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Biz Links Current Issue Q3-02 Index Q2-02 Index Q1-02 Index Q4-01 Index Q3-01 Index Q2-01 Index Q1-01 Index Prior Financial Services Updates Jan 2005 Dec 2004 Nov 2004 Oct 2004 Sept 2004 August 2004 July 2004 June 2004 May 2004 Feb 2004 Jan 2004 Dec 2003 Nov 2003 Oct 2003 |
NOTE: Please confirm through your own research any numbers on which you are to make a buy, sell or hold decision. Monthly Sector Summary During February, the year-to-date sector price performance fell slightly from a 2.38% loss to a 2.84% loss. 05 EPS growth estimates fell from a 1.48% fall to a fall of 1.77%. Yields rose from 3.20% to 3.39% - with dividend increases for C [from .40 to .44] and UBS [from 2.00 to 2.13].
S&P continues to recommend a market weighting of this sector, the largest within the S&P 500, accounting for slightly more than 20% of the market cap of the index. "While earnings were good, investors appear to be viewing the sector with caution because much of the earnings growth came from reserve releases or other short-term events, not top-line growth," says Cathy Seifert, head of financial services equity research at S&P. Attractive Dividends This sector contains an array of different industries, each with relatively disparate interest rate risk and economic sensitivity. S&P's analysts are most bullish on the prospects for diversified banks and most negative on insurance brokers. "The macroeconomic trends that we are closely following this year include the pickup in merger and acquisition activity, increased trading on Wall Street, and the Federal Reserve's ongoing series of rate hikes," says Seifert. "We also see a move by investors to higher-quality, dividend-paying stocks. Of the 80 financial services stocks in the S&P 500, 78 pay dividends, with an average yield of 2.3%." Large-cap banks generally met S&P's earnings estimates, with results supported by continued strength in credit quality, which allowed for moderate releases from reserves. S&P expects earnings growth in coming quarters to be a bit slower, mainly due to the likely absence of reserve releases, but it thinks earnings quality will be better for the same reason. Regional banks mostly met or beat consensus numbers, although many Wall Street estimates were lowered in the weeks before the earnings reports. These stocks are off to a rough start this year, and S&P thinks they could continue to trade in a tight range for the near term. Trading Up Revenue growth at credit-card issuers was very strong, partly due to seasonal factors. Credit quality remained robust, in S&P's view. The industry is a lot more consolidated than it was a decade ago, and companies are pursuing diversification strategies by expanding into other consumer-finance segments such as home-equity, small-business, auto, and student loans. S&P believes these companies should show improvement in 2005 as they gain share in their new markets. Investment banks, brokerages, and asset-management companies garnered strong profits and generally exceeded our expectations, aided in part by solid equity markets, continued net client inflows, healthy fixed-income and equity-trading revenue, and a seasonal rebound in retail trading volumes. Many firms remained focused on prudent expense growth, particularly in the area of compensation, which led to generally improving operating margins. Despite a flattening yield curve and a weak equity market thus far in 2005, S&P expects strong results for the full year driven by expectation of generally improving investor confidence by the end of the year. Wary Eyes The stock prices of insurance brokers rebounded off their lows following the announcement of New York Attorney General Eliot Spitzer's investigations in October but generally ended 2004 below their highs for the year. Few have yet reported their quarterly earnings, and S&P remains negative on the group. Results for property and casualty insurers were aided by a strong pricing environment in 2004, which appears to be waning as 2005 unfolds. Despite the high level of catastrophe losses in the fourth quarter, underwriting results were aided by unusually favorable noncatastrophe loss trends. However, S&P believes investors are casting a wary eye toward these results, because the favorable trends may not be sustainable. While its overall outlook on the sector is neutral, S&P does have a number of 5-STARS (strong buy) recommendations in the group, including Allstate, Bank of America, Bear Stearns, Citigroup, E*Trade, Franklin Resources, Goldman Sachs, MBNA Corp, and U.S. Bancorp. Investors who wish to gain broader exposure to the sector might want to consider exchange-traded funds like Select Sector SPDR-Financial (XLF) and iShares S&P Global Financial Sector (IXG).
