XLF, Banking and Financial Sector Stocks

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Top 149. Jul 15, 2001 10:10 AM

» JenL_2 - Schwab Fined $10 Million

Awhile back on this thread we were talking about the possibilities of the brave new world when online brokers, banks and insurance companies would be able to merge and co-mingle services....

....well it's been a learning curve for Schwab in financial services merger-land....this from 7/13 WSJ:

Federal and State Regulators Fine Charles Schwab Unit $10 Million

By PAUL BECKETT

Federal and state bank regulators fined Charles Schwab Corp.'s U.S. Trust unit $10 million -- one of the largest fines levied against a U.S. bank -- as part of a settlement of allegations that its internal controls and record-keeping were inadequate.

The hefty fine, $5 million of which was levied by the Federal Reserve, $5 million by the New York State Banking Department, was accompanied by a cease-and-desist order, the second-highest level of bank enforcement action short of a license revocation.

Without admitting to any of the allegations, U.S. Trust consented to the issuance of the order, which concerned alleged violations and deficiencies related to a lack of internal controls and procedures. The allegations also related to inadequate compliance with the Bank Secrecy Act, which deals with money laundering, and failure to maintain accurate and complete books and records in connection with the operations and activities of the Strategic Trading Group of the bank.

"U.S. Trust is promptly addressing the concerns raised in the supervisory action, and we are well along on our timetable for improving our compliance," said Jeffrey S. Maurer, chief executive officer of U.S. Trust, in a statement. "Our work to improve our compliance infrastructure continues, and we believe we are rectifying the important deficiencies raised by our regulators."

Mr. Maurer said that none of U.S. Trust's clients' $91 billion in assets have been exposed to any risk of loss, and there was no evidence of misuse of clients' money by any company employee. The actions that U.S. Trust is taking under the settlement won't affect its ability to conduct business, he added.

People familiar with the matter say that some of the alleged offenses that caused the severe regulatory action concerned the bank's failure to report to the federal government currency transactions over $10,000, as required by a federal law designed to aid in combating money-laundering.

The bank also failed to report transactions that appeared designed to skirt those thresholds, for instance, when a customer either deposited or withdrew an amount just shy of $10,000, these people said. One person familiar with the matter said there were such transactions for $9,999. Another scenario involved customers making a series of withdrawals close together that totaled more than $10,000 but were not in keeping with the client's normal pattern of activity, people familiar with the matter say.

Mr. Maurer, in an interview, said that description of the bank's activity "is not a fair description of what was going on."

Separately, the bank's Strategic Trading Division, a small team that handles sales of restricted stock for clients such as venture capitalists and Internet entrepreneurs, also was alleged to have compliance problems.

Those related chiefly to helping clients avoid the securities-law restrictions placed on shares held by insiders by selling shares and booking the profits in the firm's own accounts, called "convenience accounts." One person familiar with the matter said that had the effect of disguising the appearance of insider trading.

"I don't think that's the issue," Mr. Maurer said, adding that regulators had been focusing on convenience accounts at several firms.

U.S. Trust hired PricewaterhouseCoopers in May to review the trading division's "business practices, policies, procedure and controls," including "compliance with all applicable laws and regulations concerning securities trading and reporting requirements."

The bank regulators' order also said U.S. Trust will provide the PricewaterhouseCoopers report to any inquiry made by the Securities and Exchange Commission, raising the prospect that further regulatory action may arise. A SEC spokesman wasn't immediately available for comment.

Mr. Maurer said U.S. Trust's rapid expansion in the past five years "stretched our compliance infrastructure" and that one of the reasons for selling the firm to Schwab, the nation's largest discount brokerage, was to obtain the resources to improve the bank's technology platforms.

In May 2000, the Fed approved Schwab's purchase of U.S. Trust for $2.94 billion in stock, which was the financial industry's first major melding of old and new in the 21st century. It was the first big transaction after sweeping legislation took effect in November 1999 to remove Depression-era barriers and allowing banks, securities firms and insurance companies to get into each other's businesses.

