Author Topic: Bank Stocks  (Read 3548 times)

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #50 on: December 24, 2018, 06:47:24 AM »
I'm going to be digging for some loan loss information in 1991-1992.

Its really hard to find some past history on this.  Banking is loan losses don't necessarily follow recessions perfectly.

Banks got whacked in the great economic boom of the 80s because of oil exposure.  They created the "Texas Ratio" to measure problem banks.  Those issues were contagious because banks all across the country were participating in oil lending.  By the early 90s those banks were already retrenching and pretty conservative going into the early 1990s recession.   The pain there was in Commercial Real Estate.  The Japanese drove up prices then when the recession hit vacancies went up and rents flatlined to declined.  Office buildings, industrial, and retail shopping center exposure led to some pain.

The early 2000s were almost a non-event.  I was just starting my career then, hiring was slower but the amount of money being made via mortgage (which was still in the banks) and residential construction was taking off.  Banks weren't loaning into tech companies that didn't make money.

2008-2009 was bloody.   I might try to find the annual earnings / loan loss rates of the three regionals that went into the recession with enough capital and better credit standards. (BBT, MT, USB).   The entire industry is more conservative now than those three were.

bwall

  • Bristles
  • ***
  • Posts: 471
Re: Bank Stocks
« Reply #51 on: December 24, 2018, 07:39:44 AM »
Very interesting to get the perspective of these recessions through the lens of the banks.

About the 80's oil bust; I thought that banks were only allowed to loan money locally? Meaning, that a bank with no footprint in Texas wouldn't be allowed to loan money to operations there? And weren't banks much smaller geographic-wise in the 80's due to Glass-Steagall? Wouldn't that have kept all the oil-based lending in check?

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #52 on: December 24, 2018, 01:55:34 PM »
Oil bust had a lot of "local" in it.

Cullen Frost out of San Antonio is the only Texas bank of any size that is still around.

I wish I understood the "how", but it was pretty contagious.  The Big Rich is a good read from the same guy who wrote Barbarians at the Gate.

Today was wild on the market - We're finally getting the "panic" signals.  Some of the best performing stocks/sectors of 2018 were sold off more than the market.  Lots of reasons for that, but it is usually the sign of panic.  Selling good positions to cover bad, forced rebalancing, saying "uncle" on margin debt.  REITs collapsed while bond yields fell, steller performers like Costco and Disney got nailed too.

All bets are off short term.  Long term, its still about the economy.


chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #53 on: December 30, 2018, 07:03:23 AM »
Update:

I did alright on the KRE call options I was buying on the way down.

I've stacked a bunch of sell orders on 60-70% of my holdings a mid-single digit percentage gains, I'm okay letting those execute over the next quarter and collecting the dividend if they don't.  I want to keep around 25% of my purchases for now.  They're still incredible multiples but I was a little overweighted in financials when this buying spree was done.

The more I read about the actual high yield debt issues, the better this might be for the banks.  They have the liquidity to step in and provide financing either on tighter terms to the existing companies or on tighter terms via DIP financing.   The issues just aren't in the banks this time, the question will be is there a recession that forces credit issues into them.

Fun stuff

frugal_c

  • Stubble
  • **
  • Posts: 192
Re: Bank Stocks
« Reply #54 on: December 30, 2018, 02:15:26 PM »
I like this thread and have started to implement your strategy.  I don't know much about banks but I have started with a position in PNC based on some simple metrics and the fact that berkshire hathaway has been buying it.  I am just wondering, of the remainder on your list, which are the safest?  I am willing to give up some upside but if there is a downturn I want to survive.

Grafter

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: Bank Stocks
« Reply #55 on: December 30, 2018, 05:32:20 PM »
Very interesting to get the perspective of these recessions through the lens of the banks.

About the 80's oil bust; I thought that banks were only allowed to loan money locally? Meaning, that a bank with no footprint in Texas wouldn't be allowed to loan money to operations there? And weren't banks much smaller geographic-wise in the 80's due to Glass-Steagall? Wouldn't that have kept all the oil-based lending in check?

