Macroeconomic AnalysisWhy the composition of banking assets mattersThe two main types of banking assets are loans and securities held.
Company & Industry OverviewsPNC Bank loan book carries some risksPNC Bank’s loan book is skewed toward a few types of loans: commercial and industrial loans and 1–4 Family First Liens, about 44.5% of its total loans.
Company & Industry OverviewsDoes PNC Bank remain a strong long-term play?With a strong presence in the East, South, and Midwest, PNC Bank offers community banking, wholesale banking, corporate banking, and asset management.
Company & Industry OverviewsCitigroup: Number 3 US bank has $1.9 trillion in assetsCitigroup provides a broad range of financial products and services, including consumer banking, corporate and investment banking, among other things.
Fund ManagersWhy Illumina’s outlook is so brightIllumina’s outlook is outstanding, as it has posted excellent 3Q14 results and its earnings continue to be bullish.
Macroeconomic AnalysisThe bid-to-cover ratio rose at the 13-week T-bills auctionThe US Department of the Treasury auctioned 13-week, or three-month, Treasury bills (BIL) (MINT), or T-bills, worth $24 billion on January 12.
Macroeconomic AnalysisWhat 2 factors drive real GDP growth?According to Jeffrey Lacker, two fundamental factors contribute to GDP growth in the long term—population growth and real GDP per worker.
FinancialsMust-know: Wells Fargo is strongly capitalized for future growthA bank’s growth can be limited if it doesn’t have enough regulatory capital. If the bank doesn’t have enough capital, it will be forced to dilute its equity to raise capital.
FinancialsWhy Wells Fargo’s strategy is different from other banks“Strategy” can be defined in many ways. Generally, strategy is a long-term plan. There are two main aspects to strategy—operational level strategy and human resource level strategy.
FinancialsWhy commercial lending is important to Wells Fargo strategyThe bank’s strategy is to not focus on any particular segment of industry. This helps it mitigate risk because the bank’s earnings and delinquencies are not dependent on any particular sector.
FinancialsWhat are the risks associated with short-term wholesale funding?Short-term wholesale funding refers to a bank’s use of short-term deposits from other financial intermediaries—like pension funds and money market mutual funds. It uses the short-term deposits to invest in longer-term assets—like loans to businesses. Using these short-term funds to invest in longer-term assets causes a timing mismatch between assets and liabilities.
FinancialsMust-know: Basel III’s shortcomingsBasel III addresses most of Basel II and II.5’s deficiencies. But it still has some shortcomings. Firstly, the increased regulatory capital required under Basel III will increase barriers to enter into the sector.
FinancialsWhy Basel II.5 corrected Basel II to improve banking regulationsBasel II.5 was essentially a revision of Basel II norms, as the existing norms often failed to correctly address the market risks that banks took on their trading books. Basel II.5’s main aim was to strengthen the capital base, and so the banks’ ability to withstand risk, by increasing banks’ capital requirements.
FinancialsWhy Basel II wasn’t good enough for reducing bank risksBasel II was a comprehensive regulation that covered major sources of risks for banks. But it had a few major drawbacks. Firstly, it provided incentive to a bank’s management to underestimate credit risk.
FinancialsMust-know: Why capital ratio is an important bank ratioCapital ratio is also known as capital adequacy ratio or capital-to-risk-weighted assets ratio. Capital ratio is nothing but the ratio of capital a bank has divided by its risk-weighted assets. The capital includes both tier one and tier two capital.
FinancialsMust-know: Why Basel I wasn’t a good fit for all banksAlthough Basel I brought a worldwide standard in regulations, introduced the risk-weighted assets concept, and segregated capital, it had a few deficiencies.
FinancialsMust-know: Understanding risk-weighted assets in banksThe second most important technical parameter used in banking regulations is risk-weighted assets (or RWA). If you’ve seen bank financial statements, then you might have noticed the “RWA” term there.
FinancialsMust-know: Why capital in banking is importantCapital is important because it’s that part of an asset which can be used to repay its depositors, customers, and other claimants in case the bank doesn’t have enough liquidity due to losses it suffered in its operations.
FinancialsMust-know: The different types of banking capitalThe most important types of banking capital are common stock (or shareholders’ equity), preferred stock (or preferred equity), revaluation reserve, general provision, and hybrid instrument.
FinancialsOverview: The basics of banking regulationsBanking regulations aim to ensure that the risks are minimized. If any unforeseen event occurs, then the interests of bank customers are protected. On a wider scale, the regulations also seek to absorb and minimize shock in the economy.
FinancialsMust-know: The consequences of imprudent risk-taking by banksWe stated earlier that most banks are highly leveraged financial risk-takers. When things go awry, the results can be catastrophic, leading to huge losses or even to a bank closure.
FinancialsMust-know: A thorough look at defining banking riskBanking risk can be defined as exposure to the uncertainty of outcome. It’s applicable to full-service banks like JPMorgan (JPM), traditional banks like Wells Fargo (WFC), investment banks like Goldman Sachs (GS) and Morgan Stanley (MS), or any other financials included in an ETF like the Financial Select Sector SPDR Fund (XLF).
FinancialsOverview: What you need to know about banking risksWhenever we analyze any banking company, we’re looking at two main variables—the return a bank earns and the amount of risk. To understand any bank, you need to understand these two parameters well.
FinancialsWhy the price-to-book value ratio affects returns on equityHistorical analysis has shown that return on equity has a strong impact on banks’ value creation in the long run. So financials that have high price-book value ratios should also have high returns on equity.
FinancialsOverview: What makes custodian banks different from other banks?Custodian banks like a warehouse and store other financial institutions’ and individuals’ assets—they help in keeping financial instruments safe.
ConsumerWhy Davidson Kempner initiates new position in Brunswick Corp.Brunswick is a leading global designer, manufacturer, and marketer of recreation products including marine engines, boats, fitness equipment, and bowling and billiards equipment.
FinancialsThe relationship between interest rates and credit spreadsExamining credit spreads gives investors an idea of how cheap (a wide credit spread) or expensive (a narrow credit spread) the market for a particular bond category or a particular bond is.
FinancialsMust know: How the Fed’s monetary policy affects short-term yieldsThe Fed directly influences the short-term yields by either buying or selling short-term Treasuries or affecting the Fed funds rate.
FinancialsHow does the Fed’s monetary policy affect the yield curve?When it comes to changes in the shape of the yield curve, there is no bigger factor driving these changes than the Federal Reserve.
Energy & UtilitiesBerkshire Hathaway reveals a new position in Goldman SachsBerkshire Hathaway opened a brand new position in Goldman Sachs that accounts for 2.14% of the investment company’s $104 billion portfolio.
ConsumerWhy George Soros sold his fund’s position in Johnson & JohnsonSoros sold its 1.20% position in Johnson & Johnson (JNJ) last quarter. Johnson & Johnson’s reported 37% increase in adjusted net earnings in 4Q was mainly driven by its pharmaceutical segment.