The move allowed Schwab to reach out to wealthy investors, who have shown an increasing desire in recent years to participate in online investing. U.S. Trust has provided investment advice and private banking services to some of America's richest families since 1853; its earliest clients included railroad barons, shipbuilders and industrialists.

But the alleged violations at U.S. Trust continued well after Schwab purchased the firm in May 2000. In April, the bank hired KPMG to review its internal controls and procedures.

Mr. Maurer said the bank was committed to implementing state-of-the-art compliance technology and procedures. Of the regulators' action, he said, "We appreciate their wake-up call."

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<img src="http://pvcharts.quicken.com/bin/icenter...." width=470 height=250>
SCH, BTO, XLF, S&P500, Nasdaq 1 YR Chart

.....Jen

-- posted by JenL_2

Top 150. Sep 2, 2001 7:56 AM

» JenL_2 - Barron's Interview with Susan Byrne

9/3 Barron's has the latest in a string of interviews with value and fixed income fund managers. Some find value in the financials:

An Eye for Yield

In this market, says a money manager, look for stocks that provide high total returns

by Sandra Ward

(excerpts)

An Interview With Susan Byrne ~....... After lowering her forecast for corporate profits this year and with expectations of modest growth next year, Byrne is keeping sharply focused on "total return" investments -- companies delivering solid earnings growth, paying sustainable dividends, and offering higher returns than what are available from other asset classes. Cyclicals are in her mix, as are real-estate investment trusts and, yes, energy companies.......Her approach, honed in 30 years of investment experience, is simply to buy stocks at a discount to their growth rate in industries that are best positioned according to her macroeconomic outlook. ....

Q: What does this mean for portfolios?
A:Beyond cyclicals, people should look for companies that could be considered solid total-return candidates.

Q: Companies that pay dividends?
A: Yes, and companies with the ability to grow the dividend, not just pay it. If we are talking about an environment of slow growth, low interest rates and low inflation, the big competition for your money is 2½%-3% on a money-market fund and 4½% in bonds. For some, there will be high-yield instruments, but that is not my milieu. In that kind of environment, a barbell approach that includes the best cyclical recoverers with the best fundamental valuations -- and that may or may not include technology, depending on your risk tolerance -- as well as good moderate growers with good yields should provide a rate of return modestly above the historical 8%-10% returns of the equity market.

Q: What are some of these total-return stocks?
A: The financials -- say, a package of money centers and a couple of regionals. Bank of America and J.P. Morgan Chase both yield around 3½% up front. The combination of the dividend and modest 8% growth, which I have every confidence they could well exceed, gets you above the 10% bogey that the stock market has historically delivered.

Q: Are you concerned about their loan portfolios?
A: I think it is in the price of the stocks, and I am confident they have the reserves to help them through any problems. In the end, I think the problems with their loan portfolios will be like the watched kettle; they won't boil.

Q: What's a regional bank you like?
A: KeyCorp, a Midwestern regional yielding 4½% and well into a very sustained turnaround of its business. The composition of their earnings is an ever increasing percentage of fee-based income, a business that has always been afforded a high P/E. I really like it, and the dividend pays me to like it.

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.....Jen

-- posted by JenL_2

Citigroup's Diversification Helps Combat Turbulent Market

Top 151. Oct 21, 2001 6:00 PM

» JenL_2 - Citigroup : C

This from 10/18 Barron's Online:

By Allison Krampf

Banks and brokerages reported mixed quarterly results this week. Some met earnings estimates with falling revenue, while others missed earnings estimates but reported increasing revenue.

As we reported yesterday (Lehman, Morgan Stanley Offer Ways to Spread Risk), some institutions have benefited from a strategy started long ago of diversification, reducing their dependence on equities and drawing more of their revenue from fixed income.

But others haven't been so lucky. Firms such as Merrill Lynch and Bear Stearns have announced plans for massive staff cuts in the wake of a faltering economy, and the September 11 tragedies.

