Noted bank analyst Dick Bove today cut his 2010 earnings estimate for Goldman Sachs, due to expected lower first quarter trading activity. Standard & Poor’s believes securities-related businesses at big banks will continue to perform well in 2010, albeit below the highly robust levels of early 2009. We are pleased to offer a complimentary download of S&P’s Industry Report Card on the topic.
Selected excerpts:
Securities-related businesses’ strong earnings bolstered European and U.S. banks’ overall financial performance in 2009. In certain cases, trading and investment banking results mitigated the effects of credit losses on lending operations. Starting from an exceptionally strong level in first-quarter 2009, securities-related businesses’ aggregate contributions diminished during the year, and were significantly weaker in the fourth quarter than in the prior quarters.
Standard & Poor’s Ratings Services believes these businesses will continue to perform well in 2010–-below the highly robust levels of early 2009, but better than what the fourth quarter might suggest.
However, to varying extents, weak general economic conditions and elevated credit costs continue to weigh on results. Moreover, the fragile recovery and potential regulatory changes pose significant uncertainties. Thus, our outlooks on seven of these 10 companies are negative.
Following the tumultuous fourth-quarter 2008, trading revenues jumped surprisingly in early 2009-–especially for fixed-income trading. Fixed-income trading encompasses a range of different product groups, including currencies, interest rates, credit, commodities, and mortgages; each of which has somewhat distinct dynamics. However, broadly speaking, fixed-income trading markets suddenly became awash in liquidity in early 2009, as clients started returning to the market.
We estimate that overall trading revenues for the 10 companies covered in this report totaled $208 billion in 2009, up just more than 100% compared to $103 billion in 2008, and up 23% from $169 billion in 2007. Trading revenues were $39 billion in fourth-quarter 2009, off 47% from $73 billion in first-quarter 2009.
Investment-banking revenues-–a relatively smaller source of revenues compared to trading–followed a different trend: Advisory and underwriting activity increased during 2009. Capital markets activity recovered across products, industries, and regions, particularly in the fourth quarter. Announced and completed merger and acquisition (M&A) volumes increased significantly. Equity issuance benefited from a high level of IPO activity, and there was a significant rise in high-grade, high-yield, and municipal debt issuance across global markets.
The report includes credit profiles for Bank of America (BAC), Barclays (BARC), BNP Paribas (BNP), Citigroup (C), Credit Suisse (CSGN), Deutsche Bank (DBK), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley and UBS (UBS).
Industry Report Card: Global Banks’ And Brokers’ Securities-Related Businesses Weakened In Fourth-Quarter 2009, But Remained Substantial Contributors has been made available free of charge to Research Recap users for 30 days by special arrangement with Standard & Poor’s, an Alacra content partner. After 30 days, the report will revert to its regular Alacra Store price of $750.00)
For additional free research reports from the Alacra Store click here
Technorati Tags: (bac), (Barc), (BNP), (c), (CSGN), (DBK), (JPM), (MS), Bank-of-America, Barclays, big banks, BNP Paribas, Citigroup, complimentary research, Credit-Suisse, Deutsche Bank, Goldman-Sachs, GS, investment-banking, jpmorgan-chase, morgan-stanley, UBS (UBS).
Google, Apple gain smartphone share at expense of Palm, RIM and Microsoft (comScore)
TALF losses from CMBS could exceed $500m for US Treasury in the worst case scenario (GAO via FT Alphaville)
Assets of the largest 1,000 banks in the world grew by 6.8% in FY 2008/2009 to a record $96.4 trillion (IFSL)
Hulu Surpasses 1 Billion Monthly Video Streams for First Time (comScore)
Toyota still has great strengths, not least financial, but it has lost something precious and may never get it back (The Economist)
“Whether Bank of America’s conduct rises to the level of fraud, rather than mere stupidity … is the real question in the case” (NYTimes)
Why Some Homeowners Hope For Foreclosure (NPR)
“Berkshire “downgrade underscores the innate risk of the financial industry,” – Stifel Nicolaus
Technorati Tags: (bac), (GOOG), (PALM), (RIMM), AAPL, Apple, Bank-of-America, berkshire-hathaway, big banks, CMBS, financial-industry, foreclosures, Google, Hulu, Microsoft, MSFT, Palm Inc., RIM, smartphone, TALF, Toyota, Twitter, video
As Goldman Sachs (GS) reports record earnings and other big banks announce quarterly results, we are pleased to offer a complimentary download of Plunkett Research’s Profile and Investment and Securities Trend Analysis 2010. In addition to identifying trends for the financial services industry, the 34-page report includes a review of recent developments and an extensive glossary of investment product facts.