While such European banks as Deutsche Bank AG of Germany and ABN Amro NV of the Netherlands recently announced thousands of job cuts, UBS added more than 500 jobs in the fourth quarter. UBS is the biggest player in securities trading on the Nasdaq Stock Market following its $265 million acquisition of Charles Schwab Corp.'s capital-markets business last year, Chief Executive Officer Peter Wuffli said in a presentation. "We will continue reinvesting in our growth businesses and expect 2005 to be the next exciting step on a journey we believe to be very rewarding for our long-term investors," Chief Financial Officer Clive Standish said. "Costs were slightly up, but there seems to be a lot of investment going on. And if that leads to revenue growth, then you have a very strong earnings story indeed," said David Williams, an analyst at Morgan Stanley. Morgan Stanley had UBS stock at "overweight" before the earnings announcement and is reviewing its target price of 102 francs for the shares, Mr. Williams said. Results from the UBS investment-banking division were especially strong, analysts said. Compared with the third quarter, pretax profit rose 72% to 1.23 billion francs as the passing of the U.S. election unleashed a backlog of market activity. UBS, which also has asset-management and retail-, corporate- and private-banking operations, said it expects to benefit from increased merger-and-acquisition activity in 2005. "We feel very encouraged in the M&A side. I think there are a healthy series of transactions in the pipeline," said Mr. Wuffli, the CEO. In December, UBS Chairman Marcel Ospel said the bank is striving to beat Goldman Sachs Group Inc. to the top spot in global M&A advisory by 2008 -- a goal Mr. Wuffli affirmed yesterday. "We don't normally give forward-looking statements about specific parts of our business, but I agree with this," he said. So far this year, UBS is the second-biggest player in M&A deals, according to research firm Dealogic. Between Jan. 1 and Feb. 7, UBS was involved in deals with a total value of $71.65 billion, behind Goldman's $95.97 billion. In 2004, UBS was the fifth-largest M&A adviser based on fees earned.
The first company to boost monthly minimums was MBNA Corp., which services the credit cards issued by Bank of America's crosstown rival, Wachovia Corp., along with its own cards. Bank of America raised its monthly minimum in the second quarter of 2004. According to San Francisco-based Consumer Action, making monthly payments at a minimum rate such as 2 percent is the most expensive way to pay off a credit card balance. For example, a cardholder with a $2,000 balance and a 19 percent interest rate making 2 percent payments would need more than 22 years to pay off the principal debt and $4,800 in interest. Doubling the required minimum payment to 4 percent shortens the time needed to retire the debt to seven years and saves the consumer about $3,680 in interest, the group said. Before the recent change, Bank of America Corp. required a monthly minimum payment of 2% of the balance. Now, the bank requires that cardholders pay all interest charges and fees every month, plus at least $10 off their principal debt, ensuring that the consumer is making at least some headway in paying down their core debt. At the same time, Oken said, the bank increased its reserves for credit card losses, anticipating that some customers will not be able to keep up with the higher payments, leading to an increase in defaults. Bank spokeswoman Betty Reiss said this week that the company is trying to do the right thing for its customers by slightly tightening the flow of easy credit. "We believe the banks in this business have either done it already or will do it in 2005," she said. "It's a conservative measure, but we believe it's in the best interest of our card holders."
Top executives at Citigroup, beginning with Chairman Sanford Weill, have long preached the need to control expenses at the world's largest financial-services firm. During the fourth quarter, the company said operating expenses had risen 19% over the year-earlier period. At its corporate and investment-banking unit, compensation and benefits expenses shot up 48%, outpacing the unit's 32% net-income gain. JP Morgan #1 in Cards Robin Sidel, WSJ 2-16-05 J.P. Morgan is the nation's largest issuer of credit cards, with $134.7 billion of outstanding loans, according to the Nilson Report, a card-industry publication. Its credit- and debit-card business grew significantly after J.P. Morgan acquired Bank One Corp. The bank says it has issued a total of more than 96 million credit cards. Of the nearly 88 million cards branded with the Visa or MasterCard logos, 48.1 million carry the Visa brand and nearly 40 million are MasterCard, according to the publication. The bulk of Bank One's cards had been issued under the Visa brand, while most of J.P. Morgan's cards were linked to MasterCard.