But one bank that's still performing relatively well is Citigroup, which announced a $5 billion stock buyback on Tuesday.

Yesterday, the financial services giant said it earned $0.61 per share in the third quarter, matching estimates. Citigroup reported a loss of $0.04 per share, related to the World Trade Center attacks, based mainly on insurance claims at its Travelers Group unit.

Profits at its investment and corporate banking businesses fell 27%, to $1.2 billion. But profits at its consumer business, which includes mortgages and credit cards, rose 26%, to $2.2 billion.

The bank has gained in areas such as global equity, where it now ranks third, up from the number five spot it held last year, according to Deutsche Banc Alex. Brown.

New York-based Citigroup, which has operations in more than 100 countries, has a diversified revenue stream, including brokerage Salomon Smith Barney, insurance concern The Travelers Group, and Citi's original retail operations.

When we last looked at Citigroup, shares traded for 51.31 (see Weekday Trader, "Citigroup, Merrill May Be New Finance Beacons," October 19, 2000).

Citigroup remains attractive, changing hands at a recent 46.50, which is 19% below its 52-week high of 57.38, reached in January. The stock sunk to a 52-week low of 34.51 on September 21, as the bank along with other financial stocks suffered in the aftermath of the terrorist attacks.

The stock trades at about 14 times the consensus earnings per share estimate for 2002 of $3.30, a discount to its expected 15% annual long-term earnings growth rate, according to Thomson Financial/First Call.

Of course, while economic recovery is predicted for next year, there is still uncertainty about the capital markets and how the war against terrorism will unfold.

But Citigroup has a stellar reputation and solid balance sheet. Sanford Weil, who runs this $234 billion battleship, should successfully navigate these troubled waters, as he has done before.

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<img src="http://chart.bigcharts.com/industry/bigc... , BAC&comp=BNK:171501&rand=2431" width=527 height=316>
C, BAC, FIN Index, BNK Index, S&P500 1 YR Chart

.....Jen

-- posted by JenL_2

http://www.marketwatch.com/news/yhoo/sto...

Top 152. Dec 19, 2001 12:27 PM

» SteveT - Citi shares rise on news of spinoff

NEW YORK (CBS.MW) - Citigroup shares jumped more than 4 percent Wednesday after the nation's largest financial services group announced plans to sell up to 20 percent of its Travelers insurance unit via an IPO in a move to boost earnings growth.

-- posted by SteveT

Top 153. Dec 20, 2001 1:07 PM

» SteveT - Re: Citi shares rise on news of spinoff

In response to message posted by SteveT:

I have not yet seen anyone that thinks this is a bad deal for current Citigroup shareholders.
http://money.cnn.com/2001/12/19/sivy/siv...

-- posted by SteveT

Top 154. Dec 20, 2001 5:33 PM

» SteveT - Citigroup and the future

Anyone beside me own Citigroup? I am not the most qualified to comment on the spinoff and if the numbers make sense. I have owned Citigroup/Citicorp going back to 1990. I feel they have always had some of the strongest management bar none. This opinion has not changed after the 1998 merger and subsequent take over of Sandy Weill. In fact he maybe the best yet for shareholders, employees may give you the opposite opinion. Sandy is well known when it comes to cutting costs and one of the first places he looks to cut them is from labor. I know he has lost some good people because of this but on the other hand they seem to have an eager pool of up and comers ready to show what they can do. I know some changes in compensation and benefits are planned for next year and this will reduce costs.

From what I have read Citigroup is expected to use the money from the deal to go shopping for other profitable businesses. Weather they can do so is another matter. One thing I have come to realize about Sandy is he always comes out on top of any deal he makes. It would not surprise me if he has some uses for the money in mind. I am not sure how much longer Sandy is planning on staying on as CEO, but as I see it he is the type that would like to go out on top and with just one more deal under his belt. My gut tells me as the economy starts to grow next year and earnings increase if the P/E will also rise Sandy will step down about the time the stock price is at an all time high. Anyone have some ideas on what he may be looking at buying? The credit card business and brokerage are among the consistently profitable arms of the business, my guess is it will one or both of them.

