Banking

Certain industries typically outperform at various phases of business cycles. This provides important clues to investors and helps them manage their portfolios.

In the US, J.P. Morgan competes with Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS), the leading players in investment banking.

J.P. Morgan Commercial Banking clients can access the Consumer and Community Banking segment’s commercial credit cards, payments services, and branch network.

Banks like US Bancorp (USB) and Wells Fargo (WFC) have an advantage over J.P. Morgan in terms of debt rating. Both banks secure higher ratings.

The number of J.P. Morgan active mobile customers has more than tripled since 2010. As a result, the bank is adapting its digital capabilities.

SunTrust Bank’s net interest income in 2014 remained stable compared to 2013 as strong loan growth offset the decline in net interest margin.

The industrywide loan-to-deposit ratio has declined over the last few years, largely due to the increase in non-interest-bearing bank deposits.

The majority of investors believe bonds are safer than stocks. The main reason is that bonds pay regular interest.

The quantitative easing policy adopted by the Federal Reserve at the end of 2008 to boost economic growth included a drastic reduction in interest rates.

Lower funding costs determine a bank’s net interest margin. A bank has funding cost advantage when it pays less interest on borrowed funds and deposits.

Interest income typically contributes more than 60% to a bank’s total operating income.

Marketing initiatives at Home Depot include Pro Xtra. This program exclusively targets professional customers.

BB&T Corporation (BBT) is a financial holding company. It conducts its operations primarily through its bank subsidiary—Branch Bank.

PNC Bank has done a good job at reducing its non-interest expenses, but the bank’s efficiency ratio still remains above 60%.

Regions Financial Corporation is a leading regional bank in the southeastern US. It’s the 17th largest bank in the US—based on assets.

The banking sector has shown a trend of increasing earning assets, because banks have focussed on becoming leaner and improving operational efficiency.

Capital One (COF) can be understood best by breaking it into different business segments—Credit Card, Consumer Banking, and Commercial Banking.

Capital One is organized into subsidiaries. Capital One’s principal subsidiary is a limited purpose credit card bank. It’s chartered in Virginia.

Capital One’s history is shorter than other banks. In 1994, Signet Financial Corp. spun off its credit card business into a separate subsidiary—Capital One.

How does BlackRock compare to its peers? BlackRock faces major competition from State Street and Vanguard.

The two main types of banking assets are loans and securities held.

Citigroup provides a broad range of financial products and services, including consumer banking, corporate and investment banking, among other things.

Illumina’s outlook is outstanding, as it has posted excellent 3Q14 results and its earnings continue to be bullish.

The US Department of the Treasury auctioned 13-week, or three-month, Treasury bills (BIL) (MINT), or T-bills, worth $24 billion on January 12.

According to Jeffrey Lacker, two fundamental factors contribute to GDP growth in the long term—population growth and real GDP per worker.

A 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.

“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.

The 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.

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.

Basel 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.

Capital 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.

Although Basel I brought a worldwide standard in regulations, introduced the risk-weighted assets concept, and segregated capital, it had a few deficiencies.

The 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.

Capital 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.

The most important types of banking capital are common stock (or shareholders’ equity), preferred stock (or preferred equity), revaluation reserve, general provision, and hybrid instrument.

Banking 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.

We 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.

Historical 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.

Custodian banks like a warehouse and store other financial institutions’ and individuals’ assets—they help in keeping financial instruments safe.

Brunswick is a leading global designer, manufacturer, and marketer of recreation products including marine engines, boats, fitness equipment, and bowling and billiards equipment.