Financial Industry 07 (Jul 18 - Dec 24)

[winston]

The No-Brainer Buying Opportunity of the Pandemic

by Jody Chudley

In the last quarter of 2020, the banking sector has surged more than 40%.

Late in December, after putting the banks through another round of stress test exercises, the Fed announced that the ban on share repurchases would be lifted.

Source: The Oxford Club

[winston]

Global Financials – Beneficiary of yield curve steepening, upgrade sector to overweight

Our macroeconomics team has recently upgraded our U.S. growth and 10Y treasury yield forecasts (from 1.2% to 1.5%) based on the view that higher fiscal spending under a unified government in the U.S. should lead to increased treasury yields this year.

While the impact of a rise in the U.S. 10-year treasury yield on global banks’ net interest margins is limited given lending yields are usually pegged to short term rates, our latest house expectation of a steepening yield curve represents incremental potential earnings upside and more importantly, signals our macro team’s growing confidence in the global economic recovery story.

With positive medium-term implications expected for the global financials sector from a steeper yield curve, stronger global growth prospects and technical support from further value/cyclical rotation, we raise our sector rating accordingly to overweight.

For 2021E, we have a constructive stance on the sector, which should see favourable tailwinds from further dividends normalisation, easing asset quality concerns/lower provisions, earnings growth recovery (FY21E +21.6% vs FY20E’s -22%) supported by progress in vaccines rollout globally over the course of the year.

Following the double-digit gains in our previous quality picks, we prefer to add fresh positions in these names on pullback and expect to review estimates after the upcoming reporting season.

Buy-rated financials where we still see attractive value and positive recovery prospects include Berkshire Hathaway*, Credit Suisse*, Banco Santander*, Lloyds Banking Group*, Sumitomo Mitsui Financial Group*, Westpac Banking Corp*, United Overseas Bank and China Life.

Source: OCBC

[winston]

by behappyalways

Perhaps banks have learned their lessons from the last crisis too well. After being bailed out with public money and taxed with tough oversight, they have little reason to lend to borrowers who might not repay.


Breakingviews - Big U.S. banks keep their powder a bit too dry

Source: Reuters

https://www.reuters.com/article/idUSKBN29K29A

[winston]

Stock Market Sectors to Buy: Financials

Banking stocks have already started to trend higher in the fourth quarter of 2020. I strongly believe that banking stocks will be a key investment theme for the current year.

An important point to note is that the financial sector tends to outperform in the early stage of a business cycle. It therefore makes sense to go overweight on the sector.

It’s expected that return on equity for bank stocks will begin to recover in the current year. That’s a key reason for expecting banking stocks to deliver robust returns. Fitch has also revised the outlook for U.S. banks to “stable” from “negative.”

Another trigger for financial stocks is improvement in net interest income and net interest margin. In the last few quarters, the non-core banking segments have offset weakness in the core banking services. I expect core banking to deliver healthy results in the current year.

In terms of specific stocks, JPMorgan Chase (NYSE:JPM) would be my top pick from financial stocks. JPM stock is attractive at a forward price-earnings ratio of 14.7x. In addition, the stock offers a healthy dividend yield of 2.6%.

Bank of America (NYSE:BAC) would also be interesting if interest rates trend higher. For Bank of America, a 100 basis points change in interest rates will impact pre-tax earnings by $9.6 billion.

Overall, the financial sector would be among the top stock market sectors to consider for the year as GDP growth accelerates.

Source: Investor Place

[winston]

Fed says restrictions on bank dividends and buybacks end on June 30

The US Federal Reserve said Thursday that as of June 30 it will end for most banks the temporary limits it had imposed on their ability to make dividend payments and buy back their own stock, AP reports.

The Fed imposed the restrictions last summer, citing the need for banks to conserve capital during last year’s coronavirus-triggered recession. It had barred banks from buying back their shares and had capped dividend payments to shareholders.

In Thursday’s announcement, the Fed said the restrictions would end for most firms after June 30 once the upcoming round of bank stress tests has been completed.

Banks with capital levels above those required by the stress tests will no longer be subject to the additional restrictions as of that date. The Fed said that banks with capital levels below those required by the stress tests will remain subject to the restrictions.

“The banking system continues to be a source of strength and returning to our normal framework after this year’s stress test will preserve that strength,” Randal Quarles, the Fed’s vice chair for supervision, said in a statement.

Last week, the Fed announced that it was restoring capital requirements for large banks that had been relaxed as part of the Fed’s efforts to shore up the financial system during the early stages of the pandemic in 2020.