Plunkett’s emerging trends to watch for:
- Greatly increased regulatory oversight will restrict investment companies and lenders of all types. Regulatory agencies such as America’s SEC, may get an overhaul. Investment companies, banks and insurance companies will brace for much higher levels of scrutiny.
Unfortunately, the outcome could easily err on the side of too much new oversight enforced by inefficient new bureaucracies.
- An era of much lower risk-taking by traditional lenders has begun that will last for years.
- The creation of higher-risk loans and investments will be taken over to some extent by hedge funds and private equity funds, accelerating a trend that has already been in place for some time, and replacing some of the former roles of commercial banks and investment banks.
- Alternative lending sources will be used to a growing degree by small businesses and some consumers who are unable to get loans elsewhere. For example, peer-to-peer lending companies are growing through enabling lending by and between members of lending clubs, or between friends and family.
- Virgin Money USA, for example, makes it easy for reliable small business owners to set up loans from friends. Prosper.com enables borrowers to apply for three-year, fixed-rate personal loans online by connecting borrowers with individual lenders. On the other end of the spectrum, small businesses that are unable to obtain or renew bank loans will turn to high-cost “factoring,” a method of borrowing against their receivables.
This report has been made available free of charge to Research Recap users for 30 days by special arrangement with Plunkett Research, an Alacra content partner. After 30 days, the report will revert to its regular Alacra Store price of $149.99)
For additional free research reports from the Alacra Store click here
Technorati Tags: Bank-of-America, banks, Citigroup, financial-products, financial-services, Goldman-Sachs, Hedge-Funds, investment banks, morgan-stanley, Virgin Money, Wells Fargo & Co.
Standard & Poor’s today updated and corrected some of the results of its first global comparison of banks’ risk-adjusted capital adequacy, first published Nov 23. The affected bans are Allied Irish Banks (to 4.7% from 5.0%) , Bank of America (6.5% from 5.8%) , Danske Bank (6.1% from 5.4%), and UBS (2.4% from 2.2%). S&P said the changes “result from new material information that we have now received. We recalculated the estimated RAC ratio for Rabobank (to 8.3% from 7.8%) due to a computational error. Receipt of new information and a computational error has resulted in a new estimated RAC ratio for BBVA.” (to 6.3% from 5.4% )
S&P also provided additional information about a number of banks: “Our report prompted a lot of interest about the impact of recent capital initiatives by banks on their RAC ratios and, consequently, we are now providing further supplemental information for banks that have announced substantial capital measures since (the cutoff date) of June 30, 2009. These banks are Citigroup, Intesa, Mizuho, Standard Chartered, and UBS.”
S&P said using Tier 1 or leverage ratios for direct comparisons of banks’ relative capital positions can be misleading both at the national and the international levels.
“We found that the average estimated RAC ratio for large international banks was 6.7% as of June 30, 2009, more than three percentage points below their average Tier 1 ratios. As we generate more RAC ratios, the results to date appear to confirm our view that capital is a rating weakness for a majority of banks in our sample.” S&P set a benchmark of 8% as desirable.
The RAC results also illustrate our qualitative opinion that the Tier 1 and leverage ratios are not sufficient to come up with an informed view about individual banks’ capital adequacy.
For details on the RACF, see Methodology And Assumptions: Risk-Adjusted Capital Framework For Financial Institutions (Premium), published April 21, 2009.
“We are, however, also seeing a clear improvement in banks’ risk-adjusted capital positions, compared with the level in 2007. Beyond fulfilling the short-term goals of alleviating market pressure, responding to the uncertain economic environment, and addressing strategic considerations, banks appear to have started to prepare for a future structural increase in regulatory capital requirements as well. Capital raising, conversion of hybrids into common equity, asset disposals, and reduction in risk assets have allowed a number of banks to significantly increase their capital ratios in the past 18 months.”
After the revisions are taken into account, HSBC remained the top-ranked bank as of June 30 with a ratio of 9.2%. Goldman Sachs (8.2%) and Morgan Stanley (8.1%) rounded out the top quintile.
Mizuho Financial Group (2.0%) remained the lowest ranked followed by Citigroup (2.1%) and UBS (2.4%). However, Citigroup’s RAC pro-forma RAC would have increased to 6.1% from 5.9% if its subsequent capital increases were taken into account.