Depends on how far back you want to go with everything.  As pre-80s, both consumer banking (deposit accounts and residential mortgages was done through savings and loans, and bank mostly handled business banking.  As well as prior to this period, there were various acts that forbade interstate banking by national bank.  However, with the bank holding act of 1956, in theory a holding company could acquire banks in multiple states and basically bank across state lines (which was then supported by a court case in the mid-80s).  Then, in the 90s, there was a federal law passed that allowed for creation of nationwide banks.  This is a short summary of the longer summary at https://www.investopedia.com/terms/i/interstate-banking.asp

There are a few good books about the S&L crisis of the early 80s:  Inside Job by Stephen Pizzo  and The Greatest Ever Bank Robbery by Martin Mayer. 

You can also read about the failure of Penn Central in Belly Up by Phil Zweig, which was one of the big banks that went boom in the 80s.  It was in OK and had a number of problem areas:  1) it had a large energy lending arm, which was impacted by both the search/finding of deep oil and gas, the change in O&G prices, and the gas marketplace; 2) lack of prudent lending practices, as the bank lacked documentation in loan files and didn't verify the security interest (both ownership and asset values, as there were a number of cases where they lent on an engineer's "documentation" (which was more of a guess)); 3) changes in interest rates; 4) use of hot money (brokered deposits/large rate chasers); 5) being under capitalized (at least compared to current regulatory required amounts).

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #56 on: December 30, 2018, 05:39:17 PM »
Safe is all relative...I'll categorize these banks in three buckets:  The Big 4, the two Super Regions, and the other regionals

Here are just some opinions, I decided to buy a bucket of what I see as the better ones.

JPM, BAC, WFC, and C carry the most regulatory risk.  Out of the pool I own a lot of BAC and a little JPM.  BAC has and always will be to be the #1 consumer bank in the country and loan that money out to the largest of companies.  I think JPM is more innovative but BAC is already prepped to be the utility stock of the banking business.

The super regionals:  PNC and USB.  I own them both.  I think PNC is the more aggressive lender and has more upside in good times, then USB USB holds up better if we have credit issues in the market.  I think USB carries more regulatory risk because of how cheap they are with systems. All the banks are under various orders related to Anti Money Laundering laws, USB's was really harsh.

Regional Banks: 

STI:  They're decently conservative and are in great markets with great lending books.  The downside is they always seem to be on defense and not really growing since they had to raise capital in 2008.   Long term they need a dancing partner but also make a great "utility"

RF:  This is a fallen soul trying to find its way.  They were hurt earlier in the financial crisis, but it gave them a head start on restructuring their bank.  I think they're ahead of others on a cost structure but I see more credit risk.  They do well if the economy keeps going, get hurt a little more when things go south.

FITB:  I think they have the most upside at their current price.  Market hates how much they're paying for a big acquisition in Chicago, but it puts them Top 5 in market share in the 3rd largest city.   That's an expensive but likely a smart decision after year 3.  Market is giving them to you really cheap today.  They're doing a good job of geographically expanding into growth areas too in Texas and Georgia.  Middle of the road on credit quality.   They're like SunTrust in if they can find a dance partner and whack out 50% of duplicate costs, there is real value.

Key Bank:  Basically the same opinion as Fifth Third, although they are not as aggressive in expanding right now.

Some ones I am not invested in and can tell you why:

BBT:  I don't know what to make of it.  They basically did the same thing that 5/3 did in 2015 to become top 5 in Pennsylvania but either misled or were dissilusioned about shareholder dilution to get to that point.  They're years behind the other banks in reducing share count because of this acquisition.  It also trades at a 40-50% higher PE than other banks because 20% of their company is an insurance brokerage (these businesses usually trade for 20x where banks are lower double digits.).  Paying 40-50% more because their business is 20% Insurance doesn't make the math work, even at these levels.  They're also probably above the level in size to pair up with another meaningful bank to get cost saves.

Anything under $100bil in assets:  I'm not getting an appropriate discount for their lack of scale.  I am also concerned about the disproportionate risk in commercial real estate these banks take and they tend to trade for a higher price a potential acquisition I don't think they can get.  The only exception to this I own is Cullen Frost.  They're the only bank of meaningful size that survived the 80s in Texas and they have a nice franchise and good credit quality.   It'll probably underperform the others in stock performance but there's the chance of the 30-40% lotto ticket if someone buys them.

