Morgan Stanley enjoyed the 4Q20 windfall in equity underwriting and trading as it further integrates its major acquisitions: E*TRADE (closed) and Eaton Vance (closing in 2Q21). Much more sustainability of earnings given external and internal moves. Buy Stock, Sell on benchmark bonds. Systemic risk Very Low, Counterparty risk Low.
Citi trying to spin a new strategic look as the new CEO Fraser takes over in February. Still, its results were driven by big reserve release and above-trend capital markets trading/underwriting given the sizable year-long decline in rates. Consent order and operating/risk platform rehab a big challenge. Still a Sell on Stock, benchmark Bonds. Regulatory/counterparty risk falls to Medium from Medium-to-High.
CCAR II gets banks back into the stock buyback game even with higher losses. But some may be delayed due to their regulatory consent orders like WFC and Citi. Credit cards hit big banks more. CRE hits regionals more. More a driver of stock prices than the rest of the capital structure, although perpetual preferreds should rally more.
Big banks rounded out the annual GS Financials conference, and all are looking ahead to happy days as the vaccines roll-out in 2021. BAC sees more consumer spending, Citi getting ready for new CEO and consent order implementation, and JPMorgan looks for asset management expansion deals.
U.S. regional banks look forward to vaccines, but hate the sight of low rates. Foraging for fee income is the way to survive with some better positioned than others.
Recent risk management panel focuses on the operational risks and more complex SOFR compounding calculations as LIBOR transitions away in 2021.
LIBOR deliberations &discussions have been as coherent as a pub imbibed dissertation on alternative views as to the start of the universe. In other words, another Federal Reserve bobbling of the goals and aspirations for a more equitable benchmark rate market. And wasn't that supposed to be the improvement after the LIBOR scandals. Yikes again. Thanks Fed!
Equity markets and related options for single stocks and indices have been rocked by the Big Tech stock/options squeeze undertaken by Softbank. There will be big negative impacts to providers of equity derivative protection as the big banks and brokers in the US and Europe get snagged in the Softbank stock snafu.
A new generation of investors are learning the equity valuation lessons the hard way as unrealistic and way too high equity valuations are coming crashing down in the Big Tech stock/options world. And there is spillover effects to Big Banks equity/debt & counterparty/regulatory risk as these banks provided the volatility chum that the Japanese Whale craved. Please join us for this excellent capital structure webcast jointly presented by New Constructs (our equity valuation specialist) and Viola Risk Advisors.
Peter Plaut is our Viola Risk Advisors collaborator covering Global Multi-Asset Strategies across investment grade corporate bonds, high yield & distressed bonds, real estate development projects, litigation finance, toll roads and other illiquid private placements. His debut article discusses the hoped for recovery in the global hospitality industry.