-- posted by SteveT

Top 155. Dec 30, 2001 6:01 PM

» SteveT - Another kudo for Citigroup

Salomon Upends Merrill as Top Underwriter.
http://dailynews.yahoo.com/h/nm/20011230...

-- posted by SteveT

The Year Ahead: Financials Rarin' for a Recovery

Top 156. Jan 5, 2002 11:25 AM

» JenL_2 - Financials Recovery?

This from 1/3 Barron's Online:

By Allison Krampf

Financial services firms had a rough ride in 2001. Slowing equities markets decimated profits of investment banks, mutual funds lost their luster and credit quality at banks eroded as charge-offs rose.

And then September 11 happened.

The uncertainty and confusion that followed the attacks hit many sectors hard, including financial services. Most tragically, prominent financial companies such as Keefe, Bruyette, & Woods and Cantor Fitzgerald, whose offices were in the World Trade Center, lost hundreds of people in the terrorist attacks. Other leading firms, including Merrill Lynch and Lehman Brothers, were displaced to other locations, a costly logistical nightmare.

The upshot: Standard & Poor's financial stocks ended the year down 9%, compared with a stellar return of 23.4% in 2000.

Still, the Federal Reserve's 11 cuts in short-term interest rates helped the financials beat the S&P 500, which was off almost 14% in 2001.

And financial services stocks should do better this year.

"As the economic recovery becomes more evident, we think investors may step up and buy situations that have had problems in the prior year," says Frank Barkocy, portfolio manager with Keefe Managers, a bank hedge fund.

"A better economic recovery and improving asset quality can help drive stocks [such as banks]," he adds.

And despite higher total debt outstanding -- more than $7.9 trillion as of the end of the third quarter (including mortgages), compared with $7.5 trillion at the beginning of last year -- consumers can easily tap into one source of wealth that's very close to home.

"[People] have a lot of equity built up in their homes, and that is still seen as a source of wealth for consumers," says Standard & Poor's analyst Steve Biggar.

Total mortgage originations in 2001 are now about $2 trillion, almost double the amount in 2000, according to the Mortgage Bankers Association of America. Of that number, 56% were refinancings, up from 19% of total originations in 2000. (Not surprisingly, originations and refinancings are expected to fall this year as interest rates creep back up.)

Later in 2002, Biggar says, we may see a downward trend in bankruptcy filings and a reacceleration of loan growth at banks.

Banks also should benefit from the completion of some big mergers of recent years, resulting in more cost savings and allaying some investors' anxiety about these stocks.

But other sectors, which have rallied since September 11, may not live up to expectations. For example, although property and casualty insurance companies may see premium hikes of as much as 300%, their stocks already have posted big gains that may not continue over the long term.

For one, insurance companies have been raising a lot of capital lately, and they typically invest such money in conservative bond portfolios.

That's fine in low interest rate environments, which are more lucrative for bond investors. (The Dow Jones 20 Bond Index is up about 5% for 2001, far outpacing the S&P.) But if equities regain their popularity and rates firm, bonds will suffer, hurting these insurers.

The new environment is likely to help stocks such as J.P. Morgan Chase, the banking and financial services firm.

Barkocy says J.P. Morgan Chase's capital markets activities give it more visibility among bank stocks (see Weekday Trader, "Bulls Cut to the Chase on J.P. Morgan Chase," April 23, 2001).

That's why the eventual rebound in the economy and the capital markets could give J.P. Morgan Chase significant operating leverage and earnings growth, both this year and beyond, notes UBS Warburg analyst Diane B. Glossman, who rates the stock Buy.

The company's diversified earnings stream is a real plus: While its investment bank generates roughly half of JPM's earnings, another 32% comes from retail and middle-market banking and the balance is from areas such as treasury and security services and private banking.