I hope the rambling makes sense.  Enjoy

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #57 on: January 01, 2019, 06:44:21 AM »
One other random comment about this investing strategy:

These companies could trade at a deep discount for another 15 months into the DNC primaries.  Elizabeth Warren will spook the sector if she starts polling well.   

Personally I think there's minimal risk here.  She's so far down the stack of electable candidates.  Anyone else will be like any other administration change, they slowly reappoint agency heads through their term and those agency heads slowly start enforcing their administration's policies/guidance.  We're two years into a republican administration and Bank's are just starting to see some relief of politically driven stuff, while actual laws have only been tweaked once.

(Politically driven stuff:  Giving guidance than fining institutions for not following guidance.  Guidance does not equal a formal regulation.  That just stopped in mid 2019)

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #58 on: January 02, 2019, 09:17:12 AM »
Take a look at the financials this morning.  Share repurchases are rocking and rolling.

Banks have to submit a capital plan to the Feds each year, this plan includes how much capital they can deploy into share buybacks each quarter.  The feds "approve" this plan, but it real government fashion what they do is issue a "non-objection".

I imagine most of these CFOs are saying "at these prices, I'm fine if I burn through my entire quarter's worth of buybacks in the first couple weeks". 

Fingers crossed the market as a whole can turn less volatile. 

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #59 on: January 03, 2019, 12:17:00 PM »
Buyback Day 2:  Market is down a bunch and most of the financials are up.  In the green on a lot of my positions now.

Out of my regional bank index call options.

bwall

  • Bristles
  • ***
  • Posts: 471
Re: Bank Stocks
« Reply #60 on: January 03, 2019, 12:47:28 PM »
OK. So you've convinced me that banks do not go bankrupt in a recession. I guess I'm still scarred from the Great Recession in that respect. And, I do remember my Grandad once saying decades ago that bank stock was good to own 'b/c they always make money'. The bank that he bought stock in did go bankrupt in 2013, long after he'd passed.

I'm still convinced, however, that this point in the rate tightening cycle is the time to sell banks, not buy them. And if bank executives are repeating the folly of 2007 by buying back their stock at high prices before issuing new shares at a much lower price, then this is all the more reason to avoid bank stocks.

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #61 on: January 03, 2019, 01:29:14 PM »
OK. So you've convinced me that banks do not go bankrupt in a recession. I guess I'm still scarred from the Great Recession in that respect. And, I do remember my Grandad once saying decades ago that bank stock was good to own 'b/c they always make money'. The bank that he bought stock in did go bankrupt in 2013, long after he'd passed.

I'm still convinced, however, that this point in the rate tightening cycle is the time to sell banks, not buy them. And if bank executives are repeating the folly of 2007 by buying back their stock at high prices before issuing new shares at a much lower price, then this is all the more reason to avoid bank stocks.

Most of the large banks grew during times of rapid consolidations.  The ones that survived knew how to manage the heck out of costs (sometimes at the expense of risk management).   We're in a consolidating environment, there's money to be made.  The leadership at these banks are outstanding at squeezing costs out.  I work in Texas, the stories about what the heads of Bank One (JPM), NCNB (now BofA), and Wells Fargo did to squeeze out costs are legendary. 

1 + 1 in revenue does not equal 1 + 1 in cost.  The cap is going to be either $250bil with some accounting requirements or the government's cap.

Your last sentence is the biggest risk for any bank investor.  If the economy goes into the toilet like 2008, you'll get diluted out.  I'm mainly in a subset of regional banks for this.  They're the lower return, lower risk lenders less likely to do this.

As for rates, who knows.  That's the brand new world after things were left at such low levels for so long.  There's no return without risk

eko_mister

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Bank Stocks
« Reply #62 on: January 03, 2019, 09:56:39 PM »
@chasesfish

I agree with your premise and reasoning overall. I view bank performance as essentially a reflection of US GDP growth and their valuations have lagged somewhat behind that GDP performance over the last 3-4 years. Also, there are alot of regulatory actions taken after the last recession that made them inherently less risky (this applies much more to the non-money-center banks). HVCRE rules are the big thing here, along with a clampdown on risky energy lending. However, I have a few questions regarding the specific banks you've mentioned.

I agree with you that the only money center banks worth thinking about are JPM and BofA. US Bank is approaching that money-center territory in terms of size, and is probably a better option if (like me) you understand corporate, middle-market, retail, and ancillary corporate banking, but don't understand the more esoteric investment banking stuff that JPM and BofA are involved in.

