Monday, October 22, 2012

US Financials

So far this month, S&P 500 Financials is up 3.3%, and 23.8% ytd. It is the best performing sector so far this year. Leading the way have been Other Diversified Financial Services (40.8%) and Consumer Finance (33.0). Regional Banks are up 22.0% ytd, but have lost 3.1% since the start of the month.

The big story here is that revenue expectations and profit margin projections have bottomed out in recent weeks. Another big story in this sector is that more banking regulators are starting to talk about breaking up the big banks.

For example, Fed Governor Daniel Tarullo, in a speech on October 10, advocated the following: “The idea along these lines that seems to have the most promise would limit the non-deposit liabilities of financial firms to a specified percentage of U.S. gross domestic product, as calculated on a lagged, averaged basis. In addition to the virtue of simplicity, this approach has the advantage of tying the limitation on growth of financial firms to the growth of the national economy and its capacity to absorb losses, as well as to the extent of a firm's dependence on funding from sources other than the stable base of deposits.”

On 10/18 Bloomberg reported that Ohio Democratic Senator Sherrod Brown is proposing to limit non-deposit liabilities to 2% of GDP. That would certainly force the big banks to slim down: “JPMorgan has more than $982 billion in noncore liabilities (about 6.3 percent of GDP), according to data compiled by Bloomberg Industries. Bank of America Corp. has $889 billion (5.7 percent) and Citigroup Inc. has $816 billion (5.2 percent). Goldman Sachs and Morgan Stanley are at roughly 5.2 percent and 3.9 percent, respectively.”

Today's Morning Briefing: Tech Wreck & Breaking Banks. (1) “Stay Home” still beating “Go Global.” (2) Financials beating Tech in October. (3) Disruptive technologies. (4) YRI App coming soon. (5) “Bye-Bye PCs.” (6) Face Time is calling. (7) Computer Hardware takes a hit. (8) Revenues bottoming for Financials. (9) Fed Governor wants to downsize big banks. (10) Lots of “Stay Home” winners in the Winners Circle for S&P 500 industries. (More for subscribers.)

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