Posts Tagged ‘big banks’
The results are in for the bank stress tests by the Federal Reserve, and they show, as I had expected, an improving banking sector that is more defensive to risk and much improved as far as their balance sheets, liability, and vulnerability to dire market conditions.
The banks were tested based on a worst-case scenario to see the impact on the bank stocks and their ability to handle a major financial crisis. The key assumptions include: the unemployment rate surging to 12.1% (read “What the Government Doesn’t Want You to Know About Jobs Creation”), a pullback in the equities market by over 50%, and home prices falling by over 20%. (Source: Board of Governors of the Federal Reserve System web site, last accessed March 18, 2013.)
The stress test resulted in 14 of the 18 banks passing with conditional approval given to The Goldman Sachs Group, Inc. (NYSE/GS) and JPMorgan Chase & Co. (NYSE/JPM); both have to deal with a few issues and submit new plans by September. Assuming approval, 16 of the 18 bank stocks will have passed the test, versus 15 of 19 in 2012 and well ahead of 2009, when half of the big banks failed. BB&T Corporation (NYSE/BBT) and Ally Financial failed.
“The nation’s largest bank holding companies have continued to improve their ability to withstand an extremely adverse hypothetical economic scenario and are collectively in a much stronger capital position than before the financial crisis,” says the Federal Reserve. (Source: Ibid.)
The results support my view that the banking sector is on the mend. Now we’ll see if some of the banks will … Read More
“Oz: The Great and Powerful” is The Walt Disney Company’s (NYSE/DIS) latest flick about a character named Oscar Diggs who is a con artist. He finds himself in the Land of Oz, where he is a magician that’s ethically challenged. It’s quite the analogy to what’s happening today in the U.S. economy.
The U.S. retail sales report showed a big gain in February, making a big jump over the previous five months. Sales of “Lamborghinis” in the U.S. alone grew a whopping 50% in 2012. Many corporations, like Paris-based luxury goods maker LVMH Moet Hennessey – Louis Vuitton SA, are hitting record highs on the stock market for the third year in a row; Rolls-Royce Holdings plc’s annual sales broke another record, the highest in the company’s 108-year history.
On the back of Main Street fundamentals, corporations and the stock market have done an incredible job recovering since the financial crisis and recession. The big banks have had exceptional access to super cheap cash, making mortgage spreads nice and fat. Big banks are doing great on the stock market right now.
Everything is skewed. Countless U.S. corporations are doing well (as we’ve been looking at), but countless corporations aren’t growing at all. Economic conditions are vastly different in many industries. Retail sales seemed decent, but many retailers are dropping on the stock market. And many brand-name retail manufacturers are struggling, too.
Monetary stimulus has been a boon to those who don’t need to worry about gas prices. The Federal Reserve has performed its job perfectly. The stock market is up. Cash is cheap.
The strength in February retail sales … Read More
As I have been harping on about in these pages, one of the main concepts behind the Federal Reserve’s idea of quantitative easing was to improve lending to stimulate the U.S. economy.
The Fed bought troubled assets from the big banks and provided the banks with funds to lend to their customers. The idea was that once banks had ample cash on their balance sheets, they would lend to businesses; and from there, businesses would spend on expansion and hire more people. But this hasn’t happened nearly to the degree hoped.
Actually, bank lending activity in the U.S. economy is bleak. Businesses are not borrowing as much as one would have expected after the Federal Reserve expanded its balance sheet to almost $3.0 trillion.
According to data compiled by Credit Suisse Group AG, the average loan-to-deposit ratio for the eight big banks in the U.S. economy fell from 87% in the fourth quarter of 2011 to 84% by fourth quarter 2012. Comparatively, in 2007, their loan-to-deposit ratio was 101%. (Source: Bloomberg, February 20, 2013.)
Big banks like JPMorgan Chase & Co. (NYSE/JPM) and Citigroup, Inc (NYSE/C) are lending in the U.S. economy at their slowest pace (as measured by a percentage of deposits) in five years. JPMorgan had the lowest loan-to-deposit ratio at 61% in 2012, compared to 66% in 2011. This means that for every dollar of deposit the bank has on hand, it lent $0.61 of it.
In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.
My stock analysis is that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.
For 2013, my stock analysis is cautious to start the year, based on the high global risk.
The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.
My stock analysis tells me that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.
It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter, which you can read … Read More
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