I agree on all of your regional bank picks except Regions. In my view, Regions is virtually the same animal as Comerica, without the unusual Michigan/Texas footprint. Does Regions have an identity? Is management any better than it was when they were toasted during the last recession? They are cheap...but I don't know of any other exciting aspects to the bank.

I also don't really agree on Capital One. The credit card play is there, but their middle-market real estate and C&I business has performed very well for a long period of time. They've also been pretty selective on what major markets they progress into and their core market of Northern Virginia is poised to continue to thrive for a variety of reasons. Although there may be better pure play regional banks for a bet on the Northern Virginia economy.

I agree wholeheartedly on 5/3 and Frost. Great long-term performances, growth oriented without excessive balance sheet risk. These are two of the industry leaders IMO. Best in class management as well.

Regarding your comment on Bank of NY Mellon. I view them as having an enormous amount of their franchise value tied up in their fiduciary responsibilities, which essentially keeps credit risk off of their balance sheets. This is in the form of them acting as collateral fiduciaries for large commercial banking transactions (holding and monitoring non-real estate collateral), acting as paying agent for large bond transactions (municipal and corporate), and any other fiduciary responsibilities they can get their hands on. So they end up with a massive amount of fee income relative to their loan book, which makes them the closest thing to an asset-light bank that you can probably find. The reason I am curious on your thesis about Mellon is that (from what I understand), PNC has basically been pushing in this direction over the last decade - they are trying to gobble up much of that same fee/intermediary business that Mellon has been effective at gathering. Curious what your thoughts are on this? State Street and Northern Trust are others that I have started following that operate in this vein, but I know less about them and am not comfortable recommending.

A couple of other institutions you might want to take a look at that fit the Frost or 5/3 mold are:

- M&T Bank - headquartered in Buffalo. They don't have much of a presence in Texas, so they probably don't meet the criteria of you having some personal knowledge of them. But very well run and stable.

- BB&T, First Citizens - These would represent two of the most dominant banks in the Carolinas/Tennessee/Northern Georgia area (with the primary emphasis here being on North Carolina, and a secondary emphasis being on the Research Triangle area). I would predict that North Carolina (along with Texas and a few other smaller pockets across the country) will have one of the more dynamic regional economies over the next 20-year period. Your pick of Sun Trust also captures some of this geography, as I believe the favorable business climate in this area actually extends into Tennessee and Northern Georgia. Re: BB&T going forward - they've got good management and typically have had a longer-term viewpoint. Their business model has been growth through bolt on acquisitions. This worked for a long time because they were gobbling up small institutions to reach the very large size they're at now. The issue currently is that any acquisition they undertake that turns the needle has to be a fairly sizable regional bank and 1) their aren't that many of them, 2) most of them can do what BB&T does in a more nimble manner, so why should their shareholders think that BB&T's purchase price is any better than what the existing regional bank can achieve, and 3) many of the bank's they'd need to acquire are competitively in the market for acquisitions as well. I think they will have  a tough time growing, but time will tell. They are stable from an asset quality standpoint though and they have a massive presence in North Carolina, which is a positive.

- Columbia Bank, Umpqua, Banner, Washington Federal - Same as the one above, with the regional play with a smattering of decently sized banks with alot of exposure to Washington State (on both sides of the Cascades...each side has its own unique upsides), western Oregon, and Idaho. Of these, Columbia, Banner, and WaFed are fairly stable and Umpqua is hyper-agressive.

- CIT Group - I don't know alot about them, other than (I think) they have a big focus on middle-market commercial banking and I've read several write-ups on different forums about why they have a good platform. Again, I don't know much but others speak highly.

- Silicon Valley Bank - If you are looking for something different to balance the stability of the rest of your portfolio. I would wait and see how 2019 unfolds for tech stocks because SVB's performance will always be closely tied to NASDAQ performance. As evidence of this, they've lost 41% of their market cap in since they peaked at $323/share in April 2018. I would also wait to see how the big VC firms perform in 2019 (a couple of ways to follow this is through tracking SoftBank and Kinnevik's stocks). But SVB has, IMO, some of the best management in the banking industry and is focusing on compounding their share value rather than dividend returns. They are the one bank most likely to capture valuation gains in excess of the US GDP, but also obviously has some risks that most other banks don't.

