Financial Industry 07 (Jul 18 - Dec 24)

[winston]

US 2Q Earnings

JPM's earnings miss was a management decision. They chose to take charge offs and move almost half a billion dollars to "loan loss reserves."

Jamie Dimon (CEO of JP Morgan) described the health of the economy. He said, "the U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy."

Now, add to this, we heard from Citibank and Wells Fargo today.

Citi beat on earnings and revenues. They, too, took a big write off for bad debt, and set aside $375 million for (additional) loan losses. They still beat.

Wells Fargo missed. This is the "put all the bad news on the table" posterchild. They took big write downs on private equity and venture capital investments. Meanwhile net interest income jumped 16%.

Keep in mind, these three banks still have a combined $10 billion more in "loan loss reserves" than they did prior to the pandemic. This is a war chest of capital that was set aside early in the pandemic, that will be moved to the bottom line (i.e. turned into earnings) at their discretion.

Bottom line: The big four banks are in good shape, and are cheap, with forward P/Es under 10.

Source: Forbes

[behappyalways]

Credit Suisse...

美联储加息能否阻止滞胀时代？美元流动性危机何时爆发？
https://m.youtube.com/watch?v=ONNbfpd8hR8

[winston]

Banking – Malaysia
Ample Provision Buffers Built In

Due to the numerous COVID-19 lockdowns, banks have set aside robust provision
buffers which they can potentially utilise for any asset quality deterioration caused
by the current inflationary environment.

We estimate that the sector has built up an average loans-loss coverage ratio of 275% on vulnerable loans.

This provides potential earnings tailwinds in the form of potential write-backs in 2023 and beyond, which we have yet to factor in.

Maintain BUY with HLBank as our top pick.

Source: UOBKH

https://research.uobkayhian.com/content ... 8cd19b2fa0

[winston]

Malaysia Banking
Room for provision writebacks?

Sufficient buffers built into future earnings

While the macro outlook into 2023 remains challenging, we do think that we have factored in sufficient credit cost buffers into our earnings at this stage.

There is room to surprise positively should pre-emptive provisions be gradually released.

Moreover, we have baked in the margin impact of just one rate hike into our earnings thus far, on conservative grounds.

We remain POSITIVE with BUYs on HLBK, RHB, AMMB, ABMB and HLFG.

Source: Maybank

https://mkefactsettd.maybank-ke.com/PDFS/270247.pdf

[behappyalways]

US banks increase provisions for credit losses; Wall Street analysts see move as a 'warning signal'
https://www.theedgesingapore.com/news/g ... ve-warning

[winston]

Nomura Foresees CN Banks' Earnings Growth to Moderate in 2Q; Top Picks CM BANK, PSBC

Nomura anticipated that the earnings growth of the Chinese banks under its coverage will moderate in 2Q22, decelerating from 8.7% in 1Q22 to 7.4%, due to NIM pressure, prudent provisioning and weaker fee income growth, amid macro headwinds.

Given their strong retail franchises and sufficient coverage buffer, CM BANK (03968.HK) and PSBC (01658.HK) was selected as the sector top picks.

ICBC (01398.HK), CCB (00939.HK) and ABC (01288.HK) were estimated to deliver stable earnings growth of 4.7-6.5% on a YoY basis.

The earnings of CM BANK, PSBC and PING AN BANK (000001.SZ), meanwhile, were projected to rise by 11.6%, 15.8% and 18.5%, YoY, respectively.

Related News - G Sachs: RMB2.4T Mortgage Loans at Risk If Most CN Private Developers Fail to Deliver Homes, Yet Systemic Risk Avoidable

Source: AAStocks Financial News

[winston]

UNITED STATES BANKS – TUSSLE BETWEEN RATE BENEFITS AND RECESSION WORRIES

Following the higher tail risks flagged in our 1Q22 United States (US) banks results analysis (1Q22 results highlights, watchful for higher tail risks) and subsequent downgrade of the global financials sector last quarter.

Global Financials - Higher growth risks ahead, on a deteriorating risk-reward outlook driven by increased growth risks which outweighed higher rate benefits.

Sector returns have softened further as recessionary expectations and investors’ risk-off sentiment intensified over the past few months.

The 2Y-10Y US Treasury yield curve has inverted for a second time this year reflecting increased recessionary worries by the bond markets.

Looking ahead, we believe the narrative around inflation, implications of a hawkish Federal Reserve (Fed) and worries over an eventual rise in credit losses (if a recession does materialize) would persist as continued headwinds for the financials sector.

With the latest US headline inflation print remaining uncomfortably elevated at 9.1%, our economist expects the Federal Open Market Committee (FOMC) to raise the Fed funds rate by another 75 basis points (bps) this week to 2.25-2.5%, with further hikes expected in 2H22 that should bring the Fed funds rate to 4% by early 2023 (Fed Preview: Another 75bps hike).

Overall, we maintain a defensive stance on financials given the sector’s sensitivity to macro uncertainties and scope for valuations to retrace further if a recession scenario materialize (not our base case although risks have increased).

The MSCI World Financials Index last traded at 1.1x price-to-book (P/B), still above historical recession troughs below 1x book value, and with consensus forecasts still expecting +12.5% FY23E earnings growth (vs +7.1% forecasted for world equities), we believe sector share prices are reflecting some level of recession risks, but not fully pricing this scenario in.

This points to further potential under-performance should a recession occur - not our base case, although we see the risks for a recession have increased towards a more material 50-50 probability (Macroeconomics: Fed hikes & recession risks).

On the other hand, should global growth navigate a soft landing or inflation expectations moderate, there is potential for a re-rating in sector share prices.

In this report, we provide 2Q22 results highlights of large US banks which recently reported mixed results although key takeaways included the continued health of the US consumer.

We also assess the results of the Fed’s latest stress tests for large banks which included various severe recession assumptions and concluded that while large banks would see credit losses and earnings contraction in a severe recession scenario, they should still maintain capital ratios above minimum risk-based requirements.

Source: OCBC

[winston]

The New Normal - Four Financial Trends in a Post-COVID World

by Fiona Ling

1. ‘Buy Now, Pay Later’ Programs (BNPL)
2. Central Bank Digital Currencies (CBDCs)
3. Environmental, Social and Governance (ESG) Investing
4. Neobanks

Source: Yahoo Finance

https://sg.finance.yahoo.com/news/norma ... 49395.html

[winston]

China banks may face US$350 billion in losses from property crisis

US$56 trillion banking system

In a worst-case scenario, S&P Global Ratings estimated that 2.4 trillion yuan (US$356 billion), or 6.4% of mortgages, are at risk while Deutsche Bank AG is warning that at least 7% of home loans are in danger.

There were 39 trillion yuan of outstanding mortgages and another 13 trillion yuan of loans to developers at the end of March.

Source: Bloomberg

https://www.theedgemarkets.com/article/ ... rty-crisis

[behappyalways]

Barclays Faces Billion-Dollar Loss From Structured Note 'Paperwork Error'
https://www.zerohedge.com/markets/barcl ... work-error