Bank of America (BAC)

US financials, this bank in particular, are trading as if they will never earn money again. Businesses do not trade at tangible book when they are earning money, they usually are losing money. This company is earning an 8% ROE and is still trading at tangible book. It has 30% earnings leverage to a 1% move in the yield curve. If we get our 1% over the next 12-15 months, the stock is going to be 60%-80% higher.

Banks are spread earners, so the more that interest rates move up, the more of a spread they can get and there is less pressure on the business. Changing expectations took a bit of life out of all the banks. She prefers Citibank (C-N) which is trading at a bigger discount to BV. However, the big picture drivers are all the same.

US banks are under pressure from low oil prices and interest rates. These companies got rid of all their problems and are well positioned if oil and interest rates do well including the US economy.

US banks are very sensitive to the economic situation. If there is some disappointment, they will be at the forefront. Went down a lot in Q1 this year. He is quite concerned about being exposed to US banks at this point. However, if the Fed surprises the market in June and hikes rates, the place you want to be is in US banks.

5 or 10 years down the road there is great potential. He thinks Banks will underperform for the next 3 to 4 years. It is a pretty big top since 2014. It has broken down. If you are a trader, then lighten up on banks.

Probably one of the more volatile big name banks in the US. Trading at 60% of Book Value. Doesn’t think there is a lot of downside. It is going to be an increase in interest rates that drives this bank.

The best comparable to this would be Citigroup (C-N), which he owns. The whole banking sector is really going to move in tandem on a catalyst, which would be interest rates. Very cheap from a valuation standpoint. These will do well over time, but you have to be patient with them.

US banks was the worst performing sector in the US market since Christmas. As the interest rate outlook changed, there is a huge positive benefit to rates going up. This bank has a 10% market share. As soon as the spreads widen and they get approval to raise their dividend, the stock is going to $20. Probably a year away. BB&T (BBT-N) is an Eastern regional bank and a better one to hide in for this year, and then maybe swap them.

US financials have really been a point of discussion for the last several years. This is one of the largest and most wide spread names. Over the last year it has struggled with a loss of 10% and is down YTD. At the surface, all their businesses are checkmarks. The day to day banking is the biggest opportunity in the US. This is 60% of BAC-N, but not all parts of the US are recovering at the same pace. He prefers regional banks or a pure play for investment banking.

Bought this at $6+. It was doing really well until recently and then had a pullback. His sell target is mid-$30, so it has a long way to go. A great thing is that they have moved through the vast majority of their litigation. Thinks they will be increasing the dividend in the next year or 2.

One of the criticisms of this rally has been that financials in general have been lagging the market, until about 7-8 days ago, when the banks had a very nice move. Numbers were okay, but the negative view was built in, and we have had a big lift over the last few days. He thinks US banks in general can do better. This would not be his #1group.

They are really tough right here. Trading below EBV -3, and going into the blue. The market is saying it doesn’t believe the balance sheet. C-N is the same. These companies need to be broken up. It is like a purchase warrant on the US financial system. Above $16.77 he would be tempted to own it, otherwise it is just too risky for him.

Citigroup (C-N) or Bank of America (BAC-N)? Of all the big banks, these are the most opposite. This bank is much more locally focused and Citi has a big contingent of emerging markets. With both, a lot of things are going right in their domestic franchise. They are struggling with all the things everybody else is struggling with. Where Citi might have a bit of an advantage right now is that emerging markets seem to be turning.

Hold on until July? This is a four-month call on financials in the face of a period where the federal reserve has gotten more dovish about interest rates. He feels more comfortable in saying “Buying this bank in this range will make you money over the next couple of years”.

He likes this bank. It has been a difficult time for US banks. They have bounced back a little, but not substantially. This one trades at about .6X BV, .9X tangible Book Value with a 1.5% dividend yield. You are going to see about 4% revenue growth. With interest rates slowly going up in the US, Net Interest Margins will stabilize. They have been very good at keeping their cost structure very tight. You could actually see a reasonable return on this. Doesn’t see ROEs getting more than 10 or 12, so there is not a lot of upside because of the regulatory environment. Historically if you saw banks trading below BV over the long-term, you have made money. US banks are massively over capitalized, so they are either going to start to buy back their stock or pay out more dividend.