Thanks for starting this thread! Very interesting topic and one that finally convinced me to stop lurking and create a login for the forums.
« Last Edit: January 03, 2019, 10:05:24 PM by eko_mister »

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #63 on: January 04, 2019, 06:24:57 AM »
@eko_mister

What an awesome reply!  So I'm a little too close to the Bank's located in the southeast due to my profession and don't want to disclose my employer until I finish my early retirement.  I'm in C&I lending and some of these I just struggle to invest in because of what I see.

Your analysis on Regions is spot on.  Its all about price.  I think they were also earlier than others on hiring the Big 4 consultants to come in and work on their business, it was not from a position of weakness like Comerica.  This is something I'm owning to make my 5-15% and move on.

Capital One:  I just struggle to invest in them because I've watched them go in and out of the core banking business over and over.  They hire leaders, build teams, then fire teams every couple of years in the best market in the country.  It just screams of a credit card company that doesn't know their way as a bank.  I also get too much dirty laundry living in DFW because the company employs more people here with their HQ2 than they do at their main office in VA.

BNY's custodial business is great.  Its a nice fee income moat they have and they have such an established franchise they are listed on EVERY fiduciary bid in the country.  We pitch financial advisory firms to municipalities for the same business just by saying "at least include us in the bid, we're a taxpayer in your city/county/state ect" and BNY's reputation is so strong they sometimes still win the business.   I actually think BNY and M&T are well run banks.   I chose KeyBank for my Northeast Banks because I think you need to get a nice discount to PE if the bank is located in a slower growth area of the country.  The northeast doesn't have the same population or economic growth as the Southeast, Texas, or West Coast.  I should get a better discount.

Lots of other neat banks mentioned:

CIT is a no for me, I can't get over their previous business being the equivalent of GE Finance:  Subprime commercial lending and taking a major government bailout.  Zebras don't change their stripes.

First Citizens - I haven't look at them for a while, but a family owned more than 50% of the outstanding shares and they have a really bad reputation to work for (think employer of last resort for many).  Word I would get from ex employees is strategy changes based on the family's whims and they only like loaning money to doctors.

Your absolutely right on the Washington State call.  Tremendous diverse economy, not overwealmed by the big banks.  I wasn't familiar with anyone other than Umpqua and just haven't studied the market.


My last piece of commentary:  I've worked not too far below the c-suite, have worked directly for a couple people now in the c-suite, have a good network throughout a number of banks, and have done a bunch of continuing education and met people across various companies.  The industry's biggest issue comes down to this - There's 5500 institutions and in every one of these companies they have 8-12 people sitting in the c-suite.  In my observation, only 1/3 to 1/2 of those people are actually qualified to be in those roles.  There was a huge gap in professionals going into banking from the mid 80s to the mid 90s and that gap in talent is on full display.   Most of these banks had 65+ year old CEOs that hung on for a long time and just recently started naming new CEOs.   A few are hanging on.  Banking hasn't been "fun", so I believe these folks were working longer based on lack of effective succession planning.

Most have transitioned their role, but Comerica and BBT have 69/70 year old CEOs with no indication of ever retiring.  I think those two are uninvestable until they provide some management succession.








eko_mister

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Bank Stocks
« Reply #64 on: January 04, 2019, 01:11:38 PM »
You are correct on the executive age issue within the banks. Very big issue in the industry and the main reason why I think fin tech companies will start to take deposit share over the next 10 years. Itís counterintuitive to think that the biggest companies in any industries would be the most innovative, but it appears that JPM and BofA are two of the only true innovators in the banking industry and obviously have the size and scale to cultivate talent. You can apply the exact inverse of all of those statements to the other two money center banks, Citi and Wells. They are worst in class organizations in virtually all categories.

You have to stretch to find a bank that is both well-run, clean, and aggressively developing their employee talent base. I think Frost fits that category, but is one of only a few public Texas banks that tick all of those boxes. Oddly enough, Zions (I think) is in that category of top tier management, clean and future focused. And I think the Amegy acquisition was a conceptually smart way to push into Texas. But Amegy had a lot of issues with their lending management, and Zions takes a hands off approach in their acquisitions. So, the result is youíve got this very well run parent with a mediocre Texas franchise with middling talent. There are some smaller community/commercial banks in Texas that are well-run and clean, but youíve said that youíre focused on the larger players.

