Tag Archive | WFC

Two ETFs To Reap Earnings Growth In Financials

Despite facing new and fresh stress tests, large-cap financial institutions appear to be positioned for earnings-per-share growth in 2011, making the Financial Select Sector SPDR (XLF) and the iShares Dow Jones US Regional Banks Index Fund (IAT) attractive.

According to an article in Barron’s magazine, Credit Suisse expects large-cap financial institutions like Bank of America (BAC), JP Morgan Chase (JPM), Wells Fargo (WFC), PNC Financial Services (PNC), US Bancorp (USB) and Citigroup (C), to witness earnings-per-share growth of 25 percent.  The true driver behind this profitability is expected to be improving credit costs and more active capital management.  Read More…

3 Financials ETFs To Benefit From Interest Rate Jumps

Since the beginning of the month, interest rates have been on the rise pushing yields on 10-year Treasurys over 3.5%, their highest level in seven months, boosting the appeal of the Financial Select Sector SPDR (XLF), the iShares Dow Jones US Regional Banks Index Fund (IAT) and the KBW Bank ETF (KBE).

The most recent implementation of QE2, which includes a $600 billion quantitative easing program and keeping short-term interest rates at near record lows, has resulted in increases in long-term interest rates, resulting in steeper yield curves. Read More…

Three ETFs Influenced By Fed’s Stress Tests

In an attempt to ensure that US financial institutions are financially stable, the Federal Reserve recently announced a new round of stress tests, influencing the Financial Select Sector SPDR Fund (XLF), the iShares Dow Jones US Financial Sector Index Fund (IYF) and the Vanguard Financials ETF (VFH).

These tests are expected to prove a financial institutions ability to withstand another economic recession, in that they would illustrate enough capital reserves to absorb potential losses over the next two years.  As a result of this, large financial institutions that are overseen by the Federal Reserve, like Bank of America (BAC), Wells Fargo (WFC), JP Morgan Chase & Co. (JPM) and Citigroup will likely have to forego significant increases in dividend payments to shareholders to keep cash on their balance sheets.     Read More…

Financial ETFs May Be Hit By Slim Bank Profits

Nearly two years after the unfolding of the global financial crisis, U.S. financial companies are struggling to grow revenue streams and are witnessing increased operating costs, resulting in slimmer profits which could lead to slimmer returns for the Financial Select Sector SPDR (XLF), the iShares Dow Jones US Financial Sector Index Fund (IYF), the Vanguard Financials ETF (VFH) and the KBW Bank ETF (KBE).

According to Bradley Keoun of Businessweek, first-half operating expenses at the six largest U.S. financial companies increased by $7.92 billion, or 5.9 percent over the same period last year, while revenues decreased by $5.6 billion or 2.2 percent.  It’s not hard to see that revenues are not keeping up with expenditures and this imbalance will eventually erode profit margins.  Read More…

5 ETFs Influenced By Global Banking Regulations

Recently, global regulators pushed through increased world banking regulations which will force financial institutions to increase reserves protecting against unexpected losses, with the effects influencing iShares S&P Global Financials (IXG), SPDR S&P International Financial Sector (IPF), the iShares MSCI ACWI ex US Financials Index (AXFN), the Financial Select Sector SPDR (XLF) and the Vanguard Financials ETF (VFH).

More specifically, the new rules are designed to rein in the kinds of risky activities that aided in bringing down the global financial system.  The primary focus of these new rules is the amount of capital that financial institutions are forced to hold.   More specifically, regulators agreed to require banks to hold a specific level of a basic type of capital known as common equity, which is considered the most effective type of capital because it is used to directly absorb losses.  Furthermore, officials agreed large, internationally active banks will have to hold levels of common equity equal to at least 7% of their assets, much higher than the roughly 2% international standard or 4% standard for large U.S. banks. Read More…

Three ETFs To Be Impacted By New Financial Legislation

 After weeks of deliberation, the U.S. Congress passed the final version of legislation for the first major overhaul of the nation’s financial system since the Great Depression, imposing more restrictions on Wall Street and banks having a dramatic effect on stocks and exchange traded funds (ETFs) which track the sector.