For the full results see S&P Ratio Highlights Disparate Capital Strength Among The World’s Biggest Banks.(Premium)
Technorati Tags: (bac), (BBVA), (c), Allied Irish Banks, Banco Bilbao Vizcaya, Bank-of-America, capital ratios, Citigroup, Danske Bank, global banks, Intesa Sanpaulo SpA, Mizuho, Rabobank, Standard Chartered, UBS
Only four banks passed Forrester Research’s benchmark for online customer service and support.
Excepted from Improving Online Customer Service Availability By Strengthening The Basics: A Review Of Financial, Travel, And Retail Web Sites
Only four of 30 financial services websites sites assessed by Forrester Research met benchmarks for customer service and support. Bank of America, Vanguard, Capital One and SunTrust scored 70 or higher on Forrester’s 100 point scale.
This compares with 14 retail sites and 12 travel sites that met the benchmark. Topping the retail sites were Dell, HP, Best Buy, Wal-Mart, and Sears, all of which scored as high or or higher than Bank of America, the top scoring financial services firm. Carnival, Orbitz and Travelocity topped the rankings of travel sites.
No financial service attained a 100-point score, a level achieved by Best Buy and Carnival. Dell (125) and HP (105) received more than the maximum score due to bonus points for blogs, reviews and forums.
7 out of the 30 financial services sites didn’t even have a link to their customer service section on their home page — just a “contact us” link.
Technorati Tags: (bac), Bank-of-America, banks, Dell, financial-services
CreditSights sees the repayment of TARP funds as “a positive step for the banks allowed to exit the program as well as the U.S. taxpayer.”
“Still in our view, the repayment of TARP funds represents only an interim step in full normalization of operating conditions for banks. There are still several major financial institutions which will remain in the TARP program after this initial round of repayments and the FDIC’s TGLP program is still active for banks which cannot issue on a non-guaranteed basis. We note, as well, that there are ongoing reports that the Administration favors compensation limits across the financial services industry, as well as potential regulatory changes, both of which we feel could potentially have long-term implications for the financial industry depending on the ultimate outcome of these initiatives.”
“The Treasury also noted in its statement that banks which repay their TARP funds have the right to repurchase the warrants which Treasury holds at fair market value.“
We note that the price of the warrants has remained a sticking point with many banks, who feel that they are too costly.
CreditSights provides an analysis of the impact of the potential pricing and impact of repurchasing the warrants in U.S. Banks: Repaying TARP, Off to the Races Again?
Ed Harrison at Credit Writedowns, along with Boston University Professor Mark Williams argue that the repayments will make make banks weaker and could lead to more failures in the longer term.
Technorati Tags: (bac), (c), (JPM), (MS), (WFC), bank bailout, Bank-of-America, Citigroup, Goldman-Sachs, GS, JPMorgan-Chase-&-Co, morgan-stanley, TARP, Wells Fargo & Co.
McKinsey expects the US banking and securities industry to incur losses averaging $125 billion per quarter through 2010, with the bulk of it concentrated in commercial banking loans.
McKinsey research estimates that total credit losses on US-originated debt from mid-2007 through the end of 2010 will probably be in the range of $2.5 trillion to $3 trillion, given the severity of the current recession. Some $1 trillion of these losses has already been realized, McKinsey says in a review of the banking industry.
“Since US banks hold about half of US-originated debt, the US banking and securities industry will incur about $750 billion to $1 trillion of the remaining $1.5 trillion to $2 trillion of projected losses on this debt, which includes residential mortgages, commercial mortgages, credit card losses, and high-yield/leveraged debt, McKinsey says. These numbers are in the same range as those of the US government, which calculated a $600 billion high-end estimate of credit losses for the 19 largest institutions.”
Since the middle of 2007, the US banking and securities industry has absorbed some $490 billion of losses, or $80 billion per quarter.
If the industry incurs additional losses of $1 trillion in 2009 and 2010, the losses will be about $125 billion a quarter … these losses will be concentrated in commercial-banking loans.
Importantly, many of these losses will be concentrated in the banks that the stress tests revealed to be undercapitalized, McKinsey says. The five most undercapitalized major banks under the stress tests were Bank of America Corp. (NYSE: BAC) Wells Fargo & Co. (NYSE: WFC), GMAC LLC (NYSE: GJM), Citigroup Inc. (NYSE: C) and Morgan Stanley (NYSE: MS).
