is slowing); PBCT off ~3% post earnings (people not so disappointed w/earnings but wanted to see larger deals and more clarity on mgmt).  FHN’s earnings were pretty decent but the stock is only flattish on the day (as it gets dragged down by BoA, etc). 

· Credit cards – the neg. BoA comments re the impact from Durbin is weighing on the space; V and MA both drop ~4%; COF, AXP, and DFS each fall ~4%. 

· SCHW shrs rise 6% after earnings came in much better than expected – the big upside in the Q was fee waivers coming in less than feared. 

· GS – the stock is up ~2.5% on the day but off highs (it hit $155 earlier this morning); the upper $140s/$150 is a tough resistance point for the stock.  People now focused on earnings this Tues and given the disappointment seen w/BoA, not willing to chase GS higher (also RBS was on the tape today saying how it may file its own suit against Goldman). 

· Asset managers – the group is weaker across the board; FII though is flattish (combination of the STI deal and the SCHW fee waivers, which FII has exposure to also). 

· Insurance – life insurers are getting hit today – GNW, PFG, LNX, PRU, HIG are all off 3%+. 

· Best performing sp500 financials: SCHW, GS, FHN, FII, AIZ, TRV, PGR, MCO


· Financial CDS – they are wider, but prob. not as weak as the stock prices are – GS is actually out 10bp (despite the settlement + stock strength); BAC/C out 10bp each and WFC out only 3bp

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