This final version will give the government new powers to break up companies that threaten the economy, create a new agency to guard consumers in their financial transactions and shine a light into shadow financial markets that escaped the oversight of regulators.  To be more specific, the law will restrict banks from prop trading by limiting the amount an institution can invest in a hedge fund or private-equity fund to a maximum 3% of the bank’s capital.  Companies most likely to be influenced by this regulation include big players like JP Morgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC), Wells Fargo (WFC) and Morgan Stanley (MS). Read More…

3 Financials ETFs To Benefit From New Bank Fees

Despite increased regulation on overdraft fess and the way lenders increase interest rates on later credit card payments, banks are experimenting with other ways to make up lost revenue.

Industry leaders state that many of the big banks are considering options from imposing maintenance fees on checking accounts to imposing charges on services like fraud alert, the use of a debit card and access to credit reports.  In fact, some banks have already started to hit consumers with these fees and take away banking perks. Read More…

Real Estate Likely To Face Headwinds

The trend of increasing foreclosures and a weak housing market deals yet another blow to the real estate sector.

According to recent data from RealtyTrac Inc., U.S. home foreclosures hit record numbers marking the second consecutive record breaking month in a row.  The month of May saw foreclosures increase in every state.  To put it into perspective, bank repossessions climbed 44 percent from last May and one in every 400 households received a foreclosure notice. 

What is even more alarming is that a relief in the number of foreclosures to hit the market is nowhere in sight. In the first quarter of the year, nearly one in every four mortgage holder owes more than his house is worth.   With this in mind, a contagion effect could hit the markets as increasing number of homeowners are strategically walking away from their homes.  This could tremendously hinder the real estate markets as inventories will likely increase and fewer individuals will be credit-worthy to obtain a loan in the future.  Read More…

3 Financial ETFs Most Influenced By New Bank Rules

Most recently, both the House and the Senate passed sweeping financial overhauls which include more stringent rules on lending, increased debt to capital ratios on large financial institutions and refinements in the regulation of derivatives markets.   The two bills are similar in nature, are expected to be merged into one by the end of the summer and will likely have an influence on the financial sector.

On the lending forefront, both bills will make it extremely difficult for mortgage brokers to make money on high interest loans and will require loan seekers to demonstrate and prove their ability to make monthly payments via paycheck stubs or other financial security.  Additionally, both bills call for a new consumer watchdog to oversee all lending, in which the House sets up a stand-alone Consumer Financial Protection Agency with rule writing powers and the Senate set up an independent bureau within the Federal Reserve.  

In regards to debt to capital ratios, bills passed by both the House and Senate require banks to hold more money to cover their debts.   The House calls for a specific leverage cap on financial institutions of 15:1 debt-to-net capital ratios, whereas the Senate calls for banks with more than $250 billion in assets to meet the same capital standards as those that apply to smaller banks.  Read More…

Financials Influenced By Derivatives Regulation

In response to the financial crisis which nearly crippled the U.S. economy and the questionable business practices at one of the world’s most successful financial institutions, Goldman Sachs (GS), President Obama and his administration is determined to provide better financial regulation which will likely influence the financial industry.

The U.S. Senate has already passed two amendments which are aimed at setting up a new government protocol for seizing and dismantling large financial firms that are in distress, overcoming the “to big to fail” philosophy.   In the proposed bills, which are expected to be enacted into law within the next few weeks, the Federal Deposit Insurance Corporation (FDIC) will be able to manage an “orderly liquidation” process for troubled firms that would pose a risk to the banking system if they were to collapse.

A second part of these amendments lessens risks by restructuring how major banks trade derivatives and by requiring most derivative contracts to be cleared by a clearinghouse, through the Wall Street Transparency and Accountability Act.  This Act may also require that derivatives be traded through public exchanges.  Read More…

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