Technorati Tags: (bac), (c), (MS), (WFC), Add new tag, bank bailout, bank losses, Bank-of-America, banking-system, Citigroup-Inc., GMAC, morgan-stanley, stress test, U.S. banks, Wells-Fargo-&-Company
Credit card providers took sixth place out of 12 industries included in Forrester Research’s Customer Experience Index (CxPi), ending up with an overall “okay” rating of 68%.
The average score for credit card providers increased by one percentage point compared with last year.
USAA came out on top with an “excellent” rating of 91%, followed by two
firms with “good” ratings: American Express and Discover. At the other end of the spectrum, HSBC received a “very poor” rating, while Washington Mutual and Bank of America ended up with “poor” ratings.
Most firms meet consumers’ basic needs, Forrester says in Customer Experience Index 2008 Snapshot: Credit Card Providers When it comes to meeting needs, USAA ended with a near perfect score. American Express also ended up with an “excellent” rating, and five other firms wound up with a “good” rating. HSBC was the only credit card provider with a “poor” rating.
Technorati Tags: (AXP), (bac), (DFS), American Express, Bank-of-America, credit-cards, Discover Financial Services, HSBC, USAA, Washington-Mutual
The Economist takes a stab at ranking the world’s banks:
“Trying to work out which banks are the world’s best is a bit like awarding the prize for prettiest war-torn village. It is a title that carries little kudos. It is also likely to prompt further shelling. Winners of industry awards in the past three years include Ken Lewis, the chief executive of Bank of America, for banker of the year (2008); Société Générale for its risk management; and Angelo Mozilo of Countrywide, a failed mortgage lender, for a “lifetime of achievement”.
Those banks that emerge from this crisis with reputations and franchises strengthened will find it increasingly easy to raise funds, win clients, attract employees and buy assets.
“Plenty of institutions have come through the crisis relatively unscathed. The Chinese banks now dominate rankings by market capitalisation. Standard Chartered, an emerging-markets lender, seems to be steering a deft course through the downturn in the developing world. Rabobank, a wonderfully dull co-operative bank in the Netherlands, is the only bank that can still boast a AAA rating from Standard & Poor’s. Bank of New York Mellon, a large custodian, has won lots of new business from belatedly risk-averse clients. But to win the shiniest medals, you need to have come under fire. In the heat of battle, which banks have come off best?”
“Credit Suisse has had its share of mishaps during the crisis but it was quick to scale down its balance-sheet, has plotted a credible strategy for its investment bank and pulled well ahead of UBS, its main rival in wealth management. As for JPMorgan Chase, it has kept a tight rein on risk, managed capital well and acquired sensibly.
Technorati Tags: (CS), (JPM), Bank-of-America, banks, Credit-Suisse, international banks, JPMorgan-Chase-&-Co, Rabobank, Societe Generale, Standard Chartered
Moody’s has weighed in on the results of the stress test for the 19 systemically important banks, which concluded that 10 of the 19 companies need to build larger capital buffers totaling $75 billion.
“The stress test results are generally in line with our Bank Financial Strength Ratings (BFSR) on these firms, our measure of a bank’s stand-alone financial strength (i.e., without government support). Also, given the clear government support that is being offered to these institutions in the event they cannot meet the required capital increases on their own, which is already factored into our ratings, we do not expect to make any changes to our ratings on deposits, senior debt, or senior subordinated debt of these firms in response to these results.”
All else being equal, upgrades could be contemplated in the medium term if the capital buffers being required become a permanent feature of these firms.
“In contrast, and perhaps more importantly, we continue to view the government support of the banks’ most junior creditors as uncertain, especially if government preferred shares were to be converted to common equity. We will review each firm’s capitalization plan and take rating actions on relevant securities if we perceive a risk of a distressed exchange.”
For details, see: U.S. Government Stress Test Results in Line with Moody’s Existing Bank Stand-Alone and Senior Bank Rating.
Technorati Tags: American Express, Bank of New York Mellon, Bank-of-America, BB&T-Corporation, Capital One Financial, Citigroup, Fifth-Third-Bancorp, GMAC, Goldman-Sachs, JPMorgan-Chase-&-Co, KeyCorp, MetLife, morgan-stanley, PNC Financial, Regions-Financial-Corporation, State-Street-Corporation, stress test, SunTrust-Banks, U.S. banks, U.S.-Bancorp, Wells Fargo
