Displaying items by tag: Banks

Now, it is time to see if fundamentals return to the market. 

From Bloomberg: BBVA Fourth-Quarter Profit Plunges 94% to $44 Million on Asset Writedowns

 Jan. 27 (Bloomberg) -- Banco Bilbao Vizcaya Argentaria SA said fourth-quarter profit slumped to 31 million euros from 519 million euros a year earlier as the lender wrote down the value of some assets.

BBVA fell the most in eight months in Madrid trading after saying net income fell to 31 million euros ($43.6 million) from 519 million euros a year earlier, the Bilbao, Spain-based bank said in a filing today. That missed the 1.05 billion-euro median estimate in a Bloomberg survey of nine analysts as the bank took a 704 million-euro writedown for its U.S. franchise.

BBVA said it took the writedowns after analyzing its “most problematic portfolios” as it prepares for a tough year with recessions in its biggest markets of Spain and Mexico.

“Whenever there are writedowns like this, there must be a clear negative message behind that,” said Peter Braendle, who oversees about $57 billion at Swisscanto Asset Management in Zurich and holds BBVA shares. “My concern is that the worst may not be over, especially in Spain.”

Extra Provisions

The bank took 1.05 billion in charges as it adjusted the value of its U.S. business. Other writedowns included 200 million euros of provisioning charges for assets acquired in Spain as it reported additional losses on its Iberian consumer loan book, BBVA said.

Today’s writedown represents about 15 percent of the goodwill attached to the U.S. business, according to estimates by Banco BPI SA. U.S. provisions were 715 million euros higher than in the third quarter as the bank adjusted the value of commercial real estate collateral. The bank also took a charge of 73 million euros on its Mexican cards business and a 90 million-euro charge to account for Venezuelan inflation.

Bad loans as a proportion of total lending climbed to 4.3 percent from 2.3 percent a year ago. “Doubtful risks” on BBVA’s books leapt to 15.6 billion euros from 12.5 billion euros in September and 8.6 billion euros a year ago.

Loan Losses

“I don’t think the U.S. goodwill writedown is as important as all the new non-performing loans,” said Simon Maughan, an analyst at MF Global Securities Ltd. in London. “It’s catch-up time for loan losses. For those people who may have had their doubts about the Spanish methodology for timely reporting of NPLs, here is some strong evidence to support their view.” Let it be known that I issued this warning one year ago! [Reggie]

Profit from Spain and Portugal fell 24 percent to 496 million euros from a year ago, the bank said. Bad loans as a proportion of total lending almost doubled to 5.1 percent from 2.6 percent as lending shrank 1.2 percent.

Earnings from Mexico dropped 29 percent to 268 million euros, the bank said. BBVA booked a loss of 122 million euros from its U.S. business compared with a 21 million-euro gain a year ago.

Net interest income climbed to 3.59 billion euros from 3.09 billion euros a year ago.

The bank had a core capital ratio of 8 percent compared with 6.2 percent a year ago. BBVA said it would keep its commitment to distribute 30 percent of 2009 profit in dividend payments.

 This was foreseen nearly one year ago, to date. This bank got caught up in the bear rally and apparently (like many banks) was not deserving of the outrageous boost in the share price. Reference the past analysis.

Fourth quarter operating results opinions are available for Morgan Stanley and Suntrust for paying subscribers( STI 4Q09_Review

MS 4Q09 result).

Of particular note is the difference between some readers perception of the Suntrust results and mine. If you take a close look at the results, you will see credit performance and asset quality is still deteriorating. The perception of a reprieve or moderation is potentially misleading due to the fact that Suntrust (like most other large banks) is actively shrinking their loan portfolio and transferring bad assets from one category to another.

To the credit of the CEO, he actually appears to tell it like it is and does not appear to be on a marketing binge to sugarcoat reality. This is an impressive, and increasingly rare trait among the C-suite crowd!

Some highlights from the Sun Trust Review: 

I am under the weather today, so will not post anything significant. I do want to remind subscribers of how overvalued many of the banks that I have reviewed are. It appears as if the market is willing to break the support levels that many of the algos and traders swear by. If this is the case, fundamentals may be able to come back - and in a big way. Watch Goldman, Morgan, JPM, etc.

Feel free to discuss this in the subscriber forums and I will add content, analysis and my opinion to any discussion.

Tomorrow I will produce a lot of free and heavy duty subscriber content.