Interesting perspective on Capital One. I do agree that their management subscribes to the old big bank model of ďif it doesnít fit in the box then donít bother with pursuing the businessĒ. Which inevitably translates into hard and inflexible pivots from one asset class to another when the c-suite decides that the risk profile or profitability of a specific asset class isnít worthwhile any more. Very hard on the front line. But still solid performance from an investment standpoint.

I think your choice of Key Bank in your basket is interesting, as youíve stated that itís your northeast play and also that you see Washington State as a growth economy in the future.  Key has pushed aggressively into Washington State and has a very big presence there. Also, they (along with your other choice of PNC) have a massive syndication platform that spreads risk and generates slightly outsized fee income relative to the commercial loan book. All big banks have sizable syndication desks, but Key punches above its weight in this category IMO. I wonder whether Keyís geographic concentration has shifted away from the northeast and more westward over the past five years. You also have US Bank in your basket (I donít recall your reasoning on this one, but I agree theyíre solid), and they also have a massive presence in the northwest, especially in Portland.

You are correct about First Citizens, the family dominates the board and they have some quirks. They have one of the nations most aggressive doctor/dental loan programs, which is in some ways a nice platform. But doctors are notoriously bad businessmen and overly fickle/rate sensitive. I can see how the perception of working for First Citizens would be less than stellar, especially the farther you get from their headquarters. The family that controls the bank also controls a couple of other smaller banks in the Carolinas, so they have a little bit of a tribal feel. My view is that the bank is still fairly conservative (biggest factor for me) and sometimes high insider ownership is a good thing (from an investment standpoint - management aligned with shareholders, long-term decision making, etc). But maybe not the best to work for.

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #65 on: January 04, 2019, 01:12:03 PM »
I had gotten a little excitable on this strategy at one point, just unwound a little bit I had out on margin at a 2.5% gain.

I stacked sell orders at 5, 10, and 15% gains off my cost for 25% of each position respectively that have a five to six month expiration.  I'm fine holding the remaining 25% at this point but happy to see the gains in the overall market today.

The fed scare was overdone, the economy is just not that bad right now.  There are still some good times head

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #66 on: January 04, 2019, 01:18:35 PM »
@eko_mister

I get the impression you either work in or used to work in the business - Insightful stuff

Frost is a great bank, I see them some and think a lot of them.  Their stock is a wild ride to own though, it trades with some combination of the bank index and oil prices and has been the worst performer of the basket I bought since oil tanked.  I wish I would have loaded up on them in late 2015 when all the Texas banks were under the last oil scare.

I actually didn't know about Key's exposure to Washington State, great stuff.

I was only aware of Zions through what they bought with Amegy, then Amegy's energy lending issues have made them a non-player in the market and internally focused.


Grafter

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: Bank Stocks
« Reply #67 on: January 05, 2019, 06:32:49 AM »
@eko_mister and @chasesfish  Thank you both for participating in this (and like eko, I only joined the forum to respond to this thread).  It has been interesting to see insiders options in the regional bank system, as I'm a bit more familiar with some of the community banks in my state (and even then, I'm an outsider, so only get to see a limited amount of their workings).

Are there any sources or blogs that you would recommend that cover the industry?  As I know there are a few trade groups and a number of magazines (such as American Banker), but am always interested in learning more.

eko_mister

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Bank Stocks
« Reply #68 on: January 07, 2019, 11:46:19 AM »
@eko_mister and @chasesfish

Are there any sources or blogs that you would recommend that cover the industry?  As I know there are a few trade groups and a number of magazines (such as American Banker), but am always interested in learning more.

I don’t know of many public sources for insight into the industry. The ABA or the state banking associations are decent, but you tend to see fairly generic information and you’ll only see opinions on specific companies in the form of executive profiles or other puff pieces. Negative information or true analysis about specific banks typically only comes in the form of a post mortem after a meltdown and something has gone into receivership. That is definitely useful information, but purely from a raw learning standpoint and not for getting actual investment ideas.

