XLF, Banking and Financial Sector Stocks

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.

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

<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

Top 158. Apr 6, 2002 6:57 PM

» Q_out - All's Quiet in Investment Banking -- Too Quiet

Firms don't want to take on new hidden debt, nor are they ready to raise money with stock offerings. Mergers and acquisitions are being delayed.
http://www.chicagobusiness.com/cgi-bin/m...

Excerpts

Investment banks had a lousy first quarter, and the outlook isn't much brighter for the rest of the year.
Credit Suisse First Boston (CSFB), the largest stable on LaSalle Street, continues to shrink. After laying off about a half-dozen professionals last week, its roster is in the low 50s, compared with roughly 90 two years ago.
"Equity volume, particularly IPO volume, has been way down," says Robert S. Murley, a CSFB vice-chairman. "Business is still a challenge." Adds another Chicago office head of a Wall Street firm: "Nobody likes to admit it, but everyone has done their share of pruning."
Goldman Sachs Group Inc. contends that its 29 professionals here are holding their own, despite the beginnings last week of a quiet, but -- according to sources -- firmwide purge.

Over the longer term, Goldman Sachs is more optimistic, negotiating a lease of over 200,000 square feet in a proposed new skyscraper to replace 150,000 square feet which it now leases in the Sears Tower. However, it would be a few years before the new building could be ready.
http://www.chicagobusiness.com/cgi-bin/m...

<img src="/files/mysites/qout/bhoestarts.gif" width=53 height=34 align="left">
Q_out
DISCLAIMER: My words and observations are general in nature, and are not meant as specific investment advice. Individuals should consult with their own advisors for specific investment advice.

-- posted by Q_out

Top 159. Jun 17, 2002 7:36 AM

» Kirk - Thruhiker ->Re:BTO Not a long term investment

.
In response to message posted by Thruhiker:

In Dec. 1999 you wrote of BTO in this thread:

BTO is not a long term investment for me. As Kirk pointed out, there are good funds with lower expense ratios. I believe the current discount is excessive and will narrow next year when the sector comes back into favor. Its 8 bucks a share. I'll revisit this discussion a year from now if we're all still here (or when I sell if prior to then) and compare it to the performance of the total market index.

BTO pays a hefty dividend so you have to show reinvested returns

What a good pick! It seems your BTO turned out better than the others. Did you add when it continued lower or did you stop out to limit losses? If you held, did you lock in the gains last year or do you still hold?

In addition to a good chunk invested into XLF, I put a small chunk into FSRBX and added to it when we saw further weakness. This has beaten my XLF but your BTO is the clear winner.

Anyway, that was sure a great pick!

-- posted by Kirk

Bank Stocks Take Outsize Beating

Top 160. Jul 23, 2002 12:14 AM

» JenL_2 - Bank Stocks Pummeled

This from 7/22 TSC....

By Matthew Goldstein
Senior Writer

A perfect storm of bad news is punishing bank stocks, with shares of Citigroup (C:NYSE) and J.P. Morgan Chase (JPM:NYSE) taking the biggest pounding.

Shares of Citigroup and J.P. Morgan and other bank stocks closed sharply lower, in another bleak day on Wall Street. Citi plunged $3.95, or 10.97%, to $32.05. J.P. Morgan fell $1.59, or 6.09%, to $24.51. Both stocks set new 52-week lows. Meanwhile, the Philadelphia Bank Index sank 4.31%.

The swirl of bad news involves everything from the impact of the WorldCom (WCOME) bankruptcy filing to the specter of another round of congressional hearings that will focus on the role of the big commercial banks in the collapse of Enron. And the overall foul mood still hovering over Wall Street following last Friday's 390-point plunge in the Dow Jones Industrials isn't helping much.

Shares of Citigroup, however, were taking it on the chin more than others because of some ugly headlines in Monday's edition of The Wall Street Journal. Not only did the paper report that the National Association of Securities Dealer is investigating the bank's one-time star telecom analyst, Jack Grubman, but the Journal also reported that a congressional panel Tuesday will take a hard look at some $4.8 billion in questionable financing deals that Citigroup arranged for Enron.

In fact, the Senate's Permanent Subcommittee on Investigation has scheduled two days of hearings on the sophisticated financing deals arranged by Citigroup, J.P. Morgan and more than a half-dozen other banks. The panel is trying to determine whether the deals were really loans to Enron that were camouflaged as energy-trading transactions as part of a strategy to permit Enron to increase its reported cash flow and makes its debt load appear lower.

At the hearings, a number of top executives from J.P. Morgan and Salomon Smith Barney, Citi's investment banking arm, are scheduled to testify. The congressional panel also will hear testimony from a number of corporate finance analysts with Moody's Investors Service and Standard & Poor's -- the two major corporate-bond rating agencies.