I am under the weather today, so will not post anything significant. I do want to remind subscribers of how overvalued many of the banks that I have reviewed are. It appears as if the market is willing to break the support levels that many of the algos and traders swear by. If this is the case, fundamentals may be able to come back - and in a big way. Watch Goldman, Morgan, JPM, etc.

Feel free to discuss this in the subscriber forums and I will add content, analysis and my opinion to any discussion.

Tomorrow I will produce a lot of free and heavy duty subscriber content.

Well, it looks like Blankein, Dimon, et. al. really should have tried harder to make that meeting with the President a couple of weeks ago. It appeared as if he may have had something important to discuss. As my readers and subscribers know, I have been very bearish on the big money center banks since 2007, and quite profitably so. The last 3 quarters saw a much larger trend reversal than I expected, that resulted in the disgorgement of a decent amount of those profits - a disgorgement that I am still beating myself up over. You see, as a fundamental investor, I don't do well when reality diverges from the fundamentals for too long a period. Luckily for me, fundamentals always return, and they usually return with a vengeance. To keep things in perspective though, I am still up on a cumulative basis many, many multiples over the S&P (which is still negative, may I add) as well as your average fund manager. Why? How was I able to do this? Well, its not because I am supersmart, or well connected. It is because I keep things in perspective. Those that look at the records that I publish say, "Well he was down the last couple of quarters, so..." while disregarding what happened the 8 or even 40 or so quarters before that. Such a short term horizon will probably not be able to appreciate the longer term perspective and foresight that enabled me to see this entire malaise coming years ago and profit from it. No, I am not perfect and I do mess up on occasion, but I also do pay attention to the facts.

These facts pointed to a massive overvalutation in banks throughout the bulk of last year, again! I made it clear to my subscribers that the banks simply have too many things going against them: political headwinds, nasty assets, diminishing revenue drivers, over-indebted consumers, and a soft economic cycle. I also warned explicitly that I didn't think Obama would be nearly as lenient on the banks as Bush was. Well, the headwinds are stiffening. On that note, let's take an empirical look at just what this means in terms of valuation (note, I will following this up with a full forensic re-valuation for all subscribers, incuding a scenario analysis of varying extents of principal trading limits). Some of these banks are I-N-S-A-N-E-L-Y overvalued at these post bear market rally levels considering the aforementioned headwinds. Methinks fundamental analysis will make a comeback in a big way for 2010 as it meets the momentum and algo traders in a mutual BEAR feast on the big investment banks cum hedge funds. I can't guarantee it will happen, but the numbers dictate that it should. We shall see in the upcoming quarters.

We have retrieved information about trading revenues for GS, MS, JPM and BoFA. We have also retrieved some balance sheet data to reflect the trend in investment holdings and the level of leverage, but I will address that in a future post for the sake of expediency. While the banks don't break out the P&L for principal trading, we can sort of back into it. Remember, traders are fed bonuses off of net revenue, not profit.

Well, it looks like Blankein, Dimon, et. al. really should have tried harder to make that meeting with the President a couple of weeks ago. It appeared as if he may have had something important to discuss. As my readers and subscribers know, I have been very bearish on the big money center banks since 2007, and quite profitably so. The last 3 quarters saw a much larger trend reversal than I expected, that resulted in the disgorgement of a decent amount of those profits - a disgorgement that I am still beating myself up over. You see, as a fundamental investor, I don't do well when reality diverges from the fundamentals for too long a period. Luckily for me, fundamentals always return, and they usually return with a vengeance. To keep things in perspective though, I am still up on a cumulative basis many, many multiples over the S&P (which is still negative, may I add) as well as your average fund manager. Why? How was I able to do this? Well, its not because I am supersmart, or well connected. It is because I keep things in perspective. Those that look at the records that I publish say, "Well he was down the last couple of quarters, so..." while disregarding what happened the 8 or even 40 or so quarters before that. Such a short term horizon will probably not be able to appreciate the longer term perspective and foresight that enabled me to see this entire malaise coming years ago and profit from it. No, I am not perfect and I do mess up on occasion, but I also do pay attention to the facts.