And the New York-based firm's share price looks reasonable, too. Late Thursday the stock changed hands at 37.32, about 35% off its 52-week high of 57.33, hit last January.

The stock is fetching about 11.3 times 2002 consensus earnings estimates of $3.30 per share, a slight discount to its projected 12% long-term growth rate, according to Thomson Financial/First Call.

Earnings are expected to grow by 73% this year, to $3.30 per share, from 2000's depressed levels, and by 9% in 2003 to $3.59 per share.

A better economy and stronger capital markets should be good for asset managers as well.

Salomon Smith Barney analyst Guy Moszkowski is bullish on money manager Franklin Resources, which he upgraded to Buy from Outperform in November. In the tech bubble, Franklin looked hopelessly behind the times. By focusing on value and fixed income in the late 1990s when technology funds were the only game in town, Franklin suffered from high redemptions amid lagging performance.

But after two years of outflows, Franklin's value style is back in vogue, resulting in positive net inflows (see Weekday Trader, " Markets' New Mood Should Help Franklin Resources," May 2, 2001).

And San Mateo, Calif.-based Franklin has long been a shrewd acquirer. With its most recent acquisition of Fiduciary Trust out of the way, it has one less stumbling block to overcome. (The September 11 attacks, which destroyed Fiduciary's World Trade Center headquarters and tragically took the lives of 87 Fiduciary employees, forced the two firms to accelerate their combination in many areas, such as technology systems, Moszkowski says.)

Late Thursday, Franklin's stock changed hands at 35.78, 26% off its 52-week high of 48.30, hit last February.

Franklin trades at about 19 times 2002 consensus earnings estimates of $1.88 per share, a premium to its 14% long-term growth rate. Still, Franklin is still trading below its high P/E of 23.8x forward earnings for the last five years, according to Thomson Financial/Baseline.

Earnings are expected to grow this year by about 8%, and by 12% to $2.11 per share in 2003, according to First Call.

Among insurance companies, some property/casualty insurers already have had a nice run. But life and multiline insurers should continue to do well. These companies get much of their business from areas such as asset management and life insurance products, which should benefit from a recovering economy.

One favorite: Hartford Financial Services Group.

Bulls on the stock say a rebounding equity market, along with price increases, could push Hartford's earnings growth to 20% to 30% for 2002 (see Weekday Trader, "Hartford Can Help Investors Get a Life," November 14, 2001).

Hartford currently claims about 9% of the variable annuity market, up from about an 8% share last year.

The stock appears attractive. Late Thursday it traded at 61.48, 13% off its 52-week high of about 71, hit last June.

Hartford stock fetches about 12.75 times the 2002 consensus earnings per share estimate of $4.82, roughly in line with its expected 12% long-term annual earnings growth rate.

Earnings are expected to pop by 61% this year, from $2.99 in 2001, and by 13% in 2003, to $5.48 per share, according to First Call.

True, financial services firms that depend on capital markets still are plagued with tough comparisons and could take longer than expected to recover. And with the Fed probably close to the end of its rate-cutting binge, the easy gains in some financial stocks already may have been made.

But there's no doubt about it: Economic recovery puts money in people's pockets. And that's bound to be good news for the companies that handle that money -- and their stock prices, too.

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<img src="http://chart.bigcharts.com/industry/bigc... BAC, WM&comp=AAAAA:0&rand=3737" width=527 height=316>
BNK Index, C, BAC, WM, S&P500 1 YR Chart

.....Jen

-- posted by JenL_2

http://story.news.yahoo.com/news?tmpl=st...

Top 157. Apr 4, 2002 1:12 PM

» SteveT - Insurers Look at Bumper Quarter

Insurers Look at Bumper QuarteThuTAprApr 4,11:22 AM ET

By RigbyRigby

NEW YORK (Reuters) - Insurers are expected to report one of their most promising quarters of all time over the next few weeks, reflecting massive hikes in premiums after the Sept. 11 attacks and the collaEnronfCorpon Corp.