The only other source I can think of is the Risk Management Association (RMA). It’s a trade organization with magazines, training, conferences, etc. Much like the ABA. The reason I mention them is that they do have an online forum, in which people in the industry discuss best practices, concerns, regulatory environment, etc. You still aren’t going to get much in the way of stock or company critiques, but there’s plenty of granular information.

Have you tried the Corner of Berkshire and Fairfax? Given that Buffet has been so closely linked to Wells, BofA, US Bank, and Goldman, there is often a lot of talk of those stocks and others. Watsa frequently follows Buffet into many of his positions (including Wells and USB), but I personally don’t know whether he’s been a big buyer of Canadian banks. My guess is not, but I don’t follow Fairfax’s annual reports so I’m ignorant. Regardless, it’s  a remarkably good resource for equity investors, as long as you are of the value persuasion. But be aware that the Fairfax in the title is not just a throwaway...a lot of discussion covers Canadian equities.

Hope this helps. And community banks aren’t a bad thing to follow. They’re often overlooked and (most importantly they tend to get beaten up unfairly when the big guys make mistakes). Which leads to buying opportunities. Also, if they’ve been around for, say 20+ years, then there’s a good chance you’re looking at very conservative and long-term-focused management teams. I’m not saying they’re innovative, but they are risk averse.

As an example of being beaten down unfairly, @chasesfish mentioned Amegy and Frost’s energy portfolios being an issue a few years ago. Same was true of Texas Capital, BOKF, and many other $20-$100B banks with a presence in the oil producing regions. But if you’ll look at the stock prices of virtually any bank in those regions, you’ll see that they fell in virtually the same fashion as the energy lenders. This happened despite the fact that many of the community banks in those regions (especially ones with those conservative 20+ year leadership teams) had non-existent energy programs. Anyway, sorry for rambling. As retail equity investors, we are essentially trying to determine market inefficiencies to find value...that’s an example of that kind of thing.
« Last Edit: January 07, 2019, 11:51:43 AM by eko_mister »

UnleashHell

  • Walrus Stache
  • *******
  • Posts: 5750
  • Age: 51
  • Location: Florida
  • Chapter IV - A New ... er.. something
Re: Bank Stocks
« Reply #69 on: January 07, 2019, 11:59:57 AM »



Have you tried the Corner of Berkshire and Fairfax? Given that Buffet has been so closely linked to Wells, BofA, US Bank, and Goldman, there is often a lot of talk of those stocks and others. Watsa frequently follows Buffet into many of his positions (including Wells and USB), but I personally donít know whether heís been a big buyer of Canadian banks. My guess is not, but I donít follow Fairfaxís annual reports so Iím ignorant. Regardless, itís  a remarkably good resource for equity investors, as long as you are of the value persuasion. But be aware that the Fairfax in the title is not just a throwaway...a lot of discussion covers Canadian equities.

Hope this helps. And community banks arenít a bad thing to follow. Theyíre often overlooked and (most importantly they tend to get beaten up unfairly when the big guys make mistakes). Which leads to buying opportunities. Also, if theyíve been around for, say 20+ years, then thereís a good chance youíre looking at very conservative and long-term-focused management teams. Iím not saying theyíre innovative, but they are risk averse.

As an example of being beaten down unfairly, @chasesfish mentioned Amegy and Frostís energy portfolios being an issue a few years ago. Same was true of Texas Capital, BOKF, and many other $20-$100B banks with a presence in the oil producing regions. But if youíll look at the stock prices of virtually any bank in those regions, youíll see that they fell in virtually the same fashion as the energy lenders. This happened despite the fact that many of the community banks in those regions (especially ones with those conservative 20+ year leadership teams) had non-existent energy programs. Anyway, sorry for rambling. As retail equity investors, we are essentially trying to determine market inefficiencies to find value...thatís an example of that kind of thing.

Corner of berkshire and fairfax is an excellent place to research. I spent many hours on there when it was set up and it has some excellent posters. not been for a while as I've moved away from individual equity positions.
I've also got a lot of time for Prem Watsa. smart man and well written articles and interviews with him are well worth reading.

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #70 on: January 07, 2019, 06:26:36 PM »
I'm sorry for the delay in responding too.  Outside of the general stuff I learn from working in the business, I think the best research pieces are written by some of the controversial analysts in the field.  I don't enjoy their research as much as using the seeking alpha app and watching what the three or four main analysts ask.  That's how I can see what's driving their business.

