Bank CEOs Seem Blindly Optimistic as Analysts Probe for Weakness
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NEUTRAL (= Flat)
Dividend Yield: 1.7%
EPS Growth %: +64.0%
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According to reports from Bloomberg Thursday, following a mess of earnings from Goldman Sachs (NYSE: GS), Citi (NYSE: C), Wells Fargo (NYSE: WFC), and JPMorgan (NYSE: JPM), many chief executives are expecting a better 2012 -- even as analysts tend to disagree.
With fourth-quarter trading and investment banking revs set to decline for the third-straight quarter, analysts have been pressing CEOs and CFOs for some insight on whether the drop is temporary or more long-term.
During Goldman's latest conference call, CEO Lloyd Blankfein moved to reassure investors and analysts, saying, "The world will snap back, and it will be a surprise, and it will be faster than people think."
CLSA analyst Mike Mayo asked whether issues for investment banking were more cyclical or secular, or whether there were structural changes hurting revs. Goldman CFO David Viniar suggested many executives have been through similar downturns before, with each one seeming like it will never end. Still, Viniar couldn't provide a straight forward answer: "So is it cyclical? Is it secular? That's a very difficult question to answer... There's no scientific answer to it..."
JPMorgan CEO Jamie Dimon thinks the best method to insuring against losses is to anticipate the unexpected. Following JPMorgan's numbers last week, Dimon said investment banking is "not a mystical thing. You just have to manage the business carefully and understand it’s going to have those kinds of swings. I don’t think the lower numbers are permanent. I think when things come back, these numbers will boom again." When asked if seasonality in trading would reoccur, Dimon said, "we've had a pretty good start so far, but it's only so many trading days. And look, we could be surprised, the upside, the downside, who knows?"
Playing to the same angle, Citi CEO Vikram Pandit told analysts there was no "magical" answer to stem declines in investments banking revs, as risk appetites have waned and firmer regulation is mitigating banks' ability to take larger risks.
The stocks of these firms seem to be shrugging off the analyst-implied weakness: with all but Citi beating lowered expectations, shares of many large financials have been doing well this week. The Financial Select Sector SPDR ETF (NYSE: XLF) is up more than 7 percent so far in 2012.
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With fourth-quarter trading and investment banking revs set to decline for the third-straight quarter, analysts have been pressing CEOs and CFOs for some insight on whether the drop is temporary or more long-term.
During Goldman's latest conference call, CEO Lloyd Blankfein moved to reassure investors and analysts, saying, "The world will snap back, and it will be a surprise, and it will be faster than people think."
CLSA analyst Mike Mayo asked whether issues for investment banking were more cyclical or secular, or whether there were structural changes hurting revs. Goldman CFO David Viniar suggested many executives have been through similar downturns before, with each one seeming like it will never end. Still, Viniar couldn't provide a straight forward answer: "So is it cyclical? Is it secular? That's a very difficult question to answer... There's no scientific answer to it..."
JPMorgan CEO Jamie Dimon thinks the best method to insuring against losses is to anticipate the unexpected. Following JPMorgan's numbers last week, Dimon said investment banking is "not a mystical thing. You just have to manage the business carefully and understand it’s going to have those kinds of swings. I don’t think the lower numbers are permanent. I think when things come back, these numbers will boom again." When asked if seasonality in trading would reoccur, Dimon said, "we've had a pretty good start so far, but it's only so many trading days. And look, we could be surprised, the upside, the downside, who knows?"
Playing to the same angle, Citi CEO Vikram Pandit told analysts there was no "magical" answer to stem declines in investments banking revs, as risk appetites have waned and firmer regulation is mitigating banks' ability to take larger risks.
The stocks of these firms seem to be shrugging off the analyst-implied weakness: with all but Citi beating lowered expectations, shares of many large financials have been doing well this week. The Financial Select Sector SPDR ETF (NYSE: XLF) is up more than 7 percent so far in 2012.
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