But as competition over business re-emerges, and investment returns stay low, there's no guarantee the upturn will last.

After last year's attack on the World Trade Center -- which may cost insurers more than $50 billion worldwide -- they are charging more for almost every type of property insurance, from a Honda Civic car to the Golden Gate bridge.

Meanwhile, insurers are raising directors' liability premiums to cover future corporate bEnronps liKmartrCorpnd Kmart Corp. .

The upswing is affecting all lines of business, and is likely to eclipse previous premium surges in the hard markets of the early 1990s and mid-1980s, which affected only certain lines.

Life insurers are also looking at bumper sales as key customers -- rich urban professionals -- buy more life insurance in the wake of the Sept. 11 attacks on the World Trade Center and Pentagon (news - web sites) that killed about 3,000 people.

To cap it all off, both life and property insurers got rid of a host of nasty charges in the fourth quarter last year -- mostly for bad investments or insufficient reserves -- in what became a "kitchen sink" quarter, burying charges in a year already ruined by World Trade Center losses.

That means most insurers should have relatively "clean" earnings for the first quarter.

Most are expected to report higher profits, but it's the top line investors will be looking at.

"I think written premium will be higher than anyone is willing to put down asStearnsimate," said Bear Stearns analyst Michael Smith, predicting a bumper quarter for car, home and business insurers. "This year's written premiums are next year's earned premiums," he said, meaning that higher revenues now will translate into profits in a year's time, when policies expire.

But investors already seem to have priced that into the stocks.

The Standard & Poor's Property-casualty index <.GSPINPC> is up 8 percent so far this year, outperforming the S&P 500 index <.SPX>, which fell 2 percent.

And the upswing may not last as long as insurers hope.

Established firms lInc American InternatioChubbrCorpInc. , CNA FinanCosl , Chubb Corp., and St. Paul Cos. are being challenged by start-up insurers, mostly in Bermuda, which are stealing business away by offering smaller price hikes.

The new insurers, such as Axis Specialty, Allied World Assurance and Arch Re Bermuda, backed by a collection of established insurers, brokers and Wall Street investors, do not have old asbestos and pollution claims dragging them back, and can therefore charge less for policies.

Universal price hikes may end before the year is out if these companies are as aggressive as many expect.

"There are a feupcycletors on edge as to when it (the upcycle) is going to end," said Smith, who says insurance price rises will continue into 2003, but insurance stock prices -- generally reflecting the following year's profits -- may not.

Life insurance companies are also on a roll -- at least in some lines of business.

Life insurance and fixed annuities sales are rising gradually, and life insurers' stock prices are following. The S&P Life insurance index is up <.GSPLIFE> 4 percent so far this year, against a lower S&P 500.

"Demand fAhernfe insurance is still prevalent," Kevin Ahern, analyst at rating agency Standard & Poor's, told Reuters. "Sept. 11 was an eye opener for some, especially upmarketofessionals."

That is good news for upmarket life insurers such as John Hancock Financial Services , and the two big publicly MetLifelInc insurers, Prudential Financial and MetLife Inc. .

That should boost first-quarter earnings, but the sector is still nagged by the moribund stock market, which is hurting sales of previously popular annuities and life insurance products based on equity investments.
Est 2002...........................Q1 20Int'lmpany Est. EPS Range Mean Actual EPS American Chubb Corpp $0.78-0.84.........$0.81........ $0.72 Chubb Corp $0.97-1.14.........$1.06.........$0.96 CNA Financial $0.45-0.56.........$0.50.........$0.65 Hartford Financial $1.00-1.18.........$1.11.........$1.07 JMetLifecInc $0.68-0.71.........$0.70.........$0.61 MetLife Inc. Corp8-0.63.........$0.61.........$0.49 Progressive Corp $1.70-2.60.........$2.30.........$1.18 Prudential Financial $0.36-0.54.........$0.47.........$financialsThis should help some of the diversified financials that have lost out on financing new cars due to manufactures 0% deals smile

-- posted by SteveT