iShares US Financials

The great American deleveraging has largely been limited to the financial sector (XLF) (IYF). Non-financial debt is still much higher than historical averages.

The real estate space has seen a relatively strong performance when compared to other asset classes.

Capital One Financial Corporation’s (COF) PE (price-to-earnings) ratio is 8.77x on an NTM basis compared to its competitors’ average PE ratio of 20.79x.

Goldman Sachs derives 16% of its revenues from the investing and lending business. So far, 2016 has been a rough year for the financial sector.

Wells Fargo has consistently performed well in stress tests. This performance has let the company increase its dividends annually.

Wells Fargo’s first quarter earnings surpassed expectations but fell 5% YoY (year-over-year). The net interest income increased by 6% to $11.7 billion.

In a Bloomberg survey of 37 analysts, 19 analysts (51%) have assigned a “buy” rating to Wells Fargo (WFC) while 13 (35%) have rated it as “hold.” The stock currently has five “sell” ratings.

The Blackstone Group (BX) garnered realizations of $3.5 billion in 4Q16, reflecting a year-over-year rise in improved valuations.

Bank of America boosted its dividends by 50% to $0.075 after it cleared the Fed’s 2016 stress tests.

In 1Q16, KKR & Co. (KKR) saw its distributable earnings decline on lower bookings. The company made realized performance income of $99 million compared to $308 million in 1Q15.

Carlyle managed 5% appreciation in portfolio valuation in 4Q16 and 12% in fiscal 2016, reflecting an improved YoY performance.

The market leader in the fixed annuity industry is Allianz Life Insurance Company of North America with 13% market share, followed by New York Life with 8%.

In 2Q16, KKR & Co. (KKR) saw its distributable earnings surge on exit activity in the private equity space. The company made realized performance income of $310 million compared to $258 million in 2Q15.

Rich valuations and higher rates are a lethal combination for stocks. Over the longer term, multiple expansion and tightening lead to negative returns.

Carlyle’s total carry fund valuations rose by 2% in 4Q15, led by a recovery in the valuations of private equity funds.

In 1Q16, KKR & Co. (KKR) saw its distributable earnings decline due to lower bookings. The company had a realized performance income of $99 million.

KKR & Company (KKR) has managed higher realizations over the past few quarters as reflected in its higher distributions to limited partners or investors.

Profit margins in Stanley Security increased from 10.2% in 2013 to 11.4% in 2015.

Carlyle’s performance is directly impacted by the global macroeconomic environment as well as financial conditions in and outside of the United States.

Crisis has embroiled Greece for more than half a decade. The once prosperous economy has been reduced to shambles and is teetering on the verge of bankruptcy. How did Greece get here?

Chubb has been successful in gaining investors’ confidence as the company rewarded shareholders with $667 million in 2Q17 via repurchases and dividends.

Insurance ETFs are poised to gain from industry growth. As interest rates improve, insurers should see better earnings due to higher investment returns.

As we discussed in the last three parts of this series, renowned billionaire investor Warren Buffett’s Berkshire Hathaway (BRK.A)(BRK.B) has increased its bets on the banking sector.

So far in this series, we’ve looked at Warrant Buffet’s investment firm, Berkshire Hathaway’s (BRK.A)(BRK.B), top five investments in the third quarter.

A healthy job market and a steady hike in wages have increased the spending power of consumers.

The US GDP grew 4.2% in the second quarter, which was almost double the 2.2% increase registered in the first quarter.

The Consumer Confidence Index increased to 133.4 in August from 127.9 in July—its highest reading since its October 2000 reading of 135.8.

Improving GDP growth, a healthy job market, and steady wage growth have increased the disposable income of consumers, thereby giving them greater spending power.

In the fiscal third quarter, Visa (V) witnessed strong growth on a YoY (year-over-year) basis in all its primary business metrics.

In the third quarter, Visa (V) witnessed a rise in payment volumes from the United States on a sequential basis from 10.1% to 10.5%.

Analysts’ rating on Mastercard (MA) improved in July compared to June.

Visa (V) has been making efforts to increase the use of contactless payments in the United States after experiencing a positive response.

Mastercard (MA) has a price-to-earnings ratio of 28.04x on an NTM (next-12-month) basis compared to the peer average of 15.95x.

Visa (V) posted total payment volumes amounting to $2.1 trillion in its fiscal third quarter.

In the second quarter, Mastercard (MA) witnessed total gross dollar volumes (or GDV) of $1.5 trillion.

The total spending on Visa’s (V) network rose 11% to $2.1 trillion in the second quarter—slightly better than analysts’ estimates of $2.09 trillion.