The easing of the capital requirement had been implemented to give banks flexibility in what assets they could hold to meet regulatory requirements. It came as banks were suddenly having to write down billions of dollars of loans during the financial turbulence last spring caused by the pandemic.

In last week’s announcement, the Fed said it would not extend relief from the supplementary leverage ratio past March 31. The supplementary leverage ratio requires large banks to hold capital equal to 3% of their assets with an even higher ratio of 5% for banks deemed to be the most important to the overall financial system.

The banking industry had lobbied for an extension of the relief.

Source: The Standard

https://www.thestandard.com.hk/breaking ... on-June-30

[winston]

China said to have asked banks to curtail credit for rest of year

At a meeting with the People’s Bank of China on March 22, banks were told to keep new advances in 2021 at roughly the same level as last year.

Some foreign banks were also urged to rein in additional lending through so-called window guidance recently after ramping up their balance sheets in 2020.

In 2020, banks doled out a record 19.6 trillion yuan ($3 trillion) of credit, with about a fifth directed to inclusive financing such as small business loans.

Lending the same amount this year would bring the outstanding balance to about 192 trillion yuan, an annual increase of about 11%, the slowest pace in more than 15 years.

Source: Bloomberg

https://www.theedgemarkets.com/article/ ... -rest-year

[winston]

A third of Covid-19 survivors suffer neurological or mental disorders: study

One in three Covid-19 survivors in a study of more than 230,000 mostly American patients were diagnosed with a brain or psychiatric disorder within six months, suggesting the pandemic could lead to a wave of mental and neurological problems, scientists said on Tuesday.

Source: Business Times

https://www.businesstimes.com.sg/govern ... ders-study

[winston]

AstraZeneca UK vaccine trial in children paused: Oxford University

[LONDON] A British trial of the AstraZeneca coronavirus vaccine on children has been paused while regulators assess its possible link to blood clots, Oxford University, which helped develop the jab, said Tuesday.

Source: Business Times

https://www.businesstimes.com.sg/govern ... university

[winston]

China banking sector non-performing loans at US$552b

China's banking industry recorded 1.5 percent profit growth in the first quarter from a year ago, an official of the country's top banking and insurance regulator said on Friday, emphasizing a continued crackdown on shadow banking system is key, Reuters reports.

Non-performing loan of the banking industry totaled 3.6 trillion yuan (US$552 billion) at end-March and the bad loan ratio stood at 1.89 percent, said Xiao Yuanqi, chief risk officer at the CBIRC.

Chinese banks' property loans grew by 12 percent in the first quarter, the slowest pace in 8 years, said Xiao.

Outstanding loans to small and medium enterprises nationwide stood at 45.66 trillion yuan by the end of March, Xiao added.

Source: The Standard

https://www.thestandard.com.hk/breaking ... at-US$552b

[winston]

China banks - 1Q21 wrap; prefer retail focused banks

For Chinese banks, while the recovery in 1Q21 was in-line with expectations, there is a divergent earnings growth trend between the Big-5 national banks and joint stock banks (JSBs).

Despite a few joint stock banks (JSBs) delivered mid-to high-teen growth in net profits that was in-line with their pre-COVID levels, such as China Merchant Bank (CMB, 3968 HK) and Ping An Bank (PAB, 000001 CH), the large banks' profit growth in 1Q21 was similar to 2020 level at mid-to-low single digits, with Postal Savings Bank of China (PSBC, 1658 HK) being the highest at 5.5%.

This was driven by higher operating expense in 1Q21 due to low base effect, as well as continued increase in provisions despite improving asset quality.

At the PPOP level, China banks under our coverage posted an average of 4.5% y/y growth, driven by balance sheet expansion and robust fee income.

The three JSBs (i.e. Bank of Communications 3328 HK, CMB and PAB) under our coverage led the PPOP growth in 1Q21 with an average of about 10% y/y increase, whereas PSBC had the highest PPOP growth among the Big-5 banks at 7.2% y/y.

The 1Q21 results highlight a stable net interest margin, robust fee income and improved asset quality.

The market seemed to be disappointed with the results and are concern about the potential risk of state-owned banks being asked to finance government bailout after the recent Huarong incident.

Hence, China bank stocks have pulled back by 1-5% since end of April. We believe recent share price volatilities around results may have created better entry points, especially for the retail-focused Chinese banks, which usually command a premium to the industry peers.

Within the sector, we prefer deposit rich and retail-driven banks as retail loans have lower underlying risks given the overall economic recovery, and retail business is a key driver of fee and deposits growth.

China Merchants Bank (CMB), Postal Savings Bank of China (PSBC) and Ping An Bank (PAB) are our preferences.

Source: OCBC