Bank Shots. Rates Play Rim Protector.

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Buckle

your couch belts for all the excitement. It’s simultaneously time for both the Final Four, and Earnings Season. Did your bank transfer? “Survive and move on” remains the way. Please be advised. No shortage of Cinderellas or shilling money managers exists now. And once again, none will fail to foul or front for their favorite financial.

 

It’s make believe time all over again. Super-heated gases will leak forth from your screens. Back up.  Content and advertising will meld. Trash will be talked. This smear of nonsense will end only after earnings are done, the nets are cut down, or CNBC finally bloats into a purely promotional gas giant.

 

“We love Tech–and the financials right here.”  Goddammit. Jamie Dimon doesn’t even “like the financials right here.” “Why do you like the filthy financials?” “They’re cheap, like dirt, and they hit their fros.” Well–of course they do. What else have the banks had to do, except work their fros? NIM is nonexistent.

 

The banks haven’t done a goddamn thing since that guy on the $10 bill was running the Treasury. What about now? Did Wells Fargo, Chase, or Skank of America transfer to your Final Four? STOCKjAW takes a reality look, again.

 

 

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Shadows of nonsense lie directly ahead. Separating truth from hype shouldn’t be so hard. Prepare for yet another earnings season featuring a lineup of third-string money managers plugging the financials. Read on for the simpler truth about this group.

How

many times is one able to listen?  Nonetheless, here come the bank shots once again; “We really like the financials right here.”  The flush of earnings begin next weekJPM, Wells, PNC, and FRC, all report before open next Friday.  Citigroup(C), Goldman Sachs(GS), and M&T(MTB) report on Monday the 15th.  “We think the big banks are a bargain.  They’re trading at–.”  Whatever. 

 

Back on March 13th Cramer plugged Wells Fargo.  The story was that the bank that ran the largest single bank fraud in U.S. history has changed.  Wells has changed:  

 

Cramer: “What we wanted to know was whether there was anything new that might effect the bank’s outlook going forward, and there really wasn’t…I know they deserve to be raked over the coals for what it did…They’ve spent two years cleaning up their corporate culture…I think there’s a real case to be made for buying Wells right here.”

 

 

“Wells has tanked.  It’s been de-risked.”–  Jim Cramer

 

 

“We can actually judge Wells on it’s merits…record earnings, highest load growth in two years. It’s trading on less than nine times next year’s earnings…it pays a 3.6% dividend.  What’s the catalyst, what’s the reason to buy it?  It’s put in a bad sentiment low–a hatred low.  The risk/reward has gotten very attractive here…for those willing to be patient.  The stock has gotten de-risked.”

https://www.cnbc.com/video/2019/03/13/cramer-why-wells-fargo-can-ultimately-reclaim-its-spot-at-the-top.html 

 

*All following numbers were compiled on 4-4-19.  As of Saturday morning, 4-6-19, Wells(WFC) one year total return is actually -5.5%.

-The Wells Difference-

When you fail to beat your benchmark, the S&P 500($SPX.)

“Established 1852.  Re-established 2018.  From day one we always came through for our customers.” –Wells Fargo ad.

Chart, WFC, 4-5-19
On a forward-rolling one year basis, including a 3.68% reinvested dividend, the full-bore recidivist criminal bank known as Wells Fargo returned -4.1%. Meanwhile it’s S&P 500 benchmark produced an 8.87% gain. That means you could have remained firmly perched atop your thumb, doing zero research, and no market monitoring, and out-performed the bank by 12.88%. At this very moment you would net an 8.67% gain, assuming your S&P tracking ETF charged a total net expense ratio of 0.2%.

Charles

Schwab employs an equity rating system ranging A through F.  WFC, BAC, and JPM, are all assigned an A rating, translating to “Strongly Out-Perform.”  Schwab’s “SER” ratings are a hands-off black box model–numbers in, numbers out.  No variable inputs exist for disgust, contempt, or a prolonged history of brute victimizing fraud.

 

 

For a three year stint with the criminal crew known as Wells Fargo you would have bagged a 10.8% return, including auto-reinvested dividends.  S&P 500 three year return through 2-28-19, 44.11%.

 

S&P Global estimates WFC will earn $4.93 per share FY’19, up from FY’18’s $4.31, an EPS growth of 14.3%.  Revenues are estimated up from FY’18’s 64.6b to 84.2b, a 31.8% growth rate.  Any way you slice it that’s impressive growth.  A forward-rolling 1 year estimate suggests 18% EPS growth.    WFC is said to have a net margin of 26.7%, and a ROE(return on equity) of 11.8 vs. the S&P’s 16. 