JPMorgan Funds, with more than $200 billion in assets under management, is now the 5th largest U.S. fund family,* under the banner of the leading global asset manager JPMorgan Asset Management. The mutual funds business will be headquartered at 522 Fifth Avenue in New York, with significant operations in Columbus, Ohio. JPMorgan Asset Management has more than 450 investment professionals in 39 offices worldwide. "Less than a year ago we set out to accomplish a complex merger as quickly and efficiently as possible, to pass on the benefits of the combined firms to fund shareholders," said JPMorgan Funds President and CEO, George C.W. Gatch. JPMorgan Funds now offers 101 funds, with strengths in U.S. Equity, International Equity and Fixed Income and is also ranked # 2 in U.S. Money Market Funds (imoneyNet US & Offshore, 12/31/04). JPMorgan Funds was recently ranked #7 out of 73 fund families for its overall U.S. Equity performance in Barron's annual Best Mutual Fund Families issue. Wachovia Outpaces Peers in Customer Satisfaction Survey PRNewswire 2-15-05 Wachovia Bank scored higher than its banking industry peers for the fourth consecutive year in the University of Michigan Business School's American Customer Satisfaction Index. In a report issued today by ACSI, Wachovia set a new standard by earning a customer satisfaction score of 78, two points higher than the company score last year and six points higher than its nearest competitor in the study. Wachovia has seen a remarkable 12-point increase in its score since 2000.
With an online application to open an account, customers often need to send in items such as signature cards and checks to fund the account. It also could take from 24 hours to more than two weeks to get access to the account. Now, a number of financial institutions are speeding up online applications to open accounts by offering automated identity checks and funding options such as credit-card charges and transfers that clear faster than checks. Among the banks looking to accelerate the process are Citigroup Inc.'s Citibank and Wachovia Corp. In April, Bank of America Corp. plans to automate its identity-verification process so customers will be able to immediately open and fund accounts online. Currently, online applications are reviewed manually and take 24 hours to process. In August, Wells Fargo & Co. plans to fully automate its application process so customers will be able to open and have access to new accounts immediately. Currently, the account is opened overnight. By speeding up the online application process, banks hope to make better use of the Internet as a way to attract more customers to their online banking sites. Banks like online customers because they tend to keep high balances; cost less to serve; and are easier to market other banking products to than branch patrons. According to Forrester Research, 60% of consumers who use their bank's Web site say they would consider getting their next banking product from the bank, double the rate of offline customers. In most cases, the quicker processes are for deposit accounts such as checking, savings, money market and certificates of deposit. The streamlining of online account applications is also in response to banks losing potential customers as a result of the involved process. Banks found that while consumers may start applications online, few complete them because of all the steps required. Februuary Ratings Changes Banc of America Securities on 2-14 raises its investment rating on Wells Fargo to "buy" from "neutral," citing increased confidence in the bank's ability to meet consensus estimates in 2005 and 2006. The brokerage also lowered its rating on Wachovia to "neutral" from "buy," citing valuation. Also on 2-14 UBS Downgraded Wachovia from Buy to Neutral. Month Ending Mid-Cap Bank Sector Summary During February, the year-to-date sector prices fell from a loss of 7.27% to a loss of 7.94%. Year-to-date 05 EPS growth estimates were constant at a loss of 2.11%. Yields went from 3.67% to 3.74% - a rise of 7 basis points. Four banks [CMA, HU, ONB and RF] had dividend increases in February - adding 4 basis points of the 7 basis point change. BB&T to But Stake in Sterling Capital Management Reuters 2-16-05 BB&T, the 9th largest U.S. bank, on Wednesday said it agreed to buy a 70 percent stake in Sterling Capital Management LLC, which oversees more than $8 billion of assets, as part of its plan to expand in asset management. The terms were not disclosed. Charlotte, North Carolina- based Sterling, which is privately held, serves 110 institutional clients and more than 100 wealthy individuals. Two-thirds of its managed assets are in bonds and one-third in equities. It has three regional offices in California and Georgia. BB&T, which is based in Winston-Salem, North Carolina, is the parent of BB&T Asset Management, which oversees more than $16 billion of assets. BB&T Chief Executive John Allison last month said he plans in 2005 to buy asset managers, finance companies and insurance agencies, but plans no bank purchases before 2006. Home Page Factoids Previous Update
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