Financial Industry 03 (Oct 10 - Mar 12)

[iam802]

Keep an eye on Volcker Rule.

I am starting to see an increase in its appearance in the news.

The debate or discussions is likely going to continue for the next few months. However, once it is finalized, the banks will know what to do with their restructuring.

And that may be a good time to go long on Financials.

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Goldman: Seeks Volcker Rule Change

http://online.wsj.com/article/SB1000142 ... 93922.html

[kennynah]

by now, most of the north american banks would have set up their system to bypass volker rule.. in essence, i think it is about separating clients' money away from banks' treasury dealings...and some firewall around those clientele money

but can you imagine how GS will survive if volker rule is implemented ?

[winston]

How much more do they have to put aside ? And how are they going to raise the capital ?

On Fast Money, CNBC:-

Lee shifted the discussion to a report that Moody's may cut the credit ratings of a number of banks and securities firms, including Morgan Stanley(MS_) and Goldman Sachs(GS_).

Brad Hintz, an analyst with Sanford Bernstein, said the move is based on concerns about large derivative exposure and risk management.

He said that while Goldman Sachs and JP Morgan(JPM_) could be brought down to single A, they remain among the best derivative players that exist.

He said Morgan Stanley may drop three levels on concerns about its fixed income business and its ability to deliver on its retail promise of reaching a 20% pretax margin.

Source: The Street

[winston]

Arbeter also questioned how much higher the financials, one of the sectors leading the broad market higher along with information technology, can go from here.

Bank of America(BAC_), up 45.5% year-to-date, is the top 2012 gainer in the Dow Jones Industrial Average, which has risen 6% through Friday's close, as well as one of the biggest advancers in the S&P 500.

The KBW Bank index has jumped 15.8% year-to-date.

"The financials are also starting to show some relative weakness as the S&P 500 Financials index recently ran into an area of heavy overhead supply," he wrote.

Source: The Street

[iam802]

RBS Posts Loss Twice as Big as Expected

http://www.bloomberg.com/news/2012-02-2 ... -year.html

Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, posted a wider full- year loss than analysts estimated after writing down Greek debt and compensating customers who were improperly sold insurance.

The net loss for 2011 was 2 billion pounds ($3.1 billion) compared with 1.1 billion pounds a year earlier, the U.K.’s second-largest bank by assets said in a statement today. That was worse than the 1.1 billion-pound median estimate of 11 analysts surveyed by Bloomberg.

The company took a sovereign-debt impairment of 1.1 billion pounds, writing off Greek securities as part of a European Union agreement. Chief Executive Officer Stephen Hester, 51, has shrunk the bank’s assets by more than 600 billion pounds to 1.66 billion pounds and cut more than 35,000 jobs since he took over from Fred Goodwin in 2007.

“We have three jobs at RBS -- to support our customers, to defuse our legacy risks and rebuild a successful, profitable bank,” Hester said in the statement. “In 2011 we showed results across all three goals, though with much still to do.”

RBS’s loss would have been narrower if it hadn’t taken 850 million pounds in charges relating to compensation for U.K. customers who were improperly sold personal-loan insurance. The bank also said it “exceeded run-off targets” in its non-core businesses, bringing forward some of its losses.

Lower ROE Target

Hester said earlier this month that restructuring RBS was equivalent to defusing “the biggest time bomb in history.” The U.K. was forced to rescue RBS at the height of the financial crisis, injecting 45.5 billion pounds of taxpayer money into the lender, making it the costliest bailout of any bank.

The lender reduced its medium-term target for return on equity to 12 percent from 15 percent.

RBS’s results were also affected by rising borrowing costs as the bank weans itself off low-interest government loans and takes on costlier funding in wholesale markets. The bank opted in December to go the European Central Bank for an emergency 5 billion euro loan as its own costs of borrowing reached an unsustainable level, according to a person familiar with the matter.

Banker Pay

RBS’s compensation ratio, a measure of pay against revenue, rose to 41 percent compared with 34 percent for 2010. The bank’s bonus pool fell 21 percent to 985 million pounds, and total salaries fell 1 percent to 5.42 billion pounds.

The investment-banking unit set aside 390 million pounds of bonus, including cash, shares and deferred awards, a 58 percent drop from the year earlier, and an average of 22,941 pounds per worker.

U.K. Prime Minister David Cameron said last month banks must show “proper regard” in limiting bonuses. “What needs to happen is a sense of restraint,” Cameron told reporters in Brussels after a meeting of European leaders. “They need to do a better job of demonstrating how pay is related to performance. What I care about is the taxpayer going to get the money back.”

[winston]

From Fast Money, CNBC:-

Carter Worth, a chartologist with Oppenheimer Asset Management mentioned that the financial stocks, are in the early stages of a bearish-bullish reversal.

Source: The Street