The hearings are sparking new fear among investors that the big commercial lenders could be liable for millions of dollars in damages to Enron shareholders and bondholders. There's even the threat the Securities and Exchange Commission could pursue civil penalties against the banks on aiding and abetting charges, says Donald Langevoort, a securities professor at Georgetown University School of Law.

Add that all up, and it's horrible day for bank stocks.

<img src="http://chart.bigcharts.com/industry/bigc... JPM, BTO&comp=AAAAA:0&rand=2241" width=527 height=316>
C, JPM, BTO, Bank Index (BNK), S&P500 3 YR Chart

....Jen

-- posted by JenL_2

Citigroup, J.P. Morgan Marketed
Enron-Type Deals to Other Firms

Top 161. Jul 23, 2002 12:58 AM

» JenL_2 - Re: Bank Stocks Pummeled

More on the Bank Stocks Beating from 7/22 WSJ....

By JATHON SAPSFORD and PAUL BECKETT
Staff Reporters of THE WALL STREET JOURNAL

Citigroup Inc. and J.P. Morgan Chase & Co., already facing scrutiny for devising allegedly deceptive transactions for Enron Corp., marketed similarly structured deals to a slew of other companies, according to testimony that a senior congressional investigator will give at hearings that start Tuesday.

The names of the other companies weren't disclosed.

The hearings, part of a Senate investigation into the role banks played in Enron's troubled finances, are the latest in a series of investigations into the two banks regarding their ties to Enron, which filed for bankruptcy-court protection late last year. The investigations include separate probes conducted by the Securities and Exchange Commission and the office of Manhattan District Attorney Robert Morgenthau.

Now, a person familiar with the matter says, the Justice Department's Enron Task Force also is looking into the roles that financial institutions, including Citigroup, J.P. Morgan, Merrill Lynch & Co. and National Westminster Bank, now a unit of Royal Bank of Scotland PLC, may have played in Enron's demise.

Citigroup and J.P. Morgan declined to comment on the hearings or the investigations. Merrill and Royal Bank of Scotland couldn't be reached for a comment.

The deals under congressional scrutiny include arrangements known as Yosemite, devised by Citigroup, and Mahonia, devised by J.P. Morgan, both of which were designed to make Enron's public disclosures more appealing to investors, according to the testimony.

An official familiar with the investigation will testify at Tuesday's hearings before that panel that Yosemite, Mahonia and other deals allowed Enron to understate its debt by 40% while overstating cash flow by as much as 50%, according to a draft of his statement. Cash flow is a crucial measure of financial health for energy companies such as Enron.

"The evidence indicates that Enron would not have been able to engage in the extent of the accounting deception it did, involving billions of dollars, were it not for the active participation of major financial institutions," says a copy of the testimony.

Banks such as J.P. Morgan and Citigroup were "willing to go along with and even expand upon Enron's activities."

J.P. Morgan, in fact, had a "pitch book" to sell other companies on similar financing vehicles, according to a copy of the testimony. J.P. Morgan entered into similar transactions with seven other companies, while Citigroup shopped such deals around to as many as 14, with at least three entering into such relationships, the testimony says.

The hearings will focus on a commodity-trading vehicle known as a prepay, in which a financier gives money in exchange for future delivery of a commodity such as gas, gold or oil. Such arrangements are common, but in the hands of Citigroup and J.P. Morgan, they became the building blocks for extremely complex transactions that Enron used to disguise debt as trades and create the appearance the company was generating cash, people familiar with the matter said.

In Yosemite and Mahonia, the banks conducted a series of "round trip" trades in which a payment for a commodity such as gas or oil went from Enron to an offshore vehicle controlled by a bank, then to the bank, then back to Enron. So doing, the banks effectively lent money to Enron that was then lumped into the trading column rather than recorded as debt, those people said.

Subcribe to WSJ Online @ http://wwws.wsj.com

Purge it - purge it all!....Jen

-- posted by JenL_2

Top 162. Jul 23, 2002 8:37 AM

» CaptRon - Re: Re: Bank Stocks Pummeled

In response to message posted by JenL_2:

Hulluva find, Jen...Thanx...

-- posted by CaptRon

Top 163. Jul 23, 2002 8:40 AM

» Kirk - Re: Re: Bank Stocks Pummeled

In response to message posted by JenL_2:

This is sickening, but it makes me wonder if the banks were getting too big for their own good?

If the worst being talked about is true, then

it seems one part of Citigroup was helping Enron defraud bond holders...

then the other side of Citibank... was buying Enron bonds!

this doesn't make much sense.

-- posted by Kirk

Top 164. Jul 23, 2002 12:04 PM

» SteveT - Re: Re: Re: Bank Stocks Pummeled

In response to message posted by Kirk:

Agree it does not make much sense. But I have noticed the larger the company the more likely it is the left side of the brain doesn't know what the right side is doing. It is sickening.

-- posted by SteveT