Tag: Bank of America (BAC)

The Financial Cohort and COVID-19 Dynamics

Posted on by Noah Kiedrowski

COVID-19 ushered in the real possibility of widespread loan defaults, liquidity issues, ballooning credit card debt (as banks hold the liability), and stressed mortgages. To exacerbate these COVID-19 impacts, a delicate balance between interest rates, Federal Reserve actions, potential yield curve inversion, and liquidity must be reached. The customer side of the business continues to be worrisome as the duration of this crisis continues to drag on with no signs of slowing. A segment of the consumer base is faced with lost wages and the real possibility of not being able to meet their financial obligations (i.e., car payments, mortgage payments, etc.), which will unquestionably have a negative impact on revenue and earnings for banks. The financial cohort is in a difficult space as the broader economic backdrop continues to dictate whether these stocks can appreciate higher. The initial shock of the COVID-19 pandemic resulted in the market capitalizations of many large banks to be cut by ~50%. Some of the largest banking institutions such as Citi (C), Goldman Sachs (GS), JPMorgan (JPM), and Bank of America (BAC) were sold off in the most aggressive manner since the Financial Crisis a decade earlier. As COVID-19 continues to drag in both spread and duration, share buybacks have now been halted, and dividend payouts arrested. The stability of dividend payouts is now in question as uncertainty continues to cloud this sector. Moving forward, how durable are the major financial names at these depressed levels, are the banks investable in light of the COVID-19 backdrop?

Recent Federal Reserve Stress Tests

The Federal Reserve put new restrictions on the banking sector after the results from the annual stress test found that several banks could get too close to minimum capital levels in potential scenarios tied to the COVID-19 pandemic. The largest banking institutions will be required to suspend share buybacks and arrest dividend payments at their current level for Q3 of 2020. For the first time in the 10 year history of these stress tests, banks are now required to resubmit their payout plans again later this year. This move is indicative of the unique and unprecedented landscape of the COVID-19 pandemic. Continue reading "The Financial Cohort and COVID-19 Dynamics" →

The Financial Cohort and COVID-19 Destabilizing

Posted on by Noah Kiedrowski

COVID-19 ushered in the real possibility of widespread loan defaults, liquidity issues, ballooning credit card debt, and stressed mortgages. To exacerbate these COVID-19 realizations, a delicate balance between interest rates, Federal Reserve commentary, yield curve inversion, and concerns over a potential/scale of depression in late 2020 must be attained. The financial cohort is in a difficult space as the broader economic backdrop continues to dictate whether these stocks can appreciate higher. Ironically, in 2019 banks logged record share buybacks and increased dividend payouts stemming from successful stress tests. The initial shock of the COVID-19 pandemic resulted in the market capitalizations of many large banks to be cut by ~50%. Some of the largest banking institutions such as Citigroup (C), Goldman Sachs (GS), JPMorgan (JPM), and Bank of America (BAC) were sold off in the most aggressive manner since the Financial Crisis. At these depressed levels, are the banks investable in light of the COVID-19 backdrop?

Destabilizing Effects of COVID-19

COVID-19 has materialized into the black swan event that only comes along on the scale of decades. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs. The S&P 500, Nasdaq, and Dow Jones have shed approximately a third of their market capitalization, with the sell-offs coming in at 33%, 29%, and 36%, respectively, in late March. Some individual stocks have lost over 80% of their market capitalization and now run the risk of filing for bankruptcy.

The longer the COVID-19 economic shut down persists, the higher the unemployment will rise. More companies will run the risk of Continue reading "The Financial Cohort and COVID-19 Destabilizing" →

Fed Chairman Powell Resuscitates Financial Cohort

Posted on by Noah Kiedrowski

The market-wide sell-off in the fourth quarter of 2018 was largely induced by the Federal Reserve and its alleged commitment to sequential interest rate increases into 2019. This was largely viewed as reckless and misguided while turning a blind eye to broader economic data-driven decision making about further interest rate hikes. The stock indices responded to the sequential interest rate hike stance with overwhelming negative sentiment, logging double-digit declines across the broader markets. Many market observers were questioning the Federal Reserve’s aggressive stance as companies issued weakness in ancillary economic metrics (slowing global growth, strong U.S. dollar, trade war, government shutdown, weak housing numbers, retail weakness, auto sluggishness, and oil decline) as an indication that cracks in the economic cycle were materializing. The strong labor market and record low unemployment served as a basis to rationalize increasing rates to tame inflation however these aforementioned economic headwinds appeared to cause the Federal Reserve to pivot in its aggressive stance. As Chairman Jerome Powell began to issue a softer stance on future interest rate hikes, January saw very healthy stock market gains after being decimated for months prior. On January 30th, Jerome Powell issued language that the markets were craving to levitate higher as he left interest rates unchanged and exercised caution and patience as a path forward. Using data-driven decision making as a path forward was cheered by market participants as the broader indices popped for healthy gains on top of the already robust gains throughout January.

Financial Cohort Squeezed

The financial cohort was stuck in a precarious situation in the latter half of 2018. On the one hand, a rising interest rate environment would provide boosts to bottom line revenue as a function of the increased rates on their deposit base. Banks had domestic and global economic expansion tailwinds at their back while posting accelerating revenue growth, increasing dividend payouts, engaging in a record number of share buybacks, benefiting from tax reform and deregulation. Augmenting this positive backdrop was a record number of IPOs, a record number of global merger and acquisitions along with consulting fees regarding mergers and acquisitions and trading around market volatility. All of these elements ostensibly provided an ideal confluence that boded well for the financial sector. JP Morgan (JPM), Citi (C), Wells Fargo (WFC), Goldman Sachs (GS) and Bank of America (BAC) seemed to be poised to continue to benefit from the favorable economic backdrop. Despite all these elements, 2018 was terrible for the financials which performed horribly, especially during the fourth quarter as rapid rate hikes were in the cards. Continue reading "Fed Chairman Powell Resuscitates Financial Cohort" →