David Hendler presented to FactSet's Investment Process Symposium, Inaugural Fixed Income Summit in March 2015.
Finally we can start our July 4th weekend, as CCAR was released. Despite capital actions for big banks/brokers, most are still mired in EVA black holes. Not good for stock prices.
DFAST got swamped by BREXIT, but we review the key concerns from capital to losses that the Fed seems to ignore at the systems peril. Stakeholders stack beware.
The Fed’s proposed TLAC requirements are more stringent than those issued by FSB. Two U.S. GSIBs already meet requirements according to Fed estimates. The remaining GSIBs’ estimated shortfalls are probably inflated given large volume of debt and preferred stock issuance and reduction of RWA year-to-date.
The OCC’s quarterly report on bank trading & derivative activities showed continued falling trading volumes/notionals trends. Still, four U.S. GSIB banks dominate the derivatives trading market (90%+), and we wonder if they are becoming a bigger portion of a still sizeable market. CCAR results & other strategies show that there are still excess company-specific risks and that they present systemic risk to the banking system.
Like millennials finally moving out (kicked out?), SYF and ALLY are both in the process of splitting off from their parents. Their status as market leaders in their respective businesses and their shared focus on growing their capital base, especially deposit funding, should (literally) pay dividends soon.
We believe that the big banks with more rate challenges regarding their asset/liability management profiles include Bank of America and Citigroup. JPMorgan and Wells Fargo should have less rate challenges than the other two big banks as they have been more conservative in how they structure their rate sensitivities or ran lower investment securities durations. Also, they exhibit much stronger loan origination capability given their market reach and better developed consumer/commercial brands. On the regional bank side, we are more concerned with KeyCorp and SunTrust. Both banks have noted the impact of their swaps books on their ALM strategy and seem to think that they can smoothly re-rack this posture when rates rise.
The Greeks have not had this much summer attention since the 2004 Summer Olympics hosted in Athens. And instead of awe inspiring athletic prowess, the world is wondering if this is another awful debt episode ending with international counterparties contagion at the finish line. We say not for the U.S. GSIBs and look at the other domino effect Eurozone & Russia exposures.
Canadian banks have been knighted by many market observers as the “Best Banks in the World!” Over the years, other banks have been similarly lauded such as the Scandinavians, U.S. banks, and some Europeans with cataclysmic ramifications within only a few short years later. Do Canadian banks harbor the seeds of future descent? Read on.
The CCAR qualitative pass rate improved to 100%, but BAC has to do some remedial work and resubmit revised capital plan by September 30, 2015. JPM, GS and MS all had to resubmit their capital plans to pass.