On July 26, Discover Financial Services (DFS) released its earnings report for the second quarter.

On July 25, Visa (V) posted its third fiscal quarter results. The company posted an EPS of $1.20, which exceeds Wall Street analysts’ expectations.

On July 25, Visa (V) is scheduled to report its results for the third fiscal quarter. Analysts expect Visa to post an EPS of $1.09.

Mastercard (MA) is set to release its second-quarter earnings report on July 26. What can we expect?

Capital One Financial (COF) posted second-quarter results on July 19.

On July 18, American Express (AXP) is expected to report its Q2 2018. Analysts expect EPS to be $1.82 compared to $1.86 in the first quarter.

Capital One (COF) is expected to release its Q2 2018 earnings on July 19. Analysts expect EPS of $2.68, a YoY rise of 38.1%.

Growing trade tensions are a primary concern, as they could impact the performances of Discover Financial Services (DFS) and its peers.

Discover Financial Services (DFS) generated net interest income amounting to $2.1 billion in the first quarter.

The economic and business environment prevailing in an economy affects the business fundamentals of payment processing giants like Visa (V) and Mastercard (MA).

In June, eight of the 32 analysts covering the stock have given it a “buy” rating, and two analysts have given it a “strong sell.”

American Express’s (AXP) Global Commercial Services segment’s non-interest revenues rose 9% YoY in the first quarter.

The second quarter could be beneficial for American Express (AXP) due to an expected rise in consumer loans and transactions.

In fiscal Q3 2018, Visa’s (V) service revenue could rise YoY (year-over-year) due to its payment volumes rising YoY in fiscal Q2 2018.

In this series, we’ll look into Berkshire Hathaway’s 1Q18 expected divisional performance along with a variety of other factors.

Bank of America’s (BAC) spending on technology has increased substantially in recent quarters to improve trading, banking penetration, and wealth services.

Claims could subside The insurance sector (IYF) faced headwinds and losses in 3Q17 due to hurricanes across the US East Coast. Berkshire Hathaway (BRK.B), AIG (AIG), Prudential Financial (PRU), MetLife (MET), and other reinsurers faced headwinds and underwriting losses in 3Q17, which were partially offset by gains from debt and equity investments. In 4Q17, claims are […]

Banks (IYF) have enjoyed strong credit growth amid near-zero interest rates as leveraging and carry trade have been profitable.

Citigroup’s (C) Consumer Banking segment saw a 3% growth in revenues to $8.4 billion in 3Q17.

Berkshire Hathaway (BRK.B) reported losses before tax of $963 million in 3Q17 compared to earnings before taxes of $1.4 billion in the corresponding period last year.

Bankers have seen subdued trading activity over the past couple of quarters after a record 2016 and 1Q17.

NIMs (net interest margins) for commercial banks have grown at a faster pace over the past couple of years, resulting in higher net interest income.

Wells Fargo (WFC) missed analysts’ EPS estimate in 3Q17, mainly due to a $1 billion charge for litigation related to its mortgage business pre-2007.

Wells Fargo (WFC) has seen a marginal improvement, with “underperform” ratings declining from five to four and “hold” ratings increasing from 13 to 15.

Berkshire Hathaway Insurance segment is expected to see a YoY rise in revenues due to the sale of policies in automotive, property, and reinsurance offerings.

Chubb’s North America Agricultural Insurance division generated underwriting income of $116.0 million in 1H17 compared to $67.0 million in 1H16, which implies an increase of 73.1%.

In 1H17, Chubb Limited’s (CB) Life Insurance business reported income of $114.0 million in 1H17 compared to $134.0 million in 1H16, reflecting a 14.9% decline.

Chubb’s Overseas General Insurance Division generates the majority of its net premiums written from Latin America, Europe, and Asia.

Chubb Limited’s (CB) Personal Property and Casualty business’s underwriting income rose from $138.0 million in 1H16 to $285.0 million in 1H17, reflecting an increase of 106.5%.

Chubb Limited (CB) reported net investment income of ~$1.5 billion in 1H17 compared to ~$1.4 billion in 1H16, reflecting a 9.6% increase. CB generated an 11% return on equity on a trailing-12-month basis.

According to Brian Duperreault, chief executive officer of American International Group (AIG), a company in any industry has to take the digitization path for long-term growth and success.

Brian Duperreault, chief executive officer of American International Group (AIG), has taken a major step by reshuffling the company into three units.

American International Group (AIG) is expected to announce its earnings for 3Q17 on November 2, 2017. Wall Street analysts have provided a high estimate of $0.90 for AIG’s 3Q17 EPS.

