EmailAfter a big week which saw the S&P Financial Index rise 5%, the group is a notable laggard to kick off the week. Last Friday, the S&P Financial Index pushed to the 210 level for the first time since May 31 but has pulled back to 2008. There has been little news today as markets slowly regain speed from the holiday weekend. Volume is likely to remain light for most of the week as the market braces for the latest round of U.S. jobs data and an ECB rate hike. Q2 stands as an important catalyst for the sector as the market awaits the results. JP Morgan (JPM) on July 14 and Citigroup (C) on July 15 will kick off the season for financials with the majority of names coming out the week of July 18-22 and July 25-29.
News of Note
1) The Wall Street Journal, citing sources, reported that the New York Attorney General has issued subpoenas to at least nine leading life insurers to examine whether the firms have adequately ensured payouts on policies of some deceased customers. The WSJ said subpoenas went to units of AXA SA, Genworth Financial (GNW), Guardian Life Insurance, Manulife Financial, Massachusetts Mutual Life Insurance Co, MetLife (MET), New York Life Insurance, Prudential Financial (PRU), and TIAA-CREF.
2) CME Group (CME) reports volume averaged 14.9 mln contracts per day in June 2011, up 22% From June 2010
3) Banking 2Q11 earnings preview: lackluster quarter sets up buying opportunity? - FBR Capital Markets. FBR notes banks could see some pressure during this quarter's earnings season, considering loan demand remains anemic, NIM is under pressure from low interest rates, and trading revenues should come down from historical strong results in recent quarters. BUT, FBR thinks this quarter is setting up to present a buying opportunity for investors willing to hold banks for the long term AFTER earnings are announced. Banks are trading at attractive levels according to its risk-adjusted valuation framework, capital levels are at historically high levels, and many of the near-term negative catalysts have played out. In general, firm continues to favor larger banks due to cheaper valuations, better efficiency, and more diversified revenue sources; it's more cautious on regional banks, particularly those struggling to earn their cost of capital. FBR recommends PNC, JPM, and USB, and note that there are company-specific opportunities among the regional banks, such as STSA and ZION.
4) Credit Suisse out cautious on European regulators' stress tests. Says the test is assessing government bailout systems rather than the lenders themselves. "Although exercises looking at the sensitivity of individual banks are not wholly without value, they are largely missing the point," analysts led by Daniel Davies wrote in a note to clients today. The information that the markets need is whether there is a well-organized and well-capitalized structure in place to recapitalize the failures." Five or six Spanish savings banks may fail the tests and need as much as 12 billion euros ($17.4 billion), the analysts said.