These facts pointed to a massive overvalutation in banks throughout the bulk of last year, again! I made it clear to my subscribers that the banks simply have too many things going against them: political headwinds, nasty assets, diminishing revenue drivers, over-indebted consumers, and a soft economic cycle. I also warned explicitly that I didn't think Obama would be nearly as lenient on the banks as Bush was. Well, the headwinds are stiffening. On that note, let's take an empirical look at just what this means in terms of valuation (note, I will following this up with a full forensic re-valuation for all subscribers, incuding a scenario analysis of varying extents of principal trading limits). Some of these banks are I-N-S-A-N-E-L-Y overvalued at these post bear market rally levels considering the aforementioned headwinds. Methinks fundamental analysis will make a comeback in a big way for 2010 as it meets the momentum and algo traders in a mutual BEAR feast on the big investment banks cum hedge funds. I can't guarantee it will happen, but the numbers dictate that it should. We shall see in the upcoming quarters.

We have retrieved information about trading revenues for GS, MS, JPM and BoFA. We have also retrieved some balance sheet data to reflect the trend in investment holdings and the level of leverage, but I will address that in a future post for the sake of expediency. While the banks don't break out the P&L for principal trading, we can sort of back into it. Remember, traders are fed bonuses off of net revenue, not profit.

An op-ed email from a subscriber:

Hi Reggie:

Just a note to say your opinions as expressed in recent posts on
Boombustblog and ZH seem to make a lot of sense!  Have you sent them to the editorial pages of the WSJ or FT?

Also, I'm surprised there has been no discussion about the ethical and political ramifications of banks, etc using Federal funding and guarantees, whether implicit or explicit, to pursue proprietary trading strategies.  That is to say, to the extent that the business of assisting clients in funding economically useful endeavors that help grow the economy in a sustainable manner is being replaced by proprietary trading in a strictly a zero sum game, it seems a dubious path for a nation to follow.  In this situation, as Janet Tavakoli has pointed out, the concept of assisting a "client" in funding economic growth that can be shared throughout the economy is, instead, replaced by having a "counterparty" from whom money can be won through trading schemes.  It would be interesting to see the debate that ensues about whether the economic value of trading exceeds the cost of dividing market participants (including the unwitting ones who depend upon the actions of their pension fund and retirement fund managers) into those who win (e.g. GS) and those who lose.

An op-ed email from a subscriber:

Hi Reggie:

Just a note to say your opinions as expressed in recent posts on
Boombustblog and ZH seem to make a lot of sense!  Have you sent them to the editorial pages of the WSJ or FT?

Also, I'm surprised there has been no discussion about the ethical and political ramifications of banks, etc using Federal funding and guarantees, whether implicit or explicit, to pursue proprietary trading strategies.  That is to say, to the extent that the business of assisting clients in funding economically useful endeavors that help grow the economy in a sustainable manner is being replaced by proprietary trading in a strictly a zero sum game, it seems a dubious path for a nation to follow.  In this situation, as Janet Tavakoli has pointed out, the concept of assisting a "client" in funding economic growth that can be shared throughout the economy is, instead, replaced by having a "counterparty" from whom money can be won through trading schemes.  It would be interesting to see the debate that ensues about whether the economic value of trading exceeds the cost of dividing market participants (including the unwitting ones who depend upon the actions of their pension fund and retirement fund managers) into those who win (e.g. GS) and those who lose.

I have been advocating this limitation for some time.

• Banks' Size, Trading Would Be Limited in Obama Plan to Reduce
  
• Risk-Taking •Obama Says No Bank Should Have Proprietary Trading: Text of Announcement
• Obama Proposes New Curbs On Banks' Size, Risk-Taking

For those that listen to CNBC pundits knocking the separation of deposit taking entities from trading risk assuming entities, here are some common sense rebuttals.

This proposal would not have stopped the AIG failure

No, it would not have. It would have prevented deposit taking institutions such as Citibank and JP Morgan from trading on a speculative basis with AIG though. Theoretically, it would have allowed those that would have got jerked on the AIG to have sunk or swam on their own accord. We never had to stop AIG, we had to stop the repercussions of what an AIG would have caused.

I have been advocating this limitation for some time.

• Banks' Size, Trading Would Be Limited in Obama Plan to Reduce
  
• Risk-Taking •Obama Says No Bank Should Have Proprietary Trading: Text of Announcement
• Obama Proposes New Curbs On Banks' Size, Risk-Taking

For those that listen to CNBC pundits knocking the separation of deposit taking entities from trading risk assuming entities, here are some common sense rebuttals.

This proposal would not have stopped the AIG failure

No, it would not have. It would have prevented deposit taking institutions such as Citibank and JP Morgan from trading on a speculative basis with AIG though. Theoretically, it would have allowed those that would have got jerked on the AIG to have sunk or swam on their own accord. We never had to stop AIG, we had to stop the repercussions of what an AIG would have caused.