Mike Mayo...who's been fired from a few places because he was too critical (and I believe his firm subsequently lost M&A business.  He got blackballed for going after Comerica).  Ironically Wells hired him, probably as a PR move.

Dick Bove...he's gets out there sometimes, but I don't think there's a person better in the country at M&A.

Tony Plath is a long-time finance professor at UNC that'll occasionally speak.  North Carolina was the hub of three major banks for such a long time and many of them hold UNC MBAs, he doesn't get in the paper much but is worth if when he get asked about banking.

You can setup a good news alert for those three names.


Another good day for banks.  I had bought two of the companies at the end on margin when their price kept collapsing, so I put those positions on limit orders to sell at a 2.5%/5%/7.5% to help get out of debt and some of my cash back.  They've both hit the 2.5% gain and STI has hit the 5% number.  Still holding a ton, just don't want to be in hock to Fidelity, happy to make a couple thousand there due to the market panic


Grafter

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: Bank Stocks
« Reply #71 on: January 12, 2019, 07:16:30 PM »
Thank you both eko_mister and chasesfish for the leads.  I know there are a few subscription services out there (American Banker is one) that are a bit out of my price range for something that is somewhat for fun.

I've somewhat active over on CoBF, which has some discussions (and clued me in a few financial institute stocks, like TFSL, which is a mutual/thrift that hasn't fully converted, and isn't likely to do so).  I also lurk over at /r/investing and /r/securityanalysis and follow both Oddballstocks and Timyanbankalerts' twitter and blogs (though the latter are more community banks than regionals).

I will be curious how banks react in the coming 2-3 weeks (as like Chasesfish, I did pull the trigger on a few shares), as earnings hit.  Though, do either of you have any thoughts on CFG?

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #72 on: January 13, 2019, 06:31:21 AM »
CFG:  I just struggle to pay at 12x PE for a Northeast concentrated bank when I can buy the exact same size bank in STI at a 9.5x PE and it operates in much better markets.  Banks operating in higher growth states should be worth more.   Its a good company, it just isn't trading an appropriate discount in my opinion.   There's just a ton of stock that'll be bought back over the next two years and the 9.5x PE company can redeem a lot more stock than a 12x PE.

Update on the strategy:

Earnings come out over the next five to ten days.  The trade has been up and down over the last week:  Interest rates not going up as fast?  Great, not panicked over economic collapse but now "worried about bank earnings".   I know what the earnings will say:  "Things are still great!", but who knows how long it'll take for most of the Banks to get back to the 14-15x PEs they usually trade for.   When they get to that point, I'll move some money out of this sector.

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #73 on: January 14, 2019, 12:31:37 PM »
Strategy Update:  CitiBank reported this morning.  Headline was bad about a revenue miss due to bond trading revenue, then their core bank numbers were very good.  Expecting more positive stuff out of earnings, but Citi may have already priced this in.  Banks are outperforming the market today by half to one full percent.

I bought the stocks at various times between the 10th and 20th of December.

Best Performers:  STI, RF, BAC, KEY
Middle of the Road:  FITB
Worst:  USB, PNC, CFR

Can't really tell a particular reason other than USB, PNC, and CFR were all more expensive going in.  The market just may not love the two super-regionals right now.  I expected more out of FITB, but they have an expensive merger in Chicago hanging over their head.

Wish I would have bought more KEY and less FITB, I was between those two a number of times and kept liking FITB's discount

chasesfish

  • Magnum Stache
  • ******
  • Posts: 2675
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
Re: Bank Stocks
« Reply #74 on: January 16, 2019, 06:09:45 AM »
Yesterday was rough, JPM spooked the market on loss reserves to its credit card business.

You can't dole out 100k business card lines to anyone AND strip out all the interchange income via rewards without consequences.  Overall earnings weren't bad, but people read this as an economic issue vs. a "whoops" or strategic decision JPM is making trying to corner this market.

WFC had a decent earnings report, bought back 1.6% of its outstanding shares in Q4.  BAC had a blowout report this morning and bought back 1.9% of their outstanding shares.

A 6-8% run rate on stock buybacks in a flat to slow growth/slow decline business is still incredible, all because of the low PE.   I am still convinced these things are a deal until you see PEs get in the 14-16x range.

Regionals are on tap over the next week