Berkshire Hathaway (BRK.B) saw subdued profits in its Insurance segment in 2Q17, mainly due to higher claims. The trend is set to get stronger in the second half of 2017

Interest rates and equity markets usually have an inverse relationship.

Revenue and earnings Realty Income (O), a retail REIT engaged in US real estate investment, recorded 8% revenue growth in 2016, compared with 10% growth in 2015. The growth was driven by rentals and tenant reimbursements. Its operating costs and other expenses (including interest expenses) rose 6% in 2016 and 8% in 2015. Its gains on asset […]

Chubb’s one-year forward PE ratio stands at 13.15x, compared with the peer average of 12.09x, which means that Chubb is trading at a premium valuation.

In 2017, MetLife (MET) is expected to declare a total dividend of $1.61 per share, representing an increase of 1.9% from the total dividend it declared in 2016.

US insurance giants (IYF) are expected to witness costs in the range of $20 billion–$65 billion stemming from the effects Hurricane Irma.

Hurricane Harvey devastated Houston in late August 2017, causing damages totaling $180 billion, but Irma could be even more expensive.

From January 2016–June 2016, AIG managed to report total operating revenues of $10.8 billion—a 15% YoY fall, primarily due to lower premiums in 1H17.

In 1H17, Prudential Financial (PRU) generated total revenues of $27.1 billion—a year-over-year decline of ~5.8%.

Wells Fargo (WFC) has continued to spend on employee expenses, FDIC, equipment, and other services amid declining non-interest income and marginal growth of interest income driven largely by rate hikes.

Wall Street analysts have given a one-year price target of $157.53 on Chubb (CB), an increase of 11.4% from the current price level.

Chubb’s (CB) life insurance division has posted net premiums written of $523 million in 2Q17 as compared to $527 million in 2Q16.

Chubb’s (CB) Overseas General Insurance division saw a decline in its net premiums written in 2Q17 from $2.01 billion as compared to $2.03 billion in 2Q16.

Chubb’s (CB) global reinsurance division has witnessed a substantial fall in its net premiums written in 2Q17 as compared to 2Q16.

Chubb’s (CB) North America Agricultural Insurance division witnessed a rise of 7.7% in its net premiums written in 2Q17 as compared to 2Q16.

Chubb Limited (CB) has witnessed a rise of 2.0% in its net premiums written in 2Q17 as compared to 2Q16.

Chubb’s (CB) North America Commercial Property and Casualty Insurance division witnessed a marginal fall in its net premiums written in 2Q17 as compared to 2Q16.

Chubb (CB) reported earnings per share (or EPS) of $2.50 in 2Q17, which beat Wall Street analyst estimates of $2.47.

Bank of America (BAC) is planning a payout of $17.0 billion, forming ~7.2% of the total market cap, over the next four quarters.

Prudential Financial (PRU) is covered by 17 analysts. Four of these analysts rated the stock as a “strong buy,” and two analysts gave a “buy” rating on the stock.

Wall Street analysts recommended a one-year price target of $116.07 per share on Prudential Financial (PRU), reflecting an increase of ~14.1% from the current price.

In 2016, Prudential Financial (PRU) declared total dividends of $2.80 per share. In 2017, the company is expected to declare total dividends of $3.06 per share.

Prudential Financial’s (PRU) Life Planner division experienced an increase in its earnings in 2Q17 compared to 2Q16.

American International Group (AIG) is covered by 18 analysts, out of which seven analysts gave “strong buy” ratings on the stock.

In 2Q17, on the basis of annualized new business premiums, sales in Prudential’s Individual Life business stood at $153 million, reflecting a marginal decline of ~3.8% year-over-year.

Wall Street analysts have given a one-year price target of $70.00 on American International Group (AIG), which reflects an ~14.1% increase from the current price.

In 2Q17, earnings from Prudential’s asset management business stood at $218 million compared to $207 million in 2Q16.

In 2Q16, AIG reported operating general operating expenses (or GOE) of $2.4 billion, which the company reduced by $191.0 million. It reported GOE of $2.2 billion in 2Q17.

After excluding market-driven and discrete items, earnings from Prudential Financial’s individual annuities stood at $512 million in 2Q17 compared to $375 million in 2Q16.

AIG is expected to declare dividends of $1.33 per share in 2017, reflecting a rise of ~38.5% from the total dividends declared in 2016.

In 2Q17, Prudential Financial (PRU) reported 2Q17 net income of $491 million compared to $921 million in 2Q16. Its 2Q17 earnings per share of $2.09 missed the estimate of $2.70.