Just a brutal week for our WR Banks & Brokers Index which meaningfully underperformed (-6% WoW), tracking well behind the S&P 500 (-1%) and the S&P Fins. (-5%). The biggest laggards this week were AMTD (-10%), ETFC (-8%), SCHW (-8%), BAC (-8%), and LPLA (-8%) as the Fed’s dovish remarks weighed disproportionately on more asset sensitive financials. Following this week’s selloff YTD performance for the WR Bank / Broker index (+8%) is now lagging the broader market (+12%), and while the leaderboard remains largely the same, including SF (+24%), EVR (+23%), and Citi (+17%), the bottom of the pack has changed somewhat and now includes some of the eBrokers (AMTD +2%, SCHW +1%), in addition to LAZ (-3%).
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Our WR Banks & Brokers Index rebounded nicely this week (+320bps WoW), tracking slightly ahead of the S&P 500 (~290bps) and the S&P Fins. (~300bps). Share performance across the group was strong, with NTRS (+6%), Citi (+5%), MS (+5%), and ETFC (+5%), and SCHW (+5%) the top performers, while AMTD (+1%), GS (+1%), LAZ (+1%), and EVR (+2%) the notable laggards. WR top performers YTD remain SF (+34%), EVR (+26%), and Citi (+25%), reflecting strong 4Q18 results and positive EPS momentum, with LAZ (-2%), MS (+9%), and SCHW (+9%) still underperforming following mixed 4Q18 results / conservative earnings guidance.
We recently had the opportunity to host Gavin Michael, Head of Technology of Citi’s Global Consumer Bank (GCB) for a fireside chat at the Wolfe Research FinTech Forum in NYC. Below are our key takeaways:
We recently had the opportunity to host Michael Pizzi, EVP & COO of E*TRADE for a fireside chat at the Wolfe Research FinTech Forum in NYC. Below are our key takeaways:
Our WR Banks & Brokers Index was down ~430bps WoW, tracking below the S&P (-220bps) and the S&P Fins. (-270bps). Share performance was quite weak, with ETFC (-7%), SCHW (-7%), STT (-6%), and LPLA (-6%) the clear laggards, while WFC (-1%), JPM (-1%), and GS (-1%) shares held in better than the rest of our coverage. Despite the disappointing week, YTD performance remains strong as top performers including SF (+28%), EVR (+23%), and Citi (+19%) continue to be buoyed by strong 4Q18 results, with LAZ (-3%), MS (+4%), and SCHW (+5%) still underperforming following mixed 4Q18 results / conservative earnings guidance.
The Fed released 2019 CCAR instructions after yesterday’s close, a month after the release of the CCAR scenarios (see report). The instructions highlighted a few changes to this year’s process, particularly the removal of qualitative objection for most CCAR banks which was already largely anticipated. What were noticeably absent were more substantive changes, including elimination of balance sheet growth, removal of the stressed leverage requirement, and other more favorable amendments Quarles had advocated for in recent months (see our note). The delayed release had spurred some optimism from the investment community that we could see positive changes to this year’s exam, but the stress test instructions were largely unchanged, which investors will likely find disappointing. However, this should have no bearing on long-term capital targets (beginning in 2020); in addition, we don’t view payouts as being at risk under our base case scenario.
Weekly Market Performance Recap: WR Banks & Brokers Index Tracking Better than the Broader Market. Our WR Banks & Brokers Index was up +110bps WoW, tracking ahead of the S&P (+40bps) and S&P Fins. (+80bps). Share performance was reasonably bifurcated, with LAZ (+5%) and ETFC (+3%) relative outperformers, while SF (-1%), BK (-1%) and JPM (-1%) were the biggest laggards. Top performers YTD remain firms with strong 4Q results including SF (+34%), EVR (+31%) and Citi (+24%), with LAZ (+4%), JPM (+7%) and MS (+7%) still lagging following mixed 4Q18 results / conservative earnings guidance.
Last week we hosted meetings with RJF management: CEO Paul Reilly, CFO Jeff Julien, SVP of Finance and Treasury Paul Shoukry, and IR Kristie Waugh. While the Regional Broker group has performed very well YTD, RJF has not kept pace, lagging both LPLA (~1250bps) and SF (~2000bps) by a wide margin as peers have received greater recognition for expense discipline and capital return. That said, we see the narrative at RJF evolving, with management striking the right balance between organic growth and a commitment to operating margin improvement / return of excess capital. With cons. forecasting continued deterioration in operating margin (through 2020) and a higher sharecount, we view the cons. bar as relatively low, with a credible path to >$8 EPS by 2020 supporting ~5% upside to 2020 cons. and our revised PT of $103.
JPM hosted Investor Day today (2/26/19), with CEO Dimon, CFO Lake, and other LOB heads providing updated outlook / targets. While medium-term efficiency / ROE targets were unchanged, near-term outlook was more mixed given cautious guidance on IB / trading and slowing deposit growth, which drove modest share weakness (lagging peers by ~50bps). However, while the near-term outlook may have disappointed some, we would argue that longer-term, JPM remains very well positioned as the firm should benefit from continued share gains as a result of ongoing technology investment (>$12bn tech spend expected for 2019) and growth in new expansion markets. JPM shares should also perform better in a tougher macro environment given its status as a flight-to-quality beneficiary. Maintain OP rating.
Our WR Banks & Brokers Index was up 30bps WoW, tracking largely in with the broader market (+60bps) and S&P Fins. (+10bps). Share performance was mixed, with SF (+3%), ETFC (+3%) and STT (+2%) outpacing the rest of our coverage, while GS (-1%), JPM (-1%) and LAZ (-1%) were the biggest laggards. Looking at YTD performance, the clear winners continue to be firms which delivered standout 4Q results including SF (+35%), EVR (+28%), and LPLA (+26%); the biggest laggards remain WFC (+6%), MS (+5%) and LAZ (-1%) following mixed 4Q18 results, and in the case of LAZ, disappointing 2019 guidance.
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