FinancialsGinnie Mae TBAs Rise with the Bond MarketThe ten-year bond yield fell by 8 basis points to 1.51% for the week ending August 12, 2016. Ginnie Mae TBAs rose by 4 ticks and closed at 104 28/32.
Company & Industry OverviewsWhy BAC Is Better Positioned to Gain from a Rate Hike Than JPMBank of America (BAC) is better positioned to gain from an interest rate hike than JPMorgan Chase (JPM). It’s more sensitive to interest rate changes.
Company & Industry OverviewsMicrosoft Issued the Most High-Grade Bonds Last WeekMicrosoft (MSFT) issued Aaa/AAA rated high-grade bonds worth $19.8 billion through seven parts on August 1, 2016.
FinancialsMortgage Rates Didn’t Move despite a Volatile Bond MarketLately, mortgage rates and bond yields have shown a weak correlation. Treasury yields have fallen in the past month, while mortgage rates have been steady.
Earnings ReportWhat’s Annaly Capital’s Take on the Bond Market’s Volatility?Annaly positioned itself to reduce its interest rate risk and increase its credit risk. Since 2009, global bond markets have risen in value by about $17 trillion.
ConsumerMohawk Industries’ Earnings Results in Fiscal 2Q16Mohawk Industries (MHK) has a market cap of $15.3 billion. It fell by 0.42% to close at $207.70 per share on August 4, 2016.
Earnings ReportHow’s Annaly Capitalizing on Commercial Real Estate?By investing in commercial real estate, Annaly Capital is increasing its returns. At the same time, it’s taking on credit risk.
MaterialsWhat Analysts Have to Say about Iron Ore PricesAnalysts have increased their short-term iron ore price forecasts due to stronger-than-expected temporary factors.
FinancialsReal Estate Market Hot in the West, Cold in the NortheastHome prices in the Pacific and Mountain states have outperformed prices in the rest of the country over the past two years.
FinancialsMortgage Rates Rise with the Bond MarketLately, mortgage rates and bond yields have shown a weak correlation. Treasury yields have fallen over the past month, while mortgage rates have been steady.
FinancialsWhy Do Housing Starts Remain Muted?Housing starts and building permits came in around 1.2 million—towards the top end of a narrow range over the past year.
Company & Industry OverviewsWhich Investments Have Hurt the Harbor Capital Appreciation Fund the Most in 2016?The Harbor Capital Appreciation Fund Investor Class has tanked by 3.5% YTD in 2016, making it the second-worst performer YTD among our 12 funds.
Company & Industry OverviewsHow Fallen Angels Could Reward InvestorsFallen angel bonds—high-yield bonds originally issued with investment grade credit ratings—are generally known for offering potential value. A big source of this value has been the tendency of fallen angels to be oversold below what may be considered fair value, leading to a downgrade to high yield. A less obvious source of value for fallen angels […]
Earnings ReportPNC Financials’ Non-Interest Income Ratio Continues to ExpandPNC Financial’s non-interest income for 2Q16 increased by 10% over the previous quarter, mainly due to higher fee income growth.
FinancialsWhy Are State Foreclosure Laws Important?There are two basic types of state foreclosure laws—judicial and non-judicial. In non-judicial states, foreclosures are handled through a streamlined process.
MaterialsAnalysts’ Ratings for Celanese before Its 2Q16 Earnings ReleaseOn July 12, 2016, Celanese’s (CE) consensus 12-month target price was $76.30, indicating a return potential of 11.3% from that day’s closing price of $68.57.
Company & Industry OverviewsDid Wells Fargo Pass the Fed’s Stress Test?The Federal Reserve’s stress test results indicate that Wells Fargo (WFC) has sufficient capital to absorb the estimated $25 billion in losses it is projected to incur under the test’s worst-case scenario.
Company & Industry OverviewsWells Fargo: What Sets It Apart from Its Peers?Wells Fargo (WFC) is the largest mortgage lender in the US, operating primarily as a retail and commercial bank. It is been the most profitable bank in its peer group, posting a return of 10% on shareholder’s equity and ~1.3% on assets in 2015.
Company & Industry OverviewsWells Fargo Benefits from a Solid Business ModelWells Fargo (WFC) has been considered the strongest and most steady among the “too big to fail” banks in the United States for years.
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.
FinancialsAnnaly CEO Wellington Denahan shares her vision for the futureOn the company’s conference call to analysts and investors, Annaly CEO Wellington Denahan addressed the current interest rate environment and where she saw the company heading in the future.
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.
MaterialsMillennium Management increases its stake in NextEra EnergyMillennium Management increased its stake in renewable energy generator NextEra Energy Inc. (NEE) from 1,789,954 shares to 3,333,627 shares.
FinancialsImportant releases for homebuilder and REIT investors this weekWhile last week was a huge one for the builders, we still have a lot of important data this week, with the Case-Shiller Real Estate Index, New Home Sales, as well as the Personal Spending and Income data.
MaterialsMillennium Management buys a new position in SunTrust BanksMillennium Management started a new position in SunTrust Banks (STI) that accounts for 0.15% of the fund’s portfolio.
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.
ConsumerChilton Investment Company sells its shares in CarMax in 4Q13Chilton liquidated its position in CarMax Inc. (KMX) in the fourth quarter that had accounted for 0.71% of the fund’s third quarter portfolio.
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.
MaterialsMust know: Why Appaloosa opened a new position in HalliburtonAppaloosa Management initiated a 0.63% position in oilfield service company Halliburton (HAL) last quarter.
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.