 

When you fail to beat your benchmark, the S&P 500($SPX.)

Chart, BAC, 4-5-19
Losing only 0.5% rather than Wells’ -4.1% isn’t really a reason to celebrate. What do you call it when you dump all dividends back in and still lose? Defeat.

Bank

of American(BAC) and Comerica(CMA) report on the 16th.  That’s a week from Tuesday.  Good news.  If your were somehow fortunate enough to own BAC for three months, you’d be up 13.6%, without even throwing in the dividends.  However, the last three months have proved the only profitable period out of the past one year.  However, owning BAC for three years would have paid you very nicely, 131.9%, including dividend reinvestment.  Five years got you 87%.

 

Rely on these facts.  Bank of America is truly dirt cheap, except on sales, 3.07 vs. 2.13 for it’s benchmark.  There are those who will tell you a big market drop is in the wind.  Some always say precisely that.  Yet, lover P/Es survive much better when markets reprice.  BAC qualifies.  But don’t expect stellar performance.  ROE 11% vs. the benchmark’s 16%, and forward EPS estimate of 9.6% vs. 17%. 

 

Amazon Berkshire JPM Health Care - 30 Jan 2018
Running a bank is tough. Running one of the largest banks in history is mind-bendingly tough. By all accounts Jamie Dimon does so better than anyone else. That’s one reason his hair’s that color. Nice smile.

Jamie’s

JP Morgan(JPM), Wells Fargo(WFC), PNC Financial(PNC), and First Republic(FRC) all report before open next Friday, the 12th.  JPM brought you a 4.59% six month return, without dividends.  You got 2.27% over the past month.  Sticking with this bank for three years, while tossing in all dividends netted you 94.6%.  It’s hard to be unhappy with that.  But JPM is stunningly expensive on cash flow; 84.6% vs. the benchmark’s 19.3%.  It’s also trades at a 50% premium on sales.  The bank’s ROE is 13.3% vs. 16%.  BAC’s our clear choice, if forced to choose.

 

When you fail to beat your benchmark, the S&P 500($SPX.)

Chatt, JPM, 4-5-19
A flat yield curve offers little room for banks to lend profitably. Until that changes, banks will not thrive, regardless of what fund managers may claim. It’s called math.

 

Rounding out the Big Six.

Total return, 1 year.

Citigroup     -2.7%, including 2.73% dividends auto-reinvested.

Morgan Stanley  -14.2%, with 2.67% dividend auto-reinvested.

Goldman Sachs  -18.7%, with 1.58% dividend auto-reinvested.

 

 

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Life is tough when there’s a lid on the bucket. Bank’s have no NIM(net interest margin) when rates are this low. J. Powell’s camping in the paint and swatting shots with both hands like a 7’6″, 315lbs. rim bastard.  When the fed puts a lid on rates banks suffer. That’s why the yield curve’s a part of our everyday. It’s also why banks make less money and receive less love.

Earnings

season is kicking off.  Now begins the bizarre safari of semi-obscure money mangers saying things like “Delta’s our largest position.”  Look up DAL for that joke.  No doubt we will be hearing love for the financials “right here.”  That’s like naming the airport Mega-Hooters as your favorite bar/restaurant.  “Really–it’s their giant onion rings yo.”

 

We get financial love when speaking about Square(SQ), or Paypal(PYPL) maybe, or MasterCard(MA).  All are very expensive, SQ being hyper-expensive.  Late-cycle markets are a very good time to watch price even more closely then usual.  For us, big banks remain a limited attraction.  BAC bears a look.  When the yield curve, well actually curves, banks will roar back.

 

Some will tell you now is the time to buy, before they once again become pricey.  We’re thinking like that, but rates are going no higher anytime soon, unless Powell spins back on his word.  And Wells?  When we think of Wells we always see a miniature car in a circular spotlight with about fifteen clowns piling out.  Amen.     

 

 

Excluding those specifically labeled S&P Global, prices, quotes, market values, and volumes on this page are based on Cboe One Real-Time Quote or consolidated market quote, unless otherwise indicated, and are real time when initially displayed.

 

Always looking for the good stuff.CAR CLOWN 1

STOCKJAW

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Additional resources:

Investopedia.com.  Seriously Wonderful.  Fact.
http://www.investopedia.com/
Charles Schwab.  In Our Opinion, the best broker going.
https://www.schwab.com/public/schwab/client_home
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