Bank of America (BAC)

Not one of his favourite banks. If he was trading this, it would be for a very, very short period of time. This is mired at this kind of range for him.

(A Top Pick Jan 29/15. Down 26.79%.) A cheap stock, and they own 10% of the deposits in the US. Great retail franchise. In the top 3 globally in investment banking. Also, have a great credit card business and wealth management business. Trading below tangible BV. Dividend yield of 1.79%.

The banking sector is struggling with credit concerns that are emanating partially out of Europe, and that problem is not going away in the short term. Secondly, the US banks along with Canadian banks, are struggling with their exposure to energy loans.

Price to BV is quite low. US banks have come through 2008-2009, but the ROE on these names is quite low compared to Canadian banks that are in the high teens. She owns Wells Fargo (WFC-N) which has an ROE of about 14%-15%. Usually the higher the ROE, the more you are going to pay in terms of valuation. The yield on this is nominal at 1.64%, and every year they have to go to the Fed to apply for any increase.

Thinks banks are going to have a tough time. They ran up in anticipation of higher interest rates, but that has now been put in doubt. $15.40 is the point of resistance, and currently we are in no man’s land until we get there. Banks would not be the first place he would look.

This is one of the toughest spaces. The market is having trouble with three things. The third is that the world financial banks are under huge pressure in terms of price. He prefers DB-N. BAC-N has been pounded into the blue since the beginning of this year. It means the market does not believe the balance sheet.

Has no interest in owning this bank. A money centred bank, so they are not banks, but are also major investment firms. That part is all depressed and down and hurting them. Have been hoping and waiting for the interest rate spread to make their money. Bond yields coming down is hurting them. Sovereign wealth funds are liquidating their stocks. Doesn’t see any reason to own this.

Chart shows a base of $15, and he was trying to trade between $15 and $18, and then there was a breakdown. Banks make a little bit more money when rates go up, and there was an outlook for that to happen, but it now may or may not happen. Thinks it will get a return to $15 on an oversold bounce, and he doesn’t like a big long base break down like this.

US Banks. If you made it 5% of you position, then don’t average down and buy more. It is a bad idea to buy more. If you hold less than a position then you could buy it. It will be in a trading range for the next couple of years.

The difference between US and Canadian banks is that the US banks don’t generate as much revenue from retail banking, personal and consumer. They are quite heavy in the investment banking and wealth management. This bank tends to operate more like what we know in Canada, in the sense that 60% of its revenue is retail and 40% is wealth management and investment banking, a nice mix. He has targeted regional banks, in order to trim the fat of the lumpy revenues from investment banking. Although the US economy has been improving, it hasn’t been improving at the same pace in all regions. This is a high-quality name with a reasonable dividend, but hasn’t done well over the last 52 weeks. Wouldn’t be in a rush to buy this, but would look at some of the regional names, such as Columbia Banking System (COLB-Q).

Pretty consistent negative revisions on earnings. A good capital markets business. The balance sheet is really dependant on interest rates. We are in uncertain times. He prefers one of the series of regional banks that merged. He likes a mid-cap Bank ETF: KRB-N.

The US banks have great value right now in relation to book value and don’t have the energy exposure that Canadian banks have. He would prefer Goldman Saks for a US bank. He would buy a US bank for the growth, vs. a Canadian bank for the dividend.

This has been frustrating for a lot of people. Looking back to the financial crisis, this has hardly moved at all. He would prefer J.P. Morgan (JPM-N).

This still has the legacy of the Countryside assets from the 2008 mortgage scandals. It also has Merrill Lynch, so it is seen as a lesser quality name then Wells Fargo (WFC-N). Citigroup (C-N) has 55% of revenue coming from outside of the US, which has caused some concerns. Historically, when there is a rally, it is the financials that lead the market out. He thinks that when the dust settles, these will be good names.

All the US banks are going to work in tandem over time. Some are more senior in terms of their structure and it shows in their valuations. The street is a bit worried the fed will not increase rates at the pace they thought. The market is not as confident in this one as it has some more senior issues.